Polanyi started to mould his economic thought in the 1930s when the struggle between liberalism and socialism hit an unprecedented scale. He feared that Western civilization would be devoured by the growing influence of the dictatorial régimes coming from Nazi Germany and Soviet Russia. This put him on a mission to stop the proliferation of the related ideological and scientific monstrosities. The easy way to do so was to join the anti-dictatorial ranks of mainstream liberals and to sing their old hymns about the good, the bad and the democratic. But Polanyi did not agree with them either. And he sought to fight for what is best for society, even if this meant to fight against socialist and fascist dictatorship and their conventional counterpoint, liberal orthodoxy, at the same time. He wanted to have both the right aim and the right way. As a Central European who had fled from Hungary (1919), and then from Berlin (1933), he witnessed the destruction extreme ideologies brought to the democratic power structures of a nation and to the everyday life of its enlightened citizens. But he also witnessed how these ideologies successfully fired up the masses with clear-cut messages and passionate speeches about what should be done right here and right now. Meanwhile liberalism had lost its charm for the common layman due to its sophisticated narratives of why knowing and doing nothing is the best method possible in times of economic hardship. Polanyi was aware that, for saving liberalism, and eventually Western civilization, he needed a better message, and a better way of conveying that message to the masses.
Polanyi was a liberal, but he was also a maverick. By being critical about mainstream liberalism, which was widely considered to be the only antidote to extreme ideologies and dictatorial régimes, he risked being labelled as a blindfolded stranger from illiberal soil. He had no degree in economics or in any other social sciences, and only started to build his network of economists in 1928, five years before he crossed the English Channel to work at the University of Manchester as a well-known physical chemist. Paying no heed to this considerable risk, he sought to map the weaknesses of extreme liberalism in order to be able to develop and disseminate a better liberalism. Such ‘betterness’ was thought to be based on the elimination of fallacies and the capacity to raise the social consciousness of the general public more effectively than socialist planning. Polanyi realized that during the Great Depression the outcome of ideological and disciplinary rivalry in economic realms would be primarily decided by which camp’s knowledge-claims were more plausible to the masses on one defining question: how can we end the economic downturn without inducing collateral damage on freedom and democracy?
Polanyi launched a new kind of liberalism clustering around answering this question. He did this by drawing rhetorical boundaries between his revamped liberalism and extreme liberalism and socialist planning respectively. The aim of these boundary drawing practices was to preserve and enlarge material and symbolic resources for economists cultivating this stream, and to defend their professional authority and expertise from those promoting extreme liberalism or socialist planning. Polanyi was heightening the contrast between his Keynes-inspired economic thought and the “two most pernicious extremes”,1 and made efforts to monopolize both the expertise of putting an end to the economic crisis and the authority to be able to plausibly claim to do so. Since the opposing streams had more resources, supporters and established practices in the scholarly and non-scholarly worlds, only an assertive campaign could breach their supremacy.
Being a liberal did not prevent Polanyi from condemning what he called “extreme”,2 “crude”,3 “orthodox”4 liberalism based on “classical Free Trade doctrine”5 and “complete laissez-faire”.6 He acknowledged that even this kind of liberalism could be, in a sense, a source of “material and moral blessings”7 when it was being used to wipe out collectivist patterns. These patterns, in his view, had started to corrupt even the poster countries of economic freedom through the increasing number of regulations and trade restrictions. Polanyi wanted liberalism to return “with the fervour of its early intransigence”8 but without its “superstitious fear”9 hindering any kind of state intervention on principle – and without its self-imposed epistemic void drifting towards “extremism”10 and “barbarous anarchy”.11 In one of his early economic writings, On Popular Education in Economics,12 Polanyi identified four mistakes of the utilitarians whom he considered promoters of orthodox economic liberalism.
The first of these mistakes was that utilitarians failed to see that the just reward of the factors of production does not lead to the just reward of the people disposing the factors of production.13 Such an idea might be seen connected to certain contemporary discourses. In a letter of 1935, Oscar Jaszi (another Hungarian liberal emigré) directed Polanyi’s attention to Franz Oppenheimer’s Mehrwert (added value) theory.14 According to Oppenheimer, similarly to other geoists (or Georgists), people should own the value they produce or add during the process of production, and the added value coming from land should be distributed equally between each and every member of the society. This advice to check Oppenheimer’s added value theory was given just in the time to influence Polanyi’s economic awakening. But it did not, at least not significantly. We cannot be sure whether he checked Oppenheimer’s related theory and the radical economic philosophy of geoism as Jaszi advised him, but his first claimed mistake of the utilitarians suggests that he was aware of the political thorn in the eye of liberal economics usually referred to as the problem of added value.
