Karl Polanyi's 1944 book The Great Transformation begins
NINETEENTH CENTURY civilization has collapsed. This book is concerned with the political and economic origins of this event, as well as with the great transformation which it ushered in.
Nineteenth century civilization rested on four institutions. The first was the balance-of-power system which for a century prevented the occurrence of any long and devastating war between the Great Powers. The second was the international gold standard which symbolized a unique organization of world economy. The third was the self-regulating market which produced an unheard-of material welfare. The fourth was the liberal state.
What to us are "current events" are to Polanyi natural outcomes of inherent flaws in our proposed way of life
Actually, the worker has no security in his job under a system of private enterprise, a circumstance which involved a grave deterioration in his status. Add to this the threat of mass unemployment, and the function of trade unions becomes morally and culturally vital to the maintenance of minimum standards for the majority of the people. Yet clearly any method of intervention that offers protection to the workers must obstruct the mechanism of the self-regulating market, and eventually diminish the very fund of consumers' goods that provides them with wages.
Polanyi's thesis is that markets cannot self regulate and so nineteenth century civilization crumbled and was replaced with a long battle between the self-regulating markets movement and an offsetting liberal state movement designed to make markets tolerable to humans
Our thesis is that the idea of a self-adjusting market implied a stark utopia. Such an institution could not exist for any length of time without annihilating the human and natural substance of society; it would have physically destroyed man and transformed his surroundings into a wilderness. Inevitably, society took measures to protect itself, but whatever measures it took impaired the self-regulation of the market, disorganized industrial life, and thus endangered society in yet another way. It was this dilemma which forced the development of the market system into a definite groove and finally disrupted the social organization based upon it.
Polanyi has many examples of why self-adjusting markets cannot work. Chief among them are that many so called "commodities" are fictitious. The supply of labor, land, food and other natural resources are not dictated by any market at all - their "production" and sale are a fiction that must be maintained by the state.
Indeed, the utopian nature of a market society cannot be better illustrated than by the absurdities in which the commodity fiction in regard to labor must involve the community. The strike, this normal bargaining weapon of industrial action, was more and more frequently felt to be a wanton interruption of socially useful work, which, at the same time, diminished the social dividend out of which, ultimately, wages must come. Sympathy strikes were resented, general strikes were regarded as a threat to the existence of the community. Actually, strikes in vital services and public utilities held the citizens in ransom while involving them in the labyrinthine problem of the true functions of a labor market. Labor is supposed to find its price on the market, any other price than that so establishcd being uneconomical. As long as labor lives up to this responsibility, it will behave as an element in the supply of that which it is, the commodity "labor," and will refuse to sell below the price which the buyer can still afford to pay. Consistently followed up, this means that the chief obligation of labor is to be almost continually on strike. The proposition could not be outbidden for sheer absurdity, yet it is only the logical inference from the commodity theory of labor. The source of the incongruity of theory and practice is, of course, that labor is not really a commodity, and that if labor was withheld merely in order to ascertain its exact price (just as an increase in supply of all other commodities is withhcld in similar circumstances) society would very soon dissolve for lack of sustenance. It is remarkable that this consideration is very rarely, if ever, mentioned in the discussion of the strike issue on the part of liberal economists
That any attempt to moderate the forces of free market human destruction will be immediately met with Tea Party like intense distrust and anger is also for Polanyi a natural fixture of our system:
Socialism is, essentially, the tendency inherent in an industrial civilization to transcend the self-regulating market by consciously subordinating it to a democratic society. It is the solution natural to the industrial workers who see no reason why production should not be regulated directly and why markets should be more than a useful but subordinate trait in a free society. From the point of view of the community as a whole, socialism is merely the continuation of that endeavor to make society a distinctively human relationship of persons which in Western Europe was always associated with Christian traditions. From the point of view of the economic system, it is, on the contrary, a radical departure from the immediate past, in so far as it breaks with the attempt to make private money gains the general incentive to productive activities, and does not acknowledge the right of private individuals to dispose of the main instruments of production. This is, ultimately, why the reform of capitalist economy by socialist parties is difficult even when they are determined not to interfere with the property system. For the mere possibility that they might decide to do so undermines that type of confidence which in liberal economy is vital, namely, absolute confidence in the continuity of the titles to property.
And so I similarly propose that TWENTIETH CENTURY civilization has collapsed. Twentieth century civilization rested on four institutions. The first was the balance-of-power system between labor and capital. The second was the dollar as a reliable international currency. The third was plentiful natural resources such as oil. The fourth was an environment of increasing technology.
