The Great Transformation Part 8: Money as a Fictitious Commodity

Previous posts in this series:

The Great Transformation: Mainstream Economics and an Introduction to a New Series

The Great Transformation Part 1: The Market

The Great Transformation Part 2: More on Markets

The Great Transformation Part 3: Neoliberalism Before It Got Its New Name

The Great Transformation Part 4: Reaction and Counter-Reaction To Self-Regulating Markets

The Great Transformation Part 5: Polanyi on Marxian Analysis

The Great Transformation Part 6: Labor as a Fictitious Commodity

The Great Transformation Part 7: Land as a Fictitious Commodity

Karl Polanyi calls labor, land, and money fictitious commodities. He defines “commodity” as something produced for consumption. Obviously land and labor are not produced, and money is not consumed, and therefore they cannot be commodities. Polanyi says that for the self-regulating market to work its magic and make us all healthy, wealthy and wise, these three, like everything else that forms part of the production system, must be treated as if they were commodities and subjected to the the “market” without restrictions; hence his description of them as fictitious. In Parts 6 and 7 of this series, I discussed Polanyi’s explanation of the dangers to society and to human life as we know it from this kind of treatment. Chapter 16 of The Great Transformation looks at the dangers to society from treating money as a commodity, and specifically at the dangers of the gold standard.

He explains that markets are based on prices and profits, both of which are measured in money. If money is a commodity with a price set in a market for money, then changes in the prices of money will change the prices and profits for other commodities. Polanyi cites David Hume for his theory that if the amount of money in circulation is halved, then prices will fall by half. As Polanyi notes, there is a big lag time in that adjustment, and businesses will fail before the adjustment is complete.

It appears to me Polanyi is relying on an informal version of the quantity theory of money. A somewhat more formal version is set out in this short post from the St. Louis Fed. In monetarist theory, inflation is solely the result of too much money in the economy chasing too few goods. Deflation is the result of not enough money chasing goods. The later problem was rampant in the 19th Century, with booms and busts caused by trade changes and financial frauds, and it is deflation that Polanyi addresses:

But the expansion of production and trade unaccompanied by an increase in the amount of money must cause a fall in the price level—precisely the type of ruinous deflation which we have in mind. Scarcity of money was a permanent, grave complaint with seventeenth-century merchant communities. Token money was developed at an early date to shelter trade from the enforced deflations that accompanied the use of specie when the volume of business swelled. No market economy was possible without the medium of artificial money. P. 202.

The English economy was heavily dependent on trade in the early 1800s, and maintaining stable prices became crucial to the success of English merchants and the nation. Token money, either specie, bank or fiat money, only circulates within the boundaries of a nation. To deal with international trade, the gold standard became prevalent at about this time. With two types of money in circulation, one based on the gold standard and used in international trade, and one using bank or fiat money in internal transactions, it became necessary to harmonize the workings of the two kinds of money.

Under nineteenth-century conditions foreign trade and the gold standard had undisputed priority over the needs of domestic business. The working of the gold standard required the lowering of domestic prices whenever the exchange was threatened by depreciation. Since deflation happens through credit restrictions, it follows that the working of commodity money interfered with the working of the credit system. P. 203.

That led to the creation of central banks, which could affect the level of credit in a nation’s economy. Central banks could adjust the amount of credit in a country’s economy to offset the worst of the consequences of sticking to the gold standard, and spreading the burden of sudden changes in the relation between the national currency and the price of gold. Elites supported central banks despite their insistence on maintaining self-regulating markets, because central banks were not thought to interfere with the free market in money, but rather to support it.

Polanyi says that this system worked as long as the gyrations in prices were slow enough and not too great. But when the changes were large, the activities of the central bank moved from technocratic to political, and people began to demand that government protect them from the dangers created by the gold standard. In the US, this can be recognized in the Free Silver Movement; from Wikipedia:

The debate pitted the pro-gold financial establishment of the Northeast, along with railroads, factories and businessmen, who were creditors who would benefit from disinflation (resulting from demand pressures on the relatively fixed gold money supply against a backdrop of unprecedented economic expansion), against poor farmers who would benefit from higher prices for their crops (resulting from the prospective expansion of the money supplyby allowing silver to also circulate as money).

The gold faction won, but the pressure continued as crash after deflationary crash hit the US economy. The Fed was established in partial response to the Panic of 1907. For an interesting history see Nomi Prins, All the Presidentts’ Bankers. The goal was to stabilize the economy, a goal both of bankers and politicians though for different reasons. Bankers wanted to make sure they could harness the power of government to save them in times of financial disaster.

