I can't quite remember where I read the name Karl Polanyi first. It must have been in one of the books about ecological economics I've been perusing recently: most likely Tim Jackson's Prosperity Without Growth. In any case, there seemed to be enough material out there on the internet suggesting that Polanyi's was not only a powerful and sociologically sophisticated account of economic history, but one particularly relevant to the crises of the present day. One article even brandished the headline "Karl Polanyi Explains it All". I decided I needed to get hold of a copy of his magnum opus, The Great Transformation: The Political and Economic Origins of Our Time.
Having now finished it, I can tell you in all honesty I think the hype is justified. Despite writing in the 1940s, Polanyi really does explain it all. His theses shed new light (new to me, anyway) on all the major events of modern history since the Industrial Revolution - and put the current politics of the financial crisis in a perspective that stretches back to Napoleon and the English Poor Laws of c1800. Combine his case with that made by some of his notable predecessors, such as Brooks Adams, and you have a mode of explanation that embraces a vast swathe of the past since the late Roman Empire. You want proper longue durée history? Just follow the money.
Polanyi is most easily contrasted with an economist who published a far more influential book in the very same year as The Great Transformation, 1944: Friedrich Hayek, author of The Road to Serfdom. Like the older Ludwig von Mises, with whom Polanyi fought a series of running battles in the Austrian press during the 1920s, Hayek was a liberal, believing that the unhindered operation of free markets was the surest route to general prosperity. Polanyi maintained more or less the exact opposite. Rather than being the result of natural human propensities, as classical liberal economists like Adam Smith had argued, the free markets of the modern world were the result of a giant social experiment beginning in the early 19th century, one which had unleashed culturally destructive forces unparalleled in human history. To allow free markets free reign over any sizeable span of time would be civilizational suicide. And so the development of the free-market model demonstrated from the beginning what Polanyi called a "double movement", in which a planned, ideological and violently exploitative economic liberalism proceeded hand-in-hand with spontaneous social resistance.
Does this sound, perhaps, like the demonization of a perfectly peaceful and rational activity? How could trade - which is surely what markets are for - cause such havoc? To explain that, Polanyi, having set the scene for his book's own relevance to its time with his opening two chapters and a third introducing the "Great Transformation" of his title (the Industrial Revolution), strikes out in an unusual direction for an economist: he starts doing some anthropology. His conclusion, gathered from the evidence of various older types of society from ancient Egypt to Melanesia, is summed up in his idea of "embeddedness": in traditional economies, social values subsume economic ones. "Man's economy, as a rule, is submerged in his social relationships. He does not act so as to safeguard his individual interest in the possession of material goods; he acts so as to safeguard his social standing, his social claims, his social assets. He values material goods only in so far as they serve this end" (p. 48).
One could say - isn't that true now? Why do people buy Rolexes or football clubs except to "safeguard their social standing"? But the difference is that the predominance of social values in traditional economies tended to promote mutuality, even equality, rather than just individual status. Two of Polanyi's principles of "primitive" economic behaviour are "reciprocity" and "redistribution". These not only strengthen community, they do so in culturally rich forms: feasts organized by a clan chief, for instance, or potlatches, or medieval feudalism. Markets, plural, certainly exist, but they facilitate exchange far more than they promote competition. Long-distance trading continues for a long time to be about mutually balancing the unequal resources of geography, facilitated through alliances and monopolies: the Methuen Treaty of 1703 for instance gave Portugal cheaper British wool, and us our taste for a glass of port after dinner.
The establishment of a market system, or what Polanyi calls a "market society", is dependent on trade at the national level, in between the micro-scale of local markets and the convenient arrangements of international exchange. It is here that competition emerged; but it could only do so through the intervention of the state, acting against the interests of individual towns (whose authorities and craft guilds sought to protect their own commercial interests through privileges). Nation-states and "mercantilism", or the controlled regulation of commerce on a national scale, emerged together. However, this system was still what present-day neoliberal economists would call "protectionist" or "interventionist". It was not a "free market", in which prices for all goods and services were allowed to fluctuate freely.
To create such a "self-regulating market" (Polanyi uses the term to indicate a model or principle, rather than a historical reality) required the institution of what Polanyi terms "fictitious commodities". Commodities are goods produced for sale, and the free market demands that their price be determined by the interaction of demand and supply. But the market tends to put the factors of production for goods in an analogous situation: raw materials, of course, but also land, labour, and money (or capital). These last three are "fictitious commodities": none of them are in fact "produced" for sale like goods, but on the market they are treated as if they were (money, as we will see in the second half of this post, can however be represented by an actual commodity, namely gold). The "prices" of these commodities are respectively rent, wages, and interest. Letting those prices fluctuate without any attempt to control them means subordinating to the economic sphere elements which are absolutely central to social and cultural life, traditional or modern.