Unlike the collapse that Polanyi wrote about world war and food shortage is an unlikely outcome; the proliferation of weapons of mass destruction make that kind of conflict difficult to arrange and the green revolution has temporarily made starvation much less likely for much of the world. However this collapse is marked by war, terrorism, mass unemployment, financial panics and market driven food shortage.
The demise of the third and fourth institutions could be avoided but we have no economic system capable of making the technology and life style choices necessary. The collapse of 20th century first and second institutions are inevitable as Polanyi explains
Yet precisely this was the case in the twenties. Labor entrenched itself in parliament where its numbers gave it weight, capitalists built industry into a fortress from which to lord the country. Popular bodies answered by ruthlessly intervening in business, disregarding the needs of the given form of industry. The captains of industry were subverting the population from allegiance to their own freely elected rulers, while democratic bodies carried on warfare against the industrial system on which everybody's livelihood depended. Eventually, the moment would come when both the economic and the political systems were threatened by complete paralysis. Fear would grip the people, and leadership would be thrust upon those who offered an easy way out at whatever ultimate price. The time was ripe for the fascist solution.
Emphasis mine. In our current era the easy way out was debt and the ultimate price is that unbridled debt threatens property rights and so brings on an endless and ever bloodier class warfare. I had once thought that twentieth century civilization could be salvaged by reducing global trade and oil dependence. These certainly remain elements of any potential recovery but it's too late for their implementation to remove the burden of eventually having to reinvent our society.
NINETEENTH CENTURY civilization was not destroyed by the external of internal attack of barbarians; its vitality was not sapped by the devastations of World War I nor by the revolt of a socialist proletariat or a fascist lower middle class. Its failure was not the outcome of some alleged laws of economics such as that of the falling rate of profit or of underconsumption or overproduction. It disintegrated as the result of an entirely different set of causes: the measures which society adopted in order not to be, in its turn, annihilated by the action of the self-regulating market. Apart from exceptional circumstances such as existed in North America in the age of the open frontier, the conflict between the market and the elementary requirements of an organized social life provided the century with its dynamics and produced the typical strains and stresses which ultimately destroyed that society. External wars merely hastened its destruction.
But where Polanyi wrote his Great Transformation before the great economic and civil rights changes of the 1950's and 1960's, what lies before us now at the end of 20th century civilization has no indication of such progress.
Yet there are freedoms the maintenance of which is of paramount importance. They were, like peace, a by-product of nineteenth-century economy, and we have come to cherish them for their own sake. The institutional separation of politics and economics, which proved a deadly danger to the substance of society, almost automatically produced freedom at the cost of justice and security. Civic liberties, private enterprise and wage-system fused into a pattern of life which favored moral freedom and independence of mind. Here again, juridical and actual freedoms merged into a common fund, the elements of which cannot be neatly separated. Some were the corollary of evils like unemployment and speculator's profits; some belonged to the most precious traditions of Renaissance and Reformation. We must try to maintain by all means in our power these high values inherited from the marketeconomy which collapsed. This, assuredly, is a great task. Neither freedom nor peace could be institutionalized under that economy, since its purpose was to create profits and welfare, not peace and freedom. We will have consciously to strive for them in the future if we are to possess them at all; they must become chosen aims of the societies towards which we are moving. This may well be the true purport of the present world effort to make peace and freedom secure. How far the will to peace can assert itself once the interest in peace which sprang from nineteenth-century economy has ceased to operate will depend upon our success in establishing an international order. As to personal liberty, it will exist to the degree in which we will deliberately create new safeguards for its maintenance and, indeed, extension. In an established society, the right to nonconformity must be institutionally protected. The individual must be free to follow his conscience without fear of the powers that happen to be entrusted with administrative tasks in some of the fields of social life. Science and the arts should always be under the guardianship of the republic of letters. Compulsion should never be absolute; the "objector" should be offered a niche to which he can retire, the choice of a "second-best" that leaves him a life to live. Thus will be secured the right to nonconformity as the hallmark of a free society.
Emphasis mine. Here is where the 20th century civilization, for all its bright promise, failed. The balance of power between conservative and liberal forces simply cannot be maintained in a society which forces labor on the unwilling. Even a gilded cage is still a cage. Every economic system will have winners and losers but our world order has gone too far in punishing the losers. We have the resources to give the losers a decent guaranteed life style where they need not participate in the rat race as a means of survival. For whatever cultural reasons this was not the path taken with the bounty that the 20th century great transformation provided - welcome instead to the great stagnation.