Wall of illusions
I have just finished reading Karl Polanyi’s “Great Transformation”, and it is poignant to see the parallels between our current situation and the early part of the 20th Century.
Polanyi’s view is that the free-market should be a servant to Society, not its master. The economic and political tensions throughout the nineteenth and twentieth century are viewed as responses by society to tame and limit un-abandoned free-market policies.
Polanyi was referring to “market-economy” as the market for land, labour and money, whereby these “fictitious commodities” are traded (and therefore priced / valued), as if they were real commodities:
“A market economy is a self-regulating system where everyone is assumed to behave in a way that maximizes money gains. It assumes that in the market supply price will equal demand price. Money is assumed to exist, and the market sets prices. There are markets for everything from goods and services to labor, land, and money. In this ideal system there is not external regulation of prices, demand, or supply.”
The two key concepts in defining a market economy are firstly that people should be incentivised to act in self-interest (as the assumption is this then benefits society) and secondly that to achieve the utopian vision all aspects of control or regulation of land, labour and money should be abandoned. The true free-marketeer craves de-regulation of the three “fictitious commodities” in order that the market can then price them purely through the mechanism of exchange. Therefore, every man has his price! Society is then a conglomeration of mercenary exchanges by mercenary actors.
It is easy to forget that the relentless pursuit of international trade and liberal Capitalism as defined above was heavily embedded throughout the nineteenth century. Far from a very modern invention, the world had embarked on a grand experiment throughout the Victorian era. So how did it fare back then?
Polanyi describes an era where relative peace in international terms was held together thorugh the Gold Standard, and the military notion of the Standard of Power (whereby Britain could defend against an alliance of the next two most powerful nations). At the national level a liberal state was doing its utmost to implement the utopian self-regulating market. To outside appearances a relative calm existed, but to Polanyi this because inherent tensions were pushed under the surface:
“A hundred years peace [1815-1914] had created an insurmountable wall of illusions which hid the facts.
No people could forget that unless they owned their food and raw material sources themselves, or were certain of military access to them, neither sound currency nor unassailable credit would rescue them from helplessness.” p198 (my emphasis)
“Within the single nations the tension remained latent as long as world economy continued to function” p228
But towards the end of the nineteenth century the world economy started to fracture. National resistance against the liberal state’s free-market methods was coupled with a breakdown of international finance.
The first world war failed to address the inherent problems as many nations tried to kick start the Laissez-Faire agenda, culminating in the boom and bust of the late 1920s. In his view protectionist policies emerged in the 1930s as a reaction to the failure of un-fettered Capitalism. In their own different ways the New Deal, Communism and Fascism were the social responses to the collapse of International Capitalism; a way for society to re-assert it’s primacy over the market.
The second world war all but eliminated Fascism, and instead left the two models of Communism and the social Democratic approach. The mixed economy of the West saw it through its heyday of the 50s/60s but started to wobble in the 70s. Since the 80s, however, the liberal economic model crept back in to the frame. In a way it was the resurgence of this utopian free-market that crushed Communism in the East, whilst covertly mutuating the semi-protectionist mixed economies of the West.
In its current guise of Globalisation, the free-market has reigned supreme; with Russia, China, Asia etc. adopting this model from the 1990s onwards. The twin pillars of self-interest and de-regulation as the Modus Operandi of Laissez-Faire. But at what price? Perhaps latent tensions exist today, much as they did as the world entered the twentieth century. Polanyi lists the sources of friction as follows:
- Class divides
- Currency pressures / exchange rates
- Imperialist rivalries
As we take stock of the recent financial crisis, it is important to keep track of these potential flash-points. Unemployment is rising in many countries yet the wealth / income gap widens. The cost of living is increasing yet wages are stagnating. And the contest for dwindling resource supplies in and around the middle-East could provoke tensions between the imperial giants of China and America.
The friction between the market system and society is growing day by day; whether in North Africa, the middle-east or Southern Europe. The Wall of Illusions is starting to crack and crumble, and we dare not wish to peek beyond it.
Does the world have the stomach for another revolt against the global Laissez-Faire pillage? And if so, what kind of form will it take this time?