I’m in the middle of reading Karl Polanyi’s classic The Great Transformation. I don’t want to comment on his main thesis until I’m finished, but I found his discussion of “fictitious commodities” to be very intriguing. Polanyi defines commodities as “objects produced for sale on the market.” According to Polanyi, labor, land, and money are not actually commodities as defined here. Land, he says, “is only another name for nature, which is not produced by man,” while money, “is merely a token of purchasing power which, as a rule, is not produced at all, but comes into being through the mechanism of banking or state finance.”
The point he raises is interesting, but I’m not so sure I buy it. Commodities, as he defines them, really just sound like durable capital goods or finished products. I don’t see any reason why land can’t be treated like any other commodity simply because it comes as a gift of nature. To actually be useful to individuals, it must be cultivated to some degree. The argument for money is even weaker. Rather than defining money as a common unit of exchange, he really just defines it as something created by the state (whether or not through banks). If we look at Carl Menger’s work on the origins of money then it’s really the quintessential commodity.
Polanyi’s argument for the uniqueness of labor is much more convincing to me: “Labor is only another name for human activity which goes with life itself, which in turn is not produced for sale but for entirely different reasons, nor can that activity be detached from the rest of life, be stored or mobilized.” It is exactly these characteristics which led me to see labor as different from land and capital in economic analysis. People as diverse as Polanyi, Mises, and Granovetter have all pointed out that economic life is embedded in social relations, but I don’t think anyone (except perhaps Marx) has seriously looked at labor in a way that satisfies my uneasiness. The Austrians, in particular, don’t do a really good job (In case you’re wondering, I find William Hutt’s work the most satisfying and Murray Rothbard’s work the least satisfying). The characteristic of labor as embedded in an individual is something I really need to think about in depth. I have no clue whether it has any meaning for economic or sociological analysis, but my gut feeling is that it does, and therefore, worth studying.
- Josh McCabe
If I remember correctly, Polanyi argues that labor only started being a fictitious commodity during the great transformation into a market society.
Of course this is extremely wrong and he even abandoned the concept after studying slavery.
For some strange reason, Polanyi is making a huge comeback in the UK, even though his concepts were either poorly developed, abandoned at a later stage or popularized by others who over emphasized Polanyi’s initial concepts (like Granovetter with embeddedness).
What I do like about Polanyi are his ideas on Instituted Economic Processes, although they are underdeveloped like I mentioned before. Some, like Mark Harvey, are trying to rescue them and are in the process of reconstructing them.
I really like your blog, keep it up
!
Polanyi is also making a strong showing in American sociology at the moment. I’m personally a huge fan.
In terms of land – I think you are right to say that there are certain ways in which land is “produced” for sale on the market (i.e. cultivating previously uncultivated land in response to a rise in the price of land, say). But there are other ways in which the analogy breaks down substantially – especially if we broaden our sights to all of nature. The inability of economics to deal with economic externalities for so long (which has arguably continued through the present) helps make Polanyi’s point – the cost, for example in terms of GDP, of depleting an aquifer or overfishing is non-existent – those things are just not counted right, because it’s hard to do so – no one is producing them for sale as such. Does that make sense?
Dannger: I think having underdeveloped ideas is part of what makes people like Polanyi (and Hayek) subject to falling out of favor and making comebacks. If people want to be uncharitable (I think of Rothbard’s memo on The Great Transformation) then they can tear Polanyi or Hayek apart pretty easily. But every so often people get past the political implications of their respective works and try to understand where they were coming from and what point they were trying to make. It’s then that they start to make a comeback as people take some of their ideas and run with them beyond what the original author said. I think some of my best ideas stem from reading dead guys!
Dan: Good point. I meant to comment on your recent Berle post as well. A lot of economists still don’t really appreciate the idea that property rights are social constructed and can take an almost infinite number of forms. Of course, I don’t necessarily see this as a rationale for government involvement either which is why I think Ostrom’s Nobel came at the perfect time. Her work is an implicit critique of hardline “cookie-cutter property rights” libertarians and “market failure = government regulation” progressives. You had mentioned that you saw little sense in separating the economy from the polity. I would probably disagree with that if I really thought about it, but I would change it up a little and say that I see little sense in separating the economy from society. Of course, its one of those “big questions” for which I still don’t have a really good answer.
In some sense though (and I say this having read summaries of Ostrom, but not her work itself, waiting on my shelf for that mythical day when I have free time), Ostrom is talking about non-state government, depending on how you define state, government, etc. One of the recent moves in some political sociology (as I understand it) has been trying to move our analysis of “politics” and “government” outside of the clearly defined formal state. In other words, a civic association may not be part of the state, but it still functions as a kind of government, and exercises political power. Ostrom is talking about the establishment of non-formal state organizations for governance (or as Berle would say, non-state political entities). Also, I believe Ostrom does show circumstances where the local organizations fail, and larger state action would be needed, right? But there are certain conditions when one is better than the other?
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I’m currently completing an independent study and the literature I had to read was The Great Transformation. I’m not sure I can explain his concepts much better than anyone else and I think everyone has made great comments so I would like to add my two cents and share what I’ve learned from the reading.
In my opinion I think Polanyi refers to LLM as fictitious commodities because when they are transformed into commodities they are detrimental to the social relationships; by social relationships I mean Humans and their relationship with nature. Polanyi argues that by institutions by nature are embedded within the social relationships of man.
However, I feel the most important reason Polanyi considers LLM fictitious commodities is because they were not initially determined by price. The self-regulating market is an institution which organizes society using price as the standard.
Land becomes a commodity as a result of the enclosure movements and the fall of the manorial system. This left a group that was socially dislocated (the rural poor to which Polanyi refers). Only the individuals who had rights to the land could do as they pleased, whereas previously there was no price associated with land, it was considered common land. Rent is the price that organizes land.
Labor is probably the easiest to understand. Labor was tied to the land, it was not mobile. Factories were not built near the people, they were built where the energy was located. To get the labor to the factors, it had to undergo commodification. Wages is the price that organizes labor.
Finally, money is the perhaps the most difficult concept to grasp as a fictitious commodity. The term “money” can have so many meaning and I often confuse them but what Polanyi argues is that prior to the nineteenth century money had neer been determined by price. There was always a standard, like gold. But when money rest upon such standards it is impossible for it to adjust to abrupt changes in price level. Once the gold-standard collapsed, price was the determining factor of money. Interest is the price that determines money.
The most important part of Polanyi’s argument is that within a historical context (and we have to be careful that we remember that he is writing during the 40′s) the self-regulating market only considers things a commodity once “price” is the determinant of their existence.