Livia Gershon — Are Free Markets Fictional?

US business über-guru Peter F. Drucker thought so.

JSTOR Daily
Are Free Markets Fictional?

Livia Gershon

Brad DeLong — Ricardo’s Big Idea, and Its Vicissitudes

Brad DeLong shows how Ricardo's version of economic liberalism based on free trade explained by comparative advantage is bourgeois liberalism that enriches the ownership class.

Washington Center for Equitable Growth

Ricardo’s Big Idea, and Its Vicissitudes

Brad DeLong | Professor of Economics at the University of California, Berkeley

Simon Wren-Lewis — How Neoliberals weaponise the concept of an ideal market

As a result, I would tend to suggest a slightly different definition that seems to work quite well today. The definition would be:

neoliberalism is a political strategy promoting the interests of big money that utilises the economist’s ideal of a free market to promote and extend market activity and remove all ‘interference’ in the market than conflicts with these interests.

This replaces a definition based on following an idea (the author’s market neoliberalism), by one of interests promoting an idea so long as it suits those interests.

This alternative definition seems to fit two cases I have used in the past to question more conventional ideas. Large banks benefit hugely from an implicit subsidy provided by the state (being bailed out when things go wrong), but neoliberals do not worry too much about this form of state interference in the market (whereas economists do). Regulations on the other hand they do complain about. It is a very selective focus on market interference....

Classical economic liberalism aka laissez-faire and "market fundamentalism" advocated minimizing the role of government in markets. Neoliberalism advocates selective use of the political process to favor the interests of capital. Hence, neoliberals work to capture government, while classical economic liberals would limit government to the role of night watchman.

Mainly Macro
How Neoliberals weaponise the concept of an ideal market
Simon Wren-Lewis | Professor of Economics, Oxford University

Bill Mitchell — The rise of the “private government”

I have always found it odd (read totally inconsistent) that people rail against government intervention as if it is a blight on our freedom, but ignore the ‘governance’ of workplaces by capital, who seek every way possible to destroy our freedom and initiative unless it is serving to advance their bottom line. We ignore the benefits of collective goods and laws that protect us, but turn a blind eye to the on-going, minute-by-minute, repression in the workplace. I was reminded of this again as I was reading a new book that came out in May 2017 – Private Government: How Employers Rule Our Lives (and Why We Don’t Talk About It) – by American philosopher Elizabeth Anderson. She studies that way in which corporate America serves in effect as a “private government” minutely and vicariously controlling our daily working lives yet many of us still accept the construction that this is the ‘free market’ operating. It is when the word ‘free’ loses all meaning. I especially like her use of the term “private government” to reinforce the hypocrisy of the elites and the inconsistency of those (workers included) who call for small ‘government’ as if that is the exemplar of freedom.

This is what happens when economic liberalism is equated with liberalism. Then economic liberalism is prioritized institutionally over social and political liberalism, and the result is illiberal. This is one of the internal contradictions of liberalism that are also called paradoxes of liberalism.

Whose freedom?

Bill Mitchell – billy blog
The rise of the “private government”
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Nick Johnson — Karl Marx on utility

Keeper Marx quote explains how capitalism based on liberalism is grounded in the concept of bourgeois utility.

The Political Economy of Development
Karl Marx on utility
Nick Johnson

John T. Harvey — Scoring President Trump’s Economics

Although we don’t talk about it much, capitalism is fundamentally about power and who should wield it. The general idea is that it should be diffused among all the average folks in society. We don’t want particular firms or individuals accumulating power because then the economy is run for them and not us. Implicit in all this is the idea that the average person is important and has rights. That probably sounds familiar and, indeed, there is a reason why the language is so similar in the Declaration of Independence (1776), the French Declaration of the Rights of Man and of the Citizen (1789), and Adam Smith’s Wealth of Nations (1776). All were a product of the political, social, and intellectual revolution wherein the focal point became the individual. Individuals should be allowed to make their own choices and shape their own future.

