The Great Transformation part 2b
Polanyi opens this section with a stark reminder of just what exactly the capitalist system is. It is that by which productivity is regulated by the market. Productivity being the mixture of man and nature, both man and nature have been sucked into its orbits, deemed commodities called land and labor. Thus, laborers and the rentiers of society created certain protections against the market, as a stoppage to what Polanyi thought would be tantamount to annihilating them. But just as these two classes of society needed protection, so too ironically did the capitalist class. The capitalist system makes adjustments, thus is the process of regulation. But during these adjustments the single enterprise would have to deal with changes in the price level, which could be the thing that makes or breaks the single enterprise. Polanyi has this to say “For under a market system, if prices fell, business was impaired; unless all elements of cost fell proportionately, ‘going concerns’ were forced to liquidate” …. The capitalist needed stable prices, it needed a protection against the market system, and thus they devised their monetary systems. You’ll remember earlier that Polanyi states those people who wanted both a liberal society as well as capitalistic protection were apart of a double movement.
After the quick refresher Polanyi sits us back down and reminds us of what this book is all about. This is the first instance of Polanyi finally starting to pay us up on his I.O.U from section 1. Namely, how did the world fall apart in the 1900’s.
economic liberalism was the organizing principle of society under the market system. To make the economic liberals dream a reality, it needed a labor market, the gold standard, and free trade. But each could not operate without the other, and each required the self-regulating market.
“The Utopian springs of the dogma of laissez-faire are but incompletely understood as long as they are viewed separately. The three tenets—competitive labor market, automatic gold standard, and international free trade—formed one whole. The sacrifices involved in achieving any one of them were useless, if not worse, unless the other two were equally secured. It was everything or nothing.”
Thus, with the leap of faith, everyone together walked into the new system of market economy, where all things were held under the gold standard regulated by the market.
Polanyi from here will keep reminding us of the double movement, in terms of conceptual tools it proves to be very powerful for him. Polanyi wants to demonstrate 2 things using the double movement.
1) Polanyi wants to show that the market system was unnatural, it was planned and seen as a utopic vision
2) Polanyi is going to use the double movement as a proof of the instant instability caused by the market system.
In regard to the first, that the market system was unnatural. This debate has and will continue to be a staple of debate in political economy. There are basically two camps. On the one hand, there is the view that capitalism and the market economy are the fundamental, basic, and natural organization of humans. That we are naturally born as homo-economicus, and thus we have reached our peak by allowing our natural state to shine through. This is the position of the neo-classical school, Polanyi specifically names Spencer and Sumner, Mises and Lippmann. On the other side of the isle, I’ll lump as the Marxist, who take the position that Capitalism is a radically new idea, that it isn’t the natural state of people, but rather people become transformed under this system. Polanyi fits in the later camp, and to issue a charge against the neo-classical school he is going to show just how much planning and utopic vision was needed to make Capitalism become a reality, and he is primarily going to do this with the double movement as mentioned earlier.
The double movement is a paradox of ideology, where we have a need for the new liberal economic order as well as a need for protections against it. The road it took to make capitalism was “an enormous increase in continuous, centrally organized and controlled interventionism.” Take for instance the enclosure laws, the heavy bureaucracy involved with the new poor laws, or even municipal reforms happening at the early stages of market economy.
“Thus, even those who wished most ardently to free the state from all unnecessary duties, and whose whole philosophy demanded the restriction of state activities, could not but entrust the self-same state with the new powers, organs, and instruments required for the establishment of laissez-faire. This paradox was topped by another. While laissez-faire economy was the product of deliberate State action, subsequent restrictions on laissez-faire started in a spontaneous way. Laissez-faire was planned; planning was not.”
What Polanyi is saying here, especially in the climax of that last sentence is that ironically, the unplanned utopia was planned heavily, while the protections against it were spontaneous and natural.
Polanyi wants to keep up the attack against the neo-classical school, and to do so he finally develops his theory of class. A simple theory it is rather straightforward yet pungent and sharp. Widespread change in society will affect the various parts of communities in that society in a variety of fashions. People will then group up and adjust their interest in response to these changes. Sectional interest then become the vehicle by which to affect social and political change. Class for Polanyi then is the mechanism by which things get done. Classes are broad, they deal primarily with the outermost economic impacts of that class in relation to the society as a whole. But sectional and regional interest are what people truly clamor for. Communal interest deal with less general interest and are more focused on the particular wants of that group. Things like status, rank, and safety are what truly is in the hearts of these groups, when enough of these groups feel the need to organize this is where class plays itself out, making sure to bring up all the groups under that their banners so to speak.
Polanyi suggest that classes organized because their cultural identities within their smaller groupings were being stripped away. The neo-classical is puzzled because the new market system provided so much economic growth, what they forget is that people had lost the goals of which they participated in society. Life in a cultural void is no life at all, to suggest that economic needs will fill the void of the death of all cultural institutions is absurd. Polanyi compares this thinking to that of a slave moved to a richer part of the world. But yet this is what the market economy has done, it has pervaded all social life and tried to pass this off with economic want, and again this cultural degradation just couldn’t be kept upright. Classes came together and the protections from the market mechanism were here.
Polanyi spends the latter half of this section dealing exclusively with how the market effected the three big classes, but I don’t want to belabor the point. The simple thing to understand is while Polanyi thinks exploitation occurs in society, it is not his main motivation for attacking so heavily the market system. The market system annihilates all organic forms of existence and replaces them with a new type of organization. This organizes things into commodities that are not meant to be commodities, it is these fictitious commodities that lie at the center for the social and cultural destruction brought on by the market. While each class is affected differently, they are all effected negatively in some way or another and they seek protection in these creeping realities of market life.
Polanyi continues to use class analysis to give his final explanation as well for what happened at the turn of the century. This is what lies at the heart of the tragedy plagued in the first section of this book. Things like fascistic reactions were reactions to the landed and peasantry classes growing power with the rise of free trade. The collapse of the international gold standard was an accident of the capitalistic class in designing its central banks (as well as bad timing from financiers in America and Great Britain). Crises in capitalism broke the social fabric down to a point where class conflicts would arise and it was in response to these conflicts that national liberalism, Fascism, and the creation and eventual disruption of the four great institutions came into being and which brought the world to its knees.
The Young Econ Scholar 