Felix Schafer, Some Links Between the Early and Later Work of Karl Polanyi

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[1]

A. Introduction

[1/108][e 1] Karl Polanyi (1886-1964) was Professor in Economics at Columbia University and after his retirement in 1953 together with Professor Conrad Arensberg joint Director of the Interdisciplinary project on the economic aspects of institutional growth. As his wife Ilona Duczynska wrote “he went counter to encrusted notions shaking people into some new awareness as the fiery young orator in his days of the Galilei circle (2)[2] in his apparent withdrawal in his early method” (3)[3] into himself “deeply influenced by Tolstoi” (4)[4] and in his novel approaches to the social sciences”. (3)

In the late 20's and early 30's Polanyi began concentrating on social history and anthropology. His main writings on these subjects are “The Great Transformation”, essays in “Trade and Market in the Early Empires” and “Dahomey and the Slave Trade” in collaboration with Abraham Rotstein. (5)[5]

[2/109] The following remarks are an attempt to show some links between this period of his work and earlier thoughts on economics and kindred disciplines during the 20's and 30's in Vienna. Because his work for a living as deputy chief-editor of “Der Oesterreichische Volkswirt” (The Austrian Economist), an independent weekly sympathetic tot he Labour Party was a time consuming job, much of his thought remained confined to oral discussions within a group of interested people at the home of the Polanyis. It had sprung from a seminary on guild socialism which Polanyi had started in a room of the “Verband der Sozialistischen Studenten Oesterreichs” (Association of the Socialist Students of Austria). I was among these attending the seminary and became one of Polanyi's pupils whose thesis he deceicively influenced. The discussions centered round POlanyi's “Sozialistische Rechnungslegung” (Socialist Accountancy), an essay published in 1922. (6)[6] They extended among other subjects into economics and in particular to price formation under socialism. In this note the “Socialist Accountancy” and unpublished discussions represent Polanyi's early work. It is supplemented by his 1935 essay “The Essence of Fascism” (7)[7] which largely rests on ideas discussed in Vienna.

We are going to discuss here mainly four links from Polanyi’s early thoughts to his later work viz.,
(1) The postulate for transparency of human relations
(2) Price formation and money in general and in particular in Polanyi’s socialist market model
(3) The place of the economy in society and
(4) The “inverted perspective” i.e. the bias of seeing every economy as capitalist market economy.

These links must be seen in connection with Polanyi’s socialist outlook. “All his life a socialist although not a Marxist” as his daughter Professor Kari Levitt wrote (8)[8], Polanyi accepted Marxismus as far as is was compatible with on own work. One main point of disagreement was Polanyi’s emphasis on the importance of the non-economic factors. On this issue Robert Owen was a great inspiration to him. Hence our note will end with a few remarks on Polanyi’s position with regard to Marx and Owen. (9)[9]

B. The postulate for Transparency of Human Relations

(a) The Marxian concept of the “Commodity Fetishism”

The postulate for transparency in human relations can be traced throughout Polanyi’s writings. It is based upon Marx’s concept of the “commodity fetishism”. If two producers exchange their products, a quantity relation between the exchanged products results. “There is” says Marx “a definite social relation between men, that assumes in their eyes the fantastic form of a relation between men and things.” (10)[10] Subsequently “their” (the producers’) “own social action takes the form of the action of objects which rule the producers instead of being ruled by them”. (11)[11] Marx called this “the fetishism of commodities” (12).[12] In a “community of free individuals (13)”[13] – Marx refers here to socialism – “the social relations are perfectly simple and intelligible”. (14)[14] The fetishism has disappeared. In this context it irrelevant, how this has happened. Important is this context is, that Marx being a socialist, approved of its disappearance. Thus Marx arrived at the postulate for transparent human relations. ↑

(b) Socialist Accountancy (1922)

This postulate is among the reasons Polanyi wrote the “Socialist Accountancy”. For in the early years after world war I, new socialist administrations experienced sometimes disputes with their employees, though both the socialist employer and the unionized employees belonged to the same socialist political party. Polanyi’s guild socialist model designed in “Socialist Accountancy” (15)[15] has the purpose to avoid these difficulties by showing that such disputes are not between different individuals because of their different status as employers and employees, but that the conflict is between different functions of the same individuals, viz. their function as members of the community and consumers and as producers represented by their trade unions. Thus Polanyi’s guild socialism model consists of two associations viz., of the “Commune” (Kommune) representing the individuals as members of the community as well as consumers and of the “producers’ Association” (Produktionsverband) representing the individuals as producers. Prices and wages are negotiated between these two organisations. “They must eventually arrive to an agreement” says Polanyi “because functional representatives of identical persons can never slide into a conflict of interest which cannot be resolved” (16)[16] The relationship between these two functions of the identical individuals is obvious and hence, as postulated, transparent. ↑

(c) The Essence of Fascism (1935)

[112] The “Socialist Accountancy” contains the postulate of transparent elations without especially mentioning the “commodity fetishism”. But Polanyi expressly referred to i in the “Essence of Fascism”. The presentation of the whole train of thought is prompted by a criticisme of the doctrines of O. Spann (then Professor at Vienna University) considered to hold fascist views.