Land (or nature) and human beings in particular obviously require a certain stability in planning and prospects in order to thrive. Polanyi's indictment of the dehumanization involved in free-market ideology is damning: "the alleged commodity 'labor power' cannot be shoved about, used indiscriminately, or even left unused, without affecting also the human individual... Robbed of the protective covering of cultural institutions, human beings would perish from the effects of social exposure; they would die as the victims of acute social dislocation... Nature would be reduced to its elements, neighborhoods and landscapes defiled, rivers polluted" (p. 76). Rapid market movements of capital investment would act similarly upon business (as the 1980s phrase "asset-stripping" graphically conveys). "Protectionism" is simply another term for economic human kindness.
What Polanyi then shows in fascinating detail is how the innovation we call the "Industrial Revolution" did not immediately create a free market: the effects on English society were somewhat delayed, in particular by the protection of labour. A whole series of debates took place about the Poor Laws - what today we would call social security. One particularly generous but ultimately misguided measure was the "Speenhamland Law" of 1795, by which county magistrates benevolently ensured that poor labourers would receive a minimum income from the parish tax "rates", either paid in full or by supplements to income earned. This utterly failed to account for the response of employers, which, logically enough, was to lower wages, counting upon their being made up for by allowances paid by the parish. However, if the parish was thereby funding labour costs, it was not funding productivity - which labourers now had no incentive to maintain. Economic logic sank philanthropy.
It was only with the Poor Law reforms of 1834 that the labour market was freed up and modern industrial capitalism in its full, virulent form emerged - along with the "working class" or proletariat. They worked because they had to: the only alternatives to work found through the market were the horrors of the workhouse, or starvation. Sometimes the workhouse actually meant starvation anyway, as in incidents such as the Andover workhouse scandal of 1845 in which inmates were reduced to gnawing the bones they were supposed to be grinding up for fertilizer:
The logic of the solution was precisely not "natural" - it was argued for in the teeth of fierce political opposition. The strange thing about this opposition is that it was organized by the aristocracy, not by the working class (whose interests were not yet consolidated, let alone self-represented). This was "Tory socialism" - a phrase doubtless familiar to British historians of the period, but which made me let out a shout of disbelief when I read it. The Tories - socialist?! What more of a contradiction in terms could you want!
But one says that from the standpoint of a period in which the Tory Party's chief political constituency has long since ceased to be the landed aristocracy, whose numbers of votes or potential funding are simply too tiny to signify today. That was not the case in the 1830s. Rural landowners set themselves up as the last-ditch protectors - in their own interests, it must be said - of a rural culture suffering rapid deterioration through movements of population to the city slums and factories: ironically, a process they had themselves partly facilitated through opportunistic enclosures of common land. They opposed the Whigs and their measures such as the proposed repeal of the Corn Laws (the abolition of grain tariffs, allowing foreign grain in to feed factory workers cheaply and thus help reduce wage costs), because they wanted to hold up the rapid expansion of industry. The setting of humane limits on factory working hours through the Ten Hours Act (1847), "which Karl Marx hailed as the first victory of socialism" - writes Polanyi, relishing the contradiction - "was the work of enlightened reactionaries" such as Lord Ashley (p. 174). Though very much a socialist himself, the lesson Polanyi draws is that "class struggle" is no predetermined pattern of social history, because classes come and go in contingent and unpredictable fashion. Over the course of modern British history, the proletariat came, and the rural aristocracy or "squirearchy" went - but not without the two entering into a peculiar temporary alliance of interests. (That alliance did not play such a powerful role on the Continent, incidentally.)
It was the Whig or future Liberal case that represented the future - that 19th-century future which Polanyi believed had been permanently scuppered by the catastrophic events of the first half of the 20th century, but which we have seen revived in late-20th-century and 21st-century "neo-liberalism". But the future of human society turned out to be based on a theory of the non-human past, of a kind of abstract "state of nature" whose laws could operate without regard for human motives. This is where the wild goats of my title come in. They are a key example in a text that Polanyi regards as a truer expression of liberal economic philosophy than the more famous works of Adam Smith or David Ricardo: Joseph Townsend's 1786 Dissertation on the Poor Laws. Smith's Wealth of Nations (1776) had been written before the debate about the relief of the poor had really got underway in the 1780s. It thus describes an "incomplete" form of capitalism - one which is still "embedded" and protected, and in which the welfare of whole societies is addressed in relatively holistic terms. Townsend's polemic is a very different matter.
