Keith Hart on Sat, 29 Mar 2008 21:13:51 +0100 (CET)

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Re: <nettime> Brits in hock--or, Atlas shrugged again

Dan, Felix and Brian,

I am writing something now on the relevance of Polanyi's The Great 
Transformation to the current world economic crisis. The central feature 
of this comparison is his analysis of what happened in the 1930s: 
international finance flourished for a while when trade started slowing 
down, but it couldn't stave off the inevitable forever. When the money 
dried up, so too did trade; national political solutions were sought and 
war was the result. In a sense, Polanyi's war-time revelation of the 
hidden truth of western capitalism was not a good guide to what happened 
next. But his work of prophecy just might illuminate our moment. There's 
a long way to go in my article, but I couldn't resist sharing its 
opening with you. It's about much the same thing, but at level far 
removed from the latest news. I also couldn't resist the header with its 
impression that Britain is still at the core of global economic 
developments as it once was in the original 'Great Transformation'. 
Actually, I believe that the United Kingdom is the most unstable polity 
in the world, but that's a whole other story.

The making and unmaking of 19th century world society

The Great Transformation (1944) opens with a highly selective account of 
the making of world society in the 19th century, a society that Karl 
Polanyi not unreasonably considered to be lying in ruins as he wrote. He 
identified four pillars of this civilization, all of which had collapsed 
in the course of what Winston Churchill called “the second Thirty Years 
War” (1914-1945): the balance-of-power system that had brought a century 
of peace within Europe; the international gold standard; the 
self-regulating market; and the liberal state. Money was a central 
feature of all these. Polanyi identified the peace interest with what he 
insisted on calling /haute finance/,

an institution /sui generis/, peculiar to the last third of the 
nineteenth and the first third of the twentieth century, [which] 
functioned as the main link between the political and economic 
organization of the world in this period (1944: 10).

The international gold standard “was merely an attempt to extend the 
domestic market system to the international field”; the balance-of-power 
system was a superstructure built on its foundation; and the gold 
standard’s fall “was the proximate cause of the catastrophe” (ibid: 3). 
The self-regulating market was “the fount and matrix of the system”; it 
had “produced unheard-of material welfare”, but it was utopian in its 
pursuit of an autonomous circuit of commodities and money. The liberal 
state, in the name of market freedom, forced all other interests in 
society to submit to the freedom of capital, another word for money.

Polanyi did not claim that his was a work of history: “what we are 
searching for is not a convincing sequence of outstanding events, but an 
explanation of their trend in terms of human institutions” (ibid: 4). 
His focus was on the industrial heartland of nineteenth-century 
civilization and on Britain in particular. Next to the rise of market 
fundamentalism, he played down the bureaucratic revolution of the late 
nineteenth century that allowed governments in alliance with 
corporations to promote mass production and consumption. There is little 
here about America and Russia, even though he acknowledged their rise as 
great powers in this period. The reader will find even less about how a 
racialized world society was built through colonial empire. Rather, as 
we know, Polanyi was concerned with the consequences of buying and 
selling the very essence of our humanity in nature and society, with 
what he called the “fictitious commodities”. Land, labour and money are 
essential to the industrial system; they must therefore be bought and 
sold, but they were definitely not produced for sale. Labour is human 
activity that is part of life itself; land is another word for nature; 
and “actual money is merely a token of purchasing power which, as a 
rule, is not produced at all, but comes into being through the mechanism 
of banking or state finance” (ibid:72). Here Polanyi comes close to 
suggesting that a free market in money entails buying and selling 
society itself.

