You are on page 1of 23

HAYEK VERSUS POLANYI: SPONTANEITY AND DESIGN IN CAPITALISM Rafael Galvo de Almeida (UFSCar/Sorocaba) Ramn Garca Fernndez (UFABC)

Abstract: This paper studies the concept of spontaneous order, its development through many schools of economic thought and its importance for the society of our days. We begin to discuss this idea looking at the work of Friedrich Hayek, since he proposed the most well-known conceptualization of spontaneous order, which came out of the economic calculation debate of the 1930s; this led to his research about the role of the information on the economy, which is dispersed through the economy. The most mature version of his work can be found in Law, Legislation and Liberty, in which he also discusses practical applications. As a counterpoint to the Hayekian perspective, we include some criticisms of this concept, and accordingly we look at the contributions of Karl Polanyi on this issue. Polanyi diverged from Hayek about the role of the market in the society, as he proposed that societies protect themselves from the invasion of the market in the other social spheres, through the process he called double movement. For the last part, we conclude that, despite some relevant objections, it is fruitful to maintain the concept of spontaneous order, stressing that Polanyis double movement itself can be considered a manifestation of the spontaneous order. On the other hand, we emphasize that this spontaneous order at some moment needs to be institutionalized with some rules, so we consider that anarchism, in its libertarian or its leftist perspectives, are self-defeating proposals. Keywords: spontaneous order, double movement, Friedrich Hayek, Karl Polanyi, invisible hand JEL: B25 B31

Samuel Bowles wrote that one of the great challenges in the social sciences is to understand how aggregate outcomes are [almost] often different from anyones intent (BOWLES, 2003, p. 57). One of the explanations used to give an answer to this question involves the concept of spontaneous order. This concept is fundamental in many discussions about social phenomena, being utilized to explain the working of the market, the emergence of diverse habits, et cetera. The main objective of this paper is to discuss the importance of this concept to understand the workings of different societies, by comparing the perspectives of Friedrich Hayek and Karl Polanyi. This paper is divided in five sections: the first is a historical introduction, covering the precursors of the concept in the Medieval Ages, the Scottish Enlightenment, and the Austrian School; in the second, we discuss Hayeks vision and the role of the spontaneous order in his thought; in the third, we appraise criticism to the concept of spontaneous order, especially to the Hayekian one, formulated by different

authors; in the fourth, we discuss the importance of Karl Polanyis work for this debate; in the last one, the conclusions are given.

1. The notion of spontaneous order

Firstly, it must be given a brief definition of spontaneous order. The New Palgrave Dictionary of Economics defines spontaneous order as a recognizable pattern that is produced by a process that is neither directed by deliberate design nor created for a specific purpose, though it may produce useful results (BOETTKE & DIRMEYER, 2008). Thus, processes that can be considered as originated by spontaneous order happen every day, and the market is the most known example of this kind of process, as it is the place where most people consider that the invisible hand makes its movement. The notion of spontaneous order can be traced to some philosophers in Antiquity. Boehm (1994) affirms that there are vestiges of similar ideas in Aristotle and, centuries later, in Aquinas. But the first drafts of a more defined theory were advanced in the XVI century Spain, thanks to the School of Salamanca, an important center of the philosophical thought during the XVI and XVII centuries. This school aligned itself with the flourishing commercial practices in the epoch; it contrasted with the Medieval Catholic thought, in which the businessman was seen as an inferior worker1; the School of Salamanca provided a way to legitimize the commercial practices in the Catholic context when they affirmed that commerce could organize itself, without the necessity of continuous State interventions, which were seen with a skepticism similar to the modern Austrians. During the XVII century, Barry (1982) affirms that there occurred two very important developments for the spontaneous order tradition: the first was the acknowledgement of the Common Law as the basis of the British legal system, thanks to the efforts of the jurist sir Matthew Hale; the Common Law based its jurisprudence on customs and practical rules. The second was the scientific revolution, whose progresses allowed a better comprehension of the physical world, among those progresses Newtonian physics being the most significant. An important trait of the Newtonian model is that it allowed a rational explanation of Nature, without any intervention of man, as Bianchi (1988) wrote:
In the Protestant countries, there already was a legitimization of their practices, when they elevated the social status of the businessman, as it was classically studied by Weber (1967).
1

The great dissemination of the Newtonian physics made Nature to be seen as a system of plainly articulated forces, capable of understanding, mensuration and manipulation [] Dr. Quesnays Tableau Economique, from 1758, although inspired on the movement of the blood flow, explains in an unequivocal way a mechanistic conception of the economy. In a diagram of three columns, with six starting and finishing points, the economic domain is represented as a harmonic set, in which each part executes an irreplaceable function among the whole. It is the machine-universe, the clock-universe of impeccable working, separable in elements of extreme complexity, but, in principle, accessible to the senses and capable of being measured. The Medieval pretension of knowing essences and causes is abandoned at last while, at the same times, Mathemathics is kept as the great working tool in the practice of empirical sciences. (BIANCHI, 1988, p. 76, our translation).

In 1705, a Dutch physician residing in England, Bernard de Mandeville, shocked the public opinion with his poem named The Grumbling Hive. The polemic rests in the fact that Mandeville tells us the story of a hive in which its winged inhabitants were selfish, jealous, knaves indeed, but where the natural vices of each one contribute to the global prosperity of the hive. Thus the conclusion was that, when everyone minds its own life, be by vices or virtues, the society will prosper, a thing that intelligent rulers can and must use to their own favor. But Mandeville alerted to the abuse of this selforganization; for him, there was an automatic mechanism that conducts to a reorganization of the public order so that only when this tacit, moral mechanism failed, it reaffirmed its power and would authorize the political intervention to reestablish the order (DUMONT, 1977 p. 79)2.