According to Polanyi, the utilitarians’ second mistake was their belief that the idea of the free market is applicable to all human relations. He thought this to be an overstatement. Moreover, he wittily noted that orthodox liberals had a ‘magical belief ’ that the market takes revenge on anyone who dares to interfere with its inherent mechanism by raising the level of unemployment. Polanyi thought that interference with the market mechanism is not bad in principle. He emphasized that the alternative to economic planning is not some system of absolute and unconditional laissez-faire in which the state is “supposed to wither away”15 as supporters of orthodox liberalism frequently proclaimed, but “freedom under law and custom” established and amended “by the State and public opinion”.16 He stressed the limits of both the power of the state and the market and proposed an intelligent third way.
The utilitarians’ third mistake, in Polanyi’s view, was their inability to explain trade cycles. He thought that Keynes, and his own Keynesian-inspired economic thought, was capable of such a feat, and, therefore more adequate to influence economic policies than laissez-faire liberalism. This mistake was particularly important because people wanted to get out of the economic downturn and they first needed an explanation about why this situation had occurred. Economic liberalism lacked a good explanation which threatened the very future of liberalism. Polanyi conceived that basically doing nothing except telling people that it will be better with time is not enough when millions live desperate and hopeless lives. Something should be proposed, and this should be properly communicated to the masses. This leads to what Polanyi called the fourth mistake of the utilitarians.
Polanyi thought that not just the “mechanism of the trade cycle”,17 but the whole “economic machinery”18 should be readdressed in a way in which it would be “accessible to a wide popular discussion”.19 His third way was intelligent because raising the social consciousness of the “common layman” was central to his economic thought. Polanyi considered this social consciousness to be a “historic force more fundamental for the present [twentieth] century than even the national idea”, and was convinced that “the struggle for it will dominate public life until it has found reasonable satisfaction”.20 The power of buying and selling was touched by the power of knowing. Although Polanyi conceived this general demand for social consciousness, this need of individuals to know how their everyday doings contribute to the ‘big picture’, to be quite new, he saw multiple contemporary “attempts” to achieve such consciousness in Soviet planning, German fascism and Roosevelt’s New Deal.
But Polanyi’s criticism of extreme liberalism did not end with the identification of these four mistakes. He pointed out that certain economic phenomena have different meaning and value for the individual and the community. According to Polanyi, laissez-faire supporters failed to address this issue, unlike Keynesians who kept it in mind when developing their related ideas. He contends that “the possession of money is not of the same, or even remotely similar, value to a nation as it is to the individual”.21 But he did not think that Keynesians were the only ones tinkering with non-individual schemes of economic value.
Polanyi recognized a correlation between the perceived economic situation and the general faith in the prevailing economic system. He was worried about the liberal economic system, which he thought would be severely threatened by an additional wave of unemployment bringing an additional wave of discontent. Polanyi saw that such discontent is an opportunity for fascist and Communist régimes to spread their influence. The power-mongering march of these extremes was not only likely to destroy democratic political settings, but also Western civilization, including its cultural products, e.g. liberal economics. Fascism and communism were ideological parasites leeching on the faith of people who hoped for a better tomorrow. But, instead of working on how to lead these people towards a brighter future, they imperceptibly made them first builders then slaves of a hopelessly blind and miserable one. Similarly to these dictatorial régimes, Polanyi devoted an important role to the masses. But in his vision, people are consciously working towards a vision of which they are not only executives but also co-dreamers. This probably sounds nothing like orthodox liberalism and its doctrine of the invisible hand either. Moreover, it might be tempting to view Polanyi’s related endeavours as practices to make the invisible hand visible for the masses. But Polanyi did not think that such a hand could be made completely visible, or, in other words, that such complexity can be grasped by either the experts or the (re)educated masses. Was this a symptom of an internal contradiction or an in...
