sociology of law

Polanyi

Learning goals:

 What are free market economics?  What is “embeddedness”?  For Polanyi what is “double movement theory” and what is its relation

to the law?  What is the relationship between double movement theory and

democracy

Summary of Polanyi’s approach to democracy and law

1. Free markets don’t really exist because of the concept of “embeddedness”

2. Double movement theory proposes that economic policies and laws have been the result of struggles between supporters of so-called ‘free market’ policies and those seeking protections from ‘free markets’

3. Democratic movements seek to limit the reach of free market laws

Polanyi’s key insights

Polanyi shows how English thinkers responded to the disruptions of early industrialization by developing the theory of market liberalism, with its core belief that human society should be subordinated to self-regulating markets.

As a result of England's leading role as "workshop of the world," he explains, these beliefs became the organizing principle for the world economy.

In the second half of Part Two, chapters 11 through 18, Polanyi argues that market liberalism produced an inevitable response—concerted efforts to protect society from the market.

Polanyi traces the collapse of peace that led to World War I and shows the collapse of economic order that led to the Great Depression to be the direct consequence of attempting to organize the global economy on the basis of market liberalism. The second "great transformation"—the rise of fascism— is a result of the first one—the rise of market liberalism.

Point One: Free markets don’t really exist because of the concept of “embeddedness”

POLANYI'S CONCEPT OF EMBEDDEDNESS

The logical starting point for explaining Polanyi's thinking is his concept of embeddedness.

Polanyi starts by emphasizing that the entire tradition of modern economic thought, continuing up to the present moment, rests on the concept of the economy as an interlocking system of markets that automatically adjusts supply and demand through the price mechanism.

What is “free market economics”?

-Prices adjust to clear market

-markets tend towards equilibrium

-markets lead to efficient outcomes

-Markets are self-regulating

Relationship between the state and market according to “free market” principles:

(1) states must intervene to protect property rights and contracts;

(2) the market should allocate resources and the state should not “chose winners or losers;” and,

(3) the state may intervene to correct market failures such as supply public goods or protect against anticompetitive behavior (i.e. monopoly)

In effect, free market economics attempts to remove markets from society

“The term "embeddedness" expresses the idea that the economy is not autonomous, as it must be in economic theory, but subordinated to politics, religion, and social relations”

“Embeddedness” = the economy cannot be conceptualized as markets alone, markets are “embedded” in social and political relations. Therefore, markets have non-economic determinants.

Polanyi = “free market” economics is a fantasy because of “embeddedness”

WHY DISEMBEDDING CANNOT BE SUCCESSFUL

“free market” policies will destroy society and nature

“The logic underlying this argument rests on Polanyi's distinction between real and fictitious commodities.

For Polanyi the definition of a commodity is something that has been produced for sale on a market.

By this definition land, labor, and money are fictitious commodities because they were not originally produced to be sold on a market.

Labor is simply the activity of human beings, land is subdivided nature, and the supply of money and credit in modern societies is necessarily shaped by governmental policies.

Modern economics starts by pretending that these fictitious commodities will behave in the same way as real commodities

There are two levels to Polanyi's argument. The first is a moral argument that it is simply wrong to treat nature and human beings as objects whose price will be determined entirely by the market. Such a concept violates the principles that have governed societies for centuries: nature and human life have almost always been recognized as having a sacred dimension.”

Examples

DAPL

https://www.democracynow.org/2017/1/4/ from_keystone_xl_pipeline_to_dapl

“The second level of Polanyi's argument centers on the state's role in the economy.

Even though the economy is supposed to be self-regulating, the state must play the ongoing role of adjusting the supply of money and credit to avoid the twin dangers of inflation and deflation.

Similarly, the state has to manage shifting demand for employees by providing relief in periods of unemployment, by educating and training future workers, and by seeking to influence migration flows.

In the case of land, governments have sought to maintain continuity in food production by a variety of devices that insulate farmers from the pressures of fluctuating harvests and volatile prices. In urban areas governments manage the use of the existing land through both environmental and land- use regulations.

In short, the role of managing fictitious commodities places the state inside three of the most important markets; it becomes utterly impossible to sustain market liberalism's view that the state is "outside" of the economy”

Examples of state’s role labor, land, money

Labor

https://www.democracynow.org/2010/9/2/ after_years_of_organizing_domestic_workers

Labor supply meets labor demand, no problem.

Domestic workers: we need labor laws, why?

Land

https://www.youtube.com/watch?v=dt889tUZaLI

Why rent laws?

^local example

https://www.youtube.com/watch?v=db5JCEktO5M&t=1s

^national example

https://www.youtube.com/watch?v=XB3Kh7e1gaI

Why regulate fisheries?

^international example

https://www.youtube.com/watch?v=db5JCEktO5M

Money

inflation

https://www.jacobinmag.com/2016/01/federal-reserve-interest-rate- increase-janet-yellen-inflation-unemployment/

deflation

Debt/Income

What happens when the demand for debt increases but income levels stay the same?

What happens when banks hold bad debt?

Mass unemployment and recession

Most negatively effected = small and medium sized businesses dependent upon stable credit markets

https://www.youtube.com/watch?v=l85rVWbaH0Y&t=317s

“The fictitious commodities explain the impossibility of disembedding the economy. Real market societies need the state to play an active role in managing markets, and that role requires political decision making.”