Polanyi starts his argumentation with the statement “that relationship … are immediate …in primitive communism.” “{Not} in a developed market society” Polanyi continues “human relationships become indirect …the producers continue to produce for each other”. Now comes the crucial point. “But this relationship is now being hidden in the objective guise of the value of commodities. It is objective, thinglike.” The commodities seem to act, hit the persons. For “the commodities take the semblance of life. They follow their own laws, rush in and out of the market, seem to be makers of their own destiny”. (17) [17] After this description of apparent facts Polanyi turns towards his postulate for transparency. He argues “that the true nature of man” − here he thinks in terms of his own outlook − “rebels against capitalism… Human relations are the reality of society” (17). And now follow the postulate. They (human relations must be immediate i.e. personal. The means of production must be controlled by the community. Then human society will be real, for it will be a human relationship of persons” (17).

[113] This argumentation implies that the “semblance of life” of the commodities results from human action, i.e. is man made and hence can be changed by man. But Spann ignores this. Polanyi objects: “In Spann's philosophy (it) is precisely the self-estranged condition of man which is established as the reality of society” (The) pseudo-reality is justified and perpetuated. Social phenomena are universally reprensented as thinglike” − Polanyi leaves no foothold for the individual. Man is entrapped in this condition of self-estangement. Capitalism is not only right, it is eternal” (17) ↑

(d) The Great Transformation (1944)

A similar train of thought on the “objectifications” based upon Marx's concept of commodity fetishism is found in the “Great Transformation”. The book centers round the social economy predominant particularly in the 19th century in England. Polanyi calls this economy “market economy”. He defines it as “an economic system controlled, regulated and directed by markets alone… An economy of thins kind derives from the expectation that human beings behave in such a way to achieve maximum money gains (18)[18] …… All productions is for sale on the market” (19)[19], where the prices of the commodities are determined by demand and supply only. Therefore Polanyi calls the markets in ma market society “self-regulating markets” (20)[20].

Liberal economists argued that the “laws of commerce” i.e. of the market economy) were the laws of Nature and consequently the laws of God” (21)[21] Therefore they are independent of man.

The revolt against these law is necessitated by the market economy itself. For though labour, land and money are not produced for sale on the [114] market, they have to be treated as if they were produced for sale on the market. (22)[22] Hence Polanyi calls them “fictitious commodities” in contrast to the “genuine commodities” (see 25) Tis treatment of labour, land and money imperils society by pollution, by disturbance of the ecology, by the people falling victims to crime and disease, and by large fluctuations of the trade cycle due to lack of monetary controls. (23)[23] Hence “self-protection of society” (24)[24] sets in. It represents the revolt against the allegedly unchangeable laws of the market economy. The revolt is one half of the development Polanyi calls the “Double Movement”. “While on the one hand” Polanyi says “markets spread all over the globe and the amount of goods involved grew to unbelievable proportions, on the other hand a network of measures and policies was integrated into powerful institutions designed to check the action of the market relative to labour, land and money.” (25)[25] Eventually the self-regulating market, and hence the market society proves incompatible with this process and disappears. (26)[26]

[115] One of its possible successors is socialism which, as Polanyi says, “is merely the continuation of that endeavour to make society a distinctively human relationships of persons which in Western Europe was always associated with Christian traditions” (27)[27] In the words “human relationships of persons” Polanyi's postulate for transparent relations is expressed. They appear, as mentioned above, in the “Essence of Fascism”. In this essay they are used as synonymous with immediate human relations, which Polanyi postulate in the “Essence”.

