What does a book written during World War II by a Jewish refugee from Austria-Hungary tell us about the 2016 election, the abiding threat of fascism, the retreat from globalization and how, in the past decade, the culture wars have been transformed into class wars? Quite a bit, as it turns out.
The book is The Great Transformation, subtitled The Political and Economic Origins of our Time, by Karl Polanyi; it was published in 1944, by which time the author, who had lost his job as an editor in Vienna when Hitler came to power, was safely ensconced at Bennington College in Vermont. He would be hounded from there to Canada by political forces not entirely unlike the ones he had known in Vienna, but that would come a decade later. He never published anything else of consequence, but The Great Transformation is still in print, adorned in its latest edition (2001) by lengthy forwards courtesy of Nobel economist Joseph Stiglitz and sociologist Fred Block. There is much obscure political and economic history here; the reader will learn more about the “Speenhamland laws” in 18th century Berkshire (a guaranteed-income scheme) than perhaps strictly necessary. But the book remains relevant—even timely—because of the explanation it offers for the persistent socio-political pathologies of our place and time—all traceable, Polanyi argues, to the socially destructive powers of unregulated market economies.
“Our thesis” the author announces on the first page of the first chapter, “is that the idea of a self-adjusting market implied a stark utopia. Such an institution could not exist for any length of time without annihilating the human and natural substance of a society; it would have physically destroyed man and transformed his surroundings into a wilderness.” Those who envisioned this “stark utopia”—early liberal economic theorists like Ricardo, Bentham, and Jeffrey Townsand—are the chief culprits in Polanyi’s narrative, but his criticism applies as well to more modern champions of unregulated markets like Lionel Robbins, Milton Friedman, and Friedrich Hayek, whose Road to Serfdom appeared in the same year as Polayni’s magnum opus.
From Polanyi’s perspective, all of them share a fundamental misapprehention of human nature, and as a result overestimate the benefits markets provide and underestimate the damage they cause—particularly the atomizing, radicalizing effects of sudden, market-driven social change. Human beings, he argues, are not driven primarily by economic motives, as the “liberal” market theorists assume; we are primarily social beings who value wealth only insofar as it ensures “social standing, social claims, social assets.” But markets erode institutions and transform “all the natural and human substance of society into commodities.” In modern terms, they create wealth while burning social capital. So the problem becomes one with which modern, free-market conservatives still struggle: how to maintain the institutions of society—family, community, law, religion, and human dignity—against enormous centrifugal forces that markets exert; how to prevent unregulated markets from devouring the social foundations upon which they and civilization itself depend.
This fundamental tension between rapid economic change and social stability is, Polanyi thinks, is the key dilemma of market economies. If left unaddressed it will loose the radical furies of both Left and Right—at all times and everywhere. He would have scoffed at the idea of American exceptionalism. No society that yields to the dogma of unregulated markets, he warns, will be immune.
Here, for example, is Polanyi’s description of how fascism arises out of disruptive, market-driven social change: Suddenly, without warning, political order, which seemed impervious, breaks down. The signs are “the spread of irrationalist philosophies, racialist aesthetics, anti-capitalistic demagogy, heterodox currency views, criticism of the party system, (and) widespread disparagement of the ‘regime’ or whatever was the name given the existing democratic setup.” This begins spontaneously but is soon usurped by organized fascist forces that “brush aside what seemed until then the overwhelming strength of democratic governments.” Political elites of the old order and their intellectual outriders are easily outmaneuvered.
Sound familiar? It would to Steve Bannon. It reads like a notional point paper for Trump’s 2016 campaign.
In Polanyi’s view, markets of the sort that arose to constitute the socio-economic expression of modernity were not, pace Rousseau and Marx, primeval. Premodern societies had been based on principles of reciprocity and redistribution. Survival demanded cooperation and the redistribution of such goods as a subsistence economy could produce, and customs evolved to reinforce these practices. With the coming of the machine, old communal structures and norms were destroyed, and with them the security and status of individuals suddenly immersed in a new disorder. Modern markets, then, arose from a coincidence of economic, technological, and historical factors, but once arisen were shaped by political energies designed to manage them. Modern markets, were hybrids of happenstance and design.