Whether or not capitalism is really capable of this is a point of controversy. Regardless, there is no question that it is philosophically committed to breaking power into tiny packets and preventing elites from taking over. If the latter does occur, then the positive outcomes we associate with capitalism are no longer guaranteed. They become increasingly unlikely because we can’t trust that those elites will really act in our best interest. With respect to businesses, for example, Adam Smith wrote,

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.

What I am getting at here is that rejuvenating the middle class is not just about jobs. It’s also part of a larger project aimed at wresting power away from economic and political elites and returning it to Americans. The latter appears to be what the President means by “draining the swamp” and I totally agree. This was a key part of both his and Bernie Sanders’ campaigns and it must be a priority lest we lose forever the opportunity to reverse this trend.

With that in mind, I have reviewed a number of President Trump’s policies asking generally, “Does this drain the swamp by empowering the average American?”

Balancing economic and political liberalism — reconciling capitalism and representative democracy in a republic.

Forbes — Pragmatic Economics

Scoring President Trump’s Economics

John T. Harvey | Professor of Economics, Texas Christian University

David Henderson — Ominous Inaugural Addresses

If Donald Trump understood trade and immigration, that would not be ominous at all. Because if he made every decision on trade and immigration "to benefit American workers and American families," he would decide to move in the direction of lower tariffs and import restrictions and fewer restrictions on immigration. Remember that "American workers and American families" includes pretty much all Americans, including those who gain from buying cheap imports (which, by the way, is all of us) and those who gain from hiring cheaper labor. The fact of gains from trade and immigration is not controversial in the economics literature. What makes this statement ominous is that Trump doesn't understand trade.

What's ominous is that economists like this don't understand ordinary families problems and the effects on politics in a representative democracy. This election was unusual in that the establishment of neither party was able to prevail precisely because they were not paying attention to this. This is the reason for Brexit, too, and it is also the reason for the disintegration of the Eurozone and the rise of the right in Europe.

Why these pundits don't get is that immigration is not an economic issue as much as a political one and the embedded labor in imports is ersatz immigration.

"Build the wall" is symbolic of this. As I recall, Lou Dobbs was the first to pick up on this, although it may have been Pat Buchanan that was first. Both was mocked for it as was Donald Trump, but DJT parlayed it to victory — unless you believe the lame excuse that "Putin did it."

These establishment types are clueless about reality and can only see the world through their models based on restrictive assumptions that make them worthless in application to political economy and policy formulation.

Econlog
Ominous Inaugural Addresses

David Henderson, research fellow at Stanford University's Hoover Institution and is also associate professor of economics at the Naval Postgraduate School in Monterey, California

Timothy Taylor — Charles Dickens on Seeing the Poor

Economists might also wince just a bit at the reaction of some economists to poverty, who Dickens calls "the unreasonable disciples of a reasonable school." Dickens writes: "I know that the unreasonable disciples of a reasonable school, demented disciples who push arithmetic and political economy beyond all bounds of sense (not to speak of such a weakness as humanity), and hold them to be all-sufficient for every case, can easily prove that such things ought to be, and that no man has any business to mind them. Without disparaging those indispensable sciences in their sanity, I utterly renounce and abominate them in their insanity ..."

Group insanity or Scrooges?

Conversable Economist
Charles Dickens on Seeing the Poor
Timothy Taylor | Managing editor of the Journal of Economic Perspectives, based at Macalester College in St. Paul, Minnesota

Lord Keynes — Trump on the Free Market

When was the last time a Republican president was so hostile to free trade and dismissed the usual “free market” apologetics as the “dumb market”?

It would be so much better if he had said something like this:

“I love free trade in principle, OK? But, in practice, we just don’t have it, OK? We just don’t have it. Everybody cheats. China cheats. Japan cheats. The Europeans cheat. So therefore we need to be smart, and have fair trade, and protect American jobs and manufacturing. And, if we need tariffs, then that’s smart trade.”

