The coming of the Karl Polanyi economy?

Karl Polanyi (1886-1964) is one of the key classical theorists serving as the foundation of economic sociology. His main point, in simple terms, was that economic markets are "embedded" within a social context. That in practice, economic markets work according to these social relations rather than their own self-regulating mechanisms.

While this 'embeddedness' theory has been significant in shaping economic sociology, it hasn't taken hold in the study of economics more generally. The idea dominant here is that markets work most efficiently when separated from society, that is, when markets are left to their own supply-and-demand devices. This 'neoliberal' or 'market equilibrium' perspective has been for some an analytical position and for others an ideological, or political, perspective.

To say the least, however, the current economic crisis is putting the market equilibrium perspective in peril and, as every day goes by, it is making the 'embeddedness' perspective more legit.

The following example jumped out to me. Just seconds ago, hearing interesting words, I turned my head toward a debate on CNBC. The debate was about executive compensation. CNBC reporter Steve Liesman was in the camp seeing "systemic risk" unless executive pay gets placed under firmer control. What really struck me was the reason he gave for holding this position. I am paraphrasing here, but he said:

We can all agree that from an entirely capitalist or free-market perspective executive pay limits is a bad thing. But the fact is, capitalism exists in a context where there is the right thing to do for capitalism and the right thing to do more generally. For everyday people to regain confidence in capitalism they are going to have to see that the right thing more generally is being done.

I've talked about this point before, but one of the biggest upheavals the current crisis is going to have on American society is it is going to force changes in what is recognized knowledge. It used to be that 'let the free market do its thing' was the recognized best way of running capitalism. Now, because of changes in reality, recognized knowledge could swing toward Karl Polanyi and his ideas about how to make markets more stable and good for society. Mr. Liesman, whether he knows it or not, just gave an eloquent statment in favor of the 'embeddedness' perspective.

To learn more about economic sociology, try starting with this article by Prof. Richard Swedberg, one of the leading practicioners of the 'embeddedness' perspective.