What could not be well managed was the social damage unregulated markets inflicted—damage great enough to be evident even to the dimmest Berkshire squire or London parliamentarian. The reaction was almost immediate, but attempts at mitigation—anti-union laws, restrictions on movement from country to city, work houses, guaranteed income schemes—often made the situation worse. Polanyi calls this process of action/reaction the “double movement,” and he argues that it best explains the vacillations of political history in the industrial age. Still, “human society would have been annihilated but for the protective countermoves which blunted the action of this self-destructive mechanism.”
Only later came the dogmatics and intellectual apologists to discover virtue in the “iron laws” which, as they supposed, governed these events. Confronted with a suffering and ravaged society, these rationalist champions of free markets steeled themselves against pity, much as their counterparts do in our time. Starvation, wrote Jeffrey Townsend, would cull the ranks of the poor, ensuring full employment for those who survived at whatever wages were offered. Hunger, according to Jeremy Bentham, would conduce to public order without need for the arbitrary power of the state. The inexorable logic that forced wages to subsistence levels could be mitigated, argued Ricardo, if the laboring classes redefined subsistence, or, as he put it, “raised their standard of wretchedness.”
These men weren’t monsters, Polanyi assures us, merely ideologues, although, of course, the monster and the ideologue are often indistinguishable in practice. If the fruits of markets were to be enjoyed, then the consequences must be borne—although not (and here again the contemporary echoes are obvious) by the intellectuals themselves. Thus, as the 19th century unfolded, the new “liberal” economic order with its hallmarks—free trade, the balance of power, and especially the Gold Standard—was destroying what individuals most valued and substituting nothing but a mad, soul-parching scramble for economic growth. The resulting discontent was controlled for a century, sometimes by persuasion, sometimes by compromise, and often enough by force. But the pressures were building, only to explode into two world wars.
Realism vs. Millennialism: Polanyi and Marx
There is a temptation to compare Polanyi to that great scourge of capitalist economies, Karl Marx, but the differences are crucial. Marx was a secular millennialist, very much in the Judeo-Christian tradition. He prophesied a corporal redemption—an end of days in the here and now—which would come about as the inevitable product of historical forces already at work. That gave his theory great appeal in an age that had ceased to believe in the consolation of a heavenly paradise, but it made Marx a poor guide to politics or, as it turned out, to the future.
Polanyi comes from a far different philosophical tradition. His antecedents are the classical political realists—Thucydides, Aristotle, Machiavelli, and Madison—and he begins, as they did, with the premise that human nature is both immutable and flawed. For such defective creatures, the Millennium must remain forever out of reach. Still, we are not helpless before the “iron laws” of the classical (and many modern) economists. Nor are we adrift in the supposed currents of history being swept along toward grand Marxian culmination. We are political animals reacting to changing circumstances—and reacting well or badly depending on how in thrall we are to the economic dogma of the day. There are no ideal solutions, no “stark utopias”; the abolition of markets is as much a fantasy as their complete deregulation. We should aim toward a more modest goal: to retain most of the benefits markets provide, while mitigating the social damage they cause.
That in turn will require economic regulation and a government centralized, legimate, and powerful enough to impose it. Such a government would not abandon markets, but would intervene to cushion the impact of social disruption while carving out large areas of human autonomy. Industrial economies, Polanyi argues, “can afford to be free.” Wide areas of individual choice “must be upheld at all cost—even that of efficiency in production, economy in consumption or rationality in administration.” If this sounds like a template for what became after World War II “social democracy,” that’s because it was meant to be. Polanyi was certainly not the first to make this case, but he gave it by far its most sophisticated analytical basis to date, and at a pregnant moment in the history of Europe.
But it also begged the central questions: Who would uphold these wide areas of individual choice, and at how great a cost? And might this sudden end to restraint on individual choice be as socially destabilizing as the unregulated markets Polanyi was determined to curb? The author appears to leave these dilemmas to the democratic process, which—at least in our country—has conspicuously failed to resolve them. Polanyi may have anticipated as much. There is a note of desperation in the final pages of The Great Transformation, as if the author doesn’t really trust the great mass of humanity to do what needs to be done. If so, his misgivings are more realistic than his recommendations. He admits that bureaucracies must grow in a regulatory state, and that this will threaten individual freedom. His solution is to create public tribunals to draw the boundaries between liberty and authority and “make rights effective”; but he doesn’t tell us how these tribunals would be chosen or empowered, or what freedoms specifically they would uphold. God and the devil keep company in the details, and these he leaves to our imagination. A proud realist about the past, when he looks to the future Polanyi seemingly takes council of his hopes rather than his expectations.
