Essay on "Polanyi Means by Fictitious Commodities"

Essay 4 pages (1443 words) Sources: 1+ Style: MLA

[EXCERPT] . . . .

Polanyi means by fictitious commodities and the role of these commodities in the development of industrial nation.

For Polanyi, there is a distinction between real and fictitious commodities. Real commodities are designed to be bought and sold on the open market and range from everything from apples to automotive parts. Fictitious commodities are land, labor, and capital and are social constructions. Land is nothing more nature, subdivided by arbitrary human laws. Labor is human activity, assigned an arbitrary value called a wage. Money has no real intrinsic worth out of the context of government activities. Modern industrial society treats these false commodities as if they are real, but they do not really exist out of the context of a modern nation-state.

Only through administrative laws does land ownership have any meaning -- property can be redistributed and/or taken away if the government is overthrown. A minimum wage can be set upon labor, or a wage cap, and wages in general only have meaning if money has a value, as workers are paid in money for their time laboring. Their payment is partially determined by demand, partially determined by the government, not necessarily by any intrinsic merit of their occupation. Hence the immorality inherent in the capitalist system -- that a teacher will receive less money than an investment banker, for example.

Polanyi observes the tremendous influence states have in orchestrating industrial capitalism. Without the existence of a national bank regulating interest rates, for example, money would have much more fluid in value, and without any state at all, money would just be pieces of paper, or IOUs. But according to die-hard advocates of capitalism, the free market should be left to regulate itself -- when it suits their needs. Educating workers, adjusting the supply of money and credit, are all ways in which the fictitiousness of money, labor, and land, are made evident, as all of these are necessary to give value to land, labor, and capital. Markets are also far from self-regulating mechanisms (Polanyi, Stiglitz&. Block xxvi). In fact, the free market economy is highly planned.

Question 2: Describe three reasons why governments might intervene into market economies. Be sure to include a discussion of why markets might fail to achieve an efficient outcome and discuss the actions governments might take to correct these failures.

The first and perhaps most obvious reason for government intervention is a total market failure. In the case of the reconstruction of the planned economies of the Soviet Union and Eastern Europe, paradoxically there was a need for government intervention to create a viable currency, to organize the privatization of state institutions, and to create a market economy of private banking and financing. Another reason for the need for government intervention is manifest in our own era, namely an epidemic of asymmetries of information in the form of the shadow banking system, where individuals made investments that were far riskier than they thought -- for example, buying shares of 'blue chip' bank stocks, that were seen as safe, although the banks were heavily invested in the subprime mortgage market.

The only way to remedy asymmetries of information is through regulation -- for example, mandating greater transparency about investments, limiting the amount of risks banks can take, and exercising more vigorous oversight over free market activities. The idea is to create a more stable system for the legitimate workings of capitalism through government intervention. A similar theory is behind anti-trust laws, which limit market consolidation to facilitate competition and realistic prices. In some other instances, like environmental damage, consumers and business' actions must also be regulated, because their actions will have implications upon future generations in a way individuals cannot incorporate into their calculation of why they should or should not purchase certain goods.

Another reason for government intervention is also manifest today, namely when the market has failed to correct itself after an economic downturn. The Federal Reserve Bank can lower interest rates to encourage borrowing and spending, and the government can engage in stimulus spending and tax cuts to create jobs and stimulate spending. To curtail inflation, the government would do the opposite. The idea is to cushion the negative effects of the business cycle and to create a state of market equilibrium.

Question 3: In a recent Foreign Policy article, eight… READ MORE

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