Free market economics: the price of labor, land, and money is determined by supply and demand

Polanyi: applying supply and demand logics to land, labor, and money always ends in social disaster. Therefore, you cannot have markets in labor, land, and money without the state. For this reason, the price of labor, land, and money is determined socially and politically, not by supply and demand.

The markets for these three fictious commodities are “embedded” in these social and political relations

Point Two: Double movement theory proposes that economic policies and laws have been the result of struggles between supporters of so- called ‘free market’ policies and those seeking protections from ‘free markets’

Throughout the 19th and 20th centuries, policymakers in the U.S. and Europe sought to implement such a “market utopia” in which market logics organized governance.

The implementation of free market policies inspired diverse resistance to such policies as different political actors sought social protections from free markets, a conflict he described as a “double movement.”

The double movement is characterized as two conflicting organizing principles of governance, a movement towards free market policies and a movement for social protections from market failures and abuses.

“the countermove consisted in checking the action of the market in respect to the factors of production, labor, and land. This was the main function of interventionism.” 136

Examples:

https://www.youtube.com/watch?v=iGeIElmCebQ

https://www.npr.org/sections/health-shots/2020/02/03/801351890/as-out-of-pocket-health-costs-rise-

insured-adults-are-seeking-less-primary-care

Point Three: Democratic movements seek to limit the reach of free market laws

Traces the debate over market intervention to 1830s England and Europe

“Speenhamland Law was spreading from county to county, deterring the laborer from honest work, and making the very concept of an independent working man an incongruity. Though the time for a labor market had come, its birth was prevented by the squires' "law."”

Speenhamland = The system was named after a 1795 meeting at the Pelican Inn in Speenhamland, Berkshire, where a number of local magistrates devised the system as a means to alleviate the distress caused by high grain prices

The authorities at Speenhamland approved a means-tested sliding- scale of wage supplements in order to mitigate the worst effects of rural poverty. Families were paid extra to top up wages to a set level according to a table. This level varied according to the number of children and the price of bread. For example, if bread was 1s 2d (14 pence) a loaf, the wages of a family with two children were topped up to 8s 6d (102 pence).

It was repealed and replaced By the Poor Law Amendment of 1834

(a) no able-bodied person was to receive money or other help from the Poor Law authorities except in a workhouse; (b) conditions in workhouses were to be made very harsh to discourage people from wanting to receive help;

“By the Poor Law Amendment of 1834 the social stratification of the country was altered, and some of the basic facts of English life were reinterpreted along radically new lines”

“The former poor were now divided into physically helpless paupers whose place was in the workhouse, and independent workers who earned their living by laboring for wages.

This created an entirely new category of the poor, the unemployed, who made their appearance on the social scene.

While the pauper, for the sake of humanity, should be relieved, the unemployed, for the sake of industry, should not be relieved.

That the unemployed worker was innocent of his fate did not matter.

The point was not whether he might or might not have found work had he only really tried, but that unless he was in danger of famishing with only the abhorred workhouse for an alternative, the wage system would break down, thus throwing society into misery and chaos”

Why would the wage system break down?

The wage system would break down because welfare means that wages would not be determined by the free labor market

Enter the Chartist Movement

https://www.youtube.com/watch?v=mWucd5tXlqY

The Chartist movement was the first mass movement driven by the working classes. It grew following the failure of the 1832 Reform Act to extend the vote beyond those owning property.

Chartists' petition

In 1838 a People's Charter was drawn up for the London Working Men's Association (LWMA) by William Lovett and Francis Place, two self- educated radicals, in consultation with other members of LWMA. The Charter had six demands:

 All men to have the vote (universal manhood suffrage)  Voting should take place by secret ballot  Parliamentary elections every year, not once every five years  Constituencies should be of equal size  Members of Parliament should be paid  The property qualification for becoming a Member of Parliament

should be abolished 

ruling classes rejected the Chartist petition…

“…The demand for popular government was the political source of the tension”

“In England it became the unwritten law of the Constitution that the working class must be denied the vote. The Chartist leaders were jailed; their adherents, numbered in millions, were derided by a legislature representing a bare fraction of the population, and the mere demand for the ballot was often treated as a criminal act by the authorities. …But the people were granted rights only when the awful adjustment had been made. Inside and outside England, from Macaulay to Mises, from Spencer to Sumner, there was not a militant liberal who did not express his conviction that popular democracy was a danger to capitalism.”

Why did they consider democracy a threat to capitalism?

Democracy popularizes laws

The struggle for democracy is within the “double movement”

How is the chartist movement an example of the double movement?

-opponents of the chartist movement used ‘free market’ economics to oppose chartism, how?

-proponents of the chartist movement sought protections from ‘free market’ policies, how?

In class activity – 3 points

In 200 words, how would Polanyi respond to the following Ayn Rand quote? (hint: think about Polanyi’s discussion of ‘ficitious commodities’ – land, labor, money).

Government 'help' to business is just as disastrous as government

persecution... the only way a government can be of service to national

prosperity is by keeping its hands off.

Ayn Rand