Adam Ferguson, considered one of the precursors of Sociology and a member of the Scottish Enlightenment, defends in his work An Essay on Civil Society

Basically, Mandeville challenged the Aristotelian supposition that good laws make good citizens, although Machiavelli was the first to do that (BOWLES, 2003, p. 475). It must be observed, though, that this is not a work to be easily interpreted because it was conceived as a satire to the moralist campaigns of the time, it did not had any pretense of being a scientific work, but later he wrote a piece explaining with more detail his thought (see DUMONT, 1987, pp. 61-81).

(FERGUSON, 1819) that the commercial society would emerge spontaneously from the adjustment of people to the circumstances. His description is on the second section of the third book, named The history of political establishments, and it fits very well in the modern definitions of spontaneous order. He seeks to describe how societies evolve, from the barbarian stage to the commercial society, but, differently from Hobbes, he does not emphasize the existence of a social contract, only proposes that this order is achieved by interchange and combination of interests. But still, Ferguson was skeptical over the social result of this process; he believed the commercial society could alienate man from ethical values, like public spirit and chivalry, and soon self-interest alone could not hold any society together. Adam Smith is another great representative of this current. The invisible hand, for him, presupposes that order is created, independently of the will of statesmen or merchants, but, when a more accurate analysis of his work is done, we see that it only could be a good thing if the State could calibrate it. Camargos (2001) comments that:

If the statesmen would opt by Smiths approach, he would, first, to have the historic knowledge of his own nation to understand the behavior of the population, in response to its motivation and take in consideration that: 1) the good social result is essentially selfregulated by the forces of the market and social institutions; and 2) in eventual market failures, is a duty of the State to make institutional adjustments and improvements necessary to lessen and correct them. In other others, the invisible hand of the markets explains the good social result, but with the help of the good and fair hand of the State. And, of course, all this terms must be apprehended according to what was exposed by Smith. (CAMARGOS, 2001, p. 134,our translation3).

Although there exist uncountable interpretations, the consensus is that Adam Smith supported the generation of national welfare by decentralized means, i. e., without the State intervention, but at the same time he was not ignoring it entirely; after all, a body, visible or invisible, has two hands, not one4.
3 4

We thank Pedro Limeira for pointing us this reference. What Adam Smith meant by invisible hand still is subject of heated discussion, to the point of being considered a research sub-program of the spontaneous orders, thus it will be treated superficially in this work. Grampp (2000) counts nine different interpretations (among them, a theory that the invisible hand was just a joke from Adam Smith), before enunciating his own (p. 450).

During the entire XIX century, during the pinnacle of the utilitarianism, the spontaneous order research program was ignored. The utilitarianism, as systematized by Jeremy Bentham and the two Mills, considered that the objective of the government was to increase the welfare of the society through the elaboration of laws and institutions, showing little concern for the spontaneous results of the human interaction. Among the few who still believe in the spontaneous self-organization as the best answer to social problems, were Frderic Bastiat, Herbert Spencer and their followers (Barry, 1982), but, in the late XIX century, Carl Menger founded the Austrian School, that renewed the interest for the perspective.

2. Hayek and the Austrian School

In his work Problems in Sociology and Economics, contrary to the current thought, Carl Menger said that the behavior [of the social aggregates] can be explained only individualist terms Language, religion, law, even the state itself [] we cannot properly speak of purposeful activity of the community as such directed at establishing them. (apud BARRY, 1982, p. 34)5. Their focus is the individual. In their vision, only the individual is real; society is the net result of the individual actions (CLARK, 1993, p. 375), and thus, it is the individual who can contribute the better for the social result; in other words, if every individual acts on his own advantage, the aggregate result will be beneficial. For this reason, the actions of the individual cannot suffer interference, and, consequentially, the Austrians see the State with a lot of suspicion. For them, the State should not continuously interfere in the process of decision of the individual, nor coerce him, because the social result will be sub-optimal. Nowadays, a group of thinkers even more radical seceded from the Austrian school to found the anarcho-capitalist school, which preaches the elimination of the State for the efficient working of the market society6 One of the most influential members of the Austrian school, Friedrich Hayek, proposed an interpretation of the working of society in which the concept of spontaneous order was crucial to its functioning.

One favorable point to consider the language as emerging from a spontaneous order process is the practical failure of a built language to develop, like the Esperanto. 6 As a classic example, see Rothbard (1973).

Hayek was without doubt the greatest exponent of the concept of spontaneous order in the 20th century. But, to understand the origins of this perspective, it is necessary to consider his intellectual development. His main motivation to study Economics was the contrast between the opulence of the Austrian elites and the abundant poverty after the First World War. Initially, he considered himself as a Fabian socialist, but he was attracted to the Austrian school by Ludwig von Mises, of whom he would become disciple. Although, according to Caldwell (2006, p. 171) his stub of an idea on spontaneous order appeared for the first time in a lecture titled The Trend of Economic Thinking, in which he suggests a mechanism that coordinates economic activity that was not invented or planned, but it was the socialist calculation debate that helped Hayek to cement his position. This debate started when Ludwig von Mises published in 1920 an article in which he bluntly affirmed that it is impossible for a centrally-planned economy to work efficiently. Caldwell (1997) affirmed that Mises had in mind one of the proposes of Otto Neurath, who had said that the economic planning of the wartimes could be taken forward in peaceful times, through a national accounts system (no relation with todays term) that would serve every need of each person or firm; in such a situation, money would be dispensable and the economy could work without money. Since von Mises was a monetary theorist, and one of the beliefs of the Austrian school is that money emerged through a process of spontaneous order, he rejected this argument7. On the contrary, von Mises affirmed that Where there is no free market, there is no pricing mechanism; without a pricing mechanism, there is no economic calculation (MISES, 1920), in other words, only in a market that was not controlled by a power like the State, the agents can freely establish prices, make transactions and attain stability, something that a socialist central planner could ever do. The argument of the socialists was that the socialist government could emulate the qualities that they considered positives from the market using the power of the state to promote welfare in a society, theoretically, without classes. Henry Dickinson believed that, through the Walrasian model, optimal quantities and prices could be calculated in any economy, either socialist or capitalist. So, the problem was to build the adequate model (apud CALDWELL, 1997). But the economist that advanced the most profound and well-known socialist argument was Oskar Lange. In his article On the