Still, compared to other, more recent contenders for the title of world-historic thinker, the predictive value of Polanyi’s darker vision stands up well. Marx’s inevitable triumph of the working class has been replaced by fears of the ultimate triumph of the machine. Capitalism hasn’t perished for a lack of entrepreneurship, as Shumpeter thought it would. Huntington’s final battle between the West and a potent Islamic monolith of his own invention became instead an Islamic civil war touched off by our blundering invasion of Iraq. The globalism that entranced liberal thinkers like Thomas Friedman in the 1990s is now everywhere in retreat. It’s an occupational hazard of punditry. To explain is to be admired; to predict is to be found out.
Not so much Polanyi. On the contrary, to the modern reader The Great Transformation can seem prescient—almost a description of recent American political history and the 2016 election. In that campaign the regulars of both parties were wedded to the “liberal” economic order: globalization, free trade, unimpeded movement of labor and capital, and maximum feasible deregulation. If the Democrats were more interventionist and Republicans more Darwinian, these were essentially glosses on the common wisdom of the day, including what now seems the naive assumption that whatever social dislocations might be caused (indeed, had been caused) by the rapid movement toward unregulated free markets would be more than offset by the vast wealth that such markets created.
Only the outliers grasped that something more profound was afoot. On the Left it was Bernie Sanders, which wasn’t surprising. He had spent a lifetime advocating for the losing side in the new economic order. Discontent and its exploitation had always been his stock-in-trade. On the opposite flank, those who pandered to the far Right felt the same dark energy; the more racist, xenophobic, and irrational they became, the faster their ratings climbed. But what explains the political metamophosis of Donald Trump? How did this shallowest of men intuit the existence of so fundamental an anger in the sort of Americans he didn’t know in places he’s never been? It seems those who had already struck gold mining the nether reaches of the America psyche whispered it in his ear. In any case, grasp it he did.
Polanyi would have seen it coming. He had hoped in the wake of World War II that societies would “transcend the self-regulating market by consciously subordinating it to a democratic society.” But he recognized, too, that the outcome might be the renewed subordination of society to the market. Then came the end of the Cold War and the reemergence of the free-market dogmatics, culminating in the rush toward globalization, a movement both glorified and popularized by, among others, Tom Friedman and his bestseller The World is Flat. Friedman’s was the dogma of free-market economics on a universal scale, the ruthlessness of his vision partly disguised by the folksiness of his style. Nations that adopted free trade, abolished restrictions on the movement of capital, labor, and technology, and abandoned (as Friedman’s conservative critics pointed out) much of their political and cultural sovereignty would prosper. This was the “golden straightjacket”—the iron law of free markets. Those who tried to protect domestic industries, or maintain inefficient cultural norms, or prevent changes in existing hierarchies of power and status would sink into poverty and chaos. There was more than a hint of Calvinist justice about it: Both winners and losers would be getting precisely what they deserved.
But what if this zero-sum game played out domestically, too? And what if the losers did not go quietly? That was Polanyi’s point, and is the defining political problem of our age. What if actual human beings were not ready to abandon dying communities and older social mores? What if fanciful new norms of education, professional flexibility, and ethnic and gender inclusiveness did not arise, or arise quickly or broadly enough? What if working-class white men, in particular, reacted violently to the destruction of a status based largely on gender, something their fathers and grandfathers had taken for granted? And what if all this occurred in a constitutional system (ours) that amplified the power of voters in states where the benefits of the new economic order were less apparent, and the cultural disruptions more keenly felt. That our country might fracture under those circumstances seems never to have occurred to any of the internationalist elites who dominated policymaking for five decades after World War II—not to the pragmatic “wise men” who lay the foundations of the new international order and not to the triumphalist neo-Wilsonians who later pushed them aside. And since they only talked to themselves and to each other—the latter group especially so—the resounding cracks from a fracturing society went unheard.
