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Karl Polanyi’s great transformation. A critique

Introduction

The work of the political economist and economic historian Karl Polanyi (1886–1964) is fashionable today (1). It got back into the limelight after the financial crisis of 2008-2009. Scholars of globalization, neoliberalism and post-democracy consider his work on disembedded societies and on reciprocity relevant. But a lot of questions and problems remain. Polanyi’s oeuvre is characterised by excessive ambition, unwarranted generalisations and, sometimes, plain contradictions. It is therefore not surprising that his texts generate confusion, as we will see.

There is something more fundamental going on. Polanyi painstakingly tries to distinguish embedded from disembedded societies (in which, after the ‘great transformation’, there are markets for labour, land and money). It remains highly doubtful whether he succeeds, as each and every case study he presents is open to arguments (see, for example, here for an analysis of the Kula ring).

Things are decidedly much more complicated than Polanyi’s simple dichotomy: the historical record does not support Polanyi’s chronology of the commodification of land and labour. As for his concept of the market, what is it? Notwithstanding all the rhetoric about the need for institutional analysis, Polanyi’s concept of the market remains a black box – just as neoclassical theory had it. Are there differences between a weekend flea market and the global market for financial derivatives? Why forcing such utterly distinct phenomena under one single conceptual rubric?

As it turns out, it is not markets in themselves that are the problem – throughout history there have been many sorts of markets in many places. This is not an argument pro markets. It is stating a fact. What should instead be problematised is the capitalist mode of production. This mode of production works according to methods and rules which were distinctively novel in human history. There is very little to find in Polanyi’s oeuvre about any of this and what can be found is suspicious, to say the least (see the analysis of the ‘bread law’ – Speenhamland – below).

It is therefore also not entirely surprising that Polanyi’s work led to malicious political approximation. In the 1970s, Andersen reprinted a chapter ofThe Great Transformation as part of his demonstration that ‘overly generous’ welfare programs produce perverse outcomes. Of course, no author has control over the reasons why and how others use (and abuse) their work. The simple fact, however, that a chapter of a book, which was meant to mount an attack on ‘market liberalism’, could be appropriated by a political opponent to argue in favour of it raises the question whether Polanyi failed to make his case sufficiently intelligible or whether something else was going on.

Embedded and disembedded economies

Polanyi distinguishes between embedded and disembedded economies. Traditional societies mediate economic activities through multiple ways which are not economic in nature. They can be the word of god, magic, customs, family ties, tribal relations, solidarity, gifting, exchange. In such worlds, there is no distinctive economic sphere, although it is possible that there are markets and a division of labour and that there is money.

Polanyi explained that, from a specific point onwards, the economic sphere started to ‘purify’ itself from all societal, political and cultural ‘constraints’ and began to function autonomically. This evolution culminated in the development of markets for labour, land and capital. Once we have those three, the economy has become disembedded:   

“Instead of the economy being embedded in social relations, social relations are embedded in the economic system … A market economy is an economic system controlled, regulated, and directed by markets alone” (Polanyi, 1944: 57).

According to Polanyi, the ‘great transformation’ took place during the years 1750–1850 in England, when a society based on the tenets of economic liberalism reached maturity. But there is a problem with it. Not only had land, labour and capital never been commodified before, Polanyi argues that they cannot be commodified:

“Labor, land, and money are obviously not commodities; the postulate that anything that is bought and sold must have been produced for sale is emphatically untrue in regard to them … The commodity descriptions of labor, land, and money are entirely fictitious” (Polanyi, 1944: 72).

Polanyi’s argument is not that, before ‘the rise of the market’, economies were embedded in social relations and that, after the fateful ‘emancipation of the market’, the economy became the organisational principle of society. On the contrary: the 19th Century liberals wanted to embed society in the economy, but their project could not succeed because it was not economically, politically or socially sustainable for any length of time.

But what is Polanyi actually saying here? According to Lie, the concept of fictitious commodities falls short of a critique, for the fact remains that if objects are treated as if they are produced for sale, then they meet the definition of commodities:

“(Polanyi) is content to criticize the idea of fictitious commodities from the standpoint of the Kantian ethical injunction against treating people as means, rather than ends … By elevating the moral criticism at the expense of the analytical, he discloses neither the institution nor the process of market exchange” (Lie, 1991: 225).