The argument of a moneyless economy did not please other socialists either.

economic theory of socialism, written in 1936, he argued that if the prices could be understood as opportunity costs, terms in which alternatives are provided, the fixation of prices would not be a peculiarity only of the capitalist system (idem). Thus, in a socialist economy, prices would be given by a central planning board. With this, firms would not exist to maximize profits, but to furnish goods to the society, following the criteria to each one his needs, and the entry and exit mechanism would be emulated by expansion or contraction of the activity. Problems in the price fixation would be corrected by trial-and-error. A free market for consumption goods would exist, but the market for capital goods would be controlled, to eliminate the source of inequality. It is interesting to note that, later, Lange devoted his efforts to the study of Statistics8 and Cybernetics, because he believed that advances in Computer Science would allow the planner to elaborate a computational equation system that, to put in simple terms, would solve the system of equations of an economy. An attempt to put this idea to work was the Cybersyn project, developed during the presidency of Salvador Allende, in Chile in the early 1970s9. In his reply to Lange and the socialists, Hayek purported to show how difficult it is to obtain the necessary information for such undertaking; he pointed out the difficulties to formulate the equation, and emphasized how incapable such system would be to adapt to unexpected changes; to summarize, it would be a useless effort to try to create a complete Walrasian model of the economy to build an artificial fair price system for the nation. In two articles, Economics and knowledge (1937) and The use of knowledge in society (1945) he argues that no central planner has sufficient information to decide what is better to society, because the concept of [general] equilibrium is of no significance (HAYEK, 1937, p. 36)10. The problems lies within the expression given data, that is a concept relevant for the theoretical model, but that cannot be applied to reality. Thus, Hayek started to develop a theory without the possibility of a general equilibrium in the economy. According to Hayek, it would lack to the central planner not only the knowledge of the necessary information to make the calculation, but besides he would not know how to determine which of those possible calculations would be effectively useful.
Lately he became one of the fathers of the Econometrics. For a more recent defense of the Marxist point of view, see COTTRELL & COCKSHOTT (1993). 9 For more information, see MEDINA (2006). 10 It must be considered that in the same article Hayek said that the only equilibrium that could work in an economy was the individual equilibrium from which the individual could make his consumption choice and that Lange did believe that the Walrasian model was an accurate representation of the society
8

The most well-known of his endeavors against the socialist thought was the book The road to serfdom (1944). The main thesis of the book is that if the society delegates the control of the means of production to the State, even in perfectly democratic conditions, this decision would lead to the loss of individual liberties and to the domination of the statist ideology, and that would lead to the withering of the individual capacity of decision. For him, individual liberty is non-negotiable11, because only a society with a competitive market could flourish. However, in this book he did not touch the question of the knowledge, but its presuppositions are implicit, as when he says that competition is a method to coordinate efforts without coercive intervention.12 The aftermath of the debate was that Lange proved that a planned socialist economy could work with the Walrasian framework, since Lange believe that it was an accurate model of the economy (BURCZAK, 2006, p. 32); in 1967 he wrote that it was simply required to put the simultaneous equations on an electronic computer and we shall obtain the solution in less than a second (LANGE, 1967, p. 158). This solution may look easy, but Hayeks critique is still valid in the age of the digital economy. Among other problems, as Medina, commenting the failure of Cybersyn, reminds us (2006, p. 604) that [L]abour, in particular, did not behave as just another factor of production, but rather as a corpus of self-conscious individuals able to criticize and resist state operations; in other words, effort cannot be easily included in a production function, something Marxian economists should know better. But Hayeks critique goes further. According to him, the market is a system in which the individuals would be more prepared to react to unpredicted shocks, and because of this, it would work better than a planned economy. The market is the result of an order that does not need a planner, it would be capable of regulating itself, launching the basis for the concept of spontaneous order, that he would develop some years after the end of the Second World War. The Hayekian concept of spontaneous order is better developed in Law, Legislation and Liberty (1973) and represents his attempt to create guidelines for a
For Hayek, one of the main functions of the State to guarantee individual freedom when, for example, impede the formation of monopolies. Different from what many Austrian economists argue, Hayek admitted that monopolies could form during the competitive process, and concludes that the term laissez-faire is a highly ambiguous and misleading description of the principles on which a liberal policy is based (HAYEK, p. 84). Caldwell (2003) suggests that Hayek would not approve events like the illfated post-Soviet privatization in Russia. 12 It must be said that The road to serfdom was a book of its time. The people that Hayek quoted in his book proposed policies that he considered too interventionist; his fears however seem not to become true with the Welfare States in Europe.
11