In Washington, Republicans and Democrats both concluded that excessive reliance on bankers to stabilize the financial system in times of turbulence was too high a risk to their own influence over the country, and possibly damaging to American status in the world. The axiom that the group that controlled the money controlled the country remained true. But with the nation struggling economically, such a condition had political implications and had to be navigated accordingly. Id. at 19.

The result of central banking is that government becomes a participant in the market for money. The self-regulating market was thus defeated, even though its supporters claimed otherwise. They continued to see the central bank as a neutral player, one committed to the maintenance of the gold standard.

Several Republican Presidential candidates, including Mike Huckabee, Ted Cruz and Rand Paul, have called for return to the gold standard. Probably a lot of that is their disdain for government, particularly government interference in something as sacred as money. It’s an extreme version of the proposal of Milton Friedman that the Fed adopt a firm rule for managing the money supply. After all, according to neoliberals, including Friedman, the market does a brilliant job of managing things if it’s just left alone. We saw how that worked out once, in the wake of the 1929 crash. Surely we don’t need to repeat the experiment.

14 replies
  1. orionATL says:

    “Several Republican Presidential candidates, including Mike Huckabee, Ted Cruz and Rand Paul, have called for return to the gold standard. Probably a lot of that is their disdain for government, particularly government interference in something as sacred as money.”

    what huckabee, et al are up to and why i cant say, but a little history:

    there was in my extended family a branch who enjoyed the 3rd or 4th generation of inherited wealth. these folk were engineers and businessmen and not at all politically knowledable or inclinded. nonetheless, it was their deep, fervent, frequently repeated, that pres franklin roosevelt had led us into economic perdition by taking the u. s. off the gold standard.

    when i first ran into this belief, and knowing a little undergraduate economics, i thought i might point out the great benefit to a growing economy (or one that hoped to grow) of decoupling from gold. my whippersnapper voice was politely, kindly ignored. in fact, i came to understand in time that this conviction of presidential folly in removing gold as backing was part of a family economic catechism along with contempt for “welfare” of any kind that was not an issue for debate but worship.

    i cant find it readily, but sometime in the last 5-10 years a reporter for, say, mother jones or huffington post, or such, took a ship’s cruise with a bunch of all wealthy people, no polloi invited. the conversations he reported back on topics such as economics, race, taxes or whatever left him bemused. how could a group of young and old be so intellectually and socially isolated from the society they lived in? i could have told him about generation to generation word-of-mouth economic teachings from wealthy america’s home-schooling economic madrassas. :)

    so with respect to the political calculations of huckabee, cruz, and paul, i cast my vote for pandering to very weathy patrons with a very old, established economic ideology. these are the kinds of folks for whom neo-liberal economics was co-terminous with their own naieve economics. likely, in best calvinist tradition, their worldly success made, in their own eyes, their economic biases by rights the biases economists should be validating – as neo-liberal economics does and continues to do in the very face of its flagrant failure.

    • Ed Walker says:

      I agree that there is a lot of that teaching in families. A perfect example is the horrible Forbes Family, now encapsulated in the noxious Steve Forbes. His grandfather, BC Forbes, operated the magazine for decades, and hired a bunch of hacks to preach a staggeringly antiquated gold-bug economics. He was virulently anti-FDR, and that carries on today. I started reading later, when Malcolm was running the magazine, and he had some of those gold-bugs on staff too. Malcolm was not quite as opposed to FDR, but the hatred is still there. Steve is a gold-bug and a crank of the first water.
      I think there is a lot of residual, and even some active, loathing of the New Deal, particularly among the rich, and that includes the people who fund Harvard, Princeton and Yale; they are delighted by the likes of Mankiw, and others of his bizarre ilk. I think a good bit of it is disdain for democracy.

      • Ed Walker says:

        Your point about the issuance of debt in the early 1800s by the English government is echoed in Piketty’s Capital In The Twenty-First Century. He doesn’t discuss the suspension of the conversion of notes to gold, but he points out that the debt was issued in large part to finance the Napoleonic Wars, instead of taxing the rich, who had all the money. He says the government kept inflation near zero while the bulk of the debt paid 4-5% per annum. Those payments were largely funded by taxes on everyone but the rich. I imagine the average proto-working class man thought little about which Aristo owned the farm or the factory, but they seem to have paid up, first in blood and then in labor, whether they benefited or not from those wars.

        I certainly agree that the question is how you manipulate the average person to sacrifice for the benefit of the rich. But people do it now, just as they did then. The people calling for a Strong Dollar are just as ignorant of the meaning of the term for their personal interests as any supporter of the gold standard.