Lie shows that the historical record does not support Polanyi’s chronology of the commodification of land and labour. Several examples of commodity exchange between the mid-16th and the mid-18th Centuries  show that markets had their own specific, local, ways to supply commodities for populations at ‘just price’. It is clear that Polanyi overworks the exclusive economic character of market exchange, just as he downplays the importance of market exchange in non-market societies. The embedded view identifies qualitatively distinct social organisations of commodity exchange. It reveals many heterogeneous forms that Polanyi covers up under one gigantic rubric, the market. As Lie writes:

“Polanyi’s acceptance of all forms of commodity exchange as market exchange is unsatisfactory. The vast and significant set of … market economies all come under the rubric of the disembedded market concept. Social actors, their interactions, social practices, institutions, and other features remain hidden beneath the veil of the neoclassical concept of the market … that Polanyi accepts” (Lie, 1991: 226).

Polanyi passionately attacks the solipsism of atomistic rational individualism that underpins neoclassical economics. In the course of it, he rehearses many truisms. But ‘the market’ itself remains a black box. The market is thing-like, a non-human mechanism (just as neoclassicism has it), not a social institution in its own right that is shaped by relations of power, customs and other social factors. Lie drives the point home:

“Why should we conflate the exchange between individuals in weekend flea markets with the transactions between transnational corporations and analyse them under a single conceptual rubric?” (Lie, 1991: 230).

Why, indeed? Given the importance of the role of markets in Polanyi’s work, this critique is crucial. 

Polanyi challenged the views of laissez-faire proponents, such as von Mises and Lippmann, who argued that a ‘collectivist conspiracy’ was crippling market society because, from the 1870s onwards, various forms of ‘quasi-socialist’ legislation interfered with its self-regulation. He was of course right. There was no socialist conspiracy. Instead, several countries had made efforts to protect workers, farmers and businesses from the corrosive impacts of capitalism. Yet here, new problems arise. As Block notes, in seeking to refute the ’collectivist’ argument from the right, Polanyi embraces a key aspect of their thinking, namely that the various protective measures did impair the ability of the market system to work effectively. As Polanyi writes:

“(Between 1879–1929) … powerful disruptive strains were latent (in Western societies) … The more immediate source of this … was the impaired self-regulation of the market economy. Since society was made to conform to the needs of the market mechanism, imperfections in the functioning of that mechanism created cumulative strains in the body social” (Polanyi, 1944).

This is vintage Polanyi. The ‘impaired self-regulation of the market economy’ was not the problem. The impaired self-regulation was part of a series of political and macroeconomics means aiming at improving the efficiency of capitalist accumulation. Society was not ‘made to conform’ to the needs of the market mechanism – there was no such determinism. Instead, there was social struggle, initiated by social movements, parties, unions, enlightened elites and – most importantly of all – a Fordist economy-in-the-making that needed schooled workers and mass consumption. Polanyi writes that, after Word War I, liberalism made a last, fateful bid to restore the self-regulation of the system by trying to eliminate interventionist policies in the spheres of world trade and currency policy. As, in his opinion, these attempts were doomed to fail from the very outset, the result was the collapse of the global economy and the rise of fascism and totalitarianism (2). Here we face another problem. It is illogical to claim that a system of self-regulating markets was impossible and that any effort to constrain or limit market self-regulation was doomed to produce a systemic crisis. As Block writes:

(H)ere again, (his) argument is in tension with Polanyi’s insistence on the necessity of embeddedness and the inevitability of hybrid forms. If a purely self-regulating market system is an impossbility, how could it be that the lack of purity inevitably produces a crisis? (Block, 2003: 287).

How, indeed?

True, Polanyi suggests a way out. The problem, he goes on to explain, did not lie with the effort to combine market self-regulation with various forms of protection, but, rather, with the misguided effort to maintain the international gold standard. This move resembles a deus ex machina in a play promoting atheism. Polanyi presents the counterfactual that if states after the First World War would have decided to discard the gold standard, they could have escaped the crisis of the 1930s. Who knows? To Polanyi, the gold standard was incompatible with measures that had been implemented by several national governments to socially and economically protect their populations. It is true that the gold standard led to major macroeconomic imbalances within the world economy, as it created major surpluses and deficits in national current accounts. The gold standard created misery is many countries: unemployment, stagnation, deflation and, ultimately, financial bubbles. And so here is another problem. The gold standard was not ’the institutionalisation of the abstract logic of market self-regulation’. Behind the gold standard stood the interests of the strongest economic nations that benefited from these imbalances, just as today, Germany uses EU economic governance (no deficit spending) to safeguard its wage moderation and dump the pernicious economic and social consequences of this model on its trade partners and indeed its own working poor and unemployed. The problem is not impaired nor unimpaired market self-regulation. It is more concrete than Polanyi’s black box market (3).  

