University of California-Berkeley economic historian J. Bradford DeLong’s Slouching Toward Utopia tells the story of the breathtaking economic growth the world experienced between 1870 and 2010. While he sets his “grand narrative” against the twentieth century’s not-so-brilliant political (and military) history, it is the “forced marriage” of Friedrich Hayek’s free markets and Karl Polanyi’s social democracy that, for Delong, accounted for the progress of this century. Yet for Delong there’s a Hayekian serpent lurking in the Edenic garden: The neo-liberal turn in the 1980s and 1990s unhitched the ruthless logic of the market system from its social democratic buffers. This, in turn, reestablished parallel conditions for a repeat of the nationalist (and fascist) “countermovement” Polanyi identified as the populist reaction to the anti-human logic of the nineteenth century’s “autonomous” market system. Paradise lost. Again.

DeLong rehearses numerous descriptive statistics detailing the remarkable increase in living standards over the last century relative to living standards before the 1870s. It is a compelling report of data that are well known among economists but certainly merit broader public attention. The distinctive contribution of DeLong’s account rests, however, not on further publicizing well-known data, but on the persuasiveness of what he calls his Grand Narrative. Unfortunately, DeLong’s grand narrative is ideology rather than description or explanation. He underreads both Polanyi and Hayek and neglects the connection between dramatic recent gains in living standards in lesser developed countries and the rising inequality in the West that he laments.

Whatever is causing the rise of populist and nationalist movements across the world today, Polanyi himself explained eighty years ago why the cause cannot be a repeat of factors setting the stage for fascism’s rise that he discussed in The Great Transformation.

The Intersection Between Polanyi and Hayek

The fundamental problem with DeLong’s account is that he pits Polanyi and Hayek against each other as Manichean opposites. They aren’t.

DeLong rehearses the oft-repeated claim that all was going well with post-World War II economies until the “neoliberal turn” marked by the rise of Margaret Thatcher and Ronald Reagan in the late 1970s and 1980s. This, the argument goes, reestablished the autonomous market system that Polanyi inveighs against in The Great Transformation, with the corollary prospect of again repeating today the (mainly) fascist “countermovements” the world saw in response to the inhumanity of the nineteenth-century laissez-faire market system.

Despite the frequent repetition of this claim (both by leftwing critics of “neoliberalism” and by rightwing “postliberals”), the evidence does not support it. Writing in 1944, Polanyi already declared that the “self-regulating market” had ended. And the government programs and policies that ended the self-regulating market by the 1940s are modest compared with today’s social insurance and regulatory policies. This is true even accounting for the modest tweaks in the relative mix of markets and government implemented during and after the 1980s.

Moreover, the post-war consensus was not a “shot-gun marriage” of Hayek and Polanyi as DeLong repeatedly asserts. On matters of fundamental principle, there was substantial overlap between Polanyi and Hayek, even as they—and we—continue to argue, sometimes vehemently, over the best mix of markets and government in today’s mixed economies.

Post-War Economies Never Came Close to Reestablishing Polanyi’s Autonomous Market System

Polanyi recognized (as does DeLong) the “almost miraculous improvement” in economic production during the nineteenth century. Polanyi did not criticize markets but rather criticized what he termed the “market system”—a term of art synonymous with laissez-faire economics. (Hayek explicitly rejected laissez-faire markets as well, as discussed below.)

So, too, Polanyi expressly observed that “the end of market society means in no way the absence of markets.” Polanyi sounds almost Hayekian in recognizing the informational value of markets and market freedom. He wrote that even without the autonomous market system, markets would nonetheless continue “to ensure the freedom of the consumer, to indicate the shifting of demand, to influence producers’ income, and to serve as an instrument of accountancy.”

Polanyi even underscored that in his social market system there was a “sense” in which markets would remain “self-regulating, since they tend to produce a price which clears the market.”

The Manichean dualism of DeLong’s “grand narrative” gets in the way of his (often) commendably humble sub-narratives.

Polanyi recognized the social value of markets and their role in signaling changes in relative supply and demand. Polanyi’s problem with the market system was not the market itself. Rather, it was the rate at which market-induced change could outstrip the human ability to adjust to those changes in a timely fashion.

Polanyi was explicit that the problem with the autonomous market system was not the change that markets induced, but rather the rate or pace of that change relative to the ability of humans to adapt to that change:

Nowhere has liberal philosophy failed so conspicuously as in its understanding of the problem of change. … It should need no elaboration that a process of undirected change, the pace of which is deemed too fast, should be slowed down, if possible, so as to safeguard the welfare of the community.

