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The Economistic
Fallacy
KarlPolanyi
Endeavorsto attaina more realisticviewof thegeneralproblemposed to our
generationby man'slivelihoodmeetfromthe outsetwitha formidableobstacle-
an ingrainedhabit of thoughtpeculiarto conditionsof lifeunderthat type of
economythe nineteenthcenturycreatedthroughoutall industrialized societies.
This mentalityis personifiedin the marketing mind.
We wish to point out, in a preliminaryway, the fallacies to which the
marketingmind has givencurrencyand, incidentally, to expound some of the
reasonswhythesefallacieshave influencedpublicthinking so pervasively.
Firstwe will definethe natureof thisconceptualanachronism, thendescribe
the institutional
development from which it sprangand on
enlarge itsinfluence
on our wholemoraland philosophicoutlook.We willtracethereflections of this
attitudeof mindin the organizedfieldsof knowledge,such as economictheory,
economichistory,anthropology, sociology,psychology,and epistemology, that
makeup thesocial sciences.
Such a survey should leave no doubt about the impact of economistic
thinkingon almosteveryaspect of the questionsthatconfrontus, notablythe
*The "Economistic Fallacy" is Chapter I of Karl Polanyi's posthumous The Livelihood of Man (d.,
HarryW. Pearson) soon to be publishedby Academic Press.It is part of a book which Polanyi had been
workingon for severalyears,but was unable to completebeforehis death in 1964. The forthcomingbook
consistsof mostlyunpublishedmanuscriptsthatPolanyiintendedto includein The Livelihood of Man. The
"Economistic Fallacy" was one of the early chaptersand was completedby Polanyisometimein the early
or mid-1950's.
EconomicRationalism
On the face of it, the economisticWeltanschauung may have seemed to
containin its twinpostulatesof rationalismand atomismall thatwas neededto
lay the foundationsof a marketsociety.The operativetermwas rationalism.For
whatelse could such a societybe otherthan an agglomeration of humanatoms
behavingaccording to the rulesof a definite kind of rationality?Rationalaction,
as such, is the relatingof ends to means; economic rationality,specifically,
assumesmeans to be scarce. But humansocietyinvolvesmore than that.What
should be the end of man, and how should he choose his means? Economic
rationalism, in the strictsense,has no answerto thesequestions,fortheyimply
motivationsand valuationsof a moral and practicalorderthatgo beyond the
logicallyirresistible,but otherwiseempty,exhortationto be "economical."Thus
hollownesswas camouflagedby ambiguousphilosophicalcolloquialism.
To maintainthe unity of the facade,two furthermeaningsof rationalwere
broughtin. Withregardto the ends,a utilitarianvalue scale was postulatedas
rational;and withregardto the means,the testingscale forefficacywas applied
by science. The firstscale made rationalitythe antithesisof the esthetic,the
ethical, or the philosophical; the second made it the antithesisof magic,
superstition, or plainignorance.In the firstcase, it is rationalto preferbreadand
butter to heroic ideals; in the second, it appears rationalfor a sick man to
consult his doctor in preferenceto a crystal-ballgazer. Neithermeaningof
rationalis relevantto the principleof rationalism,thoughper se one may be
morevalid than the other.Whilestarkutilitarianism, withitspseudophilosophic
of
balance pain and pleasure,has lost its sway over the mindsof the educated,
the scientific value scale remains supreme within its limits.
Thus utilitarianism,
still the opiate of the commercialized masses, has been dethroned as an ethic,
whilescientificmethodjustlyholds its own.
Nevertheless, so long as rationalis used, not as a fashionabletermof praise
but in the strictsenseof pertaining to reason,thevalidationof the scientifictest
of means as rational is no less arbitrarythan the attemptedjustificationof
utilitarianends. To sum up: the economicvariantof rationalismintroducesthe
scarcityelementinto all means-endsrelations;moreoverit posits as rational,in
regardto the ends and the means themselves,two different value scales that
happen to be peculiarlyadapted to market situations but otherwise have no
universalclaim to be called rational.In this way, the choice of ends and the
choice of means are claimedto lie underthe supremeauthorityof rationality.
Economic rationalismappears to achieve both the systematiclimitationof
reasonto scarcitysituationsand its systematicextensionto all humanendsand
means, thus validatingan economistic culture with all the appearances of
irresistiblelogic.
The social philosophyerectedon such foundationswas as radicalas it was
fantastic.To atomize societyand make everyindividualatombehaveaccording
to the principlesof economicrationalismwould, in a sense,place the wholeof
humanexistence,withall its depth and wealth,in the frameof referenceof the
market.This, of course,would not reallydo - individualshavepersonalities and
societyhas a history.Personalitythriveson experienceand education;action
impliespassion and risk;life demands faithand belief; historyis struggleand
defeat, victory and redemption.To bridge the gap, economic rationalism