Karl Polanyi’s seminal work, The Great Transformation: Political and Economic Origins of Our Time is to be commended for pointing out the dire consequences of leaving market economies unchecked. During his time the role economy played in people’s everyday lives was taken for granted. The idea was simple then. How does one make a lot of money? Making lots of money equated with progress, so the thinking went. Progress meant opportunities, stronger local and national economies, innovation, low employment, etc., but most of all it attained peace.1 Peace was attained at the expense of liberty. When a people lose their sense of priorities, first things become second things, then second things become first things – a sort of Faustian bargain.
The 100-year peace preceding the Great War proved to many that whatever economic mechanisms were in place worked, and the bargain appeared to work. However, that did not last. The forces sustaining peace broke down. What caused its demise? A cursory reading of Polanyi, even by experts, might suggest that it was the result of a cultural milieu bent on prosperity in Western Europe in which markets were left completely autonomous. That human society accumulated wealth at the expense of other human needs is important to consider in this discussion. Polanyi blamed and bemoaned the fact that human society was subordinated2 by economics and not the other way around as it ought to be. However the charge that self-regulating markets caused societal decline leading to wars is too hasty. I realize this is a minority position and needs defending. My three main arguments are:
1. Polanyi himself did not make that claim. He said it himself in the beginning of his book:
“But if the breakdown of our civilization was timed by the failure of world economy, it was certainly not caused by it. Its origins lay more than a hundred years back in that social and technological upheaval from which the idea of a self-regulating market system sprang in Western Europe.”3
This is honest. To say that two things have a correlation but not causation is an important and honorable distinction. For example, we all know the rooster does not cause the sun to rise even though we observe the two occurring tother. The cause was something else which segues to the second observation.
2. Greed and jealousy caused economic collapse which led to wars, not the proliferation of self-regulating markets.
“British and French interests differed in Africa; the British and the Russians were competing with one another in Asia; the Concert, though lamely, continued to function; in spite of the Triple Alliance, there were still more than two independent Powers to watch one another jealously.”4
He adds that this started the formation of alliances among the super powers, thereby threatening world peace.
The 19th century experienced a boom in new infrastructure. Railroads were crisscrossing plains once desolate, the telegraph was invented and the industrial age was in full swing expanding the middle class. The upsurge in new technologies and innovation caused nations to compete against each other. World leaders began manipulating their currencies (now detached from the gold standard) resulting in imbalances of exports/imports. To the degree nations deal with these challenges is the same degree to which peace and prosperity either is maintained or sacrificed.
3. Polanyi’s discussion of the “balance of power” neglected to mention the genius of the United States constitution. His working definition appears to have only included a potential of two powers, that of the government and that of the governed. This was a popular view in British history5 until it was not in 1776. Polanyi argued that because the balance of power was shifted from the government to the people, sound economic policies were ignored thus contributing to his thesis that self-regulating markets do not work. However, this thinking becomes moot in light of the American Revolution. The balance of power principle as it was conceived in the British empire did not go far enough. It was not enough to consider two opposing forces jockeying for their own interests. This set up only served to pit people against their rulers. The American experiment took those powers and subdivided them even more. The revolutionaries wanted to ensure that no one person could dictate the affairs of the governed, thus establishing three branches of government. Each looked upon the affairs of the other, which the Weimar Republic failed to see.
Finally, there is the myth of self-regulation that needs to be addressed. Polanyi was convinced that a self-regulating economy was not good for the public good. However, the more insightful question to be asked is since when have we not had a self-regulating economy? And even if we had one, which I think we do, who would be responsible for regulating it? Is it the government or the governed who controls the economy? Ultimately it is the people who regulate it because fascist regimes eventually get replace by benevolent ones. Moreover, it is hopelessly difficult to differentiate the ideals of the government and the governed. This was made clear even from the opening lines of the U.S. Constitution (Preamble), “We the people of the United States…” in that the people themselves are the government.
Self-regulation does happen. It happened in the 1930s to correct the market after the Great Depression under Herbert Hoover and as recently as 2008, after the Great Recession by Barack Obama in the Dodd-Frank Wall Street Reform and Consumer Protection Act.6
The economy serves the people and not the other way around as Polanyi would assert. This is good. And by keeping first things first we will have learned that there is no place for greed and jealousy, for all they do is “stir up conflict.”7
1Karl Polanyi, The Great Transformation (Boston, MA: Beacon Press, 1957), 6.
6Alan Greenspan, “How to Fix the Great American Growth Machine,” The Wall Street Journal, October 12, 2018, , accessed January 24, 2019, https://www.wsj.com/articles/how-to-fix-the-american-growth-machine-1539361093.