Social Democracy For The 21St Century: A Post Keynesian Perspective
Trump on the Free Market
Lord Keynes

Branko Milanovic — Will social democracy return? A review of Offer and Söderberg

Avner Offer and Gabriel Söderberg (“The Nobel factor: the prize in economics, social democracy and the market turn”) look at the strange death of social democracy at the hands of market liberalism. That death was accelerated by the role of the Nobel prize in economics that conferred to economics an allure of science and that was used to much greater profit by neoliberal economists to push for their version of economic policies.

Offer and Söderberg define social democracy as a continuation of Enlightenment: from equality before God to equality before law, to equality between men and women and races, to equality of entitlements between citizens. Since each citizen goes through periods of dependency (as a child, as a mother, as unemployed, or as an old person) when he/she cannot earn an income, he has to depend on transfers from the working age population. This life-cycle pattern is shared by all, and thus society, in a form of social insurance, sets a system that provides redistribution from the earners to the dependents.

How does market liberalism solves the life-cycle problem? By positing that everyone is a free agent with his endowments of capital and labor. When he cannot work, he uses the proceeds from his capital (assuming of course that he originally either inherited or saved enough wealth to have a capital). It is not a “society” in a true sense of the word, but a group of “agents” who manage own income over the life-cycle. Since returns are to one’s ownership of labor and capital and there is no redistribution, it is a “just world” society where one gets back what he has put in, and where income inequality is never an issue—precisely because income is exactly proportional to one’s contributions.

These are indeed two different views of the world. As Offer and Söderberg write, social democratic view was extremely successful empirically but was not theoretically worked out much by economists. The neoliberal view has exactly the reverse characteristics: empirically it was not much of a success (look at private pension schemes in Chile), but economists have extensively worked on it theoretically…

The difference between social democracy and market liberalism can be summarized as a difference in approach.

Market liberalism assumes methodological individualism based on ontological individualism, so that economics can be pursued as an autonomous discipline.

Social democracy assumes that individuals are embedded in social systems, one aspect of which is economic.

Perhaps the most telling difference is that market liberalism assumes that efficiency and economic growth are the chief criteria of economics. Economic" has come to mean efficient.

Social democracy, being based on systems thinking, posits that overall effectiveness of the system in accomplishing its social, political and economic goals is of a higher priority than economic growth and economic efficiency, and that economic efficiency must be brought into balance with systemic resilience.

A chief problem with theoretical economics based on the methodological choices of market liberalism is that the necessity for restrictive assumptions makes much of the theory inappropriate for informing policy.

A second issue is that market liberalism does not consider policy goals but assumes that market efficiency leads to systemic optimization in all major respects, which goes illogically beyond the assumptions and data.

Social democracy begins with desired outcomes and seeks to achieve those outcomes based on historical experience and evidence provided by data as well as social, political and economic theory.

The question of return implies that the answer is historical. History is dialectical, proceeding experimentally and adapting to emergence. There is no categorical "end of history." While history does not repeat itself it does rhyme in the sense that experiment draws on experience.

The dialectical nature of both experience and history is that when one position is posited, its complement, although excluded, is necessarily included as a potential. As anomalies arise with a particular view, since no view is can be a comprehensive account owing to emergence, the complement is called forth as opposing views. The human experiment is never complete.

For example, market liberalism is a political stance that equate political liberalism with economic liberalism.

Social democracy views economic liberalism as only one aspect of liberalism along with social and political liberalism. The challenge is to harmonize this trifecta by acknowledging its paradoxes as they arise and transcending them by innovating the system.

The rest of the post examines how an interest elite intentionally conflated economic liberalism with political liberalism., for example, through by establishing the "Nobel prize in economics."

Milanovic then posits what he views as the four major challenges to the return of social democracy.

I view such challenges to the return of social democracy as it formerly existed as examples of emergence. The next stage of the experiment will not be a return to the past but rather drawing on the past while innovating in order to surpass the deficiencies of the present approach.

