Monday, April 16, 2012

396: The Utopia of the Free Market - Karl Paul Polanyi

Karl Paul Polanyi ( 1886, - 1964) was a Hungarian philosopher, political economist and economic historian known for his opposition to traditional economic thought and his book The Great Transformation (1944).

Polanyi is remembered today as the originator of substantivism, a cultural approach to economics, which emphasized the way economies are embedded in society and culture.

In his long career as economist and antropologist he witnessed a number of crises of capitalism. In his opinion, these crises were characteristic for a free market economy.

We only can escape from them by stopping to bet on just that one horse and give room to other methods of economical thought and action, which we know from history.

Because, as he writes in "├ľkonomie und Gesellschaft" (1979) that as people of today " we are made dumb by the domination of the market system, that imposes upon us extremely simplified ideas about the function and role of the economic live in a society."

Note the year, when these words were published ! 1979! Now we have reached 2012 and his words are even more to the point today than in 1979.

An example of the effect of these free market blinkers you can see in Dutch politics. Literally everything is motivated and justified by referring to the benefits of the free market.

Postal services, telecom, public transportation, healthcare, just name it and you'll hear politicians say: we need competition and and a free market in those fields, we need privatization there. This will improve the quality of such services.

So far the result is disastrous. managers go home with fat bonuses, the quality did not improve at all. Things got worse. Some of the services just made deals about pricing among each other to make their customers pay too much for the services, and so on.

Greed and envy are stimulated by this one-dimensional free market belief. Belief in social solidarity is completely drowned by this one-dimensional belief. The only question that seems to count these days is: how much does it cost?

Let's look at the past and ask the question, how production, distribution and consumption of goods was organized in those days.

What we call today economics or economic theory came only slowly into existence since the 16th century and became an independent theoretical realm with the work of Adam Smith 1723 - 1790). We'll get to him later.

Before this period, what we call economics, was emdeded in religious rituals, moral obligations, magic actions, that is, it was embeded in culture,

or to say it in a more contemporary way, profit maximization to pay your shareholders was not a target or issue in those days.

Every human group has to solve two tasks:
1. The community must develop a system to produce goods and services which are needed for its survival.

2. It must organize the distribution of the fruits of its production in such a way that the production process can continue.

In our society both tasked are performed by the market process. To the market of goods and services is added a financial and labor market, which guarantee the distribution and continuation of the capitalist production process.

Polanyi points at three different mechanisms that organized historical societies to perform the two tasks I mentioned: reciprocity, redistribution and the common household.

Within this framework were orderly production and distribution secured. There may have been a lot of individual motives to do so in a group, but a drive to make a profit was not an important motive in those days.

Next lecture I'll elaborate on these three mechanisms, which Polanyi mentions and how they organized for instance Ancient Greek and Medieval societies.


