[This article is crossposted at the author’s website, michaelhunt.web.unc.edu.]
Head swimming from all the bad economic news as well as the summer heat? Alarmed by a volatile stock market and the prospect of return to recession? In despair over the incapacity of our political class to address a persistent fiscal deficit? Troubled by a public deeply divided over the right road back to good times? I’ve got something for you: a classic that speaks loudly and clearly to these troubled times. It may help not only clear your head but also fundamentally alter your sense of how to think about the issues now before us.
The Hungarian economist Karl Polanyi published The Great Transformation: The Political and Economic Origins of Our Times in 1944 at a time of striking intellectual ferment. The possibilities for postwar social reconstruction seemed enormous. Keynes had already made the case for state intervention to smooth out the economic cycle. Friedrich Hayek’s The Road to Serfdom was about to lay out what would prove an equally influential argument against state planning as inimical to political freedom. Hayek’s fellow Viennese, Joseph Schumpeter, joined the conversation by mounting in Capitalism, Socialism, and Democracy a defense of capitalism, highlighting its capacity for “creative destruction.”
Of these works, The Great Transformation stands out today precisely because it demystifies the free market faith now deeply entrenched in the public mind, in the programs of both major political parties, and in the policy debates now playing out in Washington. This study—drawing on the nineteenth century’s experience with the rapid spread of market activity, its deep penetration across Europe and North America, and its capacity for global economic integration—shows that free markets are not something natural that arise spontaneously according to some eternal law of supply and demand.
To the contrary, markets come into existence thanks to the actions taken by states. Political leaders had first to remove impediments to commerce, investment, and labor and then to provide at least minimal oversight of economic activity once it was freed from restrictions. Free economic activity was not at odds with an activist state; it was dependent on it. In Polanyi’s famous paradox, “laissez-faire was planned.”(p. 141)
Polanyi’s study makes a second important point pertinent to today. In the real world, as opposed to some utopian dreamscape, markets once unleashed have all sorts of deleterious effects. In Polanyi’s words, they tend toward
the exploitation of the physical strength of the worker, the destruction of family life, the devastation of neighborhoods, the denudation of forests, the pollution of rivers, the deterioration of craft standards, the disruption of folkways, and the general degradation of existence including housing and arts, as well as the innumerable forms of private and public life that do not affect profits. (p. 133)
Anything here that rings a bell?
Beyond social costs, Polanyi saw markets undercutting the very freedom that Hayek felt they supported. Operating without check, the market provided
the fullness of freedom for those whose income, leisure and security need no enhancing, and a mere pittance of liberty for the people, who may in vain attempt to make use of their democratic rights to gain shelter from the power of the owners of property. (p. 257)
Does a political system in which ordinary citizens feel angry, disenchanted, and powerless seem familiar? Know about a democracy in which economic entities (corporations, banks, their lobbyists, their campaign funding, rating agencies, and the IMF) seem to set the agenda and reduce politics to the process of accommodating to the diktat of the market? The generation of wealth and its play on a global scale—then as now—leave Americans not better off but discontented and longing for some way forward.
The Great Transformation follows this picture of the social and political loss inflicted by market vitality with a third point. A market given full scope generates a popular backlash. The more unchecked economic activity inflicts social disruption and environmental damage, the greater the popular demands for relief.
The very capacity of states to intervene to create markets also means they have the capacity to respond to public clamor and limit the destructive scope of markets, protect workers and their families, guarantee a modicum of social stability and solidarity, and defend the environment. Initiatives of just this sort took shape in the latter part of the nineteenth century and the early part of the twentieth not as part some grand socialist scheme but in an ad hoc fashion out of this collision between markets and the broad interests of society. Thus we come to Polanyi’s second paradox, his notion of a double movement: a planned laissez faire system so powerful that it gave impetus to unplanned state activism to protect society.
Polanyi’s classic suggests we should ignore the profoundly false choice between markets and the state. Markets depend on the state and by their inherent excesses evoke popular demands for relief in the form of state programs. It also suggests we should drop the illusion that every problem can be solved by giving the markets even greater play. Freed of an almost religious vision of what markets mean and can do, we can begin to think about social justice and individual welfare as matters of legitimate concern and thus tap and channel politically broad and deep discontents with the status quo.
So take a step back and a deep breath and learn from the past. We’re not the first to experience market penetration, market misbehavior, and societal push-back. Markets work on us, but because markets are man-made and not handed down from on high, we can work on markets.
Just as Americans and Europeans a century ago demonstrated how to tame an ostensibly sovereign market and bring to heel those possessed of great economic power, a state responsive to broad-based discontents can once more do the job of subordinating economic abstractions to real human needs. That’s Polanyi’s take home message to anyone concerned with U.S. politics today.
[A second edition of The Great Transformation is available from Beacon Press.]
Michael H. Hunt is Everett H. Emerson Professor of History Emeritus at the University of North Carolina at Chapel Hill. His ten books include The American Ascendancy: How the United States Gained and Wielded Global Dominance and A Vietnam War Reader: A Documentary History from American and Vietnamese Perspectives. His comments “on Washington and the world” appear here regularly and can also be found on his new website.