At the head of her class in this—as she had always been in life—stood Hillary Clinton. It was easy in 2016 to portray her as the symbol and tool of the forces that were destroying the culture of the people in the heartland—the people left behind. In important respects, that’s exactly what she was.
The Goose-Stepping Elephant in the Room
Sweeping historical visions tend to simplify reality and The Great Transformation is no exception. Despite an anthropological excursion to the South Seas to find a society in which a sharing economy was the norm, and a brief nod later to the New Deal, Polanyi’s vision is almost entirely Eurocentric. He is blind to the impacts of geography, climate, gender, ethnicity, religion, slavery, and even history itself as seen from other cultural points of view. Astonishingly, he has nothing to say about the anti-Semitism that lay at the heart of fascism in Europe and shaped his own personal history. It’s a glaring omission and deserves a closer look.
By the time Polanyi was finishing The Great Transformation, the fate of the Jews in Europe was clear. Polanyi was in England by 1934, but he spent much of the next eight years trying to extricate his Jewish family members from the outcome that he and they knew awaited them. That same year, 1934, he wrote a monograph on “The Nature of Fascism,” but neither there nor in The Great Transformation is there any mention of anti-Semitism. Not only doesn’t he mention it, Polanyi seems at pains to invent euphemisms to avoid the subject—“haute finance” when he means the great Jewish banking houses of the 19th century, and “racial aesthetic” when referring to Hitler’s murderous campaign against the Jews. Polanyi knew from personal experience the primal forces at work in Vienna and Berlin in the years after the Great War. He must have realized the implications. He simply chose not to deal with them. Why?
Polanyi’s biographer suggests that his subject considered the relatively benign fascism of Mussolini’s Italy the philosophical prototype, and the Nazi’s version no more than a vicious offshoot. But it was Hitler’s vision that prevailed in Polanyi’s Vienna, a place that took to the new “racial aesthetic” with particular enthusiasm; the signs had been unmistakable as early as 1934, when Polanyi departed. Polanyi didn’t identify as a Jew; but he would have been all too aware that self-identification was not a luxury the Nazis were prepared to allow. By 1944, as The Great Transformation took shape, the Final Solution was in full operation and Mussolini, safe for the moment in his northern Italian satrapy, was shipping Jews to the death camps as quickly as they could be indentified.
A better answer, it seems to me, is these things simply didn’t fit into Polanyi’s broader theory. They pointed to a dark and persistent source of human behavior that had nothing to do with market economies, and had existed in Europe two millennia before anyone conceived of a gold standard or freedom of trade. Racial and ethnic hatred were invigorated by economic distress, but they weren’t created by it. They could exist in prosperous times as well—a depth of evil in the human psyche that the Enlightenment never reached and which no rationalist system could comprehend.
It might be said that Polanyi was as blinded by his own ideology as the liberal market apologists he criticizes had been by theirs. They had to believe that market economics were the natural destiny of mankind because nothing else could excuse the suffering they saw around them. He had to believe the murderous ethnic hatred of the Nazis was somehow an anomaly because otherwise his system broke down. Perhaps human nature was not as straightforward as he had portrayed it; it might be darker and more complicated than a theory of market economics could comprehend. In the face of implacable unreason, the rationalist Polanyi seems to have concluded that he had no choice but to avert his gaze.
It’s a problem of political obliviousness with which anyone of my generation—or the one that came just after—should sympathize. Many of us concluded that fascism, irrationalism, xenophobia, racism, and corporatism might linger in the less enlightened outcroppings of humanity, but not in the Free World, as we were pleased to call it, and certainly not in the United States. We had watched newsreels of Mussoleni—bloated, posturing, ridiculous—addressing his Blackshirts from his Piazza Venezia balcony content in the knowledge that these were artifacts of a less sophisticated and entirely discredited past. Certainly, we thought—and continued to think until the very recent past—America would never elevate to power such a posturing buffoon.
Obviously, not so. Sadly, the greatest insight for us in revisiting The Great Transformation is the realization that, in some ways at least, ours has been no less a millennialist fantasy than Marx’s triumph of the working class.