The Discussion

[13:22] Qwark Allen: nice
[13:22] herman Bergson: Thank you... ㋡
[13:22] Qwark Allen: ::::::::: * E * X * C * E * L * L * E * N * T * ::::::::::
[13:23] Mick Nerido: why do ou think the profit motive is so dominant?
[13:23] herman Bergson: Feel free to ask questions or add to the lecture
[13:23] Qwark Allen: how we get rid of the money? like we see in sci fi movies
[13:24] herman Bergson: Why is making profit so dominant...
[13:24] herman Bergson: that relates to Qwarks remark....
[13:24] herman Bergson: the point is.....
[13:25] herman Bergson: in the Roman age or in the Middle Ages was accumulation of money was not a general goal
[13:25] herman Bergson: the function of money was different from now, therefore.
[13:25] Mick Nerido: There was no middle class...
[13:25] herman Bergson: And today money is power....
[13:26] Haresaaiemeid Beer (beertje.beaumont): can we ever go back?
[13:26] Annie Brightstar (anniebrightstar): Do we want to?
[13:26] herman Bergson: Good question Beertje.....
[13:26] Qwark Allen: a society that lives on the exchange of services for free?
[13:26] herman Bergson: It is not necessary to go back...as if it was so much better in the past....
[13:27] Haresaaiemeid Beer (beertje.beaumont): i don't think it was better..only different
[13:27] herman Bergson: It is more a matter of adjusting the system to a social survival
[13:27] Mick Nerido: A lot of bartering...
[13:28] herman Bergson: Just keep in mind that the whole western economy was at the edge of the abbys....
[13:28] Haresaaiemeid Beer (beertje.beaumont): the ones who have the power (money) now..do they want to adjust the system to a social survival?
[13:28] herman Bergson: Governments...that means our taxmoney , had to save banks from collapsing
[13:29] herman Bergson: That is one of the issues Beertje....
[13:29] herman Bergson: The bankers havent learnt a thing.....for them it is business as usual again...
[13:29] Qwark Allen: lol
[13:29] Haresaaiemeid Beer (beertje.beaumont): they didn't learn anything of the past at all
[13:29] Annie Brightstar (anniebrightstar): As it ever has been
[13:30] Haresaaiemeid Beer (beertje.beaumont): it's not the first time in history
[13:30] Mick Nerido: The problem is interest earned on money...
[13:30] herman Bergson: A fact is that the politicians have given the wrong signal.....
[13:30] herman Bergson: Banks can stay arrogant, because, when they are near collapse the government will keep them alive
[13:31] herman Bergson: I dont know the reason behind such behavior....
[13:31] Qwark Allen: the ones on the government, work on banks too
[13:31] herman Bergson: Fat bonuses?
[13:31] herman Bergson: Greed...
[13:31] Haresaaiemeid Beer (beertje.beaumont): ofcourse
[13:31] Qwark Allen: some have a lot invested there to
[13:32] Mick Nerido: Banks take our money give us low intrest and lend out money at higher interest...
[13:32] Qwark Allen: they are like the best friends
[13:32] herman Bergson: I only see that this belief in the Free market does not work....
[13:33] Qwark Allen: i think the lack of regulations was the issue
[13:33] Qwark Allen: free, but regulated
[13:33] herman Bergson: but that politicians use the market idea as a medicine for weverything
[13:33] Qwark Allen: not a anarchy, like is now
[13:33] herman Bergson: yes Qwark....
[13:33] Annie Brightstar (anniebrightstar): How are the politcal parties funded in your country Herman?
[13:33] Mick Nerido: Banks fail when there is a failure of confidence and everyone wants to take their money out of the banks...
[13:33] herman Bergson: and that is the big question....how much regulation...
[13:34] Qwark Allen: i think when ayn rand thought about free market, she said, the government was only a regulation organism
[13:34] Haresaaiemeid Beer (beertje.beaumont): too much regulation is not freedom at all
[13:34] herman Bergson: parties are funded by the government, by fees from members and sometimes donations
[13:34] Qwark Allen: we saw the opposite of anarchy, in the eastern countries
[13:35] Qwark Allen: where government regulated to much, didn`t work too
[13:35] Qwark Allen: i think there should be a half way term to deal with the situation
[13:35] herman Bergson: yes Qwark....that overregulation deprives people from a feeling of responsibility for their society
[13:35] Annie Brightstar (anniebrightstar): And so parties are funded by people with vested interests, Hedgefund Managers, Bankers and Trades Unions?
[13:36] Qwark Allen: what we saw in 20th century was the 2 opposites of market regaultion
[13:36] herman Bergson: Not in the Netherlands....
[13:36] Qwark Allen: no balance
[13:36] Annie Brightstar (anniebrightstar): K
[13:36] Annie Brightstar (anniebrightstar): That is the case in England
[13:36] herman Bergson: ah yes..the diner parties with Cameron scandal...
[13:37] Annie Brightstar (anniebrightstar): and the cash for honours, lets not let the other parties off.
[13:37] herman Bergson: of course we have lobbyists here too
[13:37] Mick Nerido: Inflation is another problem...
[13:38] herman Bergson: When we'll have a closer look how the situation was historically , maybe we find some new ideas for our economic system...
[13:38] Qwark Allen: true
[13:38] herman Bergson: At least there is one big difference withb the past.....
[13:38] Haresaaiemeid Beer (beertje.beaumont): i think the politicians won't listen to other ideas
[13:39] Qwark Allen: how to find a balance between free market and regulation? what kind of new regulations we need?
[13:39] Qwark Allen: or regulation mechanisms
[13:39] herman Bergson: Financial markets have become a goal in themselves....as if they are no part of our culture
[13:40] herman Bergson: in the past there was no such thing as an independent economic entity...
[13:40] herman Bergson: Next lecture you'll hear about that in more detail...
[13:40] Qwark Allen: cool
[13:41] Mick Nerido: No Corporations?
[13:41] herman Bergson: It is a general trend that the system doesnt listen to its citizens....
[13:41] herman Bergson: let me give you a stupid example....
[13:41] Qwark Allen: eheheh to start doesn`t sound good
[13:42] herman Bergson: There is a shipyard which has an allowance to build ships up to 110m long....
[13:42] herman Bergson: now due to the crisis there is no work anymore....
[13:42] herman Bergson: except an order for two ships of 135m long....
[13:42] herman Bergson: You wont believe it but the munici[al officials forbid it....
[13:43] herman Bergson: 110 no 135....
[13:43] herman Bergson: result is that the company will go bankrupt and 60 people loose their job if the system doesnt give in
[13:43] herman Bergson: Was in the news today.....
[13:43] herman Bergson: I find it symptomatic....
[13:44] herman Bergson: The system and its regulations havs become a goal as such.....
[13:44] herman Bergson: not its social intentions....
[13:45] herman Bergson: regulations...yes...but how to apply regulations?
[13:45] Haresaaiemeid Beer (beertje.beaumont): it seems those people don't think anymore
[13:45] Annie Brightstar (anniebrightstar): That may not be the end of the story though Herman, you will have to update us.
[13:45] herman Bergson: civil servants are scared like hell for casuistics...
[13:45] herman Bergson: casuistics
[13:46] herman Bergson: The only one who isnt is the judge in a court
[13:47] Mick Nerido: casuistics?
[13:47] herman Bergson: Well..before you all fall asleep...thank you all for your participation ㋡
[13:47] Haresaaiemeid Beer (beertje.beaumont): thank you Herman
[13:47] Mick Nerido: Thanks Herman!
[13:47] herman Bergson: YEs MIck...it means that you have to treart every situation as a casus/case in itself.....and use judgement in applying rules and regulations....
[13:48] Velvet (velvet.braham): I AM falling asleep, but it's my allergy meds, not you!
[13:48] herman Bergson: Like the 110/135m issue....
[13:48] herman Bergson: ok Velvet....
[13:48] Mick Nerido: sounds like red tape to me lol
[13:48] Velvet (velvet.braham): please excuse me, everyone
[13:48] herman Bergson: Yes Mick.....not a rational application of rules...
[13:49] herman Bergson: Sweet dreams Velvet
[13:49] herman Bergson: So again thank you all
[13:49] herman Bergson: Class dismissed
[13:49] Annie Brightstar (anniebrightstar): Thank you Herman
[13:50] Mick Nerido: I will be on a road trip thursday, sorry to miss that class :(
[13:50] herman Bergson: A pitty Mick...but we still have our blog

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