Polanyi’s central thesis could quite literally be expressed by an equation (forsooth!) comparing relative rates of change (the bane of first-semester calculus students everywhere): “The time-rate of [economic] change compared with the time-rate of [social] adjustment will decide what is to be regarded as the net effect of the change [on society].”

Because “markets for the elements of production—labor, land, money” were no longer “self-regulating” by the time he wrote in the 1940s, Polanyi concluded that “the end of [the self-regulating market] has come in our time; it closes a distinct stage in the history of industrial civilization.”

The autonomous market system he identified had been destroyed by the time he wrote because government policies regulated wages, labor, and land, thereby removing them from the vagaries of autonomous control by the market, social insurance programs had been widely implemented, and the gold standard had been eliminated.

In the decades after the 1940s, none of these policies were reversed in the West. Rather, regulation and social insurance policies increased significantly throughout the 1960s (and beyond). So much so that by the 1970s and 1980s there was broad concern even in left-wing parties that regulatory and social insurance policies had overshot their marks and were costing societies more at the margin than they benefited societies.

Hence the attention to nudging the proportions of the mixture in Western mixed economies during the Thatcher and Reagan years. And it was only an argument about nudging relative proportions in order to optimize the mix of government and market. Even after this ostensible neo-liberal turn, regulatory and social insurance policies remained significantly expanded relative to the benchmark policies of the 1940s, policies that prompted Polanyi to declare the death of the autonomous market at that time.

The mixed economies of the 1950s and 1960s remained very alive in the 1970s and 1980s, and remain very much alive in the 2020s. Whatever policy concerns there are regarding economic policies today—and there are important concerns—we need to look elsewhere for their cause than to a putative neoliberal revolution in the 1970s and 1980s, a revolution that, despite the rhetoric of advocates and detractors, never really occurred.

Hayek Explicitly Rejected Laissez-Faire Economics

DeLong presents Hayek as a “Dr. Jekyll and Mr. Hyde” genius. DeLong repeatedly acknowledges appreciation for Hayek’s central insight that markets aggregate and communicate diffuse and decentralized information, allowing for coordination of human economic behavior far better than systems of centralized planning.

At the same time, DeLong repeatedly criticizes Hayek’s “Mr. Hyde” ideological commitment to the market. It is “ideological” because, according to DeLong, it is an unwavering faith to be implemented irrespective of the market’s human cost: “Hayek and his followers … thought the market could do the whole job and commanded humanity to believe in ‘the market giveth, the market taketh away, blessed be the name of the market.’”

DeLong argues that Hayek’s blind, ideological faith in the laissez-faire market ranks it with the twentieth century’s two other “overwhelming, totalizing” ideologies, that is, communism and fascism. While DeLong concedes that an ideological commitment to the laissez-faire market was the “tamest” of these three destructive ideologies, nonetheless, these “three ideologies confronted each other” between the world wars, “demanding fundamental reworking of economy and society.”

The thing is, Hayek rejected in root and stem any ideological or “rationalist” commitment to laissez-faire markets. He dismissed laissez-faire policies as antithetical to the incrementalist, empirically-driven philosophy he advocated.

Governments, Hayek believed, ought to ground their policies in an accurate perception of human nature. To his mind, a reductive vision of man as “homo economicus” did not belong to the incrementalist traditions of Adam Smith and Edmund Burke which he commended, but rather belonged to the rationalist ideology of Jeremy Bentham, John Stuart Mill, and French radicals that he excoriated.

Hayek consistently underscored in his philosophy that arguments over specific policies “are quite different from the general argument for economic freedom” and criticized the substitution of ideological, a priori appeals to laissez faire for contingent, empirically-driven policy argument.

The overlap between what Hayek and Polanyi advocated is more than trivial.

Start with Polanyi’s three legs of the autonomous market system, that is, that markets alone set prices for land, labor, and money (meaning the gold standard). Hayek accepted the value of land-use regulation (recognizing the possibility of negative externalities from nuisance uses), legal regulation of labor hours and working conditions (as well as minimum-income support and unemployment insurance), and government control of monetary policy.

Recall that Polanyi argued that all three of these pillars needed to exist simultaneously for his autonomous market system to exist. Yet not one exists in Hayek’s policy system.

To be sure, Hayek argued that policymakers will want carefully to weigh costs and benefits of different policies. But Hayek argued that government policies should be based on a comparison of costs and benefits, not on a blind commitment to the market no matter the costs and benefits.

What Hayek rejected was the pretense of comprehensive governmental economic planning and industrial policies. But the scope of incremental, mixed-economy policies Hayek endorsed was broad. He expressly acknowledged that his system would allow everything from state-run enterprises and government provision and subsidies for public goods, to programs providing for old-age insurance, unemployment insurance, and medical insurance, as well as broad regulatory action for the common good. He even recognized the need for government actions to stabilize the macroeconomy and prevent or mitigate depressions.

To be sure, I have no doubt that Hayek would argue with Polanyi on the appropriate measures for judging the costs and benefits of particular policies aimed at reducing the human cost—the externalities—of rapid economic change. But they could have an evidence-based discussion. Any honest Polanyian would agree that there is a large scope of latitude when seeking to craft policies that would optimally mitigate social dislocation stemming from the “time-rate of [economic] change compared with the time-rate of [social] adjustment.”

Both Hayek and Polanyi embrace a mixed economy even if they might quibble on the precise mixture.

But the point is, contrary to DeLong and numerous other critics of Hayek, that Hayek and Polanyi could have a reasonable discussion regarding the evidence for the relative merits and drawbacks of competing policy alternatives aimed at addressing the costs of the economic transformation Polanyi identified. There was no need, as DeLong suggests there was, for a marriage to be “forced” between Hayek and Polanyi.

DeLong’s Ideological Blinders

The Manichean dualism of DeLong’s “grand narrative” gets in the way of his (often) commendably humble sub-narratives. Among these, DeLong concedes that economists aren’t sure what accounts for faster and slower economic development, he concedes that the success of Franklin Roosevelt’s Depression-era policies were ex ante “unexpected,” and he concedes that perhaps there are no policies that could have extended the long, remarkable century of economic growth.

In our modern-day mixed economies the best we can do is just muddle through, experimenting with one incremental policy tweak after another, given that we’re constrained to drive the economic car by looking out the back window at the road we’ve already driven. Even with incremental adjustments there are bound to be crashes. The trick is to minimize the number of those crashes and the damage done when they happen, as they inevitably will.

This is DeLong at his best. When DeLong indulges his grand narrative, however, speculation is presented as a sure thing. Thus “the Great Recession of 2008-2010 … revealed the emptiness of the claims that … neoliberal technocrats had finally gotten the problems of economic management right.”

Yet if there were no black-and-white turn to neoliberalism in the 1970s and 1980s, but rather only an incremental re-mixing of state and market proportions in our mixed economies, then DeLong’s grand narrative would align with his more modest subnarratives: There weren’t “neoliberal technocrats” but mixed-economy technocrats. And whatever the promise of a mixed economy—and, remember, both Hayek and Polanyi embrace a mixed economy even if they might quibble on the precise mixture—it cannot abolish booms and busts even if and as it seeks to mitigate the human costs.

So, too, ironically, DeLong risks turning Polanyi’s account of the Great Transformation into ideology. Just as the human cost of the autonomous market led to the rise of fascist nationalism in the 1920s and 1930s, in DeLong’s account the “neoliberal” turn in the 1970s and 1980s (that actually wasn’t) has led to the parallel countermovement of rising nationalism.

Yet Polanyi provides an account of the causes of World War II in The Great Transformation, he does not claim to provide an universal account of nationalism, a phenomenon that both preceded and postdated the great transformation and whose causes should not be limited to economic factors only.

Finally, DeLong treats the abstraction of economic inequality as an intrinsic problem. The ideological tell is DeLong’s obsession with inequality in the abstract.

Is economic inequality a problem? The answer is, it depends. Many Americans seem to envy billionaires rather than resent them. The issue is not their billions but how their billions were made. Entrepreneurship is one thing; rent-seeking is quite another.

Further, while DeLong notes the dramatic decline in extreme poverty worldwide, and commendably devotes a portion of his analysis to the economies of the “global south,” he ignores theories that would account for simultaneously opposite economic trends in north and south. For example, the Stolper-Samuelson theorem (and corollaries) provides a theoretical account for the simultaneous rise of capital returns in the global north (and, hence, increasing economic inequality in the north) and the rise of wages in the global south with commensurate decreasing economic inequality there.

DeLong ascribes a Dr. Jekyll and Mr. Hyde quality to Hayek. Yet I wonder whether DeLong is projecting. For much of his book, DeLong sticks to what descriptive economics and economists do know and, just as importantly, what they don’t know; in those sections DeLong channels the modesty of the profession. But its the modest conclusions are the economist’s “on the one hand maybe this, on the other hand maybe that.” DeLong’s “Grand Narrative,” however, indulges his own ideological Mr. Hyde. The result is that he does justice neither to Polanyi’s nor Hayek’s arguments, nor to the substantial overlap in their views.