Institutional Economics and the Crises of Capitalism

Abstract

This chapter is concerned with institutional change in market capitalist society. The history of this social order is one of persistent crises. These appear in myriad guises and levels such as aggregate stabilization crises, environmental and resource crises, crises of demographic adjustment, urban crises, and the crises faced by laborers, business enterprises, or local communities faced with economic obsolescence. Institutional change has largely consisted of reactive response to one or another such crises.

The idea of a self-adjusting market implied a stark utopia. Such an institution could not exist for any length of time without annihilating the human and natural substance of society … Inevitably, society took measures to protect itself but whatever measures it took impaired the self-regulation of the market, disorganized industrial life, and thus endangered society in yet another way.

K. Polanyi, 1944.

Nowhere has liberal philosophy failed so conspicuously as in its understanding of the problem of change … The elementary truths of political science and statecraft were first discredited, then forgotten … erased from the thoughts of the educated by the corrosive of a crude utilitarianism combined with an uncritical reliance on the alleged self-healing virtues of unconscious growth.

K. Polanyi, 1944.

Reprinted from the Journal of Economic Issues (1977) by special permission of the copyright holder, the Association for Evolutionary Economics.