Karl Polanyi was a Hungarian-Canadian (1) economic historian with a sociological or anthropological take on economics that makes him exotic and suspect in mainstream economic circles. Or, more to the point, his signature book The Great Transformation, written at the end of the Great Depression and two World Wars, trashes the previous 100 years of Laissez Faire rule up to that point in history, which is not okay with orthodox “free market” economists; no way, no how.
That conceded, Polanyi's economic history is a revelation, cutting through the binary muddle of Cold War economic ideologies and the myth of a self-regulating free market. TGT is a not perfect, flawed to be sure, historical argument but a tremendously illuminating antidote to Friedrich Hayek’s Chamber of Commerce-Reader’s Digest-popular, absurdly reductive collectivist nightmare and romantic send-up of the 19th century's free market Laissez Faire economics, The Road to Serfdom, originally published in the same year no less, 1944.
In this contest Polanyi’s isn’t always doing himself favors, I admit. His title is misleading and refers to about the last third of the book, at most, when it looks like the New Deal and world war societies are at last “re-embedding” the economy with other social, political, and cultural goals, or public goods, with which economics are inextricably linked. The latter really existing "embeddedness" of economics is, in fact, when you get down to it, Polanyi’s sociology of economics big idea: there is really no such thing as a self-regulating market separate from society, never has been, never will be. And insisting there is a separate maximizing economic machine as ruling political-economic policy impoverishes labor and tramples any other social or cultural values that resist commodification and/or profit seeking.
This is what the bulk share of the book is really about, the rise of Laissez Faire and the very not so great history of modern market ideology. The theory of self-regulating free markets, Adam Smith's Invisible Hand, takes over in England in the 1830s, setting the National agenda and elites (and their conservative minions) endlessly whining about the seditious threat of working class protests for the vote, for some relief from the grinding poverty of industrial working conditions and the cold cost accounting of free markets.
This is one book I’ll have to read again and read more of whatever I can find about Polanyi, for that matter. I didn’t get all of it. But at the heart of TGT is, I think, a relatively simple and very original reading of modern history and the industrial revolution: modern market economics, Smith’s theory of self-regulating free markets, emerging in England in the early 19th century as the dominant political ideology behind the global reach of the British Empire, is a utopian fantasy of the Scientific Enlightenment and Industrial Revolution. And not just some well-meaning harmless idealistic Enlightenment systems-thinking myth but really, in its engineered hostility to any value other than the imperatives of free market ideology in fact something much worse.
During the Industrial Revolution modern markets amassed great wealth and spread tremendous technological advance. But unfettered market rule established in England and spread globally by the British Empire (and adopted fervently by the US) was built on cheap labor and resources; they paid less than living wages whenever they could and operated dangerous working conditions wherever they could get away with it. Under the rubric of rent seeking, the primary objectives of big business in the classical liberal capitalist model were expropriating land and resources, low-balling labor, building monopoly (and/or eventually settling for collusive oligopolies), evading taxes, and otherwise externalizing on society as many costs as possible. To free marketeers you can't have great wealth and tremendous technological advance without this ruthlessly efficient and economizing deal-making. To Polanyi the emergence of the “free market” mentality or mindset was a cover story for the exploitation of labor and imperialist military global domination.
So corrosive was the rise of self-regulating market ideology in Polanyi’s telling it generates almost from the start a “double movement,” a counter movement of democratic pressure from below. New industrial workers, working classes, pressing for living wages and livable work hours; or in other words, for government political protections from the worst ravages of modern market economics. Marching, striking, and protesting for much of the 19th century, most the time up against armed government militias or mercenary big business thugs (the earliest police-like organizations), workers struggled for an 8-hour workday and weekends, an end to child labor and an end to unsafe working conditions.
It was like a low-grade civil war that lasted, even led up to the massive cataclysm of the world wars and Great Depression, when it appears hopefully to Polanyi that the end of Laissez Faire was finally at hand and the economy was being re-embedded into a liberal democratic society; the New Deal, EU, etc.
(But Free Market fundamentalism is not over, as we know. It took back over in 1980 and has ruled again ever since in the US and at the World Bank and International Monetery Fund, anyway; aka the Neoliberal Order. A few cracks in the facade, sure, but still on top. Let's get real.)
Anyway, getting back to the Polanyi's history it's not particularly hard to imagine why modern market ideology grew so popular in the first place. Foremost, it was associated with the technological innovation and tremendous growth of the Industrial Revolution in the late 18th and long 19th centuries. Smith’s “Invisible Hand” was the first winning attempt to theorize the “free market” economics of the IR. Economics as a discipline in the social sciences was first an attempt to theorize or explain the IR. It wasn’t much of a credible history of economics in the pre-modern world at all. But free trade principles rationalized the colonialism and imperial expansion and domination in global trade that fueled the IR; rationalized them as the unavoidable costs of the meteoric economic growth of modern free markets.
Going back even further to the Enlightenment uncovers the Clockwork Universe hubris in modern market ideology. The Scientific Enlightenment of the 17th and 18th centuries boosted confidence in academic scholarship and inquiry. If Newton could map the heavens with mathematical precision why shouldn’t Smith (or Hegel or Max Weber or Sir James Frazer, etc) be able to do the same with the economy (or history, sociology, anthropology)? By the 19th century such grand ambitions launched the questioning and systematizing academic disciplines of the modern academic social sciences.
But as a ruling political ideology, a “mentality” or “mindset,” in Polanyi’s language, Smith’s Invisible Hand attempted to separate the economy from society and turn the citizenry into labor cogs and consumer marks; and thereby effectively repressed any social values or goals not reducible to the calculus of the modern economy. Under the guise of liberty or free enterprise Laissez Faire protected the prerogatives of industry and wherever possible left labor and land to the ravages of the market.