Polanyi lived for another two decades after the publication of The Great Transformation. No major crises occurred during the 1950s and 1960s; indeed, the new, neoliberal, regulation, away from Keynesianism, only became dominant after Nixon abolished the direct international convertibility of the US dollar to gold. The question is whether upholding the gold standard after the First World War was a necessary and a sufficient condition to explain the disaster in 1929 and the 1930s. If it was insufficient in itself, an analysis of all other factors is called for and this is a task that Polanyi did not undertake. The gold standard was one of his idées fixe. Let’s look at another work, Dahomey and the slave trade. We will find something remarkably similar.  

Dahomey and the slave trade

Very few scholars sympathetic to Polanyi refer to this work for obvious reasons (as will become clear). Dahomey and the Slave Trade became a cause celebre for the neoconservative and neoliberal right – they had found their favourite stick to beat the dog with. I am not interested in their critique. I do not share their intentions and I do not agree with their ‘analyses’.

InDahomey and the Slave Trade, Polanyi characterised pre-colonial Dahomeyan society as a reciprocal system and the archaic Dahomeyan state (now Benin) as a system of redistribution. As he wrote, accounting for the annual customs:

“The annual customs was the principal event of the economic cycle. In terms of gross national product and foreign import, as well as popular participation, it was an … institution of unique proportions … (T)he king received gifts, payments and tributes, subsequently distributing a part of this wealth as gifts to the crowd. The economic aspect of this process may be analysed as a move of goods and money towards the center and out of it again, that is redistribution” (Polanyi, 1966: 33).

Redistribution defined the organisation of the state sector, including the exercise of kingship. However, once we focus on the global political and economic context in which the system operated, Polanyi’s reasoning rapidly looks tautological. As Klein writes:

“In this model, redistribution defines kingship which defines archaic state. State implies kingship, which in turn implies redistribution … (Polanyi) generated a definitional circle … in which ‘redistribution’ alternates between serving as the major premise for isolating the economic dimension of state power and the political outcome of such an exercise of power now stated in ‘economic’ terms. As such, his concept of redistribution begins to take on the word-magic of those orthodox, market-oriented interpretations Polanyi criticised so sharply” (Klein, 1969: 212).

To Polanyi, the outstanding characteristic of Dahomey lay in the dual character of its economy. On the one hand, the social organisation of the bush fell largely, if not completely, outside the state system. The traditional villages and compounds remained quasi untouched by the central administration. Dahomey therefore consisted of a state society and a non-state society, the ancient village-kin community and household economy. The village system shared certain traits with feudal organisation and its manorial economy of Western Europe, while others were strikingly absent:

“(T)he African compound was not fortified and had no military character … its walls ensured privacy not security … nor does the compound carry socioeconomic ruling class privileges that imply disposal over dependent labour” (Polanyi, 1966: 73).

The most important difference between European feudalism and the African sib compounds was the absence in the latter of a ruling landlord class. Local chiefs were not feudal landowners. The farmers were not required to hand over a portion of their surplus wherefrom overlords derived their income and on which they could base their political power. Polanyi characterised the non-state sector as essentially egalitarian. It is unclear if this evaluation is valid or not. However, it is clear that the  consequences of the lack of state penetration proved fatal for Dahomeyan society as a whole.

The Dahomeyan state tried to collect taxes and to administer the extraction of peasant surplus, but this proved impossible without the existence of an intermediate level. As a result, the state increasingly failed to sustain the urban centres. As Dahomey had little foreign trade, lack of economic integration between the rural and the urban centres ultimately made war and slave raiding inevitable. The slave trade, in turn, deepened the state’s dependency on the West. At this point, Polanyi’s assessment of the archaic state of Dahomey as “a structure of rare perfection” and “a unique example of a completely developed archaic political economy” turns farcical (see also here).

Dahomey was not a primitive society. It had urban centres in which people lived from trade and commerce. The state is, in its historical essence, an embodiment of urban-rural relations of political power and inter-class relations of rulers and extractors of agricultural surplus. However, as the state never penetrated into the productive relations that governed the village economy, it ultimately failed politically as well as economically. The Dahomeyan political class, very early on, had no choice but to follow suit with the Europeans. Polanyi’s opening remarks, about the military efficiency for which Dahomey was feared, its slave trade and its stable currency for which it was admired, all point to its fatal weakness – not its strength: its fateful dependency on European power (see also here).