MMT speaks to this economically and socially in terms of macroeconomic theory and policy formulation based on the fiscal space that the current monetary system provides to address overcapacity owning to demand deficiency in a market-based world.

These, and perhaps a few other, elements seem to me to imply that a return to the Golden Age of social democracy is unlikely to happen. On the other hand, there is a realization of inadequacy of the neoliberal model that bequeathed a huge crisis (which did not turn into another Great Depression precisely because the key rules of neoliberalism were abandoned in order to save the system). As many times in history, we are now at the point where neither of the two established doctrines seems to provide reasonable answers to today’s issues. That leaves the field open to new thinking and experimentation.

Global Inequality
Will social democracy return? A review of Offer and Söderberg
Branko Milanovic | Visiting Presidential Professor at City University of New York Graduate Center and senior scholar at the Luxembourg Income Study (LIS), and formerly lead economist in the World Bank's research department and senior associate at Carnegie Endowment for International Peace

Julia Ruiz Pozuelo, Amy Slipowitz, Guillermo Valeting — Democracy does not cause growth

Growth is the result of economic liberalism. Democracy is about social and political liberalism rather than economic liberalism.

There is a tradeoff between growth and fairness. 

Economic liberalism promotes growth, while social and political liberalism promote fairness and reciprocity.

Capitalism as an expression of economic liberalism is antithetical to democracy as the basis for social and political liberalism.

Achieving grown and fairness requires optimization of goals based on opposing values. Maximizing growth leads to a decline of fairness and reciprocity social and politically, which now goes by the term "inequality."

Vox.eu
Democracy does not cause growth
Julia Ruiz Pozuelo, Amy Slipowitz, Guillermo Valeting
ht Mark Thoma at Economist's View

Robert J. Shiller — The Coming Anti-National Revolution

Where Robert Shriller loses his marbles over economic liberalism and globalization and has a fit of irrational exuberance about the wonders of capitalism based on free trade and capital flows, but (not yet) free flow of labor. However, with free trade and capital flow, embedded labor is tantamount to actually immigration influencing the labor market. The different is that cultural differences remain at home so losing one's job is not further complicated by losing it to someone of a different ethnicity, culture, and language group.

While I agree in the long run, it's nonsense to talk about this under present conditions. The long run could be a very long time, measured in centuries rather than years or decades. The big story historically is the shrinking of the globe through advances in transportation and communications technology. 

Many of the issues that are now arising stem from the rough edge involved as the world shrinks and different groups come in contact and interact more closely than previously. It's messy, and it will get a lot messier. 

Yes, the pendulum will eventually begin to swing the other way, but that is not on the visible horizon and speculating about it in the face of the present storms is beside the point and a distraction. Better to focus on real challenges in the present rather than pie in the sky down the road.

Sheller's vision is based on the illusion individualism that assumes humans are like atoms, history is irrelevant, and enculturation and social relations don't matter. It also assumes that like atoms, human don't feel pain or have strong emotions that are not always rational, including about other people, especially "different" people.

Shiller is a behavioral economist that knows all this, but he seems to have forgotten in this post that human beings are not simple stimulus-response mechanisms.

Project Syndicate
The Coming Anti-National Revolution
Robert J. Shiller, a 2013 Nobel laureate in economics | Professor of Economics at Yale University and the co-creator of the Case-Shiller Index of US house prices
ht Mark Thoma at Economist's View

David F. Ruccio — Capitalism vs. democracy

I have been arguing for some time on this blog that contemporary capitalism faces a profound legitimacy crisis. It has failed to deliver on its promises, and therefore is being calling into question.
As it turns out, Martin Wolf, the chief economics commentator at the Financial Times, has also sounded a warning about the ongoing legitimacy crisis. But for him it’s a bit different. The problem, as he sees it, is the tension between democracy and capitalism.…

Or as I have put it, economic liberalism under capitalism and political liberalism understood as some form of democracy are incompatible — although some forms are more compatible than others. The more reliance on the assumption that market forces lead to social optimization through spontaneous natural order, the less compatible economic liberalism is with democracy as government of, by and for the people.

