braydenk's Full Review: Karl Polanyi - The Great Transformation: The Polit...
What a great title! It must take a great deal of confidence/guts/brilliance to label one’s work as an exposition on “the political and economic origins of our time.” Unfortunately, books of such self-title grandeur do not often get read outside of college courses or academics offices or are not read at all because 1) they are often dense and uninteresting to the average reader and/or 2) because excessive ventures in historical synthesis are often attempts by the author to aggrandize his/her own legacy before death, and thus, end up being nothing more than personal ego monuments. This book is definitely not of the latter variety. In fact, I would venture to say that it is one of the most important books written about Western society in the last hundred years. For that, I can forgive Karl Polanyi (the author) for being at times a little dense in his writing style.
Before I go on though, let me add a little personal note. I, fortunately and unfortunately, spend a large part of my time reading books of an academic nature, some great and some not so great. Very few of them make it to Epinions however because they are either too esoteric to matter to anyone other than a small handful of people in universities, or I found them horribly written and don’t want to waste any more time than I have to thinking about them. Every once in a while though, I read a book like The Great Transformation and I feel like I really ought to share it with the rest of the world, whether anyone else appreciates it or not.
So why do I make such a big deal about this book in my overly-long winded introduction? For two reasons really. First, this book successfully synthesizes some of the major changes that Western society experienced in the 20th Century (the world wars, depressions, industrialization) in a clear, overarching framework. Second, Polanyi offers one of the only opposing views to economic liberalism that holds weight.
The Question - Why did the world experience a sudden rise in Fascist movements in the 1920’s and 30’s?
Polanyi is looking for generalizations, not specifics. He claims that the success of some fascist movements (like those of the Nazis and Mussolini) may be explained by the specific political opportunities and sequence of events in their countries, but he claims that the overall prevalence of fascism as an answer to societal problems has a much more general origin. Not surprisingly, fascist elements were major players in nearly every European country in that era, including in Great Britain.
The Answer - A breakdown of the international market system created distrust among nations and dissolved the bonds of interdependence between former trading partners. At the same time, repeated economic depressions created an overall sentiment of dissatisfaction with the current market system. The lack of international solidarity and the prevalence of economic cynicism led to isolationist feelings and fed patriotic pride. Fascist movements promised easy solutions to the instability of the economy and instilled in followers a sense of national unity that may have been weakened by economic turmoil.
Polanyi claims that the world wars and the rise of the fascist movement result from market breakdown – the inability of the self-regulating market to perform as hoped by laissez-faire philosophers. The prominent economic philosophy of the early 19th Century does not differ much from the dominant paradigm of today. The market will take care of the public. In the infamous words of Gordon Gecko (from Oliver Stone’s Wall Street), ‘Greed is good.’ If individuals self-interestedly pursue their own good, society as a whole will benefit. The self-regulating market will make sure that supply meets demand and that prices will be at the optimal level of distribution and consumption. Similarly, jobs will be created as individuals find new ways to turn profits. Following in the philosophical tradition of Adam Smith, they believe that free trade between countries would guarantee that products would be distributed world-wide at the lowest prices possible. But for the market system to work as it should, the self-interested pursuit of profit must be unhindered by laws and regulations. In short, the market must be free from intervention.
Did it work? Polanyi claims that the self-regulating market was an utter failure. In fact, it only really existed in Great Britain for about fifty years (from 1840 to 1890, approximately). Before that welfare laws inhibited a true labor market from forming. An international gold standard, which allowed for standardized price formation between countries, did not yet exist. After 1890, new “protectionist” laws were enacted that impeded a self-regulating market.
“Protectionist” laws now exist in abundance, even though we falsely assume that we live in a “free market” society. In the United States, anti-trust laws prevent (or are supposed to prevent) firms from getting too big and impede the formation of monopolies. They are supposed to preserve competition – the central force behind a market system. We have a Federal Reserve that prevents deflation and keeps inflation in check, and internationally a World Bank exists that offers stability to world markets. All of these “protective” measures keep the self-regulating market from working as once envisioned by Smith and the early economic liberals. Why do we have them? Polanyi says that protective measures were adopted to keep the capitalist system intact. Without them, market society would implode under its own success.
