A new subject needs attention at this juncture, and that is best summed up in Karl Polanyi's 1945 theses about the origins of the so-called "free market," or more precisely, the "self-regulating market." His book on this topic was called The GreatTransformation; and we'll get to it momentarily.
It is almost an article of faith in this society that capitalism is the unfettered movement of goods and services that are exchanged for money; and that this free exchange constitutes something called "the market."
Implicit in this myth - and it is a myth, as I will eventually show - is that this "free" exchange has an overall beneficial effect on society because these exchanges on the market are "self-regulating." They require no outside interference, and indeed, any interference somehow subverts those benefits. Interference in the market is tantamount to interference with fundamental freedoms, called "rights," and if we can stop people from trading freely, we are on the slippery slope to some kind of tyranny in which all other rights are likely to be abrogated.
These rights are seen as either God-given or granted somehow by nature, so the free market is a guarantee against said tyrannies; but the claims for the market go even further. It is claimed that society overall is actually improved by the operation of this thing called "the market." Many people nowadays will go so far as to say that since free market exchanges are good for society, and since selfishness is the motive force behind individual decisions that make the market "work," then selfishness itself ought to be counted a virtue. That’s one no one can find in the Bible.
A Free Guy
There are, of course, attenuated versions of this idea - this being the pure libertarian version. Most people who claim to believe in capitalism will tell you they believe in some form of taxation, if for nothing else than to provide police and military functions; and others will support limited redistribution through the state to account for various natural and social calamities, and to build a hedge against dangerous social unrest.
The philosophy underwriting capitalism is liberalism, and within liberalism there are "liberal" and "conservative" factions, which we'll deal with when we get to Rawls and Nozick in another section. When we hear the term "liberal" we are likely to be referring to this faction, whereas in this treatment, the term "liberal" refers to the philosophical tradition that encompasses "liberals and conservatives" in our popular speech.
As I pointed out above, I was once a liberal conservative, as well as once a purist (nearly anarchist) libertarian (a marginal faction within liberalism that has gained some ground in recent years).
In this section on Polanyi, we will cover a highly, highly abbreviated history of the "self-regulating market"; and in subsequent sections, I'll address things like origins of "rights," the liberal abstract "individual" who bears those rights, the ideas of property and commodities, the actual history of capitalist accumulation, and the nature of money, before comparing the overall assessment of capitalism and money with the teachings of Jesus of Nazareth.
Polanyi's book was understandably overshadowed by its publication just as World War II was coming to an end. Not only that, his actual history of the development of the "self-regulating market" undermined the narratives of liberal liberals, liberal conservatives, and leftists alike, albeit for different reasons, so representatives of each ideological fortress did what they could to marginalize it.
The book's whole title is The Great Transformation - The Political and Economic Origins of Our Time, which marks it more than anything as a work of history. It is written in a conversational style, which conceals to some degree the iconoclastic impact it has - for discerning readers - on the dominant current ideas about political economy.
His central point is that the self-regulating market is neither "free," in the sense of operating without top-down direction, nor self-regulating, in the sense that it can function without political interference. The title of the book refers to the impact of the development of this so-called self-regulating market - which was profound and in most cases catastrophic. Polanyi argues that the simultaneous and symbiotic development of the modern nation-state and capitalism essentially destroyed all the bases of social organization that went before it - the reason he modifies "transformation" with the adjective "great."
His argument is counter-intuitive precisely because it flips the script on what we learned in school and through the media, that capitalism evolved rather organically, and that it tends over time toward something called progress. What he proves is that laissez faire was actually the result of aggressive and long-term top-down planning. What were spontaneous were the various oppositions to a market-dominated society.
He begins just before the beginning of this transformation, with three socially essential forms of economic activity: redistribution, reciprocity, and householding.
Redistribution is a production and trade patterns that concentrates goods with some central establishment, whereupon goods are distributed back out to the general population, with whatever criteria are customary in each different redistributive economy.
Redistribution in Aegean Society
Reciprocity is reciprocal exchange, though that applies from simple neighbor-barter to reciprocal exchanges between large institutions. Gifting can be part of a reciprocal economy if gifting is understood as a kind of permanent and pre-emptive form of reciprocity - charitability as a sought-after norm, or high virtue.
Householding is production and consumption in the same location, at home, without mediating institutions and authorities; and it involves more than the exchange of money. Growing one’s own food is householding, and depending on the means for growing, it can be money-intensive to money-free. What makes it householding is the co-location of production and consumption. (We will learn further along that householding is the most thermodynamically effective form of economy.)