liberal society. It must be noted that this series of books was the answer to a challenge that Keynes had proposed him. Keynes said him that he agreed with the overall philosophy of The road to serfdom, but he warned that Hayek underestimated the practicality of the middle term between economic planning and market (LOPES & ALMEIDA, 2012). For Hayek, there are two ways to evaluate the structure of human activities: the constructivist rationalism and the social evolutionism. He considers the first perspective as improper for social analyses. The rationalist constructivism13 has its origin in Descartes, but its intellectual ascendance can be traced back to the ancient Greek philosophy. To Descartes reason was defined as logical deduction from explicit premises, rational action also came to mean only such action as was determined entirely by known and demonstrable truth (HAYEK, p. 10) Thus, an institution elaborated with an explicit mathematical planning14 should be superior. The rational and intentional action of the human being could create better institutions and replace the ancient ones that, derived from customs and traditions, would be excluded if they could not be rationally preserved, because they also would be derived from an ancient, and probably outdated, planning. Hayek rejects this idea by criticizing exactly this point; he explains that many social institutions are actually the result of customs, habits or practices which have been neither invented nor are observed with any such purpose in view (p. 11). Due to the fact that society is ruled by complex phenomena, it is impossible to have control of all relevant facts. To build a better explanation of the development of the institutions, he goes to the Darwinian theory of evolution15 as a model to explain cultural evolution. Having understood that organisms evolved according to unique and complex environmental conditions and that, because of this, it would be impossible to predict the direction of the evolutionary line, Hayek adapted this concept to explain the characteristics of the culture and institutions of the different human societies. In the society, the conditions are given by the environment and by the development of norms, transmitted from individual to individual, from generation to generation, and the permanence of an
This term was created by Hayek as an umbrella term and is apparently used only by his followers. Remembering that Descartes was also a mathematic and it is credited by elaborating the Cartesian plan in the analytic geometry. In the age of polymaths, taking to Politics his advances in the mathematical area would be a mere logical stop of his philosophy. Bresser-Pereira (2009, p. 496-497) reminds that he observed that mathematics is the only discipline that is endowed with evidence and certitude, and suggested that these criteria should be applied to all sciences. 15 Or, as Caldwell (2002) would say, Lamarckian, although Hayek referred to the Darwinian one.
14 13

institution is justified by the utility that generates to the group. The norms that rule over society can or cannot be true in the Cartesian sense, because it would impossible to determine in an exact way (p. 25). With this, Hayek concludes that there is a false dichotomy between the artificial and the natural that exists since the Greek philosophers16. But this dichotomy is false in the sense that there exists a third category of phenomena that, using Adam Fergusons words, result of human action, but not the execution of any human design (ibid. p. 27; original17, FERGUSON, 1819, p. 222). For Hayek, the concept of order can be divided in two types, borrowing some Greek terms: taxis, a noun which refers to the planned order, called by us organization, and kosmos, called by us spontaneous order or even organism18. The organizations would be created by human intervention and planning and would exogenous to social interactions. An example would be the organization of an army; if soldiers acted independent of each other, they would suffer great losses. On the other hand, the spontaneous order is Hayeks focus. The importance of the concept resides in the fact that, as explained through the paper, this order is obtained by individual interaction of millions of independent individual, without creating anarchy. But, to Hayek, the organizations are integrated in a bigger and more complex spontaneous order that gives form to the society and it is this complexity that condemns the rationalist constructivism to fail in producing a free society.

3. Opposition to the concept of Spontaneous Order

The spontaneous order is an overarching concept and its meaning cannot be completely consensual. It will be exposed in this section the counterpoint to this perspective: the vision that institutions emerge fundamentally as a result of a process administered by the human beings themselves. Ever since Adam Smith (and before) worked out his invisible hand principle, there have existed some criticisms addressed to this concept. Malthus, in his book Principles of Political Economy, wrote that it is impossible for a government to let things follow their own way, without restrains. Besides, he also argued that existence of events like excess of supply or general gluts,
16

The Greek terms were physis and thesis (or nom), that meant, respectively, by nature and by convention. 17 Actually, Ferguson attributed this phrase to Cardinal Jean Gondi de Retz (1612-1679). 18 Since Hayek prefers to see the society as an organism.

evidenced the limitations of the auto regulation of the market (apud HODGSON, 1996, p. 67). Marx (2011) affirms that, for the primitive accumulation process can be effective and expand the capitalist production, it is necessary to create a specific legislation. The bourgeoisie, at its rise, wants and uses the power of the state to regulate wages, i.e., to force them within the limits suitable for surplus-value making, to lengthen the working-day and to keep the labourer himself in the normal degree of dependence. This is an essential element of the so-called primitive accumulation. (MARX, 2011). For this reason, as the bourgeoisie dominates the government, more the laws will turn the society to the capitalist image, in which, the lot of the labourer, be his payment high or low, must grow worse (idem). In this vision, the economic institutions do not emerge from a spontaneous order process, but occurs through the imposition of capitalist mechanisms. Bromley (2006) considers institutions as being the architecture of the social existence and argues, with a tone of hostility, that the concept of spontaneous orders is nothing but a fairy tale mechanism (p. 41)19. Any market is a social construct, and changes in the parameters of that construct new institutional arrangements are also human creations (p. 33). For him, in a way akin to Hayek, the collective action is also important to the relations between market and society, in general. We would say that the economy is always in the process of becoming (p. 40), and he also rejects the general equilibrium approach. But the collective action can only flourish in a legal regime, with active participation of the government, to guarantee rights and to create new economic institutions. Due to the inherent complexity and the existence of other types of transactions beyond the bargain, the managerial and the rationing ones (according to Commons classification), the government must interfere, to create institutions to deal with them20. Institutions constitute that constructed order (p. 41). Differently from the usual argument, Bromley suggests that institutions do not only constrain human actions, but also can expand them, creating a new field of human action, in other words, they can increase, instead of diminish, the individual freedom.

This is so real that the author does not stop to analyze the concept and its implications, treating it as something unimportant to the economic science, just an error in the best of the hypothesis. 20 Bowles (2003) built a model that opens the hypothesis that property rights can have emerged spontaneously, without government interference. Anyway, Bromleys point is that government is always necessary, at least ex post, to guarantee that this accord be respected.

19

In a similar vein, Sandefur (2009a) concludes that there is no way to actually distinguish a constructed order, in rationalist constructivism terms, and a spontaneous order, because this evaluations depends in the eye of the beholder. He gives us an example: a school must construct sidewalks in the grass fields to make easier the circulation of students. Normally an architect would plan the sidewalks according to what he believes that is better, but an architect basing his philosophy on Hayekian principles would wait a year to observe where the grass would be more stomped by the spontaneous trampling down on the grass and then he would pour down the concrete. The problem is that the architect has to pour down the concrete someday and, in the moment he does this, he can be considered a rationalist constructivist that interferes in the spontaneously created order. For Sandefur, the great problem with the concept of spontaneous order is that, in spite of being an excellent descriptive concepts, has no normative power and there is no way to condemn coercion, because coercion can be present in supposedly spontaneous arrangements. The reason centralized planning and government coercion is wrong is not because it disrupts spontaneous order, but because freedom is a good, something to which all people are justly entitled (SANDEFUR, 2009b). For him, interventions in the market are wrong because they can impede the consumer to exercise his right of choice, not because it interferes in a supposed spontaneous order21.

