Karl Polanyi on Ethics and Morals in the Self-Regulating Market

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Karl Polanyi on Ethics and Morals in the Self-Regulating Market

Markets have always existed. As far back as written records are found, there is evidence that people traded with each other for the things that they needed. This is the pattern that would continue from the beginning of civilization through the end of the feudal system to the beginning of the Industrial Revolution. In order for industry to flourish, it was necessary for the state to step in and create the parameters needed for its survival. This is what economic historian Karl Polanyi, in his 1944 book The Great Transformation, called the beginning of the “self-regulating market.” Polanyi is not a proponent of this economic theory. He believed that self-regulating markets promote inequality and have a dehumanizing effect on society. He believed that, as a result of the Industrial Revolution, 19th century society decided to base itself on a motive that was never considered as valid in the history of human societies, i.e. gain and self-interest. Whether Polanyi likes it or not, this is the system that has, in effect, taken over the world and has reshaped nearly all societies in its wake. There are few societies that are not now market societies. The result of this is that instead of the function of a market being a part of typical human societies, as had always been the case until the 19th Century, typical human societies are now a function of the Market. Polanyi’s arguments about self-regulating markets are relevant to contemporary socio-economic developments in that he believes that a purely self-regulating market is not only a realistic impossibility, but a moral and an ethical affront to human decency as well. In order to properly understand his arguments about the self-regulating market it is necessary to take a more detailed look at the formation of the self-regulating market as proposed in Polanyi’s book The Great Transformation. The imperfection of the self-regulating market is a common idea within particular intellectual circles and has application within contemporary economic developments such as current debates over healthcare and worker’s rights. First, it is important to note the basis for Polanyi’s argument, as laid out in The Great Transformation: The origins of the cataclysm lay in the utopian endeavor of economic liberalism to set up a self-regulating market system. Such a thesis seems to invest that system with almost mythical power; it implies no less than the balance of power, the gold standard, and the liberal state, those fundamentals of the civilization of the nineteenth century, were, in the last resort, all shaped by one common matrix, the self regulating market (Polanyi, 33-34). Now that it is understood that the creation of the self-regulating market was not a naturally occurring phenomenon, it is important to note how trade and markets operated previous to its formation. Until the Industrial Revolution, markets had always been a function of the societies in which they existed and in those societies they were not considered to be the central factor. "Though the institution of the market was fairly common since the later Stone Age, its role was no more than incidental to economic life" (ibid, 47). That is to say that historically man was more communistic than self-interested. This meant that "man's economy, as a rule, is submerged in his social relationships. He does not act so as to safeguard his individual interest in the possession of material goods; he acts so as to safeguard his social standing, his social claims, his social assets" (ibid, 51). This meant that previous to the Industrial Revolution societal standings were of the most importance to man. This affected all aspects of life, as respect, honor, and generosity were valued as the highest of all human functions; family members received better deals on goods and those in positions of power/respect were treated as such within the market. This meant that...
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