By its very nature, a self-regulating market is destructive. It requires that there be a reserve army of unemployed laborers, so that the price mechanism of the labor market can work optimally. Market forces uprooted workers from the social fabrics of their existence – their communities and their means of subsistence – and forced them to become commodities on a market. Unlike Marx, Polanyi does not fret over issues like alienation or exploitation. He thinks that the degradation of the human condition that is needed for a self-regulating labor market to function is enough to upset the cultural norms of humanity, who seek government protection just to get by. Furthermore, the unemployed class turns into a class of nonconsumers, who are incapable of buying or behaving in market-like ways at all. Business owners obviously need consumers to keep making profits.
The greatest threat to the preservation of the economy however is that it constantly fluctuates between phases of prosperity and economic depressions. A self-regulating market, many have come to believe, necessarily cycles between depression and prosperity in order to relieve itself from bubbles of inflation. Between 1880 and 1930, there were three major economic depressions. The last of these depressions caused most of the major economic powers to go off the gold standard, fatally wounding the international market and leading to the aforementioned rise of fascism.
A self-regulating market then leads to its own transformation. In order to preserve a capitalist order, protective laws are adopted that prevent the labor market from collapsing, that prevent economic depressions from occurring regularly, etc. Finally, although he wrote this book before the formation of the UN, World Bank, or the EU, international organizations are put in place to administer the world economy.
Ironically, many people today have forgotten the lessons of history. They lament protective measures and, like the Liberterian political party, wish to see all market fetters erased. Some even see international schemes as unnecessary meddling and yearn for isolationist political principles. Polanyi’s insights should be imprinted in our minds. A self-regulating market, by principle, demands more of the human race than we can allow. Polanyi’s brilliance is that he foreshadowed, in 1944, the existence of today’s globalizing society.
He should not be mistaken as a Marxist. He did not see socialism as a productive form of government or economy. In fact, he saw it as an extreme example of isolationism that inhibited progress. Polanyi challenged neoliberal economists, on the other hand, by negating the possibility of laissez-faire economics. Regulation is a necessity. Attempts to deregulate the market eventually lead to disorder and breakdown. The regulative institutions of society make up the backbone of capitalism.
Polanyi also left a lesson for today’s world. The preservation of international peace depends upon the effective workings of an international economy. Peace breaks down when countries are left out of the market. Rogue operators are the direct products of failure to integrate. Bonds of economic exchange are the strongest bonds of all. International diplomats, of any sort, need to read this book.
My critique of Polanyi is that, like many of his time, he may have focused too much on European history and ignored what was going on elsewhere. However, to give him credit, he did not think of these other countries as “primitive.” He merely saw them as peripheral to the main body of economic players of the time. I don’t think though that his Eurocentrism necessarily invalidates his theory. It can equally be applied to Asian and African countries as it could to those in Europe.
This book is certainly not for everybody, but Polanyi’s findings are pertinent to all of us. We tend to be atomistic in our thinking. Polanyi thinks of the world as a system, of which we are just little cogs. This doesn’t take away from our own agency and individuality, so long as we realize how constrained we are by the institutions which govern our lives. Because we are all part of this system, I think we could all use a better understanding of how the economy operates and how it sustains itself. Polanyi is a little dense in his writing, but not bad compared to most. If nothing else, read the final three chapters of this book. You may, as I did, find the chapters on English poor laws long-winded and overly-descriptive. Skip those and cut right to the chase.
I once heard an economist say that people are intimidated by economics and turn off their brains as soon as the word “economics” comes up. This may well be true. The unfortunate consequence of this tendency is that the few elites who really understand the economy (like those at the Federal Reserve) are those who wield the machinery and make all the decisions that influence the rest of us. We are naively persuaded by politicians who use flashy terminology but are short on substance. In my humble opinion, all of us need to be better educated about economics. This book is a good place to start.
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