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xxvi ]
Introduction
dimension with the subordination of labor and nature to the market.
In his objection to the treatment of nature as a commodity, Polanyi
anticipates many of the arguments of contemporary environmen-
talists.
12
The second level of Polanyi's argument centers on the state's role in
the economy
13
Even though the economy is supposed to be self-
regulating, the state
must play the ongoing role of adjusting the supply
of money and credit to avoid the twin dangers of inflation and defla-
tion. Similarly, the state has to manage shifting demand for employees
by providing relief in periods of unemployment, by educating and
training future workers, and by seeking to influence migration flows.
In the case of land, governments have sought to maintain continuity
in food production by a variety of devices that insulate farmers from
the pressures of fluctuating harvests and volatile prices. In urban areas
governments manage the use of the existing land through both envi-
ronmental and land-use regulations. In short, the role of managing
fictitious commodities places the state inside three of the most impor-
tant markets; it becomes utterly impossible to sustain market liberal-
ism's view that the state is "outside" of the economy.
14
The fictitious commodities explain the impossibility of disembed-
ding the economy. Real market societies
need the state to play an active
role in managing markets, and that role requires political decision
making; it cannot be reduced to some kind of technical or administra-
tive function.
15
When state policies move in the direction of disem-
12. For an indication of his influence on environmental economics, see Herman E.
Daly and John B. Cobb Jr.,
For the Common Good: Redirecting the Economy toward
Community, theEnvironment, and a Sustainable Future (Boston: Beacon Press, 1989).
13. Implicit in Polanyi's argument is a more specific critique of the market as a self-
regulating mechanism. In the case of manufactured commodities, a falling price for an
abundant commodity restores equilibrium by both encouraging increased consump-
tion
and by discouraging new production. In the case of fictitious commodities, the
effectiveness of the price mechanism is reduced because automatic increases or de-
creases in supply cannot be assumed.
14. For many other commodities as well, government involvement is a precondi-
tion for market competition. See the aptly titled book by Steven Vogel,
Freer Markets,
More Rules: Regulatory Reform in Advanced Industrial Countries (Ithaca, N.Y.: Cornell
University Press, 1996).
15. Monetarists have tried repeatedly without success to establish a fixed rule for
managing the growth of the money supply that would eliminate the discretion of cen-
tral bankers. In the absence of such a formula, the next recourse is to obscure the politi-
cal role of central bankers by attributing to them quasi-religious and oracular author-