The Misplaced Political Economy of Karl Polanyi

Gregory A. Daneke

It seems to be easier for us today to imagine the thoroughgoing deterioration of the earth and of nature than the breakdown of late capitalism; perhaps that is due to some weakness in our imagination. Fredric Jameson

The Pernicious Paradigm That’s Eaten the Planet

TINA (“there is no alternative”) was Margaret Thatcher’s battle cry, when she and Ronald Reagan were installing neoliberalism as a permanent fixture in the official halls of power and policy. This toxic brew of finance, feudalism, and fascism had been in the works for most of the 20th century, and is now staging a reunion tour in time for the next Great Depression. As Thurston Veblen described during a previous Gilded Age, in his epic Theory of the Leisure Class, these “predatory impulses” are always primed to send us backward on the continuum of “barbarism”. They are only slightly more subtle in our time. With the fall of the Soviet Union, it certainly appeared to some that we were indeed at the “end of history”. The neoliberal (actually neofeudal) version of capitalism was the last system standing. In essence, acclaimed economists had lied to us when they said that this clandestine political project aimed at rejuvenating “rent” (unearned wealth) extraction was some sort of wholly natural process, and thus inevitable. Besides “no viable alternatives exist”, they would say. Worse yet, this subterfuge could only be hidden by the grand illusion of prosperity created by the pell-mell destruction of the planet’s precious patrimony, mammoth military misadventures, and financial chicanery on a galactic scale.

What is more damming perhaps is that the political reinforcement for this ideology coincided with the resurrection of an especially virulent brands of racism and nationalism, not to mention policy programs on behalf of businesses and banks that contradicted their own free market mythology. Max Planck Fellow, Colin Crouch, of The Strange Non-Death of Neoliberalism fame, asks: “Why do neoliberal political movements usually need to make coalitions with very unliberal nationalistic, xenophobic or religious movements in order to win popular majorities?” This Machiavellian marriage of convenience might be a glimpse into the darker feudalistic core. The reintroduction of reactionary ideas began in earnest in a tiny Swiss village in 1947. A small cult (The Mont Pelerin Society) with extremely wealthy and powerful patrons, sought to capture a significant portion the economics profession, and pursue a neofeudal agenda under the cloak of what they would present as unassailable economic logic. What better way to hide a political ideology than in a discipline that claimed it was completely devoid of political content. This charade continued more or less unabated until the agenda began to emerge in party platforms in the 1970s. More recently UNC historian, Nancy MacLean, stumbled upon a “smoking gun” clearly linking leading neoliberal economists with a radical right-wing political enterprise (see her 2018 best seller, Democracy in Chains). In other words, neoliberalism became the only game in town NOT by way of careful economic science (an oxymoron to begin with), but rather as part of an unrelenting and extremely well-funded campaign. It included think tanks, institutes, and centers (in law and business schools, as well as economics departments). Furthermore, they financed candidates and came to dominate both political parties, as well as court appointees. To further cover their tracks, they also created a fake Nobel Prize (actually the Swedish National Bank award), and the lion’s share have gone to former and present Pelerins and their fellow traveler.

In Dire Need of an Alternative

With the pandemic economy (which was actually preceded by the beginnings of a second financial meltdown) and heightened racial unrest, many scholars and pundits contend that we are in dire need an alternative political economy. Setting aside for a second the vast power and wealth, not to mention decades of societal brainwashing, amassed against them, there have always been alternatives. We just allowed them to be buried. As noted above, the existing system itself is a far cry from the fairy tales that sustain it. Unfortunately, those fairy tales were not only carefully fashioned to conceal power and privilege, they were designed to launch a preemptive strike on any system that might challenge them. Their agenda of dismantling all remnants of the New Deal, while maintaining war time profiteering, was well hidden under piles of Cold War hysteria. Anyone who wanted to address the political reality of our economic system was dismissed as a communist. When I told one of my professors, back in the early 1970s, I wanted to study political economy, he told me it no longer existed in economics or even most political science departments, and besides the term had become a euphemism for Marxism. He said I would never have an academic career were I to merely uttered the phrase. You might say “so what?” Well it would be like having several generations of medical doctors who were never been taught “the germ theory of disease”. If medicine had been as retarded as mainstream economics, we would still be bloodletting to release “toxic humours”.

The Viennese Connection

Interestingly enough, a more enlightened view of the political economy came out of the same city and in the same era as neofeudal economics. Two opposing scholars met up in Vienna, following the 1st World War, in which they had both served. One was Friedrich von Hayek, famed economist, the other Karl Polanyi, who while known to certain sociologists and anthropologists, is persona-non-grata among mainstream economists. This is one of the greatest intellectual tragedies of our time, for it was Polanyi, not Hayek, who understand the nature and unfolding of our current economic predicament. Vienna of the 1920s, emerging from the ashes of the Austro-Hungarian Empire, was a hotbed of economic ideas. From 1918 to 1934, under the majority Social Democrats, the city had its first democratic government and popular suffrage (for all adults of both sexes), but onerous war reparations and the rise of another Austrian veteran, Adolph Hitler, to power in Germany, made this halcyon period relatively short lived. Following the 2nd World War, displaced aristocrats and wealthy industrialists sought to restore their feudal style powers. They found in the notions of Hayek and his Austrian School mentors (Menger and von Mises) intellectual cover for their retrograde project. Hayek became the first media superstar professors from his posts at London School of Economics and the University of Chicago, and founded a clandestine “thought collective”, the Mont Pelerin Society. The influence of the Pelerins upon policy making over the past few decades has been immense. Meanwhile, Polanyi, who fled from the Nazis, struggled with long commutes to part-time teaching assignments from his home in Canada (when his wife, a labor activist was denied admittance to the US). While Polanyi had a tiny devout intellectual following himself, they have had virtually no appreciable influence on policy making whatsoever.