        • bevin says:

          You’re right about Piketty, whose book I read with interest. In fact the tax burden fell on landowners- who generally made certain to pass it down to tenants whose employees were then less well treated.- and consumers. One calculation made in 1820 was that half of the labourer’s annual wages went in taxes (about 11 out of 20 pounds sterling). So Pitt did tax the rich- landowners and consumers (window tax, coach tax, servant tax etc) but the burden on the capitalist whose wealth was not in land was relatively light. In 1819 as in 1919 the country was full of “hard faced men who’d made money out of the war, ” in Baldwin’s phrase.

          ” He says the government kept inflation near zero while the bulk of the debt paid 4-5% per annum.’
          And then there was a period of deep deflation during which the tenant farmer, who had done well in the war thanks to high prices, found that his produce was selling for half of what it had been during the time when the debt was being contracted.
          The Corn Laws were passed to protect the agricultural interest- of course they had little effect on most farm produce, being designed largely to protect wheat and barley growers. Still they greatly enhanced the price the labourer had to pay for bread and beer, squeezing him at a time when wages were falling, and a large part of the wage was actually a Speenhamland subsidy.
          I see that much of this has been dealt with previously- I was out of the country for a couple of weeks and have only now seen some of the posts dealing with Speenhamland and the Poor Law.

        • IAN TURNER says:

          I have extracted a small section of the longer original post of yours (& Mr Polyani’s words)–highlighted what I think are errors–then explained why I think they are errors–& then left it that.
          My general discomfort with this entire analysis of Mr Polyani’s words are that the ACTUAL HISTORY of many of these institutions mentioned in his book have no obvious connection with Mr Polyani’s version of events–& that the ACTUAL HISTORY WAS KNOWN IN 1944 WHEN MR POLYANI WAS WRITING.

          POLYANI SAYS:
          Under nineteenth-century conditions foreign trade and the gold standard had undisputed priority over the needs of domestic business. The working of the gold standard required the lowering of domestic prices whenever the exchange was threatened by depreciation. [ERROR CORRECTED #1:Since deflation happens through credit restrictions], it follows that the working of commodity money interfered with the working of the credit system. P. 203.

          ED WALKER SAYS:
          [ERROR CORRECTED #2: [The working of the Gold standard] … led to the creation of central banks,] which could affect the level of credit in a nation’s economy. [ERROR CORRECTION#3: Central banks could adjust the amount of credit in a country’s economy to offset the worst of the consequences of sticking to the gold standard] and spreading the burden of sudden changes in the relation between the national currency and the price of gold. ………………….

          I just wanted to highlight 1 or 2 of the more obvious mistakes that Polyani has made—they are far too numerous to mention here but I will give you a general caution about Mr Polyani first:

          YOU had advised that Mr Polyani had relied upon a Rev Joseph Townsend’s 1786 “Dissertation on the Poor Laws,” for his description of the terrible indignities of the [rural I assume] working poor—but you had NOT mentioned ( I am assuming because Mr Polyani had not mentioned for his American audience) that the good Reverend is listed in all the standard reference works as a “pre-Melthusian” who preached to the congregations at, indeed was able to own a house in, ROYAL BATH in the 1780’s & 1790s—the very period that UNESCO used (in 1987) to name the City of Bath as a World Heritage Site for its unique International Cultural Heritage “because of its Roman Remains, 18th Century Architecture, 18th Century Town Planning, Social Setting, Hot Springs and Landscape Setting”.
          The social histories of Great Britain have always emphasized that Bath was the “watering grounds” for the Royal Court itself [when King George III was the Sovereign but the effective Sovereign was the Regent as King George III suffered from mental illness].
          IN OTHER WORDS—had Mr Polyani tried to translate for his American audiences the world of the Reverend Townsend into 1944 or 2015 USA he would have chosen to insist that the words of a Preacher/Minister/Priest/Rabbi preaching “in the Hamptons” before a weekend congregation that “went back to their Manhattan residences during the week” was a true description of life in the USA in 2015.
          If he had chosen to use an American politician in Sept 2012 for his description of the poor he would used Mitt Romney’s infamous statement that 47 percent of the nation pays no income tax, are dependent on the federal government, see themselves as victims, and will support President Obama unconditionally. Romney went on to say: “And so my job is not to worry about those people. I’ll never convince them that they should take personal responsibility and care for their lives……………………..(source
          I will leave it your readers to decide whether they would prefer to know who the sources of Mr Polyani’s speculations are BEFORE relying on Mr Polyani’s knowledge of economic history.

