Reflections on The Great Transformation, Chapter Three: "Habitation versus Improvement"
Central to Polanyi's argument is that markets are not natural, that contrary to the assumptions of classical economists, to "truck and barter" is not something that has been a central element in human social activity for thousands of years. He argues that the market economy is something that only became possible after the machine made a certain kind of wealth accumulation possible. Economic activity had always before that been subordinate to other social values, and that the key to 'the great transformation' is that for the first time in history, society's values have become subordinated to economic ones, that economic growth was the only thing that mattered.
This is a "revolution" that is taken for granted by us now, and most of us assume that its benefits are self evident, but it's worth a few moments to reflect on its significance.
Nowhere has liberal philosophy failed so conspicuously as in its understanding of the problem of change. Fired by an emotional faith in spontaneity, the common-sense attitude toward change was discarded in favor of a mystical readiness to accept the social consequences of economic improvement, whatever they might be. . . . It should need no elaboration that a process of undirected change, the pace of which is deemed too fast, should be slowed down, if possible, so as to safeguard the welfare of the community. Such household truths of traditional statesmanship, often merely reflecting the teachings of a social philosophy inherited form the ancients, were in the nineteenth century erased from the thoughts of the educated by the corrosive of a crude utilitarianism combined with an uncritical reliance on the alleged self-healing virtues of unconscious growth.
The catastrophes of social dislocation experienced first in England and then elsewhere were justified by a purely materialistic/utilitarian calculus: Happiness = economic growth. The entire 19th century is shot through with an optimism and that the disruptions caused by the unprecedented economic growth were temporary that the wealth generated would somehow be redistributed, and that a rising tide lifts all boats. Utopian schemes proliferated. That optimism evaporated during the trente inglorieuse between 1914 -1945, and a more sober, social democratic compromise in the Atlantic world replaced the ideological fervor of the decades preceding whether the fervor was for free markets, for socialist revolution, or for fascist will to power. The boring, sober, process-oriented bureaucratic nature of social democracies is precisely what destabilized it in the 70s, and a space was created for the re-emergence of market idolatry.
When Polanyi wrote this book in the forties, he assumed we learned this lesson. That the catastrophes of the preceding thirty years were directly associated with our not having understood the destructive impact of the 'market system' when it first appeared.
. . . an entirely new institutional mechanism was starting to act on Western society; that its dangers, which cut to the quick when they first appear, were never rally overcome; and that the history of the nineteenth-century civilization consisted largely in attempts to protect society against the ravages of such a mechanism. The Industrial Revolution was merely the beginning of a revolution as extreme and radical as ever inflamed the minds of sectarians, but the new creed was utterly materialistic and believed that all human problems could be resolved given an unlimited amount of material commodities . . . .
But how has this revolution itself been defined? What was its basic characteristic? Was it the rise of the factory towns, the emergence of slums, the long working hours of children, the low wages of certain categories of workers, the rise in the rate of population increase, or the concentration of industries? We submit that all these were merely incidental to one basic change, the establishment of a market economy, and the commercial nature of this institution cannot be fully grasped unless the impact of the machine on commercial society is realized. We do not intend to assert that the machine caused that which happened, but we insist that once elaborate machines and plant were used for production in a commercial society, the idea of a self-regulating market system was bound to take shape. . . .
Perhaps no other outcome was possible during the nineteenth century because technology, although it is a human invention, works back on humans and reprograms them as they adapt to its effects. That this process is largely unconscious is what makes it so hard to resist. There are so many little choices made that in their aggregate lead to transformations that even twenty or thirty years before would have been unimaginable.
Since elaborate machines are expensive, they do not pay unless large amounts of goods are produced. They can be worked without a loss only if the vent of the goods is reasonably assured and if production need not be interrupted for want of the primary good necessary to feed the machines. For the merchant this means that all factors involved must be on sale, that is, they must be available in the needed quantities to anybody who is prepared to pay for them. Unless this condition is fulfilled, production with the help of specialized machines is too risky to be undertaken both from the point of view of the merchant who stakes his money and of the community as a whole which comes to depend upon continuous production for incomes, employment, and provisions.
Now in an agricultural society such conditions would not naturally be given; they would have to be created. That they would be created gradually in no way affects the startling nature of the changes involved. The transformation implies a change in the motive of actions on the part of the member of society; for the motive of subsistence that of gain must be substituted. All transactions are turned into money transactions, and these in turn require that a medium of exchange be introduced into every articulation of industrial life. 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 resulting from sale. No less is implied in the simple term "market system," by which we designate the institutional pattern described. But the most startling peculiarity of the system lies in the fact that, once it is established, it must be allowed to function without outside interference. Profits are not any more guaranteed, and the merchant must make his profits on the market. Prices must be allowed to regulate themselves. Such a self-regulating system of markets is what we mean by a market economy.
The transformation to this system form the earlier economy is so complete that it resembles more the metamorphosis of the caterpillar than any alteration that can be expressed in terms of continuous growth and development.
For the first time everything is fungible--even people and their labor. The traditional face-to-face relationships that shaped economic activities are destroyed, and social value becomes subordinated to economic value as determined by the market. This works hand in hand with the larger liberal project of rejecting tradition as unnecessary baggage and a heap of superstitious mumbo jumbo. The nineteenth century bourgeoisie thought they could create society anew according to a rationalistically determined template.
My goal here is not to decry that horrors of the market system, but only to point out with Polanyi's assistance, that a market society isn't natural. It is a recent development. The machine enabled market economy produced was a historical inevitability precisely because it was so radically new and so poorly understood, and gaveexcitements rise to remarkably naive utopian ideas, not the least of which was revolutionary Marxism.
So we've been there, and we've done all that. The challenge now is to learn from our mistakes and move sanely forward. I'm all for a politics and an economic system that is boring and sober. Let people find their excitements elsewhere.