In the “Transformation” the postulate is further emphasized by Polanyi(s insistance on the “right to nonconformity … The objector should be offered a niche to which he can retire” (28)[28] Polanyi argues. By its nature such a “niche” means transparency of human relations. For the “niche” clarifies the right of every individual and hence states what he is permitted to do in his relations to the other individuals. ↑

(e) Anthropological Writings

In his anthropological writings Polanyi shows that the fundamental relations in primitive an archaic economics are immediate and hence transparent. These relationships are “reciprocity” and “redistribution”. “Reciprocity” says Polanyi “denotes movements between correlative points of symmetrical groupings” (29)[29] For instance “reciprocity (between two partners) is sometimes attained through exchange … for the benefit of the partner who happens to be short of some kind of necessities (30).[30] “Redistribution obtains within a group to the extent to which the allocation of goods [116/9] is collected in one hand and takes place by virtue of custom, law or ad hoc decision”. Instances range, as Polanyi points out, “from the primitive hunting tribe of the vast storage systems of ancient Egypt, Sumer, Babylon or Peru.” (31)[31] The immediate and hence transparent nature of these relations corresponds to Polanyi's postulate for such relations in modern society. Though Polanyi does not formulate expressly his postulate, as he does e.g. in the “The Essence of Fascism”, it still comes through in the sympathetic undertone, when he describes early economies (32)[32], though he emphazises that “the restoration of the past is as impossible as the transferring of our troubles to another planet.” (33)[33]

C. Price Formation and Money

[9/116] Polanyi's guildsocialist model in “Socialist Accountancy” has wages and price. he deliberately assumed their possibility. He wrote: “We must attempt to separate our remarks on socialist accountancy as far as possible from the problems of economies”. (34)Cite error: Invalid <ref> tag; refs with no name must have content But in view of the then frequently made assertion that lack of economic calculus made a socialist economy unthinkable (Mises) Polanyi felt the need to give as a supplement to the “Socialist Accountancy” a theory of a socialist economy with a price system. Rejecting for this purpose the “objective theory” of the classical and Marxism he turn towards the “subjective theory”, as presented above all by Böhm-Bawerk. He wanted to use this theory for socialist economics and looked in particular for a form of a market which would be as he said later in the “Great Transformation”, “a subordinate trait in a free society” (35)Cite error: Invalid <ref> tag; refs with no name must have content This led him to research in economic theory. ↑

(a) Polanyi’s Model of Socialist Price Formation

Polanyi assumed consumers of whom each was endowed with a limited amount of money independent of the process of production - a socialist feature. (36)Cite error: Invalid <ref> tag; refs with no name must have content The money called by Polanyi “purchasing power” was a means of payment only. (Chartal money - Knapp). It had to be spent entirely and immediately for commodities as combinations of the originary factors of production viz., labour and land. To enable the consumers to do so Polanyi assumed for every consumer arbitrary set quantity relations between the purchasing power on the one hand and labour and land on the other hand such as e.g. for consumer A the relations 1 hour of labour = 10 purchasing power units and 1 acre of land = 100 purchasing poser units; for consumer B the relations 1 hour of labour = 15 purchasing power unit and 1 acre of land = 150 purchasing power units and analogons but numerically different relations for every other consumer. These relations are the alternatives for the consumers for spending their purchasing power. Thus every consumer can determine the quantities of labour and land he wants to buy. In this manner an aggregate consumers' demand for labour and land is estbalished.

A pool of labour and land owned by the community - another socialist feature - is assumed. This pool is distributed among the consumers [11/118] a way that the consumer “offering” more purchasing power for one hour of labour or one acre of land respectively is satisfied before the consumer “offering” less. The “offers” for labour and land respectively by the last satisfied consumer are “preliminary prices” for labour and land respectively. The “preliminary prices” become alternatives for every consumer. Now “reconstructing” starts. This is a familiar procedure in price theory, which brings demand and supply into equilibrium. (37)Cite error: Invalid <ref> tag; refs with no name must have content If in Polanyi's model the aggregate supply of an originary production factor, e.g. land, exceeds the aggregate demand, the preliminary price is gradually lowered, until demand and supply are equated. If the aggregate demand of an originary production factor exceeds its aggregate supply, the preliminary price is gradually raised until euquilibrium is reached. ↑

(b) Comments on Polanyi’s Model

1. Justification of the Assumptions of the Model

Polanyi justified the assumptions of his model as applications of the assumptions underlying the economic analysis. This led via these assumptions to the distinction between substantive and formal economics, the latter being confined virtually to a market economy. The assumptions of 

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2. Prices as a priori given quantity relations

[12/119] Polanyi was especially concerned to justify his assumption of an arbitrary quantity relations between purchasing power and originary productions factors - or the express this assumption in general terms - quantity relations between purchasing power and commodities.