Reciprocity and trade

Polanyi wrote that money existed in Dahomey, but that it was relatively unimportant. Its main role consisted in providing a common denominator for goods that were redistributed or reciprocated. Aside from this, money served another function: it legitimised and exemplified social stratification. To substantiate, Polanyi refers to the writing of the fourteenth-century scholar and trader Ibn Battuta, who documented the existence of two different currencies in Dahomey. Thin copper wire was used to pay wages and only foodstuffs, wood and baskets could be bought with it. Thick copper wire, on the other hand, could be used to purchase anything. The two-tier system separated the modest consumption of the peasantry from the higher living standards and the privileges of the urban upper classes. Latham, however, writes that Polanyi misread Battuta on several points. What is more, according to Latham, the thin and the thick copper wires were inter-changeable.  

The use of copper wire as a mode of payment was once widespread in Africa. It was used as money in Nigeria until approximately the end of the Second World War. The Tiv used them in the north. In the south of Nigeria, near Calabar, copper wire was also in use. Yam from the North, palm oil from the West, and salt and fish from the estuary of the Cross, were distributed among local networks. On the markets, ropes, nets, baskets, clothes, weapons, jewellery, tools and canoes could be bought. The Efik, theIgbo, the Ekoi and the Efut were active in these markets.

Copper wire had all the functions of modern money: it expressed prices, it was a generally accepted way of paying, the wire could be saved and accumulated and credit, rent and interest were expressed in it. Latham wrote that this inter-changeability held true for almost the whole of Africa. In East Africa, where cattle were used to express prices, livestock could be used to purchase everything. Small transactions could be paid with calves, goats or chickens. Furthermore, in Calabar prices were set on the basis of demand and supply (Latham, 1973: 6). There were no restrictions on owning or using copper wire. Even slaves could use it. In other words, Calabar was a fully developed market society.

The social buffer of thick and thin copper wires constitutes Polanyi’s main proof for his argument that Dahomey consisted of redistributive and reciprocal systems. Market trade only took place in isolated ports of trade and was strictly regulated. Latham, however, argues that the Dahomeyan urban centres were largely market based, that money was used to purchase all the goods and services by anybody who could afford them and that money underpinned the allocation of political power and status in Dahomeyan society (Latham, 1973: 23ff). Polanyi’s whole argument throughout the book is based on the presumed buffer between the thin and the thick copper wires. If the wires were inter-changeable, his argument is mute (4). The empirical material does not support his case.

Speenhamland, the future of an anachronism

According to Polanyi, the English working class only originated after the Poor Law was abolished in 1834. The law, decided upon in Speenhamland in 1795 on the initiative of the landowners, came into existence because it was felt that wages could not be determined by demand and supply alone, but had to relate to the price of bread. The ruling became law in large parts of rural England, as well as in some urban areas. The law, essentially, postulated the ‘right to live’. It was abolished in 1834, after the entrepreneurial class won the elections on a programme of laissez-faire.

One could assume that Polanyi would applaud Speenhamland. After all, the Poor Law was a means of societal regulation, directed against the forces which “turn civilisation into a wilderness” (the commodification of land, labour and money). However, Polanyi vehemently criticised it. He went on to produce an impressive inventory of bad reasons, aiming to prove that Speenhamland was no good.

Polanyi wrote that the Poor Law constituted a cynical and short-sighted policy on the part of the landowners, eager to protect their quasi-feudal interests. Speenhamland had to be abolished, he argues, because, in modernising England, the absence of a free labour market was a bigger evil than its presence. The Poor Law was also destructive, he added, because it undermined the self-respect of the labourers to such degree that, after some time, they chose to parasitise on their meager benefit instead of work. Not a single source is provided for this ridiculous arch-conservative statement.

Polanyi continued by arguing that the Poor Law slowed down the process of proletarianisation of the peasants by spreading pauperisation to rural areas. This may or may not have been the case (Thompson in his masterwork on the making of the English working class flatly denies it – Thompson, 1973: 133 ff). Whatever it is, Polanyi makes a fool of himself by asserting that not capitalism, but some unintended consequences of a relative obscure law were responsible for the inhumane living conditions of the masses:

“But for the protracted effects of the allowance system, it would be impossible to explain the human and social degradation of early capitalism” (Polanyi, 1944: 80).

No wonder the neoconservative Andersen republished the chapter in the 1970s!

What was actually the point? Incredibly, Polanyi wrote that the pauperisation of the labourers was not the result of class exploitation. There existed common interests between employers and employees – the spread of the new system, the demise of the old one. The Poor Law was ill-conceived because it constituted a subsidy for the rural gentry, it decreased wages and it made finding suitable workers more difficult. In doing so, it slowed down an inevitable process.