As luck would have it, their competing observations were both published in same year (1944). Hayek’s Road to Serfdom, was a pedantic and highly speculative projection of what hypothetical bureaucrats might do, while Polanyi’s The Great Transformation was a detailed historical and legal (yet lyrical) analysis of the origins and dysfunctions of the market society. Ultimately it is Polanyi who has proven the most prescient. Given his connections, however, it is Hayek’s diatribe is far better known. His essay on the dangers of government planning and social welfare was serialized (in abridged form) in the pages of the Readers Digest Magazine in the 1945, and went on to be one of the best-selling economics tracks of all time. Meanwhile, his fellow Pelerins proceeded in perpetuity to defend a contradictory system of central planning undertaken on the behalf large corporate interests, especially financial institutions. One critical pundit referred to it as “socialism for the rich and free enterprise for the poor”. Hence, it was actually Hayek’s ersatz anarcho-capitalism that paved and lighted the super highway to serfdom we are now speeding down.

Polanyi’s Poignant Pearls

While intricate, Polanyi’s analysis is straight-forward enough. His exhaustive historical account demonstrates how the notion of “the market” was completely contrived, and that instances where works its magic are the actually the result of elaborate government sanctions. Polanyi would have enjoyed the joke, “how many economists does it take to change a light bulb? None, the market will take care of it”. More critically, Polanyi illustrates how the deification of “the market society” is a utopian exercise. He maintained that allowing “market mechanisms to be the sole director of human beings and their natural environment…would result in the demolition of society”. His anthropological perspective, suggests that a smoothly functioning economy involves a careful integration of three elements:

· Reciprocity

· Redistribution

· Market exchanges

In the modern era, the strength and configuration of elements is a matter of popular consent, not inexorable economic forces. An economy which ignores the mutual dependency in society is simply nonsensical to Polanyi, for reciprocity is by far the most natural element. The efficiency of competitive markets must be maintained by judicious regulation or else monopolies prevail. Moreover, a market dominant economy tends to commodify and debase all human relations, not to mention its creation of “fictitious commodities” in the all the basic ingredients of production (land, labor, and capital). Meanwhile, a system that seems able to only redistribute upward to the 1% is a recipe for repressive fascism, especially if the state only exists to enable and enforce dispossession and accumulation. The Chilian experiment with Pelerin pronouncements is a case in point.

If elites really believed that an economy could run without adult supervision, they should be willing to give up their lobbying, campaign contributions, and corrupt practices generally on the one hand and their sweet heart contracts, subsidies, and burgeoning bail outs on the other. Polanyi demonstrated that an economy without politics was an empirical impossible, and that the best medicine for an ailing economy was a dramatic increase in democracy (from the field and factory to the voting both). If we all realized that TINA was a huge lie designed to keep us sidelined, we might begin to demand a more inclusive economy. There are lots of alternatives (e.g. worker co-opts, stakeholder management, guaranteed national income, peace conversion, national healthcare, racial reparations, full reserve banking, progressive and transaction taxation, etc.) worth exploring and those discussions might divert us from the demagoguery of fear, hate, and religious tomfoolery for a moment.

Further Fascism is Waiting in the Wings

Polanyi had witnessed how populist leaders readily became despicable dictators. Despite their early overtures to the masses, they quickly realigned with the “feudalist clique” and industrial oligarchs. As Mussolini maintained, “fascism is the merger of the state and corporate power”. Polanyi observed that “fascism, like socialism was rooted in a market society that refused to function.” Distinguished Princeton Professor, Sheldon Wolin pointed out how neoliberalism imposes a subtle “inverse totalitarianism” in the place democracy. This system of “managed democracy”, however, could hold only as long as the economy appeared to flourish via outrageously wasteful defense spending and unbridled financial manipulations. Of course, the heavily subsidized rising tide, while lifting all yachts, left the broken row boats of the middle class bailing and borrowing to stay afloat. Once the fatal flaws and contradictory rhetoric are exposed and the economy falters, all bets are off. Our grand experiment with self-government is now nearing another major folk in the road. Either democracy is revitalized and broad-based prosperity pursued or full-frontal fascism and total totalitarianism could easily re-emerge, with all the new algorithmic surveillance toys redirected inward. If you think it cannot happen here and now, then take a look at Hannah Arendt’s Origins of Totalitarianism, which is back on the best seller lists. The only ingredient missing from the current infusion of fascist fun and games is the “systematic use of terror” as an instrument of social control, or is it?




Gregory A. Daneke, Professor Emeritus, School of Business, Arizona State. Other teaching posts: Michigan & Stanford. Gov. service: GAO, DOE, and White House.

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Greg Daneke

Greg Daneke

Gregory A. Daneke, Professor Emeritus, School of Business, Arizona State. Other teaching posts: Michigan & Stanford. Gov. service: GAO, DOE, and White House.

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