The necessity … […]

The a priori existence of quantity relations between commodities and money is less obvious in the price formation on markets. But it is still a fact. Polanyi illustrated this on the price theory of Böhm-Bawerk. This author says: “If for instance A places the value of [13/120] […]

In Polanyi's model the quantity … […]

[14/121] The conclusion Polanyi’s was a special “imputation problem” did not exist. Böhm-Bawerk confirmed Polanyi for Böhm-Bawerk prefers instead of the term ‘imputation’ the more general term ‘value of complementary goods’, because the problem as Böhm-Bawerk says, “must include not only the imputation to the complementary production factors, but also the coordinate case of the relationship between complementary consumers’ goods.” (41)Cite error: Invalid <ref> tag; refs with no name must have content Polanyi commented on this proposition because of the interdependency of utilities no commodity can be considered isolated and that therefore every commodity is complementary. He pointed this out, when discussing Hans Mayer’s solution of the imputation problem published in 1928. (42)Cite error: Invalid <ref> tag; refs with no name must have content Polanyi also found an analogy in Hans Kelsen’s theory of law, where the juridical imputation problem is rejected as a special problem. However some of them have been published connected with Polanyi’s name. (43)Cite error: Invalid <ref> tag; refs with no name must have content ↑

3. Links from the Purchasing Power in Polanyi’s Price Formation Model

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4. The conceptual pattern “Exchange Economy” and “Purchasing Power Economy”

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5. “Exchange Economy” and “Purchasing Power Economy” as “Theoretical Places” for Different Problems

(a) Self-regulation vs. Regulate Money Market

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(b) Microphenomena vs. Macrophenomena

[18/125] In working out the concept of one supply comprising all the goods in society Polanyi found himself confirmed in particular by Böhm-Bawerk’s socety-wide reservoir of the originar factors, a concept already mentioned above. ↑

6. Purchasing Power Economy and Exchange Economy as complementary conceptual patterns

[21/128] Der Uebergang vom isolerten Wirt zur Gesellschaft kann … ↑

[…] Both Exchange Economy and Purchasing Power Economy contain the problems of the economic analysis as economies under the assumptions of scarcity. The two conceptual patterns indicate a bifurcation of the economic analysis which reaches to its very fundament, the construction of the “isolated economic subject” with its three elements economic subject, scarce means and alternative uses for them. This construction connects the two conceptual patterns of social economy, viz. Exchange Economy and Purchasing Power Economy. ↑

7. Transition to “Formal” and “Substantive” Meaning of ‘Economic’

[23/130] Polanyi was aware of it, that the thoughts originating from his model of a socialist economy were based on the scarcity of the goods in relation to their alternative uses. But already in Vienna two factors appear to have led Polanyi into the domain of non-scarcity economies, which is important for his later work. The other one were his courses on the People's University of Vienna (Volkshochschule).

(a) The Marxian Labour Value Theory

Polanyi adopting the economic analysis based upon the principle of scarcity of goods for his model of price formation had to reject the classical price theories and hence also Marxia labour theory, where value and price are explained by qualities intrinsic to the goods, such as e.g. the number of working hours spent on their production without any reference to their scarcity. However Polanyi still maintend the Marxian labour value theory as a mirror of employer ideology in a private enterprise economy, where some employers might believe that no shortage of labour exists for them. For the treat of lacking means of subsistence ensures that there is always somebody to take the place of an employee who leaves or is dismissed. This proposition confine the Marxian labour value theory to the free enterprise economy and links it with Polanyi’s later work, where he showed that Marxian applies largely to capitalism only or as Polanyi called it, to the “market economy”. ↑

(b) Economic History

In his courses on economic history held in the early thirties Polanyi described economies of the antiquity and the Middle-Age's Though[,] he discussed this subject only rarely at home, he might have struck [24/131] …


Text in English to type

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(c) “Formal” and “Substantive” Meaning of ‘Economic’

The entry Polanyi's into the sphere of non-scarcity economy leads to two propositions which form bridges… ↑

D. The Changing Place of Economy in Society

(a) Socialist Accountancy

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(b) Later Writings

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E. Inverted Perspective

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F. Polanyi’s Position to Marx and Owen

(a) Ideology vs. Reality

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(b) Marxian Thoughts with Polanyi

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(c) Disagreement with Marx

There might be more points which Polanyi has in common with Marx. However there is one fundamental area of disagreement between Marx and Polanyi which is of particular interest in this context. It concerns the place of economy in society. […] ↑

(d) Owen

[32/140] Owen, as Polanyi formulated it, had "discovered society by pointing to the irremovable frontier of freedom that man was given by the necessary limits to the absence of evil in society”.[34] In the complexity of industrial society the economic and the non-economic sphere were intertwined into an inseparable whole. From this followed a criticism [33/141] of the industrial society which transcended the economic sphere. though there was economic exploitation, Owen pointed out that the workers in the newly … ↑