Meiksins Wood on agrarian capitalism

Block considers Speenhamland as a desperate effort by the rural gentry to stop the advance of capitalism. Industrial capitalism was ready to shake off the existing property relations that limited its development. The new capitalists regarded the rural gentry as lazy, unenlightened halfwits, while the gentry regarded the new capitalists as heartless money-grabbers. As Collier writes, both were right (Collier, 2008: 113).

The conflicts between these two strata are very well-documented. Piketty provides a concise selected anthology in Capitalism in the 21st Century. But that does not mean that what had happened in rural England was not conductive and essential for industrial capitalism to take off.

According to Meiksins Wood, the origins of industrial capitalism lie in the agrarian capitalism of England. Capitalism was not born in the Italian city states, the Dutch financial centres or the German Hanse, but in rural England (see here).  Its origins were not financial. They were not driven be trade. Trade and usury both existed long before capitalism and extended to vast areas in Europe, the Islamic world and Asia. The dominant principle of trade, for millennia, consisted of ‘buying cheap and selling deer’.

As Ellen Meiksins Wood explains, the only major exception to this general rule was England, which, in the 16th Century, started to develop in wholly new directions. In England, an increasingly strong central state eliminated the ‘parcellised sovereignty’, an inheritance from feudalism, much sooner than anywhere else. On the continent, even powerful monarchies continued to live alongside post-feudal structures, fragmented legal systems, corporate privileges and military powers (see here).

One consequence of the increasing concentration of landholding was that an unusually large proportion of land was worked not by peasant-proprietors, but by tenants. During feudal times, the roaming off of surplus had been ‘extra-economic’ – it had been based on coercion and the threat (and the reality) of violence. In 16th Century England, the gentry lacked these ‘extra-economic’ powers. But there was another way to increase profits: compel peasants-tenants (the original meaning of the word ‘farmer’) to increase output.

The new custom of ‘economic rents’ proved decisive. Rents were no longer fixed in time by legal or customary standards, but instead became dependent on market pressures. Farmers had become dependent on the market in the fundamental sense that their access to land (their means of production and hence their livelihoods) had come to depend on it. Tenants were compelled to produce more cost-effectively, on penalty of dispossession. As Meiksins Wood writes, the choice of agrarian capitalism was intense self-exploitation or dispossession by ever larger and more productive enterprises (see here).

In order to increase agricultural output, new methods and new equipment were used. The main innovation, however, was social. The impetus to increase production necessitated new forms of property. The need for enlarged and concentrated landholdings led to the enclosure of ‘open fields’. It demanded the elimination of old customs, such as communal ownership of common lands, customary tenure of smallholders, village regulations and restrictions on land use. Enclosure meant, first and foremost, the extinction of customary use-rights on which many depended for their livelihood.

In 16th Century England, social reproduction was increasingly dependent on the maximisation of exchange value by means of cost-cutting and improving productivity, by specialisation, accumulation and innovation. Dependency on the market had proved easy to manufacture. It only required the loss of direct non-market access to the means of production. It is this process which was responsible for the occurrence of mass proletarisation.

The magnitude of the change involved proved to enormous. Meiskins Wood writes that between 1500 and 1700, the population in England grew substantially, as in other European countries. But, unlike any other European country, in England the percentage of the urban population more than doubled in that period. To compare, at the time of the French Revolution (1789), about 85 to 90 percent of the population lived in rural areas. By 1850, when the urban population of England was about 40.8 %, only 14.4%, of France’s population lived in cities. In Germany, it was only 10.8%.

Meiskins Wood argues that England’s agrarian capitalism was a necessary condition for the subsequent industrial take off. Without the agrarian revolution, there would have been no dispossessed class. Without it, no mass proletarisation would have occurred. Without proletarisation, no mass consumer markets would have originated. There would – perhaps – have been no imperialism – although this is more contentious. Without it, we would – perhaps – not struggle with climate change today, because the system that makes production inseparable from profit is also the system of exploitation, land destruction, ecological un-sustainability in general and unequal ecological exchange (see here). 

Unequal ecological exchange and the great transformation

We know already that Polanyi’s chronology of the commodification of land and labour is wrong. Where is unequal ecological exchange? It is inconceivable that Polanyi, as an economic historian, while researching for The Great Transformation, did not encounter primary sources that document it. Apart from primary sources, the exchange had been analysed in the literature. Marx had written on the metabolic rift. The work of the German chemist von Liebig was famous. Andreas Malm gives many more examples: this was a lively discussion in the second half of the 19th Century. Evidence is to be found everywhere. The issue is, of course, of extreme relevance to Polanyi’s great transformation thesis. Still, it shines through absence.