Neoliberalism is rule by a social, political and economic elite through state capture under representative democracy. There is an illusion of political liberalism even though the political reality is a struggle among several factions of the elite without meaningful representation of the public at large.

Occasional Links & Commentary
Capitalism vs. democracy
David F. Ruccio | Professor of Economics, University of Notre Dame

John Quiggin — Locke’s Folly

Jeffersonian Democrats made a serious attempt to implement Locke’s theories. Colonization and expropriation followed.

John Locke was an Enlightenment philosopher with an agenda — bourgeois liberalism based on freedom, to exploit land and workers that is.

Jacobin
Locke’s Folly
John Quiggin | Professor of Economics and an Australian Research Council Laureate Fellow at the University of Queensland, and a member of the Board of the Climate Change Authority of the Australian Government

John Keane — Capitalism and Democracy

Like I've been saying, capitalism and democracy are antithetical. This is equivalent to saying "economic liberalism" and "political liberalism"  in place of "capitalism" and "democracy."

The only way that economic liberalism and political liberalism have been compatible historically is in bourgeois liberalism, in which only the bourgeoisie (ownership) class) are considered to count.

According to defenders of the ‘free market’, more than a few of whom are dogmatic market fundamentalists, political democracy is an unwanted parasite on the body of economic growth. Democracy whips up unrealistic public passions and fantasies. It distorts and paralyses the spirit and substance of rational calculations upon which markets functionally depend; understood as government based on majority rule, democracy is said to be profoundly at odds with free competition, individual liberty and the rule of law. What is therefore required is ‘democratic pessimism’ and (Friedrich von Hayek’s famous thesis) the restriction of majority-rule democracy in favour of ‘austerity’ (cutbacks and restructuring of state spending) and limited constitutional government (‘demarchy’ ) whose job is to protect and nurture ‘free markets’ protected by the rule of law.

Other scholars, political commentators, policy makers and politicians stake out the contrary view. They maintain that since markets are never ‘naturally’ free but always, in one way or another, the creature of laws and governing institutions, market failures and market ‘externalities’ require political correction. Well-designed political interventions that draw democratic strength from popular consent are needed to redistribute income and wealth, to repair environmental damage caused by markets and to breathe new life into the old ideals of equality, freedom and solidarity of citizens.…

The Conversation
Capitalism and Democracy [part one]
John Keane | Professor of Politics, University of Sydney

F. William Engdahl — Russia’s Achilles Heel – Reflections from St. Petersburg

The first thing that is important to understand is that in Russia's governmental structure there are essentially two governments. The prime minister, currency Dimitry Medvedev, is responsible for domestic policy including economic policy, and the president, now Vladimir Putin, is responsible for foreign and military policy. The Central Bank of Russia is politically independent and responsible for monetary policy.

Secondly, it is important to grab that domestic affairs under Prime Minister Medvedev is deeply beholden to the ideology and economics of Western economic liberalism, introduced at the time the USSR collapsed. This cohort adheres to the the Western paradigm.

 Russia's Achilles heel is the economic liberalism inherited from the Yeltsin years and Harvard boyz by the proteges of Yegor Gaidar, the former Acting Prime Minister that introduced shock therapy. Current prime minister Dimitry Medvedev and central bank chief Elvira Nabiullina are economic liberals who follow the Washington Consensus that is based on neoliberalism as economic liberalization, deregulation, and privatization, along with low taxes and perks for "job creators." The prescription for economic policy is "expansionary fiscal austerity" in order to increase business confidence. The business of the central bank is solely to keep inflation low and the exchange rate stable.

