(University of East London)
1997.
The four institutions upon which 19th century civilisation rested. Two political and two economic:
INTERNATIONAL NATIONAL
POLITICAL Balance of power Liberal State
ECONOMIC Gold Standard Self-regulating markets
19th century civilisation collapses. Polanyi's Thesis:
"the origins of the cataclysm lay in the utopian endeavour of economic liberalism to set up a self-regulating market system. Such a thesis seems to invest that system with almost mythical power; it implies no less than the balance of power, the gold standard, and the liberal state, those fundamentals of the civilisation of the nineteenth century, were, in the last resort, all shaped by one common matrix, the self regulating market" (29-30).
19th century society decided to base itself on a motive that was never considered as valid in the history of human societies: gain and personal interest. "In order to comprehend German fascism, we must revert to Ricardian England" (30).
Part One of the book is called "Satanic mill". It discusses the industrial revolution. How to define the industrial revolution? He lists various things: factory towns, low wages, long hours of children, rise in the population increase, etc. etc. All these and others for Polanyi are incidental to one basic change: "the establishment of the market economy" (40). Elaborate machines are expensive. They can be worked without a loss only if:
a. market of products is assured;
b. production need not to be interrupted for want of primary goods necessary to feed the machines.
Without conditions a. and b. production is too risky. a. and b. are created, are not natural conditions. Once they are established, the "gain" motive is diffused through society:
"Now in a agricultural society such conditions would not naturally be given; they would have to be created" (gradually or not). "The transformation implies a change in the motive of action on the part of the members of society: for the motive of subsistence that of gain must be substituted" (41)
"All transactions are turned into money transactions . . . All incomes must derive from the sale of something or other, and whatever the actual source of a person's income, it must be regarded as resulting from sale. . . . " (41).
"The most startling peculiarity" is that once everything is turned into a commodity, once the market system is established "it must be allowed to function without outside interference. . . Such a self-regulating system of markets is what we mean by a market economy" (41-42).
In chapter 4 "Societies and Economic systems", Polanyi lays down his basic criticism of this self-regulating market system.
"Though the institution of the market was fairly common since the later Stone Age, its role was no more than incidental to economic life" (43).
The orthodox laissez-faire economists from Smith on have misrepresented human societies. Smith and other prejudice was that of "primitive man's alleged predilection for gainful occupation." (44) . The tradition of classical economists "attempted to base the law of the market on the alleged propensities of man in the state of nature." (45. Once anthropological studies started to who that "primitive man" was more communistic than self-interested, economics started to abandon its interest with the "early stage of civilisation".
Polanyi starts from historical and anthropological research that shows that "man's economy, as a rule, is submerged in his social relationships. He does not act so as to safeguard his individual interest in the possession of material goods; he acts so as to safeguard his social standing, his social claims, his social assets." (46) Maintenance of social ties, accepted code of honour, generosity are paramount. If not respected the individual finds himself as an outcast. Furthermore, since all obligations are reciprocal, the maintenance of costumes norm etc., also serve the individual best.
Thus, in most of human societies the following were the characteristics: " the absence of motive of gain; the absence of the principle of labouring for remuneration; the absence of the principle of the least effort; and, especially, the absence of any separate and distinct institution based on economic motives" (47).
How was it possible then to ensure production and distribution of goods???
Polanyi here says that all economic system up to the end of feudalism in Western Europe were organised on the following principles:
reciprocity, or redistribution, or householding
or a combination of the three.
These three principles were institutionalised with the help of a social organisation making use of the patterns of
symmetry, centricity, and autarchy.
Principles of production and Correspondent Institutions distribution of goods RECIPROCITY SYMMETRY REDISTRIBUTION CENTRICITY HOUSEHOLDING AUTARCHY
in chapter 5 on "evolution of the market system" Polanyi inquires the origins of the market, and in so doing he turns upside down the orthodox credo.