4. Karl Polanyis thought

Karl Polanyis main work was The Great Transformation, in which he delineates his thought. For Polanyi, a market economy is an economy directed by market prices and nothing but market prices (POLANYI, 2000, p. 45). But he argues that, in spite of the millennial existence of the markets, no society had its economy controlled by the market up to the Industrial Revolution. The economy was part of the society, so, in spite of the search for profits, there would have a social preoccupation with the situation of all its members; in this perspective it would not be correct to say that there exists a natural propensity to barter, as Adam Smith suggested. The exchange between the societies would have started mainly by means of war and piracy and they would have

Curiously, the ideological vision of these three authors, Marx, Bromley and Sandefur, are very different. The first writes with basis on the socialist political economy, the second on the original institutionalism and the third on the American classical conservatism.

21

evolved to the market, a more pacific form to acquire goods in many cases. But, after, with the development of a market society, the phenomena inverted instead of the economy being embedded in social relations, social relations are embedded in the economic system (p. 60). The self-regulated market would emerge when the economic sphere separated from the society, as said in the last paragraph. This was only possible thanks to the transformation of land, work and money into commodities, ones that Polanyi defines as fictitious, because they were not made to be bought and sold. This also emphasizes the artificiality of the market economy, which could be attained through institutional changes drove by the government. The argument of the spontaneity of the market is utilized to justify those who have the power in the market (CLARK, 1993) and to have an excuse to justify the excess of social inequalities. In the end, the self-regulated market mechanism would be an offence to human freedom and dignity (THOMASBERGER, 2006). Polanyi did not hesitate to say how much the liberal economic theory failed to understand the Industrial Revolution, because they separated the economy from the society. Fired by an emotional faith in spontaneity, the common-sense attitude toward change was discarded in a favor of mystical readiness to accept the social consequences of economic improvement, whatever it might be. (POLANYI, P. 35). To Polanyi, the modern commercial society did not emerge from an evolutionary process, but from an imposition from the wealthy classes. He turns to the British history, because it was the incubatory of the commercial society and because it was the place where the Industrial Revolution happened. From the XVI century, with the first wave of enclosures, the seeds of the process arose and they would grow in the Industrial Revolution, as the enclosures advanced, wiping out the common lands. This would lead to an increase in the supply of wool, which would be used in the textile sector, creating the Revolution at the cost of the dismantlement of the previous system. Polanyi points that the enclosure process, started in the XVI century, promoted a big reorganization of the English society, and the social cost of this reorganization was too high, since the peasants lost their land to the wool production. He argues that the English society did not destroy itself thanks to the intervention of the State, which allowed it to endure the transition process started by the enclosures, helping the families and imposing legislation (and even disrespecting it) to allow a level of control of the process. But those actions of the Crown harmed the capitalist, who needed the free

trade, and they rose to the power with Cromwell. There was a clear contradiction between economic progress and social disarticulation, the transition imposed a considerable cost over the English society by the dismantlement of old institutions and creation of new ones. During the process, society did not remain passive in face of the changes; there was a network of measures and policies was integrated into powerful institutions designed to check the action of the market relative to labor, land and money (p. 98). This process, to impose restriction, either by the regulation or other instruments, with or without the State presence, to the market of fictitious goods, together with the development of the national and international commerce happened during this time and can always happen. This process is named double movement, the self-organization of the society, sometimes with the help of the government and sometimes in spite of it, to protect people and land against the disintegrating forces of the market system (Gregory Baum, Karl Polanyi on Ethics and Economics, apud ZEL, 2007). And through the double movement, the social cost of transition could attain supportable levels, which would not need to involve the society in a conflagration, like a civil war or other kind of social crisis22. Slowly, liberalism became a creed. It started as a simple attempt to eliminate some laws and regulations, but later it hit the entire economy. But, again, none of this evolved naturally. The thirties and the forties saw not only an outburst of legislation repealing restrictive regulations, but also am enormous increase in the administrative functions of the state (POLANYI, p. 145). There was a firm participation of the State to attain some level of regulation to allow the laissez-faire to become an active principle of the economy. Definitely a paradox, while laissez-faire economy was the product of deliberate State action, subsequent restrictions on laissez-faire started in a spontaneous way. Laissez-faire was planned; planning was not (p. 147). In the end, Polanyi concluded that the liberals had to turn against the liberalism. In the end, Polanyi argues that this process of double movement was what destroyed the society created in the XIX century, already damaged during the First World War and crushed during the Great Depression; this is what allowed the ascension of fascism and
Obviously, there were registers of social agitation in XIX century England, but in any moment there was menace of a civil war, as Polanyi demonstrates in the beginning of the book. The concept of double movement could have some influence from Marx, but for this author the capitalist society would weaken and fall due to his internal contradiction. History showed that the capitalist reaction was much more efficient to serve the social demands because, exactly, of the double movement, that allowed the capitalist society and a relatively open market exist, at least in some countries.
22

socialism, both consequences of the double movement process. Thus, the self-regulated market would be a rationalist construct23 (p. 258). According to Polanyi, the market ideology, as it refused to acknowledge the reality of the society24, made possible to open ways for fascism and socialism, because both of them recognized the reality of the society. It is likely to conclude that the market threatened the society and so it, as a whole, preferred to resign autonomous and personal freedom for the protection of the State, when it supported the fascists and dictatorial governments. Polanyi, however, argues that in a society in which the market participates of the social sphere, it is possible to preserve all the freedoms, including those defended by the liberals, in a collective way, with the inclusion of all individuals in the society molded by human will and wishes.