As Bellamy Foster explains, theories of economic exploitation and unequal ecological exchange are tied up with fundamental issues such as the metabolic rift, ecological debt, ecological footprints, the resource curse, embodied carbon and global social and environmental justice (see here). All of these approaches try to gauge the structural disadvantages that have historically been imposed upon the periphery. Statistics on modern world trade reveal enormous net imports of embodied energy, square kilometres of embodied land and person-year equivalents of embodied labour to the three core regions of the modern world-system, the US, Europe and Japan (Dorninger and Hornborg 2015). By replacing monetary metrics with biophysical ones, theorists illuminated the previously hidden inverse relationship between thermodynamics and economics in which raw materials are lowly priced, while processed goods which have dissipated most of their matter-energy are highly priced, ensuring that surplus value and resources accumulate in industrialised countries, leaving behind impoverished extractive economies (Hornborg, 2006).

Again, these processes were absolutely fundamental for anything like the ’great transformation’. Without it, the increase of agrarian productivity would not have taken place. Without cheap raw materials, there would have been no industrial revolution (5).

More Speenhamland

Instead of concentrating upon something fundamental such as the above, Polanyi goes off in completely different directions, obsessed as he seems to be with Speenhamland – the book contains no less than three chapters on it. More sweeping generalisations and simplicities await the reader. We learn that the inhumane living conditions of workers were not the result of insufficient wages, instead they were due to the dissolution of traditional communities. Grandiose, and what caused this dissolution?

In the end, Polanyi reproduces the conservative argument that workers have to be threatened with hunger and destitution, as otherwise they would refuse to work. Furthermore, wages need to remain close to subsistence level, as anything more would be consumed idly, by drinking or gambling. At the very end of The Great Transformation, Polanyi  repeats why the Poor Law was misconceived. It destroyed the direct relation between work and income:

“The utter incompability of Speenhamland with the wage system was permanently remembered only in the tradition of the economic liberals. They alone realised that, in a broad sense, every form of protection of labor, implied something of the Speenhamland principle in intervention” (Polanyi, 1944: 283).

This is no longer serious. Speenhamland has nothing to do with the problems of ‘every form of protection.’ It has to be evaluated on its own terms. Unquestionably, there were negative unintended consequences. At its most concrete, however, its aim was to protect peasants from starving. But this was not good enough:

“In the end, the free labor market, in spite of the inhuman methods employed in creating it, proved financially beneficial to all concerned” (Polanyi, 1944: 77).

This is not only factually wrong, but also scandalous. To state what is more than just evident, the ‘free’ labour market was obviously not financially beneficial to those who had no choice left than to work themselves to death in the satanic mills. People had been turned into mere replaceable units of abstract labour power. Marx highlights the point by quoting County Magistrate Broughton Charlon’s description of a lace factory in 1860:

“Their limbs wearing away, their frames dwindling, their faces whitening, and their humanity absolutely sinking into a stone-like torper, utterly horrible to contemplate … We are not surprised that Mr Mallet, or any other manufacturer, should stand forward and protest against discussion … The system, as Rev. Montagu Valpy describes it, is one of unmitigated slavery, socially, physically, morally, and spiritually” (Marx, 1999 :154)

In the pottery industry, children of seven worked fifteen hours a day. In Stoke-on-Trent, 36.6 percent of the population were potters, but more than half of the deaths in the city were from lung diseases caused by working in pottery factories (Collier, 2008: 101). Only immigration from the rural areas kept the population going. In the matches industry, children as young as six worked from 12 to 15 hours a day (Collier, 2008: 102).

Marx in Capital quotes from a speech in the House of Commons in 1863:

“The cotton trade has existed for ninety years … It has existed for three generations of the English race, and I believe I may safely say that during that period it has destroyed nine generations of factory operatives” (Marx, 1999: 164–5).

Polanyi’s belief in progress (according to Hannah Arendt, it is against human dignity to believe in it), the idea that pain had to be endured, that capitalism had to develop, also shines through in his use of the word ‘financial’. It is as utterly bizarre as it is plainly incoherent that Polanyi, the proponent of redistribution, the champion of reciprocity, the great critic of neoclassical economics, invokes a simple monetary standard in this context. At the historical point when labour, one of his famous fictitious commodities, is being commodified, Polanyi welcomes the result as part of an ‘inevitable’ process.

Conclusions

Polanyi’s emphasis on the 19th Century fails to explain the transformation of traditional, embedded economies into modern, disembedded ones. The causal mechanisms behind the ‘great transformation’ are left unclear. At the end, it is not clear what sort of a reformist or ‘socialist’ Polanyi is, as his views on the necessity of wages near subsistence level sound utterly regressive.

