Thinking about Economic Development

Week 4


This week we move into the world of development economics, starting with an understanding of the liberal creed which generated it.  We will  focus on the way in which thinking about change and development has evolved as described by Polanyi. In historical terms, it’s interesting that the classical economists were influenced by a unique period of economic development – the industrial revolution – which had characteristics unlike the period before or after, particularly for the treatment of the fictitious commodities (land, labour, and capital).

“…in the case of economists…their whole theoretical system was erected during this spate of “abnormalcy,” when a tremendous rise in trade and production happened to be accompanied by an enormous increase in human misery – in effect, the apparent facts on which the principles of Malthus, Ricardo, and James Mill were grounded reflected merely paradoxical tendencies prevailing during a sharply defined period of transition.” (Polanyi, ch.9)

Is it possible that the economic thinkers of that era erroneously associated creative destruction with the advances in wealth? Might political management of the destructive aspects of the transition have been possible?


This may be a parallel to the liberal economists of the 20th century, influenced by a similarly unique period of growth and movement towards greater equality after the Second World War.  Thomas Piketty (2014) in his acclaimed new book, Capital in the Twenty First Century, points to a similar problem for economists deducing the equalizing effects of capitalism over time; other factors (inflation, redistributive taxation) were at work in the periods most frequently cited.  One of Piketty’s key conclusions is that capitalism does indeed tend inexorably towards extreme concentration of wealth:

Piketty shows that modern economic growth and the diffusion of knowledge have allowed us to avoid inequalities on the apocalyptic scale predicted by Karl Marx. But we have not modified the deep structures of capital and inequality as much as we thought in the optimistic decades following World War II. The main driver of inequality—the tendency of returns on capital to exceed the rate of economic growth—today threatens to generate extreme inequalities that stir discontent and undermine democratic values. But economic trends are not acts of God. Political action has curbed dangerous inequalities in the past, Piketty says, and may do so again.” (Harvard University Press summary).

These observations are prelude to our exploration of Polanyi’s economic history and exploration of the social and political implications of that history. We’ll then turn to late 20th century thinking about economic development in the Meier and Stiglitz text.


Part II of Polanyi’s book – comprising chapters 3 to 18, is labelled “rise and fall of the market economy” and is divided into two parts: I – the Satanic Mill (chapters 3-10), and II – Self-protection of Society (chapters 11-18). 

Learning Objectives

  • Describe Polanyi’s explanation of market liberalism
  • Explain the factors that misled classical political economy thinkers (Malthus, Ricardo, Bentham, Mill) according to Polanyi.
  • Explain the double movement of market pressures and efforts to protect society
  • Explain the connection between the double movement and class conflict
  • Explain the connection between the gold standard and globalization

Required Reading

Polanyi – Notes for students (these are my notes on Block’s introduction, tying the key ideas to themes that we will explore later in the course).

  • read chapters 12 and 13 – birth of the liberal creed: what are the key elements of market liberalism?  How did 19th century England resemble 20th century Africa?  What accounts for the impact of colonialism on India?
  • skim chapters 14-16, which address the protective movements to defend man, nature, and productive organizations. what is the role of states and state formation in the protective counter-movement?  How were states enlisted in both market liberalism and in the protection of society from the depredations of the market?  What determined the balance of these forces? Consider a microcosm of institutional response-the banks faced with depression.
  • Read chapter 17. How did national military power become an essential adjunct to regulating the world economy?  Is the description of events in the 1920s and 1930s relevant to the world as you see it today?


Meier and Stiglitz

  • Read Chapter 1, Meier, “Introduction: Ideas for Development” with particular attention to  figure 1, the evolution of development thought.


We will use week 3 as a catch-up reading week now that you all have the books. For week 4, please be prepared to discuss the

Self-Assessment Questions

  1. What’s wrong with market liberalism, according to Polanyi?
  2. What factors does Polanyi think led the classical political economy thinkers (Malthus, Ricardo, Bentham, Mill) to get their analysis wrong, and why does he think Robert Owen was closer to the mark?  Looking at Owen’s experience, what factors might have helped him to understand the market operations Polanyi is describing?
  3. Are laissez-faire markets a naturally occurring phenomenon? Is economic liberalism really characterized by a laissez-faire approach to markets?
  4. consider the questions associated with the Polanyi chapters identified above.
  5. Based on Meier’s introductory chapter, what is the Meier and Stiglitz volume about, and does it complement or contradict Polanyi’s central thesis?  Consider the people writing, the timing of the book’s publication, and the 50-year time-span over which it looks back to sketch the evolutions described in Figure 1.


Seminar this week will review the readings and questions listed under required reading, and discuss the self-assessment questions.


We will also discuss the review essay, (20%) and strategies for successful completion.

David Last, updated September 2014, lastdav@gmail.com