5. Conclusion

And so, we arrive at the thrilling conclusion and again it could be asked to us: why can it be worthwhile to compare the ideas of two authors whose ideas are so different? Firstly, we called the attention to the likeness of some of their biographical aspects. Both Hayek and Polanyi were contemporaneous at the end of the Austro-Hungarian Empire (Hayek was Austrian and Polanyi was Hungarian); both served in the Gemeinsame Armee during the First World War; and both started to study Economics to try to provide solutions to the poverty of the Viennese people, as in Vienna, as we mentioned above, there was a strong contrast between the opulence of the rich elites and the poverty of the lower classes during the post-war. Both men identified themselves with the socialist answer during the beginning of the 1920s, but they took different paths from then on. Both of them embraced the German Expressivism that, according to zel (2007), studies the institutions as realizations of the social expressions25, even considering that their methodological approaches differ from each other. Both had to flee from their homelands and adopted England and, later, the USA. Both published their masterpieces in 1944, they accepted the most harsh consequences of their theories without making concession, were ardent defenders of the democratic rule and studied
Any resemblance with Hayeks rationalist constructivism can be mere coincidence. It would be funny if it were not. 24 When Thatcher said there is no such thing as society, it was exactly to this what Polanyi referred to. The liberalism tends to consider the society as a multiplicity, in other words, only the individual has real existence, and the social orders are result from the individual interactions. (CLARK, 1993). 25 See zel (2007) for more details.
23

institutional change, avoiding to fall into what Midgley called the escalator myth, the view that every change, biological or technological, is also a moral advance and that it leads mankind to a single inexorable process of improvement (MIDGLEY, 1985, p. 6). Some of these points as well as others were raised by Migone, who also compared these two author and explained why this comparison is relevant:

The Hayekian and the Polanyian approaches represent different strands of a long-standing intellectual tradition of social interaction that concerned itself with the effects of modernization and economic rationalization on society [] In other words, the Polanyian and Hayekian traditions represent the two poles of the tension inherent in the modern capitalist market: the need to reconcile individual freedom with social stability, to assure capital accumulations and the reproduction of the working class, all within the demanding constrains of liberal democracy and market economies. (Migone, 2006, p 109).

This also attests the disparities between the two. Hayek as a stubborn defender of the free market system, advanced the minimal intervention of the State in all the areas of society, although he was far from being a representative of the most radical incarnation of liberalism, the anarcho-capitalism. For Hayek, a strong State was a minimal State, and the economy could provide a better level of welfare if there was no interference in the economy, not even to create money (Hayek proposed a complex system, in which banks would compete for the creation of money, in The Denationalization of Money). Hayek also rejected the idea of social justice, a conclusion that is a logical and undeniable consequence of his philosophy26. Michael Polanyi, who was Karl Polanyis liberal brother27, criticized Hayek for [addressing] an age obsessed by the fear of mass unemployment while turning an indifferent eye on this problem (POLANYI, 1949, p. 267). Indeed, Burczak (2006, p.57) says that there are hidden costs to Hayeks position that show how the rule of law is non-neutral and that inequality may emerge in a market society and can reach untenable levels if let unchecked because the market outcome may be systematically biased against the poor.
Lister (2011) affirmed that Hayeks criticism of social justice is based on one definition of social justice and that is possible to build a Hayekian theory of social justice based on its similarities with the position of John Rawls. 27 Michael Polanyis theory of tacit knowledge plays a role in conceptualizing the spontaneous order, but it will not be addressed in this paper due to space constraints.
26

Karl Polanyi, on the other hand, was a non-Marxist socialist28; he defended that if the society let the market work alone, it would dig its own grave. His main argument was that society defends itself from the intrusion of the market in the spheres of social life by the process of double movement, and he insisted in the defense of this perspective despite some criticism to it. The main criticism is that archeological discoveries29 were incompatible with his arguments about the role of the market in ancient societies, since those discoveries would testify the existence of much more developed and self-regulated market than he supposed that existed. According to Muukonen, Polanyi was a primitivist, who believed that cultural factors dominate economy and in ancient societies the economy was embedded in to the rest of the society and serve other purposes than getting profits (MUUKONEN, 2009), and according to him primitivism is largely rejected today (idem). Peter Drucker, one of the greatest business scholars and friend of Polanyi, observed that, according to these new discoveries, he became a very disappointed man, the more he dug into prehistory, into primitive economies and into classical and preclassical antiquity, the more elusive did the good non-market society become (CARLSON, 2006, p. 38)30. Let us go back again to Adam Fergusons definition which, in spite of being proposed in the XVIII century, is the simplest and most explainable of the definitions: spontaneous order is the process in which certain institutions emerge through the human action, but not through human will. However, this does not allow us to determinate until which point the institutions are created by spontaneous order or, in other words, it does not tell us which parts of societies should be let to self-regulate themselves and which parts must have active intervention of the government or any other coercion mechanism, like cooperatives31? This work indeed concludes that there are institutions that emerged through a process of spontaneous order, even if an uncontroversial definition of spontaneous order

The relation of Polanyi with Marxs legacy is far from linear; Polanyi certainly considered Marx as one of his mains intellectual influences, but criticized different and important issues of his work and his attitudes (Polanyi-Levitt, 1994). 29 Polanyis main works after The Great Transformation deepened his analysis of the ancient society in the sense of developing the issue. His vision of the markets role in ancient societies was criticized by many authors. For instance, Hejeebu & McCloskey (1999) cite many scholars of ancient cultures who encountered little evidence of mainly administered prices. North (1977) reconsiders the example of the Kulas, which Polanyi used, and gives a different interpretation, based on later studies. 30 This claim is controversial, as it would be obviously expected. For example, Tandy (1997) emphasizes that Polanyis insights are still correct, although his most emphatic positions need some revisions. 31 Boehm (1994, p. 300) mentions that the only institution that can be affirmed there is a consensus to say it emerged through spontaneous order is the Language.