As reciprocity created symmetry, redistribution created centricity, householding created autarchy, thus the market pattern is related to a motive of its own, the motive to truck or barter, and thus creates its own institution, the market. But now there is an inversion:
"Instead of economy being embedded in social relations, social relations are embedded in the economic system" (57).
This because if truck and barter becomes the aims of society, social relations must be subordinated to the market which shapes them all.
This is why FROM THE BEGINNING the evolution of markets was accompanied by safeguards to protect society from interference of market practices. Take for example the town. Markets developed in town, but towns "enveloped" markets thus preventing them to spread on the countryside.
Let us see now how Polanyi turns upside down the orthodox credo. "Orthodox teaching starts from individuals propensity to barter; deduced from it the necessity of local markets, as well as of division of labour; and inferred, finally, the necessity of trade, eventually of foreign trade, including even long-distance trade." (58) Wrong. Polanyi's shows that neither long distance trade (which originally was motivated more than by gains, by adventure, etc.) nor local trade were parents of the internal trade of modern times. State institutions created internal trade. Municipal markets rather than national. The state is the deus ex machina that created the modern market system.
The next chapter is about the "self-regulating markets" chapter 6. "A market economy is an economic system controlled, regulated, and directed by markets alone; order in the production and distribution of goods is entrusted to this self-regulating mechanism." (68).
Such a market presupposes the presence of money. Production is controlled by prices. Self regulation implies that all production is for sale and that all incomes derive from such sale. there are markets not only for goods, but also for labour, land and money. their price is price of commodity, wages, rent, and interest. The proper self-regulation of the market entails that nothing must be allowed to inhibit the formation of markets. the only incomes allowed is through sale.
This means that "a self-regulating market demands nothing less than the institutional separation of society into an economic and political sphere." A market economy "can exist only in a market society" (71) that is, a society in which social relations are embedded in the economy rather than the economy embedded in social relations. Why? This is a fundamental thing in Polanyi. Because "A market economy must comprise all elements of industry, including labour, land and money." However, "Labour and land are no other than human beings themselves of which every society consists and the natural surroundings in which it exists. To include them in the market mechanism means to subordinate the substance of society itself to the laws of the market." (71).
Labour, land and money are elements of industry, but cannot be produced themselves, thus cannot be seen as commodities. The crucial point is therefore that labour land and money ARE NOT COMMODITIES. Labour is another name for a human activity which "goes with life itself", and therefore cannot be produced for gain. Land is another name for nature, which is not produced at all. Money is just a token of purchasing power that is not produced at all. Thus, these three cannot be produced for sale. Their description as commodity is "entirely fictitious." (72)
Quote 73 "the alleged commodity "labour power" cannot be . . . used indiscriminately, or even left unused, without affecting the human individual, who happens to be the bearer of this peculiar commodity." (73). "No society could stand the effects of such a system of crude fictions even for the shortest stretch of time unless its human and natural substance as well as its business organisation was protected against the ravages of this satanic mill." (73)
If then "human society had become an accessory of the economic system" based on the market (75), society had to defend itself. The history of the 19th century was the result of a double movement. On one side the extension of the market , on the other the attempt to restrict the market itself. The state was responsible for both of these movements.
However, as laissez-faire was the product of state planning, planning (anti-laissez faire) was not planned. Reactions against the laissez-faire took many different forms, and Polanyi surveys the history.
Note that Laissez-faire was not a mean to an end, but the end itself. Despite orthodox credo, the state was responsible to the creation of laissez-faire. For example,
"theoretically, laissez-faire or freedom of contract implied the freedom of workers to withhold their labour either individually or jointly, if they so decided . . . But in practice such freedom conflicted with the institution of a self-regulating market, and in such a conflict the self-regulating market was invariably accorded precedence." (148)
Polanyi is therefore anti-self regulating markets, for the simple reason that they subordinate every aspects of human life to a aim that is not human. He proposes regulation and control, as in all previous societies.