Karl Polanyi: The Limits of the Market

This is a long-overdue comprehensive analysis of the work of institutional economist and political commentator, Karl Polanyi. Gareth Dale's book strikes a helpful balance between, on the one hand, a broadly sympathetic admiration for the man and his writing - of which his seminal 1944 book, The Great Transformation, receives a lot of attention - and, on the other hand, careful critical analysis. A particular strength is the thorough and systematic way Dale sets out Polanyi's key theses, chapter by chapter, mobilising what is now a not insignificant weight of secondary literature, from both critics and supporters in a whole host of disciplines.

The Great Transformation was written from Polanyi's lecture notes in the interwar years but not published until 1944. Originally his adversaries came from his 1920s and 1930s contemporaries in Vienna, where an intellectual melting pot saw radically divergent views emerge. A political movement seeking to develop a new model of social democracy sat alongside Polanyi's intellectual adversaries within the university system, namely the emerging Austrian school of formal economic method, who themselves set their stall against the prevailing political economy of the German historical school.

Methodologically, the Austrian free-market group, typified by Ludwig von Mises, were drawing up abstract quantitative economic models based on the assumption of Homo oeconomicus; an all-knowing self-interested decision maker, making efficient gain-maximising choices combining considerations of opportunity cost, marginal utility and price. The associated policy recommendation advocates market liberalism: the freeing of markets to their "natural" unfettered state to enable markets to function efficiently.

In a sense, Polanyi's life work can be seen as a project to challenge the growing dominance of the Austrian school. Over his lifetime, he mounted a systematic critique of their theoretical foundations, formal economic method and policy implications. This journey is mirrored in Dale's book. So, in the second chapter we have a review of The Great Transformation, focusing on Polanyi's main thesis that the Great War was seeded in the very institutions that brought apparent economic success and stability to the previous century - notably, an economic system founded upon interconnected liberal markets ("exchange") as the dominant, indeed primary, economic institution. And to facilitate the operation and integration of this market system with everyday life, the "fictitious" commodification of land, labour and money became a pre-condition for the expansion of the market economy.

But creating this "fiction" out of labour, land and money was not only morally wrong but undermined the very basis of the market model, according to Polanyi, because it comes at a cost. It critically dislocates - "disembeds" - economy from society, a tendency to which social interests will eventually respond by (re)introducing social welfare policy instruments and market regulation, in a protective social impulse and response that Polanyi termed the "double movement".

In chapter three, Dale revisits Polanyi's later work that challenges the basis for Homo oeconomicus, drawing on an array of what have become known as economic anthropology studies, notably Bronislaw Malinowski's ethnography of the Trobriand islanders, among whom Homo oeconomicus is far from evident. Indeed, the notion of calculated self-interest is, according to studies of the Trobriand value system, frowned upon because it undermines the dominant cultural primacy of community that underlies the main institution of economic reproduction; a system of reciprocated gift-giving.

Critics of Polanyi's work abound, and Dale carefully elucidates their positions and reasons for dissent. Debates still rage around problems with Polanyi's definitional consistency, shifting ontology and empirical evidence that was selected conveniently, said his critics, to support his thesis. Arguably, however, all this misses the key target of Polanyi's critique, which is not aimed at markets per se, but at an ever-expanding market society in which not only does "market myopia" render non-market modes of economic reproduction invisible to scholars and policymakers alike, but such heightened levels of planetary economic interdependence create the conditions for a fall. A fall that, when it does come, is of ever-increasing severity and brings large-scale social dislocation.

As we look at the recent, possibly unfinished and as yet only partially analysed global financial crisis that began in 2008, combined with the urgent threat of climate change, it would be hard not to agree that Polanyi's prescience was remarkable. Indeed, in his final statement Dale goes as far as to suggest: "The age calls for vision, for the sort of critically engaged social science of which Karl Polanyi is an outstanding representative."