Felix Schafer's Notes

  1. ↑ I am greatly indebted to Professor George Dalton of Northwestern University Evanston, Illinois, U.S.A. for his suggestions and criticism. The responsibility for this note is of course entirely mine.
  2. ↑ A socialist student circle at the University of Budapest initiated by Polanyi and others in 1907.
  3. ↑ Notes on his life by Ilona Duczynska published in Hungarian, stencilled English edition p. 1.
  4. ↑ Karl Polanyi (1886-1964) - A family chronicle and a short account of his life by Ilona Duczynska published in Hungarian, stencilled English edition p. 12.
  5. ↑ “The Great Transformation” first published by Rinehart & Co., New York 1944 pp. XV+305; “Trade and Market in the Early Empires, Economics in History and Theory” Ed. by K. Polanyi, C.M. Arensberg and H.W. Pearson, The Free Press, Glencoe, Ill, U.S.A., The Falcon's Wing Press, 1957 pp. XVII+382; “Dahomey and the Slave Trade, An Analysis of an Archaic Economy, Karl Polanyi in collaboration with Abraham Rotstein, University of Washington Press, Seattle and London, 1966 pp.X+204. See also “Primitive, Archaic and Modern Economies, Essays of Karl Polanyi Edited by George Dalton, Anchor Books Doubleday & Co., Garden City, New York, 1968 pp. LIV+346. Professor Dalton gives also an introduction and bibliography.
  6. ↑ Archiv für Sozialwissenschaft und Sozialpolitik, Mai 1922, Vol. 49 Heft 2, Mohr, Tübingen, pages 377-420
  7. ↑ “The Essence of Fascism” in “Christianity and Social Revolution”, Gollancz, London 1935
  8. ↑ (8) Kari Lewitt, Karl Polanyi and Co-Existence, A Journal of economics, sociology and politics in a changing world, 1964/2, November 1964, p. 113.
  9. ↑ There are of course also other writers whose influence can be noticed in Polanyi's writings. About this point the reader is best referred to the introduction and references by Professor Dalton, the editor of the book “Primitive, Archaic and Modern Economies, Essays of Karl Polanyi”.
  10. ↑ K. Marx, Capital, a critique of political economy Vol. I Chicago, C.H. Herr & Co. 19{88} pp. 869, 1909 p. 83.
  11. ↑ Ibid., p.86.
  12. ↑ Ibid., p.86.
  13. ↑ Ibid, p.90.
  14. ↑ Ibid, p.91.
  15. ↑ “Sozialistische Rechnungslegung”, chapter II, l.c. pp. 403.
  16. ↑ “Funktionelle Vertretungen (Verbände) ein und derselben Menschen können nie in einen unlösbaren Widerspruch miteinander geraten”. “Sozialistische Rechnungslegung”, l.c. pp. 404.
  17. ↑ (17) “The essence of Fascism”, l. c. p. 375.
  18. ↑ The Great Transformation, p. 68.
  19. ↑ Ibid., p. 69
  20. ↑ See e.g. heading to chapter 6. “The self-regulating Market and the Fictitious Commodities: Labor, Land and Money”. Ibid. p. 68.
  21. ↑ Ibid. p. 117.
  22. ↑ “Labor, land and money… must be organised in market. …But Labor, land and money are obviously NOT commodities; the postulate that anything that is … […]
  23. ↑ “Robbed of the protective […]
  24. ↑ See heading of Part two /II: “Self-protection of Society” (ibid. p. XII)
  25. ↑ Ibid.p. 76. On the same page Polanyi describes the “Double Movement” as follows the extension of the market organization in respect to genuine commodities was accompanied by its restriction in respect to fictitious ones”.
  26. ↑ See in particular about this issue chapter 17; Self-Regulation Impaired pages 201-208; and chapter 18 Disruptive Strains pages 209-219.
  27. ↑ (27) Ibid. p. 234.
  28. ↑ (28) Ibid. p. 255.
  29. ↑ Primitive, Archaic and Modern Economies, Essays of Karl Polanyi, Edited by George Dalton, 1968, p. 149.
  30. ↑ Ibid., p. 153.
  31. ↑ Ibid., p. 153
  32. ↑ Cf. e.g. the following statement in “Dahomey and the Slave Trade”: “Our analytical sketch is presented in the conviction that a realistic view of socioeconomic changes wherever and whenever enacted broadens our horizon and advances our search for solutions. Yet even if some features of the past idealizing backward worlds.” (p. XV)
  33. ↑ Great Transformation p. 250/51.
  34. ↑ The Great Transformation, l.c., p. 128

Editors' Notes

  1. ↑ [Page in the Schafer's text/Page in the archive]

Text Informations

Reference: Schafer 1973b
KPA: 29/10, 108-143

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