Against economic naturalist conceptions that present ‘hunger’ and ‘gain’ as timeless and universal forces that mould society into market forms, Polanyi argues that such motives and their portraits of ‘economic man’ are themselves artefacts of institutional arrangements. As the nineteenth century universalised the market, nineteenth-century views of the world naturally embraced economic determinism, since such modes of thinking mirrored all social institutions. Markets are not the expression of primal, timeless instincts. They are social institutions of which the design depends on power relations, scientific notions, culture and other social factors. They must be investigated in social terms. All of this is all absolutely true, but the fact remains that his concept of the market in The Great Transformation is just as sociologically empty as the one of the neoclassicals who see markets everywhere.  

Neoclassical theory typically construes relationships among variables, such as supply and demand, and goes on to regard those as universal categories. Likewise, motives and institutions are dismissed as frictional variables. The culmination, up to this day, is an overarching theory of human behaviour which, they say, holds true for all times and places, as if economics is some sort of physics (see also Block, 2003: 221). In this, they are fundamentally wrong. Neoclassical theory equates all human endeavour to make ends meet through market oriented behaviour:

‘Where trade was seen, markets were assumed, and where money was in evidence, trade was assumed and, therefore, markets’ (Polanyi, 1977: 79) (7).

Today, the challenge for societies is to regain a critical threshold of embeddedness. Else, we risk social, economic and ecological disaster, all at once. The distinction is not between embedded and disembedded economies – the latter are not an option – but between succesful and unsuccesful modes of regulation.

How can this be achieved? Human suffering and oppression have always existed, practically everywhere, markets or no markets. Surplus labour has always been expropriated by the powerful, even in societies that are being governed by traditional customs, magic and the like (see the article on the Kula ring for an example). Access to the means of production – and for the longest time of human history this meant access to the land – has practically always led to feuds and violence. The only significant exceptions, as James C. Scott argues, have been societies of hunters and gatherers.

Certainly, communal customs and regulations existed for millennia everywhere. Modernity – modern science, the nation state and capitalist development – usurpated them or made them increasingly insignificant. There is something essentially true about this, although even now much remains unclear.  

Today, we look straight into the face of the biggest threat we ever had to deal with. We write, analyse, lecture, vote, protest, strike, we refuse to go to school. We set up parties, consume less, stay home, buy ecological products. What did we achieve? We got a toothless agreement (no treaty), rising CO2 emissions, rising temperatures and the rapid consumption of the remaining carbon budget. What is the problem? As Adam Smith said, ‘contrary to Mr. More and Mr. Hobbes,’ knowledge is not power. Capital is power. This has to be the focus of analysis, not markets.  

Notes

(1) Biographic and other information on Polanyi can be found on the blog of his daughter Kari Polanyi Levitt, here.

(2) As Polanyi wrote: “If ever there was a political movement that responded to the needs of an objective situation and was not a result of fortuitous causes it was fascism” (Polanyi in Block, 2003: 236).

(3) Cf. “The core of this argument is that the crisis was rooted not in the fact that self-regulation was impaired; the impairing of the market self-regulation was inevitable. The problem was that the various forms of protection practiced by nations coexisted with an international gold standard that rested on the principle of market self-regulation. It was this incompability between what was occuring within nations and what was occuring between nations that created disaster” (Block, 2003: 288).

(4) Why Dahomey, of all places? It might well be the very worst case imaginable. As Tallis wrote:  

“Among the many who believed the answer to the problems of the twentieth century were to be found in tribal societies of the past, the palm for lunacy must be awarded to … Polanyi. … He did not worry too much about the right of the king’ 2,000 wives, or of the large numbers of women appointed by the kind to provide sexual services for the public at large, the elaborate system of state spies, or the systematic slaughter of prisoners of war.”

And Sandall (same discussion) wrote:

“Relentlessly driven by his ‘sacred hate’ of market economics … Polanyi would actually have us believe that this account of the slave-owning, war-making and bloodthirsty eighteenth-century tribal kingdom … was something from which we all have much to learn … Polanyi does not just ‘tellingly record’ with disapproving sorrow … the ‘repulsive cruelty’ of Dahomey … (his statement) … attempts to excuse and justify such horrors on the ground that such practices ensures ‘an unbreakable society, held together by bonds of solidarity …” (the exchange with McRobbie can be found here).

I fundamentally disagree with the conservative leanings of these authors (see for example here), but in the case of Dahomey, Polanyi made it childishly easy for his detractors to criticise him.