Obviously, all three of these forms have and do operate simultaneously, and how people plug into these forms constitutes something called bricolage, which we will address later. Exchange as we think of it today was already operating many centuries ago, as one form of reciprocal economy; but price-exchange of commodities was simply one of many forms of economic activity, not a dominant and homogeneous model for nearly all of society.
Polanyi insists that there are three things that should never be used as commodities because their commodification leads to social mischief. Those three things are labor, land, and money. You can make all the mousetraps and bobby pins and shovels you like for sale, peddle pumpkins or pots; but land, labor and money oughtn't be freely traded as things-for-sale in any marketplace.
Polanyi's disaggregation of these three from the actions surrounding commodity exchange forces us to look at an unexamined assumptions of free market advocates, at the same time that it undermines one leftist thesis that commodity-exchange is inevitably tied to exploitative relations. Polanyi is saying commodity-exchange, including price-exchange, is fine as long as it doesn't venture into these areas where commodification creates demonstrated social evils.
Exploitative presumes something to exploit, and those most exploitable categories (in the moral sense), according to Polanyi, are human labor, the land, and money.
Any of us can easily see how money is used to exploit land and labor. What might be more difficult to discern at first is why money is included in the list of "anti-commodities" - my term, not his. And we'll get back to that, too.
How did this transformation happen?
[T]he origins of the cataclysm lay in the utopian endeavor of economic liberalism to set up a self-regulating market system. Such a thesis seems to invest that system with almost mythical faculties; it implies no less than that the balance of power, the gold standard, and the liberal state, these fundamentals of the civilization of the nineteenth century, were, in the last resort, shaped in one common matrix, the self-regulating market.
The assertion appears extreme if not shocking in its crass materialism. But the peculiarity of the civilization the collapse of which we have witnessed was precisely that it rested on economic foundations. Other societies and other civilizations, too, were limited by the material conditions of their existence - this is a common trait of all human life, indeed, of all life, whether religious on non-religious, materialist or spiritualist. All types of societies are limited by economic factors. Nineteenth-century civilization alone was economic in a different and distinctive sense, for it chose to base itself on a motive only rarely acknowledged as valid in the history of human societies, and certainly never before raised to the level of a justification of action and behavior in everyday life, namely gain. The self-regulating market system was uniquely derived from this principle. (30).
Industrialism is understood only vaguely now as the necessary production system to ensure we have the confusing mass of things we own and use.
It was once widely understood by William Blake, among others, as a "Satanic Mill." Charles Dickens wrote melodramatically about this period, when London was literally wrapped in a choking cloud of industrial coal smoke.
The machine itself had a new kind of economic power - it was the result of a three-part exploitative process that involved... labor, land, and money. The power of mass, mechanized industry created the "free" market.
For them to “work,” by that meaning “turn a profit,” mass machinofacture had to have an insurable market for its products; and it had to have access to the uninterrupted flow of energy feed-stocks and primary materials. If these two conditions are not met, mass mechanized production will not happen.
Here, however, is the point! Neither of these conditions is naturally-occurring. Here is where the whole classical liberal argument that bases itself on something vaguely understood as natural laws (an arrogant and foolish presumption) breaks down. Guaranteed inflows and outflows for industrial enterprise are not inscribed by nature. It took intentional, Herculean, and aggressive actions to secure both inflows of energy and material and a market that would absorb production.
The state relied more and more on money and money men, and money men relied extensively on the nation-state. These two fractions of society emerged as a conjoined twin, sharing the same heart. The state endorsed enclosures of various kinds by law - forcing landed people off the land and into factories, and the state went abroad wherever necessary to get what couldn't be supplied at home to keep the machines producing.
England was denuded, first of trees for industrial fuel, then of peat - used for fire by the peasants after they'd been deprived of firewood. The colonial search for more goods was accelerated, not just by the demand for primary materials, but by the acceleration of war, extraction, and transportation made possible by industrialism. Markets that were saturated had to be expanded; and to do that more people had to be made to become dependent on industrial production - and therefore money - to compel consumption.
Once policy accomplished a generalized social dependency on money, based on inability to subsist (requiring land), people began to be forced to pay for everything.
To get money, they were forced to sell labor into the Satanic Mill. Little thought was given to housing them, and with the mass migration of landless people into cities - seeking survival through money - the first urban slums appeared.