What I experienced in my discussions at the conference–this year with record attendance of more than 12,000 business people and others from around the world–was a sense that there coexist two Russian governments, each the polar opposite of the other. Every key economic and finance post is firmly occupied at present by monetarist free-market liberal economists who might be called “Gaidar’s Kindergarten.” Yegor Gaidar was the architect, along with Harvard’s Jeffrey Sachs, a Soros-backed economist, of the radical “shock therapy” that was responsible for the economic hardships that plagued the country in the 1990s resulting in mass poverty and hyperinflation.
Today’s Gaidar Kindergarten includes former Finance Minister Alexei Kudrin, another Euromoney favorite in 2010 as international Finance Minister of the Year. It includes Economics Minister, Alexey Ulyukaev. It also includes Medvedev’s Deputy Prime Minister, Arkady Dvorkovic.

Dvorkovic, a graduate of Duke University in North Carolina, is a protégé, directly serving during his earlier years under Yegor Gaidar. In 2010 under then Russian President Medvedev, Dvorkovic proposed a lunatic scheme to make Moscow into a world financial center by bringing in Goldman Sachs and the major Wall Street banks to set it all up. We might call it inviting the fox into the hen house. Dvorkovic’s economic credo is “Less state!” He was the chief lobbyist in Russia’s WTO accession campaign, and tried to ram through rapid privatization of the assets that remain state-owned.

This is the core group around Prime Minister Dmitry Medvedev today who are strangling any genuine Russian economic recovery. They follow the western playbook written in Washington by the International Monetary Fund and the US Treasury. Whether they do this at this stage out of honest conviction that that is best for their nation or out of a deep psychological hatred for their country, I’m not in a position to say. The effects of their policies, as I learned in my many discussions this month in St Petersburg are devastating. In effect, they are self-imposing economic sanctions on Russia far worse than any from the USA or EU. If Putin’s United Russia party loses the elections on 18 September, it will be due not to his foreign policy initiatives for which he still enjoys 80+% popularity polls. It will be because Russia has not cleaned the Augean Stables of the Gaidar Kindergarten.

From various discussions I learned to my shock that the official policy of Medvedev’s economic team and of the Central Bank today is to follow the standard IMF “Washington Consensus” budget austerity policies.…

I had the honor of appearing on a major panel together with several members and founders of this group. It included a co-founder of the Stolypin Club, Boris Titov, a Russian businessman and open ideological foe of Kudrin, who is chairman of the All-Russian “Business Russia” organization. He insists on the need to increase domestic production of goods, stimulate demand, attracting investment, tax cuts and the cuts to the refinancing rate of the Central Bank. Titov is a central figure today in Russia’s recent China initiatives. He served as chairman of the Russian part of the Russian-Chinese Business Council, and member of the Presidium of the National Council on Corporate Governance.

My panel also included Stolypin Club leading members Sergei Glazyev, Adviser to the President of the Russian Federation, and Andrey Klepach, Deputy Chairman of the VEB Bank for Development. Klepach, a co-founder of the Stolypin Club, was formerly Deputy Economics Minister of Russia, and director of the macroeconomic forecasting department of the Ministry of Economic Development and Trade. My impression was that these are serious, dedicated people who understand that the heart of true national economic policy is human capital and human well-being not inflation or other econometric data.…

What was clear from my St Petersburg talks this time is that events are approaching a decisive “do or die” turn in which either economic policy is formally put into the hands of competent national economy circles such as those of Boris Titov, Andrey Klepach and Sergey Glazyev, or she will succumb to the insidious poison of Washington Consensus and liberal free market nonsense. After my recent private talks I am optimistic regarding prospects for a positive change.

NEO

Russia’s Achilles Heel – Reflections from St. Petersburg

F. William Engdahl

Alexei Pankin — Russian James Bond Explains why Hitler Stood No Chance Against Stalin

• The Soviet Union defeated the invincible German army because it created a superior economy
• Uncle Joe borrowed his war preparation plan from FDR
• Only US-inspired liberal shock therapy prevented the new Russia from capitalizing on the American post-WW II experience of turning a highly militarized economy into a prosperous consumer oriented one
• First Russian oligarchs enriched themselves by plundering the resources accumulated since Stalin’s times - forgetting dropping oil prices.