28

does not exist. Societies work with the interactions of the billions of individuals that inhabit our planet, and each interaction modifies these societies, even if it is a just little bit, be it the customer buying a loaf of bread in the bakery or the government issuing a law. The idea of spontaneous order calls our attention to the complexity that any society involves, little by little, becoming something different from what it was some time before. And here is where resides the criticism that Hayek directed to the socialists in the economic calculation debate: the central planning board could not encompass the economic complexity in order to calculate the optimal and unequal allocation of welfare, as it could not hold all the tacit, dispersed and incomplete knowledge of its society. In this sense, the market would be more efficient in taking advantage of the tacit, dispersed and incomplete knowledge to mobilize resources and create institutions to take advantage of a determined face of the knowledge, in a way more efficient than any central planner (LOPES&ALMEIDA, 2012). A conclusion is that the market, when working relatively well, is really a place in which pacific and fair exchanges can be realized without the need of intervention, even in spite of a certain level of market failures. Lister (2011) correctly reminds us that one thing that Hayek showed is that markets and private property rights are important not just because they are efficient at producing wealth, but because they involve people with very different values and purposes managing to cooperate in generally beneficial ways, despite their many disagreements about how society ought to allocate its resources. The main consequence of this view is that it allows the individuals to act independently and to pursue their own goals, emancipating the individuals and giving them a free range of action. However, and to preserve this individual autonomy, society needs to organize itself as to restrict the market to its own sphere, something thart leads us to the double movement described by Polanyi. Mechanisms of planning and coercion are not exclusive to the government, as Sandefur (2009a) shows in his example, comparing a government that determines that every employee has to have a healthcare plan with the manager of a firm who determines his employee should do the same. The necessity of a State is indispensable32 As it was said above, perhaps the biggest criticism to Karl Polanyis argument rests in his confidence in the primitivism. It can be argued that the double movement is a specific kind of spontaneous order, because the resistance to the penetration of the
Actually, it can be proved using the Hayekian cultural evolution theory that the State evolved organically, but this is beyond the scope of this paper.
32

market in social life starts in a decentralized way. And through the propagation mechanisms studied in Bowles (2003), individuals are driven to a focal point and can demand protection, through revolution or through changes in the law33. The acknowledgement that the double movement is spontaneous could help to solve some problems in both authors: the double movement would have a much more solid base than primitivism and there were a justification to give space to social questions in Hayeks theory, because the demand for social justice would emerge spontaneously, according to its own directives. A secondary conclusion is that, since the State is the main agent capable to attend social demands, whether for more freedom to the self-regulation of the markets or for a bigger restriction to their action, it cannot be simply dismissed. This criticism allows us to propose that all the research programs based on any form of anarchism (anarchosindicalism, anarcho-primitivism, anarcho-capitalism, among others) should be considered, in lakatosian terms, degenerative, because if the double movement did not occur democratically, it will occur authoritarianly. This is what Polanyi tried to show in The Great Transformation, to explain the rise of fascism and the increased weight of socialism as alternatives to the perceived failures of capitalism in the 1930s. For this reason, society must be careful with the double movement process. Thus, anarchism must be rejected as a reasonable and viable political alternative34. We expect that this discussion can evolve to develop a better comprehension of the institutions we have today. Sugden (1988) enumerates three reasons to justify the study of the concept of spontaneous order: a) through the price mechanism and the conventions existing everywhere, the market is a place in which this concept has fundamental importance; b) this concept allows us to understand better models of bounded rationality; c) the concept helps to understand where and how beliefs emerge. This is a problem that involves much of the fundamentals of the society and of the capitalism and utilizing Orwellian arguments of right-is-good-left-is-bad, and viceversa, does not allow the dialogue to progress.

Bibliography

Note that Sandefurs dilemma occurs once more; when the spontaneous order is recognized and institutionalized (cemented), it ceases to be spontaneous. 34 What is what actually happens in the real world.

33

BARRY, Norman. The Tradition of Spontaneous Order. Literature of Liberty, vol. 5, n. 4, 1982, p. 7-58. BIANCHI, Ana Maria. A pr-histria da economia: De Maquiavel a Adam Smith. So Paulo: Hucitec, 1988. BOEHM, Stephan. Spontaneous Order. In: HODGSON, Geoffrey; SAMUELS, Warren, TOOL, Marc, eds. The Elgar Companion to Institutional and Evolutionary Economics L-Z. Aldershot: Edward Elgar, 1994, p. 296-301. BOETTKE, Peter & DIRMEYER, Jennifer. "Spontaneous order". In DURLAUF, Steven N. & BLUME, Lawrence (eds.)The New Palgrave Dictionary of Economics, 2008.(Online edition, 3/15/2011). BOWLES, Samuel. Microeconomics: behaviors, institutions and evolution. Princeton: Princeton University Press, 2003. BRESSER-PEREIRA, Luiz Carlos. The two methods and the hard core of economics. Journal of Post-Keynesian Economics, vol. 31, n. 3, 2009, p. 493-522. BROMLEY, Daniel. Sufficient reason: volitional pragmatism and the meaning of economic institutions. Princeton: Princeton University Press, 2006. BURCZAK, Theodore. Socialism After Hayek Ann Arbor: Michigan University Press, 2006. BUTLER, Eamonn. A contribuio de Hayek s idias polticas e econmicas de nosso tempo. Rio de Janeiro: Instituto Liberal, 1987. CALDWELL, Bruce. Hayek and Cultural Evolution. In: MKI, Uskali, ed., Fact and Fiction in economics: models, realism and social construction. Cambridge: Cambridge University Press, 2002. ______. Hayek and Socialism. Journal of Economic Literature, vol. 35, 1997, p. 1856-1890. CAMARGOS, Luiz Rogrio. Estado, Mercado e Resultado Social: Reflexes sobre o paradigma da mo invisvel. So Paulo: Annablume, 2001. CARLSON, Allan. The Problem of Karl Polanyi. The Intercollegiate Review, 2006, p. 32-39. CLARK, Charles M. A. Spontaneous Order versus Instituted Process: The Market as Cause and Effect. Journal of Economic Issues, vol. 27, n. 2, 1993, p. 373-385. COTTRELL, Allin & COCKSHOTT, W. Paul. Calculation, Complexity And Planning: The Socialist Calculation Debate Once Again. Review of Political Economy, vol. 5, n. 1, julho de 1993, p. 73-112.

