49. The Great Transformation

Note: This post is the forty-ninth in a series. Click here for the full listing of the series.

If Thorstein Veblen was an example of someone with a very pure commercial syndrome mindset, then Karl Polanyi is the opposite, someone with a very strong guardian mindset. Where Veblen's 'Theory of the Leisure Class' was basically a long complaint that guardian virtues and the guardian class had failed to disappear and leave only the commercial syndrome standing, Polanyi's, 'The Great Transformation' is a celebration of the extent to which guardian virtues failed to be extinguished by the Industrial Revolution, and the unbridled capitalism of the 19th century, and had returned as a result of the chaos and destruction of the depression and the second world war.

Polanyi, writing during the 1940's, saw the depression and war of the previous decade as having shown once and for all the dangers and unsustainability of organizing all of society along market principles.

In the book, Polanyi traces the resistance (led by landlords - the manor and the church) in England to the transformation of England from a feudal society to a market society. He sees their role as being helpful in slowing down the process of transformation, allowing society more time to adapt itself.

Polanyi felt that there were three items in particular that could not properly be fully integrated into a market society: money, labour and land.

On the topic of labour, Polanyi sees a conflict between treating labour as a commodity, in which the threat of starvation serves to coerce labourers into working wherever, whenever, however and for how much the market demands, and social institutions which generally held as one of their goals the prevention of allowing people to starve because they were unable or unwilling to find work for high enough wages to keep themselves fed.

On the topic of land, Polanyi says,

"Traditionally, land and labor are not separated; labor forms part of life, land remains part of nature, life and nature form an articulate whole. Land is thus tied up with the organizations of kinship, neighbourhood, craft and creed - with tribe and temple, village, guild and church. One Big Market, on the other hand, is an arrangement of economic life which includes markets for the factors of production. Since these factors happen to be indistinguishable from the elements of human institutions, man and nature, it can readily be seen that market economy involves a society the institutions of which are subordinated to the requirements of the market mechanism."

On the topic of money, Polanyi saw universal adherence to the gold standard as critical to the maintenance of the dominance of the market economy and efforts by governments to manipulate exchange rates to favor their industry as springing from a similar source as restrictions on the markets for labour and land:

"The protection of man, nature and productive organization amounted to an interference with markets for labor and land as well as for the medium of exchange, money, and thereby, ipso facto, impaired the self-regulation of the system. Since the purpose of the intervention was to rehabilitate the lives of men and their environment, to give them some security of status, intervention necessarily aimed at reducing the flexibility of wages and the mobility of labour, giving stability to incomes, continuity to production, introducing public control of national resources, and the management of currencies to avoid unsettling changes in the price level."

In a nutshell, Polanyi felt that left unchecked, the all-encompassing market would lead to great material wealth, but also to the destruction of the social and cultural institutions that kept society intact and allowed man to preserve his humanity and dignity. He viewed the market-dominated society of the 19th century as an aberration that had been imposed by national governments and that would not last over time.

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There's an interesting passage where Polanyi describes the two forces at work during the industrial revolution:

"Let us return to what we have called the double movement. It can be personified as the action of two organizing principles in society, each of them setting specific institutional aims, having the support of definite social forces and using its own distinctive methods.

The one was the principle of economic liberalism, aiming at the establishment of a self-regulating market, relying on the support of the trading classes, and using largely laissez-faire and free trade as its methods; the other was the principle of social protection aiming at the conservation of man and nature as well as productive organization, relying on the varying support of those most immediately affected by the deleterious action of the market - primarily, but not exclusively, the working and the landed classes - and using protective legislation, restrictive associations, and other instruments of intervention as its methods."

Hmm, so on the one side, traders pursuing an innovative, individualistic approach based on trade and competition, and on the other side a tradition-defending, exclusive group of land owners looking to limit and regulate the effects of the market on society. That sounds familiar...