To modern free marketeers, from the 1830s to 1930s, Thomas Malthus to Hayek, Polanyi’s counter movement, the desperate democratic forces, the laboring poor pressing for reforms from below, pressing for protections from markets, the labor movement and progressive reforms were all interference in the maximizing natural order of free enterprise competition; the slippery slope to central planning and Hayek’s collectivist nightmare of socialism.
To Polanyi the resistance of workers to the worst predations of the modern market order was the more spontaneous and natural human development in the 19th century. And the new market fundamentalism imposed by Laissez Faire government central planning the real “collectivist nightmare”; an economic winner-take-all “collectivist nightmare” and in no way essentially integral to the IR or even modern development. But merely a way to capture political power. Of course, big business owners love modern free market ideology. Like Social Darwinism, it tells them exactly what they want to hear and justifies their boundless greed.
In the 1910s, before the US got involved in WWI, President Wilson was asked by a journalist what the war in Europe was all about? The British Empire owns the world and Germany wants a bigger piece of it, Wilson surmised. In the first half of the 20th Century modern market ideology and empires collided in two World Wars. But from the other side of those wars, in the 1940s, at the time of the writing of TGT, it might have appeared to Polanyi as though Laissez Faire was indeed finally giving way. A probable peak of the influence of TGT might be the incorporation of Polanyi’s language, “embedded liberalism,” in the Bretton Woods agreement establishing the principles of the post-world wars global economic order.
Like Keynes, Polanyi believed in the power of ideas to bring about progress and positive change. Keynes had announced the end of Laissez Faire in 1925 and, really, should have delivered the technocratic coup de grace to classical market ideology and the various fantasies of self-regulating markets in his 1936 General Theory book. But like Polanyi he underestimated the tenacity of entrenched economic power.
Nearly a century later we’re still stuck in the sick fantasy of free market corporate rule. But now the crisis is not just about the gross wealth inequality perpetrated by market fundamentalist principles but how market power actively and effectively obstructs efforts to address climate change and other forms of environmental destruction largely of its own making and so pushes the world towards breakdown and existential crisis. Exposing another by now fairly obvious and dire consequence of unfettered economic growth and modern market ideology; see Naomi Klein's This Changes Everything and TGT and Karl Polanyi.
There is also a way to look at Polanyi's history as a conflict common to democratic experiments in world history. Democratic forces from below push for a better deal, a bigger piece of collective wealth pie but are always met by the rich with repression and subterfuge and, when that doesn’t work, violence; even fascism. Greek democracy, the Roman Republic, some Italian city states in the 14th-15th centuries. Note how modern market ideology has become a bulwark against democratic and environmental reforms.
It's also possible to look at the emergence of modern market ideology in the 19th century as transferring the authority lost with the fall of absolutist monarchy in the 18th century to absolutist property rights, and so a rich conservative reaction to the democratic revolutions of the 18th century. (2)
Of course, Polanyi’s critique sounds Marxist, as does anything critical of free market ideology. He is obviously sympathetic to the goals of some form of democratic socialism. But worth noting he strongly objected to Marxism for much the same reason he objected to Smith’s free market theory. To his way of thinking, they’re both utopian fantasies of the Enlightenment. Marx’s historical materialism, his economic determinism, his idea that resolving the class war will put an end to politics and eventually lead to a withering away of the State was, to Polanyi, just another utopian fantasy. Leading not surprisingly, as they do, to dystopic ends; Police State’s like Stalin’s USSR or Mao’s China.
At any rate, introducing economic historian Karl Polanyi and his seminal book The Great Transformation. Right now his take feels to me like this missing link to understanding modern economic history outside the blinkered binary of the 20th Century's Cold War. Governments, even self-identifying capitalist ones, have had to take measures to mitigate the hardships and injustices generated by so-called free markets from the very beginning of the rule of modern market ideology in the early 19th century, and where they have refrained to do so have ensued social strife, conflict and ruin.
If government rules and regulations are socialism then modern societies have been socialist for as long as they have been capitalist, as Polanyi's story of the 19th century up to the World Wars of the early 20th show us. No sooner did England commit to free market ideology then it was made to protect workers, if reluctantly and late and never enough, from the worst predations of industrial labor and their destructive war economies.
For instance, Roosevelt's socialist New Deal actually saved capitalism from its own destruction. And frames nicely Polanyi's mature view: government, politics, or socialist economic policies are necessary to mitigate the worst predations of "free markets" and keep concentrated wealth interests from tearing apart (see homelessness and health care bankruptcies today, etc) society.
Maybe there is a naivete or innocence in Polanyi's liberal social democracy, his "embedded liberalism," in the way it fails to anticipate the revival and persistence of free market fundamentalism. But his insights into the destructive implications of a self-regulating economy are no less relevant today. I'm finding his influence in more places all the time; the books of anthropologist David Graeber, economist Charles Kindleberger, and historian E.P. Thompson, to name only a few other favorites.
More on Professor Polanyi to come.
1) After immigrating to America and teaching at various colleges, most notably Columbia University, he was apparently forced to settle and commute from Canada because of political affiliations of his once (always?) revolutionary communist partner, Ilona, frowned on during the McCarthy Era.
2) I might have picked up this take from French economist Thomas Piketty. I can’t remember for sure. I got it from somewhere and didn’t just make it up. Like the previous graph, it's likely some half-remembered paraphrase of somebody (Marchivelli in the first graph, Piketty in the second).