Whereas part of the problem of Speenhamland and laws like it was that they encouraged the poor to abandon their dignity as labourers for the security of parish relief - and so part of any humane solution, surely, would have lain in helping them to rediscover that dignity - Townsend argued that such noble motives as the desire to earn one's living never played a role in the lives of the lower classes. They were crude, uncultured brutes, and only the threat of starvation would be effective: "The poor know little of the motives which stimulate the higher ranks to action - pride, honour and ambition. In general it is only hunger which can spur and goad them on to labour" (Dissertation, p. 15). And here Townsend introduces a story which strikingly anticipates (indeed, Polanyi suggests it directly influenced) Malthus, Darwin and late 19th-century "social Darwinism": the story of the wild goats of the Juan Fernandez Islands in the South Pacific.
Goats had been introduced to these islands, which famously included the location of Alexander Selkirk's marooning (the inspiration for Robinson Crusoe), by the Spanish. In the absence of competition, they proliferated. Besides the natural limits of the islands' edible vegetation, the only other checks on their numbers were the periodic visits of English pirates, for whom goats on islands such as these were an important provision, as depicted here:
(I mentioned other dimensions of importance assumed by English piracy in the development of global capitalism in another blog post on this site.) According to Townsend's version of the story, which Polanyi notes with a certain satisfaction has no discoverable factual basis, the Spanish responded by trying to wipe out the English pirates' food supply: they set loose dogs on the islands in order to try and kill off the goats.
This measure established a different kind of balance than that which had previously existed between the goats and their food: it created competition, and what Townsend quite clearly identifies as natural selection (though he does not name it as such). In his words:
"As many of the goats retired to the craggy rocks, where the dogs could never follow them, descending only for short intervals to feed with fear and circumspection in the vallies, few of these, besides the careless and the rash, became a prey; and none but the most watchful, strong, and active of the dogs could get a sufficiency of food. Thus a new kind of balance was established. The weakest of the species were among the first to pay the debt of nature; the most active and vigorous preserved their lives." (Townsend, Dissertation, p. 45)
Whereas the natural bounty of their initial situation had made the goats indolent, the ever-present twin threats of fear and hunger induced by marauding predators exerted a constant pressure that favoured the survival of the fittest. Townsend's conclusion? - the poor should be treated like goats. Their indolence and vice would only give way to industry and virtue if there were radical, natural inducements - above all, that of hunger.
Significantly, Townsend recognized that human societies had habitually practised what he called a "community of goods" - or what Polanyi calls redistribution. His argument was simply that this had been under conditions of expansion. When a stage of society was reached at which improvements in agriculture could no longer keep pace with population increases - here Townsend virtually anticipates Malthus, writing 12 years later - the limits of expansion were felt, and original "laws" of non-human nature kicked back in: the weakest must go to the wall. "By establishing a community of goods, or rather by giving to the idle and to the vicious the first claim upon the produce of the earth, many of the more prudent, careful and industrious citizens are straitened in their circumstances, and restrained from marriage. The farmer breeds only from the best of all his cattle; but our laws choose rather to preserve the worst" (Dissertation, p. 62).
Townsend's solution, which already sounds to us thoroughly "Victorian" in its repulsive combination of economic brutality and Christian hypocrisy, is explicitly to permit the commodification of labour, and allow private charity to rescue just that remainder of the poor whose "virtue" seems to merit it: "It is with the human species as with all other articles of trade without a premium: the demand will regulate the market" (Dissertation, pp. 61-2). And this is very close to what was actually implemented after 1834. Liberal capitalism was founded, in a double sense, on a dehumanizing fiction: the fiction of labour as a simple commodity like wood or sugar, based in turn on a fictional story invented to make human behaviour seem as close as possible, in its essential principles, to that of wild animals.
This fiction was a crucial move toward the ideological separation of the economic sphere from politics. As Polanyi writes:
"By approaching human community from the animal side, Townsend bypassed the supposedly [to all previous theorists] unavoidable question as to the foundations of government... Hobbes had argued the need for a despot because men were like beasts; Townsend insisted that they were actually beasts and that, precisely for this reason, only a minimum of government was required. From this novel point of view, a free society could be regarded as consisting of two races: property-owners and laborers. The number of the latter was limited by the amount of food; and as long as property was safe, hunger would drive them to work." (Great Transformation, pp. 119-20)
Yet as mentioned earlier, the crucial characteristic of competitive markets as constituted since the pre-industrial era of "mercantilism" was that they were national, and thus regulated by the nation-state. Throughout the 19th century, as part of Polanyi's "double movement", nation-states spontaneously continued to develop strategies for protecting their labour forces against the worst dehumanizing consequences of the free market. Some of these were laudable, some of them quasi-criminal: they ranged from labour laws to imperialist conquest. (If technological developments boosted production, the obvious way to stop prices falling and protect the wages of your workforce would be to find new markets: and markets in state-controlled colonies were naturally the best, because the state could simply impose favourable trade tariffs rather than having to negotiate them.) The historian must look for another, additional source of pressure on the system to explain why it collapsed so catastrophically in the early 20th century. That pressure was exerted by gold - the subject of the second half of this blog post.
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