Now, in 2013, a third of the 7 billion human beings on the planet live in urban slums, and that fraction is steadily growing. This disproves the argument that slums are the result of a lack of development. The advances of industrial "development" correspond exactly with the growth of the percentage of total population living in urban slums. Industrialism (euphemized as development) can't fix it, because industrialism is its primary cause.
Before the process had advanced very far, the laboring people had been crowded together in new places of desolation, he so-called industrial towns of England; the country folk had been dehumanized into slum dwellers; the family on the road to perdition; and large parts of the country were rapidly disappearing under the slack and scrap heaps vomited forth from the "satanic mills." Writing of all views and parties, conservatives and liberals, capitalists and socialists, invariably referred to social conditions under the Industrial Revolution as a veritable abyss of human degradation. (30)
On pages 42-44, Polanyi writes:
We submit that an avalanche of social dislocation, surpassing by far that of the enclosure period, came down upon England; that this catastrophe was the accompaniment of a vast movement of economic improvement; that an entirely new institutional mechanism was starting to act on Western society; that its dangers, which cut to the quick when they first appeared, were never really overcome; and that the history of 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.
The story has been told innumerable times: how the expansion of markets, the presence of coal and iron as well as a humid climate favorable to the cotton industry, the multitude of people dispossessed by the new eighteenth century enclosures, the existence of free institutions, the invention of the machines, and other causes interacted in such a manner as to bring about the Industrial Revolution. It has been shown conclusively that no one single cause deserves to be lifted out of the chain and set apart as the cause of that sudden and unexpected event.
But how shall this Revolution itself be 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 market economy, and that the nature of this institution cannot be fully grasped unless the impact of the machine on a 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 was bound to take shape. [emphasis added]
The use of specialized machines in an agrarian and commercial society must produce typical effects. Such a society consists of agriculturalists and of merchants who buy and sell the produce of the land. Production with the help of specialized, elaborate, expensive tools and plants can be fitted into such a society only by making it incidental to buying and selling. The merchant is the only person available for the undertaking of this, and he is fitted to do so as long as this activity will not involve him in a loss. He will sell the goods in the same manner in which he would otherwise sell goods to those who demand them; but he will procure them in a different way, namely, not by buying them ready-made, but by purchasing the necessary labor and raw material. The two put together according to the merchant's instructions, plus some waiting which he might have to undertake, amount to the new product. This is not a description of domestic industry or "putting out" only, but of any kind of industrial capitalism, including that of our own time. Important consequences for the social system follow.
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 goods necessary to feed the machines. For the merchant this means that all factors involved mast 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 action on the part of the members 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 as 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 from 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. Contrast, for example, the merchant-producer's selling activities with his buying activities; his sales concern only artifacts; whether he succeeds or not in finding purchasers, the fabric of society need not be affected. But what he buys is raw materials and labor - nature and man. Machine production in a commercial society involves, in effect, no less a transformation than that of the natural and human substance of society into commodities. The conclusion, though weird, is inevitable; nothing less will serve the purpose: obviously, the dislocation caused by such devices must disjoint man's relationships and threaten his natural habitat with annihilation.
Such a danger was, in fact, imminent.
Capitalism, as we now experience it, did not create industrialism. It was industrialism's co-dependent sibling. The historical parent was the Reformation, as Gregory showed, and the historical grandparent was war - i.e., the Crusades.
The flows of materials and those flows' facilitation by political power can easily be shown; and common sense tells us that the nature of our environment, natural and built, has a powerful formative effect on the experiences and characters of individual persons. Imagine your own life today, right now, if you were deprived of money or access to oil-burning vehicles. There are several US naval battle groups on the high seas to ensure that this flow is not interrupted.
Along with the determinative material effects of a society based fundamentally on gain, an inherently selfish motive, there are moral and spiritual effects. Sometimes, it is a kind of epochal ethnocentrism that prevents us from seeing that. The all-encompassing and hegemonic self-regulating market tends toward the progressive commodification of everything. Today, you can hear people saying, in all seriousness, to someone looking for a job to survive, "you need to get out there and sell yourself!"
If there is one principle point that the reader needs to take away from Polanyi in this essay, it is that the self-regulating, "free" market required a great deal of intentional and coercive social dislocation to create, and it still requires a breathtakingly complex set of rules - forcefully applied - to ensure its continued function.