Russia Insider
Russian James Bond Explains why Hitler Stood No Chance Against Stalin
Alexei Pankin
Translated by Sergey Malygin

Robert Kuttner — Karl Polanyi Explains It All

Robert Kuttner provides an excellent summary of Karl Polanyi's The Great Transformation (download).

In the 1944 catalog of publisher Farrar & Rinehart, the entry for The Great Transformation appropriately compares it to Keynes’s succinct 1919 classic, The Economic Consequences of the Peace. But while Keynes’s book was a best-seller, turning its author into a celebrity, The Great Transformation sold just 1,701 copies in 1944 and 1945.

The New York Times reviewer, John Chamberlain, was savage: “This beautifully written essay in the revaluation of a hundred and fifty years of history adds up to a subtle appeal for a new feudalism, a new slavery, a new status of economy that will tie men to their places of abode and their jobs.” If that sounds just like Polanyi’s nemesis, Hayek, it was for good reason. Chamberlain had just written the foreword to Hayek’s The Road to Serfdom, also published in 1944. While Hayek’s book was adapted in Reader’s Digest and became a best-seller, Polanyi’s languished.

By 1946, however, Polanyi had been reviewed, mostly favorably, in major newspapers and social-science journals, and he was slowly attracting a following. At 61, Polanyi was offered his first real academic job in 1947 at Columbia, where he taught until 1953. But in the Cold War chill, the State Department refused to give a permanent visa to Ilona, and she relocated to Canada. After attempting to commute from Toronto, Polanyi spent his final years settled there, returning to an early scholarly interest in economic anthropology.

Comparison of The Great Transformation with The Road to Serfdom is in a sense the story of what would lead in Anglo-American economics to the conflict between Keynes and Friedman, mediated by Paul Samuelson. The first textbook of Keynesianism was Lorie Tarshis's The Elements of Economics (1947), which was pilloried as "pink" if not "red." Samuelson published his textbook that would become the standard in 1948. Eventually, even Samuelson's "bastard Keynesian," the purported synthesis of Keynes and neoclassical economics was over turned, which was largely attributed to the Chicago School and Milton Friedman. Karl Polanyi's The Great Transformation was relegated to a footnote whereas the economic liberalism of Hayek and Friedman became dominant. As result, few are familiar with Polanyi's work and fewer still read him.

Now, with economic liberalism in retreat and the moral economy and the good society reentering the debate forcefully, Polanyi's work is also experiencing a resurrection in social and political theory and political economy. Polanyi favored managed capitalism (social democracy) over laissez-faire capitalism based on free market fundamentalism (economic liberalism).

Karl Polanyi is not to be confused with his brother Michael, a chemist and libertarian social and political philosopher. Friedrich Hayek got the concept of spontaneous order from Michael Polanyi. In fairness to Michael, he was, like Hayek, no Murray Rothbard either. Michael made contributions to chemistry for which he is better known than as a political philosopher, and Michael's son John was awarded a Nobel in chemistry. Talented family.

Both Michael and Karl reacted the extremes of Marxism. But Karl rejected Michael's assumption that free market fundamentalism results in spontaneous order that is socially beneficial. Karl attempted to navigate between the free market fundamentalism that conflated economic liberalism with social and political liberalism, and the Marxism that had resulted in totalitarian communism. 

Like Marx, Karl Polanyi's approach was historical, but unlike Marx he did not postulate "iron laws," which he criticized liberal economist for doing also in seeking to model "the market" with purportedly universal laws of a natural system like 18th and 19th century classical physics. Being unnatural such attempts at universalization would naturally lead not only misunderstanding theoretically but also to economic crisis and social discord if applied rigidly. In fact, it led to domestic conflict and war historically.

