The first problem is that Polanyi sides with extreme, free-market economists who argue that the market is ‘self- adjusting’ or ‘self-regulating’ and always works best when there is no state interference (see claim 2 above).
By contrast, there is a long tradition in (both mainstream and non-mainstream) economics that has shown why markets are not self-regulating and intervention is required. Consider the writings of a multitude of writers including Arthur Pigou, John Maynard Keynes, Paul Krugman and Joseph Stiglitz. Their reasons include externalities, information problems, transaction costs, insufficient effective demand, and so on. Consequently, markets require some regulation or other intervention to work well.
The second problem is that Polanyi (like many mainstream economists) pays insufficient attention to the fact that markets require institutions such as property, contract law, a legal system of enforcement, regulation of standards and so on. Consequently, as I argue at length in my book Conceptualizing Capitalism, a modern market economy requires a state, to constitute as well as maintain a modern market system.
The third problem is that Polanyi is inconsistent. The fifth observation in the preceding section – making the important point that ‘laissez-faire itself was enforced by the state’ and required regulators ‘constantly on the watch’ to make it work – undermines the second claim that the market is ‘self-adjusting’ or ‘self-regulating’.
The fifth observation is valid and important in my view, but can be strengthened by an appreciation that the state and other institutions are required to constitute, and not simply to regulate, a modern market economy.
