Karl Polanyi time-travels and addresses the Great Recession — September 17, 2010

Karl Polanyi time-travels and addresses the Great Recession

Basically a generic cover, with one little cute bit: the background is a giant dollar sign, where the inside and outside of the 'S' are composed of blocks of grey and brown.
(Attention conservation notice: Just under 1100 words, plus a long quote from the book, about one of those rare books that makes sense out of the long sweep of history, and takes your breath away in the process. And this isn’t even the final review!)

I am going to enjoy reviewing [book: The Great Transformation] once I’ve finished it. In the meantime, it suffices to note that every few pages I run into a new idea that either brings a major swath of history into clear focus, or that clarifies my side of a debate.

Before quoting something that falls into the latter category, I should explain Polanyi’s overall goal in [book: The Great Transformation]. He starts with quite a long introduction, trying to explain at a high level how Europe went through 100 years of peace between Napoleon and World War I (this is an era that whose beginning Kissinger covered brilliantly in [book: A World Restored]). To do that, Polanyi needs to cut back to the beginning of the Industrial Revolution and work his way forward. A large part of the intellectual suspense in [book: The Great Transformation] is curiosity over how he’ll get from there back to where he started. What kept the peace together, and what broke it apart?

Among the guiding structures in [book: The Great Transformation] are that

  1. The Industrial Revolution, by its very logic, required that labor, land, and money each be turned into commodities. The implication of this is that the most basic parts of any society — its people, and nature itself — must be made fungible. (Wheat and other commodities on the labor market aren’t actually all identical to one another; they’ve been cut and shaved and folded and spindled and mutilated — and, more concretely, contracted — into a uniform shape so that they may be treated as though they were identical. I read a recent blog post on this, referencing a book on the topic that seems interesting; I can’t find it on a quick skim now.)
  2. Every European nation discovered on its own that it needed to slow the societal destruction that the Industrial Revolution inevitably caused. The Revolution led to a great deal of good eventually, but a shift of this magnitude destroys everything in its wake.

In presenting these ideas, Polanyi brings a style like wind through an open window to the kind of arid economic talk that fills all of our minds nowadays. If someone tells us, for instance, that “the recession is caused by people not taking lower-paying jobs,” we’re apt to come back with mini-lectures on the economic benefits that accrue to the world when unemployment insurance gives people time to find a better-fitting job.

Fie to all that, says Polanyi:

Economically, English and Continental methods of social protection led to almost identical results. They achieved what had been intended: the disruption of the market for that factor of production known as labor power. Such a market could serve its purpose only if wages fell parallel with prices. In human terms such a postulate implied for the worker extreme instability of earnings, utter absence of professional standards, abject readiness to be shoved and pushed about indiscriminately, complete dependence on the whims of the market. Mises justly argued that if workers “did not act as trade unionists, but reduced their demands and changed their locations and occpations according to the requirements of the labor market, they could eventually find work.” This sums up the position under a system based on the postulate of the commodity character of labor. It is not for the commodity to decide where it should be offered for sale, to what purpose it should be used, at what price it should be allowed to change hands, and in what manner it should be consumed or destroyed. “It has occurred to no one,” this consistent liberal wrote, “that lack of wages would be a better term than lack of employment, for what the unemployed person misses is not work but the remuneration of work.” Mises was right, though he should not have claimed originality: 160 years prior to him Bishop Whately said: “When a man begs for work he asks not for work but for wages.” Yet, it is true that technically speaking “unemployment in the capitalist countries is due to the fact that the policy both of the government and of the trade unions aims at maintaining a level of wages which is out of harmony with the existing productivity of labor.” For how could there be unemployment, Mises asked, but for the fact that the workers are “not willing to work at the wages they could get in the labor market for the particular work they were able and willing to perform?” This makes clear what the employers’ demand for mobility of labor and flexbility of wages really means: precisely that which we circumscribed above as a market in which human labor is a commodity.

Such clarity: when Mises and all the other heroes of [foreign: laissez-faire] tell us this sort of thing, they’re treating us like bushels of apples or bales of hay. We’ve become a nameless thing called Labor which can be infinitely subdivided and used for whatever purpose the factory-owner decides on. When the fundamental assumptions beneath [foreign: laissez-faire] are laid bare, it becomes so obvious that we wonder why we never thought of it before. And it becomes immediately clear just how odious those assumptions are. Polanyi reminds us that we still need to think about ethics, even in a world dominated by economics. Yet this “just accept a lower-paying job” argument is still with us.

It was with us during the Great Depression, too, when I believe Keynes addressed it in the [book: General Theory]. Part of the great clarifying joy that comes from Polanyi is the realization that there really aren’t that many new arguments about fundamental economic problems.

Much of what’s astonishing and literally breathtaking about [book: The Great Transformation] falls under this category category of “humanizing the economic”. To give a taste: colonization destroyed the colonized peoples, at least for a time, but they got a lot of money. So what’s the problem? Well, in order to get a lot of money, the colonized countries typically had to radically industrialize. This meant moving people out of the agrarian lifestyles they’d been used to for hundreds or thousands of years and relocating them into urban factories. Yes, they got money, but in the process they were uprooted, their lives were destroyed, and millions died. In a few generations they typically adjusted. And that’s exactly the point: industrializing Western democracies knew enough to lay on the brakes to prevent utter social collapse; they weren’t so generous with their colonies. Our modern focus on the economic, rather than the social, obscures our view of the Industrial Revolution’s ravages. Its gains were substantial, but so were its costs.

This is far more than just an academic look back at the way the world was and where it settled after some initial torment. You can’t wade an inch into a debate about economics today without running into the [foreign: laissez-faire] point of view. “Just let the market settle where it will,” they say, “and you’ll do far better than any central planner could.” The fact is that Western societies have never allowed the market to manage itself unimpeded, and it’s to our everlasting benefit that they haven’t; if they’d let the market manage itself, we would most likely not have a society anymore.

This gets at a conceptual distinction that Polanyi emphasizes, which (again, par for the course with this book) I hadn’t previously kept straight in my head: [foreign: laissez-faire] — the doctrine that the market should be entirely left alone — is different from support of the free market. The West has long realized that, in order to get a well-functioning market, we often need to intervene to make it work. War is too important to be left to the generals, as Clemenceau put it, and free markets are too important to be left unmanaged. Indeed, as Polanyi spends a great deal of time detailing, the very birth of the Industrial Revolution owes everything to state intervention.

I’ve already gone on longer than I intended to. When I get to writing it up in full, I’ll fill in more details and hopefully make the connection back to World War I and the 19th-century post-Napoleonic peace.

P.S.: When I do get around to writing this up for real, I’m going to have to include references to Ernest Gellner’s [book: Nations and Nationalism] (another “let’s take in the big picture” examination of capitalism and its effects), Eric Hobsbawm’s epic, multi-volume “long 19th century” series, and James Scott’s [book: Seeing Like A State]. Thinking of these other books, when you’re in the middle of Polanyi, is unavoidable. They’re all well worth your time.