Local resistance to this transformation was ubiquitous, frequent, and spontaneous.
In light of this history, the idea that a free market is some kind of natural function is no longer valid.
Capitalism was not and is not - as ideologues across the spectrum propose - the existence of spontaneous market relations. These have existed throughout most of recorded history in some form or another; but market relations did not so thoroughly displace other forms of economy, i.e., redistribution, householding, and non-monetary reciprocation like gift and barter. Reciprocity in non-market societies is not impersonal, but an aspect of long-term relations. Reciprocity in market societies is impersonal (and it becomes rapidly non-reciprocal across class lines).
Neither Adam Smith nor Karl Marx took note of this, because each was advocating for or against market relations. It was not the existence of trade or even monetary trade that effected the transformation, but the sudden hegemony of market relations over all other forms, inaugurated by machinofacture, facilitated by enclosure and plunder, and enforced in law by the modern nation-state.
Following Polanyi here, he wrote that "man's economy, as a rule, is submerged in his social relationships. He does not act so as to safeguard his individual interest in the possession of material goods; he acts so as to safeguard his social standing, his social claims, his social assets." Human beings are "embedded" in social relations, and economic activity is motivated by more than mere survival. Economic activity is embedded in those relations, too.
The wage earning parent is not primarily motivated by the money she or he receives in exchange for time and obedience on the job, but by securing the goods to be a good parent, for which - in this society - money has become compulsory. There is more to this, of course, which we will look at further along under the sub-title, the History of Respectability, which shows how consumerism was tied to the cultural hegemony achieved between the 17th and 19th Centuries by notions of respectability, which was tied to an idea about social mobility and merit. This “respectability” was a key culturally embedded norm into which consumerism was nested, and consumerism in turn was nested in the emerging “market-society.”
"Embeddedness" is a concept that looks at market relations and non-market social relations at the same time. Non-market social relations might be kinship, friendship, religious, and even political (in a non-market society). This distinction allows us to understand that "market" exchanges were once simply a component activity within a society where kinship, friendship, religion, and non-market governance were determinative, which Polanyi calls a non-market society, emphasis on society (an organization of social relations). The "market society," in Polanyi's terms, means a society that has been subordinated wholesale to markets (in which the state assists in the insurance of primary material inflows and the expansion of demand for expanded profitable outflows, and all other considerations are subordinated to these).
Non-market economics are embedded in families, local networks and customs, shared belief systems. Market economies tend to disembed economic activity from these non-market relations and re-embed them in the dominant institutions of the market society - in our case, we can use the acronym FIRE: finance, insurance, and real estate (commodified land). At the local level, banks and chambers of commerce. At the global level, the World Bank and International Monetary Fund, as well as a host of inter-state "free trade" agreements. In fact, most "local" banks now are actually branches of national and international mega-banks; and local Chambers of Commerce are federated into a United States Chamber of Commerce.
This disembedding from non-economic ties and re-embedding in location-less institutions can be seen in modern industrial society's hyper-mobility. One of the goals of nineteenth-century capitalists that lent support to the cause of anti-slavery was the idea of a mobile, money-dependent worker. As people can be cut loose - voluntarily or otherwise - from land and householding (subsistence without money), they can be forced by need, even by hunger, to seek after work, on the terms of the employer with the money, wherever workers are needed by industrial capitalists - by this I don't mean supporters of capitalism, but practitioners who invest money in a mass production to buy equipment, and money for wages, with the expectation of a higher return on investment - profit.
In former communities, families tended to stay in one location for generations, and kinship/friendship ties persisted over generations, within which people sought their place - economy embedded in society. In market economy, the search for work by landless people tends to scatter families. Each of us probably can see this in her or his own family. In mine, my father's family were concentrated for several generations around farms near Edenville, Michigan; my mother's family around Hot Springs, Arkansas. My father's mobility after World War II led him to marry my mother, and seeking work led them both to California. Work was lost, and they moved to Missouri, then upon retirement, they moved to Arkansas. My sister lives in Arkansas, but I lived in North Carolina and now Michigan (a part where my wife's parent's are from), and my brother lives in Texas. Our children are in Arkansas, Alaska, and Virgina. As time goes on, these dislocations and relocations seem to accelerate. We are disembedded from human social relations and re-embedded in impersonal institutional relations.
Two things had to happen for this to be possible. First, there had to be a disenchantment with nature; and second, we had to share a need for general purpose, universalized money.