(5) As Meiksins Wood wrote:

“The ethic of “improvement,” of productivity for profit, is also, of course, the ethic of irresponsible land use (…) and environmental destruction. Capitalism was born at the very core of human life, in the interaction with nature on which life itself depends. The transformation of that interaction by agrarian capitalism revealed the inherently destructive impulses of a system in which the very fundamentals of existence are subjected to the requirements of profit. In other words, it revealed the essential secret of capitalism.”

(6) The consequences of these insights are so far-reaching that they amount to a full-blown critique, not only of mainstream economics, but of modernity and its central concepts of growth, development, progress, technology, political scales and the society-nature discussion as a whole. It simply destroys much of macroeconomics.

Daniel Ankarloo’s attack on the New Institutional Economics (‘In the beginning there were markets’) is very good. As Ankarloo writes, to the orthodoxy (witness all introductory textbooks), the economy is the choice between scarce means in relation to preferred ends. But according to Polanyi, it is impossible to understand economic history from this orthodox formalist perspective. Still, this is exactly what the NIE theorists do. As Ankarloo writes:

“(W)hen Silver (from the New Institutional Economics) finds evidence of trade, he sees a “market economy”. When he finds evidence of contract, he sees “a labour market” – although what is contracted are slaves. When he spots a merchant, he sees a “capitalist”. When he sees different prices in an ancient economy, he sees “the law of supply and demand”. When he finds evidence of production in the family, he calls it a ”family firm”. When he sees status, he calls it an ”investment in name trust”. When he sees skill, he calls it ”human capital”. When he sees temples and worship, he calls it the lowering of transaction cost by the collective ”investment in gods” (Ankarloo, 2002). Etc.

References

Ankarloo, D, 2002, ‘Using Karl Polanyi as a stepping stone for a critique of the new institutionalist orthodoxy,’ Paper to be presented at the CRIC Workshop: “Polanyian Perspectives on Instituted Economic Processes: Development and Transformation” (here).

Block, F., 2003. ‘Karl Polanyi and the Writings of “The Great Transformation”’,     Theory and Society, 32(3).

Bogucki, P., 1999. The Origins of Human Society. London: Blackwell.

Carruthers, B. And B. Uzzi, 2000. ‘Economic Sociology in the New Millenium’, Contemporary Sociology, 29(3), 486–94.

Edel, M., 1970. ‘Karl Polanyi’s Concept of Non-Market Trade: Discussion’, The Journal of Economic History, 30(1), 127–41.

Foster, J.B, 2001, Ecology against Capitalism, Portland: Monthly Review.

Hobbes, T., 1983 (1651). Leviathan. London: Everyman’s Library.

Hornborg, A. 2012. Global Ecology and Unequal Exchange: Fetishism in a Zero-Sum World, London: Routledge.

Klein, A., 1968. ‘Karl Polanyi’s Dahomey: To be or not to be a State? A Review Article’. Canadian Journal of African Studies, 2(2), 210–23.

Lie, J., 1991. ‘Embedding Polanyi’s Market Society’, Sociological Perspectives, 34(2), 219–35.

Lie, J., 1997. ‘Sociology of Markets’, Annual Review of Sociology, 23, 341–60.

Marx, K. (1999). Capital, Oxford: Oxford University Press.

Meiksins Wood, E, 1999. The Agrarian Origins of Capitalism, Monthly Review.  

Polanyi, K., 1957 [1944]. The Great Transformation: the Political and Economic Origin of our Times. Boston: Beacon Press.

Polanyi, K., 1966, Dahomey and the Slave Trade. An Analysis of the Archaic Economy, Seattle: University Of Washington Press.

Polanyi, K, 1971a [1957]. ‘Our Obsolete Market Mentality’, in G. Dalton (ed.), Primitive, Archaic and Modern Economies. Boston: Beacon Press. 59–77.

Polanyi, K, 1971b [1957]. ‘The Economy as Instituted Process’, in G. Dalton (ed.), Primitive, Archaic and Modern Economies. Boston: Beacon Press. 139–174.

Polanyi, K, 1971c. ‘Ports of Trade in Early Societies’, in G. Dalton (ed.), Primitive, Archaic and Modern Economies. Boston: Beacon Press. 238–260.

Sachs, W., 1995. ‘Global Ecology and the Shadow of “Development”’, in W. Sachs (ed.), Global Ecology: a New Arena of Political Conflict. London: Zed Books. 3–21.

Schapf, D., 1998. ‘David Tandy, Warriors into Traders: the Power of the Market in Early Greece’. Bryn Mawr Classical Review, 11, 161–72.

Thompson, E.P., 1974. The Making of the English Working Class. Cambridge: Cambridge UP.

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