Consistent with this approach, Polanyi inverts the liberal myth of 
money’s origin in barter:

The logic of the case is, indeed, almost the opposite of that underlying 
the classical doctrine. The orthodox teaching started from the 
individual’s propensity to barter; deduced from it the necessity of 
local markets, as well as of division of labor; and inferred, finally, 
the necessity of trade, eventually of foreign trade, including even 
long-distance trade. In the light of our present knowledge [Thurnwald, 
Malinowski, Mauss etc], we should almost reverse the sequence of the 
argument: the true starting point is long-distance trade, a result of 
the geographical location of goods and of the “division of labor” given 
by location. Long-distance trade often engenders markets, an institution 
which involves acts of barter, and, if money is used, of buying and 
selling, thus, eventually, but by no means necessarily, offering to some 
individuals an occasion to indulge in their alleged propensity for 
bargaining and haggling. (Ibid: 58)

Money and markets thus have their origin in the effort to extend society 
beyond its local core, giving rise to a strong sense of the external vs. 
internal dimensions of economy. Polanyi believed that money, like the 
sovereign states to which it was closely related, was often introduced 
from outside; and this was what made the institutional attempt to 
separate economy from politics and naturalise the market as something 
internal to society so subversive.

Polanyi distinguished between “token” and “commodity” forms of money, 
labels that I borrowed for my own analysis of the two sides of the coin 
as symbolic of the state/market pair (1986). “Token money” was designed 
to facilitate domestic trade, “commodity money” foreign trade; but the 
two systems often came into conflict. Thus the gold standard sometimes 
exerted downward pressure on domestic prices, causing deflation that 
could only be alleviated by central banks expanding the money supply in 
various ways. The tension between the internal and external dimensions 
of economy often led to serious disorganization of business (Ibid: 
193-4). Another way of putting this contradiction is to oppose the 
liberal definition of money as just a “medium of exchange” to one as a 
“means of payment”. Money was thus

...not a commodity, it was purchasing power; far from having utility 
itself, it was merely a counter embodying a quantified claim to things 
that could be purchased. Clearly, a society in which distribution 
depended on possession of such tokens of purchasing power was a 
construction entirely different from market economy (Ibid: 196).

Here Polanyi echoes Keynes’s (1930) “money proper” and “money of 
account”, with the emphasis on the latter function, la distinction 
similarly introduced to draw attention to the political possibilities 
for state manipulation of “purchasing power”.

The final collapse of the international gold standard was thus one 
consequence of the ruinous attempt to delink commodity and token forms 
of money. In a trenchant discussion of the economic crisis of the 1930s 
that has echoes of the world economy today, Polanyi highlighted the 
separation of the money system from trade. As restrictions on trade 
grew, money became more free:

Short-term money moved at an hour’s notice from any point of the globe 
to another; the modalities of international payments between governments 
and between private corporations or individuals were uniformly 
regulated....In contrast to men and goods, money was free from all 
hampering measures and continued to develop its capacity to transact 
business at any distance at any time. The more difficult it became to 
shift actual objects, the easier it became to transmit claims to 
them....The rapidly growing elasticity and catholicity of the 
international monetary mechanism was compensating, in a way, for the 
ever-contracting channels of world trade....Social dislocation was 
avoided with the help of credit movements; economic imbalance was 
righted by financial means (Ibid: 205-6).

But of course, in the end, political means of settling the imbalance 
outweighed market solutions and war was the result.

In an essay that will shortly be published on The Commoner website 
(, David Graeber has this to say:

Prophets are not simply people who speak of future events. They provide 
revelation of hidden truths about the world, which may include knowledge 
of events yet to come to pass, but need not. One could argue that both 
revolutionary thought, and critical social theory, both have their 
origins in prophecy. At the same time, prophecy is clearly a form of 
politics. This is not only because prophets were invariably concerned 
with social justice. It is because they created social movements, even, 
new societies.

The Great Transformation was a work of prophecy and, broadly speaking, 
the prophecy failed. The 1940s did indeed see a world revolution; but 
its immediate outcome was not one foreseen by Polanyi nor were its 
engines highlighted in his book (the Rooseveltian consensus, the 
anti-colonial revolution, the Cold War etc). Yet, interest in his work 
has never been greater than now and this may reflect his prophetic value 
in the present crisis of world economy.

Keith Hart

Dan S. Wang wrote:

> Hi Brian and Felix,
> This thread is fascinating, the issues alarming. Thanks for the excuse to
> post the following loose thoughts. Fallows leaves his analysis just where it
> gets most interesting, I think. And, maybe, where it becomes the most
> hopeful. Though, I must say, I'm with Brian--the 'most' hopeful scenarios
> compare favorably only to those we are hoping against.

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