DUMONT, Louis. From Mandeville to Marx: The Genesis and Triumph of Economic Ideology. Chicago: Chicago University Press, 1977. FERGUSON, Adam. An Essay on Civil Society. Philadelphia: A. Finley, 1819. (Electronic Edition: Google). HAYEK, Friedrich. Law, Legislation and Liberty: Rules and Order. Chicago: The University of Chicago Press, 1983. ______. Economics and Knowledge (1937), In: _____. Individualism and economic order. Chicago: University of Chicago Press, 1980. ______. Individualism: True and False (1945a), In: _____. Individualism and economic order. Chicago: University of Chicago Press, 1980. ______. The Road to Serfdom. London: Routledge, 2007. (1944). ______. The Use of Knowledge in Society (1945b), In: _____. Individualism and economic order. Chicago: University of Chicago Press, 1980. HEJEEBU, Santhi & MCCLOSKEY, Deirdre. The Reproving of Karl Polanyi. Critical Review, vol. 13, n. 3-4, 1999, p. 285-314. HODGSON, Geoffrey Martin. Economics and Evolution: Bringing life back into economics. Ann Arbor: University of Michigan Press, 1996. LANGE, Oskar. The Computer and the Market. In: FEINSTEIN, C. H. Socialism, capitalism and economic growth: Essays presented to Maurice Dobb. Cambridge: Cambridge University Press, 1967, pp. 158-161. LOPES, Tiago Camarinha & ALMEIDA, Rafael Galvo de. Por que Keynes no participou do debate sobre o clculo econmico socialista. IV International Congress of the Brazilian Keynesian Association, So Paulo, 2012. LISTER, Andrew. The Mirage of Social Justice: Hayek Against (and for) Rawls. CSSJ Working Papers Series, june 2011. MANDEVILLE, Bernard de. The Fable of the Bees, Available at http://pedagogie.actoulouse.fr/philosophie/textes/mandevillethefableofthebees.htm 09/28/2012 [1714]. MARX, Karl. Capital: A Critique of Political Economy, Volume I, Chapter XXVIII. Available at http://www.marxists.org/archive/marx/works/1867-c1/ch28.htm, 09/28/2012 [1867]. MEDINA, Eden. Designing Freedom, Regulating a Nation: Socialist Cybernetics in Allendes Chile. Journal of Latin American Studies, vol. 38, p. 571-606.

MIDGLEY, Mary. Evolution as a Religion: Strange hopes and stranger fears. London and New York: Methuen, 1985. MIGONE, Andrea. Globalization between the Hayekian and Polanyian perspectives: Spontaneous order or embeddeness? 2006. 334 f. Thesis (PhD in Political Science) Simon Fraser University, Burnaby, Canada, 2006. MISES, Ludwig von. Economic Calculation in the Socialist Commonwealth. Disponvel em http://mises.org/pdf/econcalc.pdf , acessado em 15 de fevereiro de 2010 (1920). MUUKONEN, Martii. Karl Polanyi and The Double Movement. 9th Conference of European Sociological Association, September, 2009, Lisbon. NORTH, Douglass. Markets and Other Allocation Systems in History: The Challenge of Karl Polanyi. Journal of European Economic History, vol. 6, p. 703-716. ZEL, Hseyin. Four Horseman of the Apocalypse! Marx, Weber, Schumpeter and Polanyi. II ICAPE Conference: Economic Pluralism for the 21st Century, 2007, Salt Lake City. POLANYI, Karl. The Great Transformation. Boston: Beacon Press, 2001[1944]. ______. Our Obsolete Market Mentality: Civilization Must Find a New Thought Pattern. Commentary, vol. 3, 1947, pp. 109-117. POLANYI, Michael. Review: Individualism and Economic Order by F. A. Hayek. Economica, vol. 16, n. 63, 1949, p. 267-268. POLANYI-LEVITT, Kari (1994). Karl Polanyi as Socialist. In McROBBIE, K., ed., Humanity , Society and Commitment: on Karl Polanyi. Montreal: Black Rose, p.115-134. ROTHBARD, Murray N. For a New Liberty. New York: Macmillan, 1973. SANDEFUR, Timothy. Some problems with spontaneous order. The Independent Review, vol. 14, n. 1, 2009(a). ______ Is know it when I see it enough? Cato Unbound, 22 de dezembro de 2009, disponvel em http://www.cato-unbound.org/2009/12/22/timothy-sandefur/isknow-it-when-i-see-it-enough/ , 2009 (b), acessado em 25 de maro de 2010. SMITH, Adam. Riqueza das Naes. Traduo de Norberto de Paula Lima. [S. L.]: Hemus 2003. SUGDEN, Robert. Spontaneous Order. Journal of Economic Perspectives, vol. 3, n. 4, 1989, p. 85-97.

TANDY, David W. (1997). Warriors into Traders: the power of the market in Early Greece. Berkeley & Los Angeles: University of California Press. THOMASBERGER, Claus. The Economic Society: Market results and human purposes. Tenth Annual Conference of the European Society for the History of Economic Thought (ESHET), Porto, 2006. WEBER, Max. A tica Protestante e o Esprito do Capitalismo. SP: Pioneira, 1967.