Looking backward from 1944 to the 18th century, Polanyi saw the catastrophe of the interwar period, the Great Depression, fascism, and World War II as the logical culmination of laissez-faire taken to an extreme. “The origins of the cataclysm,” he wrote, “lay in the Utopian endeavor of economic liberalism to set up a self-regulating market system.”

Contrary to libertarian economists from Adam Smith to Hayek, Polanyi argued, there was nothing “natural” about the free market. Primitive economies were built on social obligations. Modern commercial society depended on “deliberate State action” by and for elites. “Laissez-faire” he writes, savoring the oxymoron, “was planned.”…

Libertarian economists, who treat the market as universal—disengaged from local cultures and historic time—are fanatics whose ideas end in tragedy. Their prescription means “no less than the running of society as an adjunct to the market. Instead of economy being embedded in social relations, social relations are embedded in the economic system.”…

Longish but detailed and a good read. If you don't have time to get to it now, save it for the weekend. We are going to hearing a lot more about Polanyi, Keynes, Lerner, and Minsky, etc. as the debate shifts and people wake up to the facts that history rhymes and many of the issues of today have already been analyzed in the past to good effect. There are shoulders of giants to stand on.

The American Prospect
Karl Polanyi Explains It All

Robert Kuttner | co-founder and co-editor of The American Prospect, and Meyer and Ida Kirstein Visiting Professor in Social Planning and Administration at Brandeis University's Heller School for Social Policy and Management

ht Dan Lynch in the comments

Peter Radford — What Would Smith Say?

The invisible hand was just not that important to Smith. He didn’t mean to launch economics into a century or more of quixotic and ever more bizarre search for something that he meant as a passing reference to the superficial order he saw around him.

Smith spent no more time on the invisible hand metaphor than he did on other phrases that are much more concrete. How about this one:

“Regulation is in support of the workman, it is always just and equitable.”

Where in the corpus of mainstream economics is this phrase worked up into a fully fledged and extended effort in the manner that the throwaway reference to the invisible hand is?

Well we don’t need to explain much further: economics was and is an extension of politics. It is politics waged by other means. It doesn’t exist as a coherent entity, it exists as variations to be deployed preferentially to support some other argument. And that other argument is usually political.

Economics is a form of apologetics and polemics based on the political theory of classical liberalism holding that economic liberalism is equivalent to political liberalism, so that the market state is the ideal social and political arrangement.

Since government intrudes on the market state through policy, government should be limited to providing security and maintaining public order. It is assumed that truly democratic decision-making takes place in markets. Markets are the real elections in which participants rationally maximize utility based on revealed preferences.

This is quite obviously philosophy rather than science, and when the assumptions are taken dogmatically, it passes into theology.

The Radford Free Press
What Would Smith Say?
Peter Radford

Bill Mitchell — The co-option of government by transnational organisations

Today, some more analysis of the debate about globalisation and the capacities of the nation-state. We consider the debates in the early 1970s about the power of transnational corporations and the claims that they undermined the capacity of the nation-state to further the interests of the population. On the one hand, the free-market liberals claimed that the emergence of the transnational corporation was a move towards increased global efficiency and the nation-state, which served narrower interests, would be swept aside, along with its regulative structures, by this trend. Global welfare (and solutions to international poverty) would be maximised by the demolition of national borders by transnational capitalism. This view considered the nation-state to be ‘dispensable’ – that it only served narrow interests and the global organisation of production no longer required national governments to operate in this way. The Marxist position was, understandably, at odds with this view. It considered the nation-state to be indispensable to the growing needs of international capital. This was in the sense that governments could provide essential stability to reduce the risk of transnational operations. My position is more in line with the latter view although it clearly recognises the relevance (and power) of the national governments in which they choose to operate. Further, these transnational corporations are typically very large firms within the nations they operate. it is hard to differentiate the political clout that being large exerted from the influence of being global. Certainly, the early literature was not clear on that issue.…

Bill Mitchell – billy blog
The co-option of government by transnational organisations
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia