Markets as ‘causal spread’: How the early neoliberals anticipated embodied cognition – Michael Polanyi fragment

Here is the second fragment on early neoliberalism. The previous post being on Hayek, this one is on Michael Polanyi. Both built their approach to the world upon their abhorrence of the Soviet Union – a position that was unfashionable among intellectuals at the time. But where Hayek used his powerful refutation of central planning to take him where the argument could not reasonably stretch – to support laissez-faire – Polanyi was guilty of no such overreach.

Michael Polanyi and polycentrism

Like virtually all the important early neoliberals, Michael Polanyi was an émigré from central Europe. Polanyi’s training was in chemistry and from the early 1930s he became increasingly concerned at the idea that scientific development could be directed by the state – as the Soviet Union aspired to do and as Western left-wing intellectuals urged upon the West. He began writing against this tendency at about the time Hayek was articulating his own thinking about the centrality of information to the functioning of the economic system. But Polanyi’s concept of polycentricity provides a way into the question of distributed knowledge that is more general and parsimonious than Hayek’s elaboration of the way in which markets harness distributed knowledge for economic good. 

Citing the image below in Figure 1 of a physical object made of straight rods and fastenings at the nodes, Polanyi asks us to imagine stressing it – as one would a model of a bridge – by nailing the top node to some fixture and hanging a weight from it as illustrated in Figure 2. 

Figures 1 and 2

To work out the configuration of Figure 2 ‘monocentrically’, a singular intelligence would need to calculate all the stresses between each rod, not just directly but also indirectly through all the other rods. This cognitive task would be immensely complicated. And here we are thinking of a simple object subject to well-understood forces. In fact, the object is a functioning polycentric order. That is, one only need stress it by hanging a weight from it as illustrated in Fig 2 and it becomes an analogue computer solving polycentrically what was so complex to solve monocentrically. Each of the elements of the object adjusts to the stress. None has the ‘full picture’ but the various parts of the object ‘calculate’ an efficient response to the stress.

A wide range of formalized polycentric problems of which the solutions lie beyond the power of exact calculation can be solved by a suitable method of approximation, which is of great interest to us as it represents a perfect paradigm of coordination by independent mutual adjustments. The method consists in dealing with one centre at a time while supposing the others to be fixed in relation to the rest, for that time.1

The example Polanyi chooses to illustrate polycentricity would work perfectly in the embodied cognition literature as an example of what in that literature is called ‘causal spread’. That is, the causal mechanisms that lead the organism to perform in some way arise not simply from a brain at the centre cognising reality and effecting some intention by sending out millions of instructions to the various parts of the body to respond. Rather, the organism’s cognition of the world and its response, are distributed through that organism and/or its environment. 

Polanyi’s point is that science is a polycentric order in this sense; that it comprises numerous nodes of intelligence (scientists and teams of scientists) all operating autonomously but each mutually adjusting itself to others’ views and outputs. And as he makes clear, thinking of markets as polycentric orders offers a compelling way to reprise the arguments of the socialist calculation debate about the superiority of polycentric market economies to monocentric centrally planned ones.


  1. 1.

    Polanyi, Michael, 1951, The Logic of Liberty, Routlege, pp. 170-1. He’d earlier described the economy in similar terms:

    Each interaction tends to a new mutual adjustment in the sense of a somewhat increased satisfaction to the consumer, as expressed by his own preference; and the series of continuously repeated mutual inter-actions tends to produce a distribution of resources in which each element of a resource is used by producers to the greatest satisfaction of the consumers, as expressed by their demand curves. The result may be called a dynamic order of production, because it is an arrangement of great complexity and usefulness, achieved by a series of direct lateral adjustments between individual producers making independent decisions. 

    He goes on:

    The social legacies of language, writing, literature and of the various arts, pictorial and musical; of practical crafts, including medicine, agriculture, manufacture and the technique of communications; of sets of conventional units and measures, and of customs of intercourse; of religious, social and political thought all these are systems of dynamic order which were developed by the method of direct individual adjustment, described for Science and Law.

    Polanyi, M., 1941. The growth of thought in society. Economica, 8(32), pp.428-456, p. 436,8.[]

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paul frijters
paul frijters
4 years ago

“None has the ‘full picture’ but the various parts of the object ‘calculate’ an efficient response to the stress.”

hmmm. In what way is it efficient? What is being described is that there is a reaction to changes by individual parts determined by a hugely complex set of inter-relations. But in what way is that reaction efficient? Social systems react, yes, but not always for the better. There is a leap of faith being made here.

I tend to think of markets as local opportunism. There is a lot of discovery in that as to what others want (which you can think of as good) but also as to how one can get away with stealing from the collective (not so good).

Paul Frijters
4 years ago
Reply to  Nicholas Gruen

yes, the notion of spreading the cognitive load by chopping a large problem into smaller bits each individually addressed by a specialised unit of course happens via markets but also via planning and bureaucracy. Indeed, bureaucracy can be rather good at tackling very complex problems by hacking it into smaller units. Think of armies and space programs. Not sure I’d call it embodied cognition.

I have been wondering whether morality is not a good example of this embodied cognition stuff. Like language, people dont have full morality maps in their heads, but rely on many others in their group to help tell them what they should think about things. The whole group has an implicit morality, but none that any individual can really articulate. Still, it is a morality that addresses many different situations and hypotheticals. One could say that the whole has a cognition (ie, a knowing) that the smaller units do not have but that arises from the different bits.

Paul Frijters
4 years ago
Reply to  Nicholas Gruen

“Thus in markets prices offer a system of cognition whereby those in the order can identify value and an incentive to capture it. In culture – if we’re to assume they’re driven by Adam Smith’s sympathy – that sympathy is a cognitive resource (how we understand others) and affective, motivating us to behave in particular ways. That’s causal spread. ”

I get the first bit (prices as a system of cognition, ie as-if results from a hugely complex programming problem disseminated throughout the system allowing everyone to act as-if they know how it all fits together). But I dont get the second bit: sympathy as a cognitive resource within culture. I guess I could think of it as individuals using shaming and praising as individual price signals, leading to a kind of social market price for behaviour. Is that what you mean? Social norms as prices, really, with similar functions and origins?

And where’s the cognitive/affective resource aspect in this? I can see prices as cognitive information on the motivations of the collective, but what’s affective about prices?

Btw, on a tangent, much of what is supposedly neoliberalism is really about the resurrection of the idea of individual merit of the winners. In the era of nobility, there was the idea of merit through combat and noblesse oblige. In the era of the market, there is the idea of the interepid and worthy entrepreneur. One of the surprises is that so few rich people actually look like intrepid entrepreneurs. Most dont look like that at all. Neither intrepid, nor alone, nor innovative. Most, instead, look like system-people. Polanyi might not have had this in mind (I dont know – never read him), but the apologists for the rich certainly have interpreted the Austrian school that way. However, this a tangent: the powerful will always find a myth to cloak themselves with, one more hurdle between observation and truth.

Paul Frijters
4 years ago
Reply to  Nicholas Gruen

no, not really.
I agree one can describe sympathy as seeing some of ourselves in others, allowing us to understand them and share part of their motivation towards something. But how is that embodied cognition? Just seem a mental skill/trait to me, like the ability to speak or to see. Unlike prices, sympathy is individual, and sympathy for one will tug in a different direction to sympathy for someone else. So its more like an individual coordination device and skill.

paul frijters
paul frijters
4 years ago
Reply to  Nicholas Gruen

this makes it a bit clearer how you think.

My difficulty was that this is not what I understand the term embodied cognition to mean. What you say in terms of market prices is more like distributed cognition (knowledge produced locally). This idea of emotions and sympathy as hacks (short-cuts) both internal t0 an individual and between individuals goes more to the nature of cognition itself. It smacks of situated cognition (emotions as a selection device to select the applicable narratives (“metaphors”) and courses of action).

Maybe I am the only one confused by the term embodied cognition.

Robert Banks
Robert Banks
4 years ago

Nicholas (& Paul)
one of the issues not directly addressed by Hayek or Polanyi I think is how the coordination evolves – with the simple answer being that we only get to see those systems (ie things involving interactions among some number of entities) where some minimal level of coordination has been achieved, however that has been done.

And if such systems compete, under defined conditions, the systems that achieve better coordination will survive better than the others.

Another thing that I think Hayek doesn’t address, but Polanyi does, is the idea of “what is the goal” – in biological systems, it is survival; but in human systems, it can be something more, and if so, is defined by the aspirations, rules etc of the human systems.

And for example, social democrat systems tend to have more explicit aspirations, and more free-market systems are more about something like “allow what will happen to happen”.

Overlaying this is the fact that power law distributions evolve in different ways in biological systems and human systems, somewhat ironically I think because the human systems almost invariably evolve to having distributions of power, which themselves affect the evolution of everything else.