Thursday, April 9, 2009
Karl Polanyi: The Great Transformation (1944)
"With the international gold standard the most ambitious market scheme of all was put into effect, implying absolute independence of markets from national authorities. World trade now meant the organizing of life on the planet under a self-regulating market, comprising labor, land, and money, with the gold standard as the guardian of this gargantuan automaton. Nations and peoples were mere puppets in a show utterly beyond their control. They shielded themselves from unemployment and instability with the help of central banks and customs tariffs, supplemented by migration laws. These devices were designed to counteract the destructive effects of free trade plus fixed currencies, and to the degree in which they achieved this purpose they interfered with the play of those mechanisms." Polanyi's book remains the definitive critical history and analysis of liberal economics and retains all of its force half a century after its publication. That The Great Transformation was published the same year as Friedrich Hayek's neo-liberal bible The Road to Serfdom makes Polanyi perhaps the first and one of the best critics of neo-liberalism as well. Polanyi's book should be read alongside Michel Foucault's lectures on liberalism and neo-liberalism. Either Polanyi was an unacknowledged influence on Foucault (the former only makes minor appearances in the notes of the latter) or both writers gleaned the same problematic from their historical sources: in addition to covering the origins of liberal economics, Polanyi discusses the "discovery of society," reveals the paradoxical balance of freedom and security in modern governmental rationality, and explores the relation of Bentham's ideas (most notably of course the panopticon) to market society. The foundation of Polanyi's thought is the belief that the self-regulating market is a utopian fiction. He claims, "Such an institution could not exist for any length of time without annihilating the human and natural substance of society." Attempts to impose a self-regulating market eventually lead to destructive effects across society that prompt protectionist responses. For Polanyi, the dance of liberalism is always a two-step: first, the implementation of a self-regulating market, and second, protectionist interventions that attempt to limit the destructive consequences of that market. Polanyi completely unravels the arguments and defenses of liberal economists. When faced with examples of the negative effects of the self-regulating market, liberal economists respond that those effects occurred because the market was not fully implemented: those effects reveal not the failure of the market but the existence of interventions that block the market from operating in its ideal manner. The next step for such liberal economists is to argue that society needs to implement the self-regulating market even further, though this merely makes the previous failure worse and prompts the creation of even stronger regulations. For Polanyi, chasing after the impossible utopian ideal of a self-regulating market only leads to a complex tangle of failure and regulation that actually leads away from that ideal. Although exchange and "market patterns" have always existed, the market as an institution and the belief that market behavior is a dominant feature of mankind is a recent one. Dubiously drawing from anthropological examples, Polanyi tries to show that economic man - that central myth of liberal economics - is not universal, not man's essential nature. The liberal argument/faith that self-regulating markets will naturally function (and that man's subjection to them is natural as well) is therefore unwarranted. Polanyi also anticipates Foucault by showing how markets prior to the Industrial Revolution were heavily regulated (they were exceptional spaces that were strictly controlled): "Regulation and markets, in effect, grew up together." The self-regulating market is therefore a latecomer on the economic scene, one that could only be brought about by the active "separation of society into an economic and a political sphere." But even after that institutional separation had been achieved, liberal economics was not as adverse to regulation as its theories claimed. In order to create the conditions for the self-regulating market, liberalism has historically been often willing to drop its laissez-faire mask and utilize governmental intervention. Polanyi argues that the birth of a "market society" meant "no less than the running of society as an adjunct to the market. Instead of the economy being embedded in social relations, social relations are embedded in the economic system." This market society universalizes the form of the commodity, which for Polanyi is a good produced for sale on the market. But "labor, land, and money are obviously not commodities; the postulate that anything that is bought and sold must have been produced is emphatically untrue to them." Since the market society especially needs labor, land, and money, they must be made into commodities. But "The commodity description of labor, land and money is entirely fictitious," and Polanyi hopes that the passing of liberal economics will once again allow these entities to be treated in their full depth and complexity (Polanyi does seem to rely on a kind of humanism and naturalism that needs to be jettisoned). A great deal of the book describes the historical process through which labor, land, and money were converted into commodities. He particularly spends time on the transformation of labor into a commodity, which so quickly caused disaster that regulations spontaneously appeared to compensate for it (he counters the myth of an anti-liberal conspiracy by tracing how quickly social regulations appeared across different nations in spontaneous response to the savage destruction brought about by the self-regulating market). Most notably, the quick degeneration of labor at the beginning of the Industrial Revolution led to the creation of acts such as the Speenhamland Law, which turned workers into paupers. Further reforms responded against Speenhamland until the English working class, a class of worker-commodities, was finally established. While making this argument, Polanyi also turns a critical eye on the Marxist prioritization of classes and class struggle, claiming the self-regulating market was a problem for society as a whole (his argument here, however, resembles and could be sympathetically read through the lens of Gramsci on hegemony). He then turns to the fictitious commodity of land, describing "the subjection of the surface of the planet to the needs of an industrial society." Finally and most ironically, he shows how money has to be made into a commodity. But the self-regulating market destroys the proper functioning of money-as-commodity, thereby threatening to destroy capitalist business itself. One of the most groundbreaking parts of the book is Polanyi's discussion of finance and the international gold standard. During the 19th century, the gold standard acted unintentionally as an instrument of peace. Though it was not designed for this purpose, the gold standard motivated countries to desire peace because the international monetary system could not function during general war (though smaller and particularly colonial wars could occasionally be an exception). The breakdown of the gold standard in the early 20th century therefore was one of the major causes of the two world wars: the first still guided by the crumbling institutions of the 19th century, the second involved in the complete transformation of the old institutions. With the thorough dismantling of the gold standard in the 1930s and 1940s, world civilization entered into a new order (the quasi-continuation of the gold standard by the postwar Bretton Woods agreement on monetary policy, which dissolved at the beginning of the 1970s, both contradicts and extends Polanyi's claims). In the 19th century, the reliance on the gold standard made international monetary policy a universal political and even personal issue for the first time: "Under a modern money economy nobody could fail to experience daily the shrinking or expanding of the financial yardstick; populations became currency-conscious. . . . men and women everywhere appeared to regard stable money as the supreme need of human society." One of Polanyi's best points is that during the era of the gold standard, national politics often was constrained or even determined by an unquestioned valorizing of the gold standard: the need to stabilize currencies could lead to unpopular actions against labor or the lifting of protectionist trade policies, which were portrayed as "sacrifices" for the good of the monetary system (as is often the case in this book, history reads like current events). We might consider the gold standard as an early "market device" that allowed the market to operate in a specific form: the "faith" in the idea "banknotes have value because they represent gold" allowed the coordination of a diverse and international set of interests. Polanyi's book ends on a note of optimism that history has proven to be unwarranted. He claims the "passing of market society" will restore not only previous freedoms (especially over labor and land) but also allow the addition of new kinds of freedom: "An industrial society can afford to be free." Unfortunately as neo-liberal economic policies continue to batter the Global South and the global economy tremors, we're instead forced to reread his book and relearn its lessons.