          [ERROR CORRECTED #1:Since deflation happens through credit restrictions]—During the height of the Gold Standard [invariably listed as the 1873-1914 period] there were two[2] periods of Inflation & also Deflation.
          The 1876-1893 period was known AT THE TIME as the period of the GREAT DEPRESSION—1%/annum in Great Britain,[for 20 years] by some measurements as high as 2%/annum in the USA. The causes believed in today are the same causes as produced The GREAT MODERATION of 1980s/1990s-to-Sept 2008 –a combination of a great manufacturing power on the planet[USA=1870-1890/1990-2008=People’s Republic of China], loose money supply, technological changes in the already-rich-&-properous-countries etc.
          The 1896-1914 period IN NUMEROUS COUNTRIES—NOT JUST IN THE USA—is known as a period of Inflation—again 1%/annum in many countries. Again the causes are various including finding Gold supplies in the Yukon, Canada & also Australia & the biggest of them all—the gold fields of South Africa. Even today[2015] Russian & South Africa gold mines produce much of the world’s MINED Gold.
          The caution with all the world’s gold supply figures, of course, comes from the Gold Council(London,England) which notes that while the world’s Central Banks [in 2014] do indeed hold as much as 12,000 tons/tonnes of Gold in their vaults—–.the population of the Indian subcontinent must hold as much as 35,000 tons/tones—both in the 1870-1914 period and in 2015.
          Why & if so, how large a change in the Indian inventory of Gold has occurred/is occurring is a mystery no one in London or Delhi is able to explain or quantify.

          ERROR CORRECTED #2: [The working of the Gold standard] led to the creation of central banks,]
          The Dutch,in 1660, created two[2] Institutions which we have with us too this day.
          The 1st Institutions was the creation of a Corp of Soldiers based upon ships—a Regiment of MARINES.
          By 1664 the then King of England Charles II caused to come into a being an Institution we now call the Royal Marines, & in the period 1740-1742 Lawrence Washington, George Washington’s elder brother by 15 years, served in a unit of the Royal Marines under the command of Admiral Edward Vernon,RN—naming his newly acquired plantation in Virginia after Admiral Vernon—Mt Vernon.
          Even today, members of the USMC are nicknamed “Leathernecks”, because a Royal Marine’s uniform in 1775 had a leather stitching sewn to the collar.
          The 2nd Institution was the Bank of Amsterdam—legally founded in 1609 but by 1660 able to perform a miracle—they were able to fund a government’s debt AS THE COUNTRY WENT TO WAR.
          So impressed by this feat was the King & Queen of England [William & Mary—Mary was the lawful Sovereign but she, unusually for an English female, insisted that she must be allowed to have her husband, a Dutchman, Prince William of Orange, act as a lawful co-Sovereign] that they caused to come into being the BANK OF ENGLAND [by the Bank of England Act 1694].It was the Bank of England which would over the next 100 years learn the techniques necessary to fund a countries Governments debt [a task, in the USA, performed by the US Treasury subject to multiple “ well we are not sure what to do” votes in the US Congress.]
          BY 1844 the Bank of England had obtained the sole right issue to issue paper currency in England, all other newly formed banks being required to engage in “fractional reserve banking” with the Bank of England taking up its allotted task in a fractional reserve banking system of “acting as banker of last resort”.
          It acted as “Banker of last resort” in THE 1866 Overend,Gurney & Company BANK PANIC with many similarities to the Sept 2008 American bank panic when a section of AIG, the world’s largest insurance company[HQ: NYC] , showed that they had not understood the basics of the insurance industry & had to be rescued by the combined efforts of the US Treasury & the Federal Reserve Bank Systems injecting $183bn in 1 week into AIG as various loans & forced shareholding sales. At the time $183bn was about 50% of the entire [USA’s] DOD Annual Budget under President William Jefferson Clinton.
          Just to prove Central Banks were never set up for Gold Standard purposes—but mainly for War Fighting Purposes—consider the USA.
          When James Madison & Thomas Jefferson [this countries 1st & 2nd Jacobin-Slaveowner Presidents] decided to abandon Alexander Hamilton’s creation The Bank of the United States—out of sheer political spite, the USA entered one of its profoundly self-destructive periods.
          President Madison decided, in order to go off & conquer Canada [1812-1814] that:
          i) US citizens would have to be stripped of the right to a fair ballot [by inviting Governor Gerry of Massachusetts to become Vice-President Gerry]—
          ii)the US Navy was to be destroyed so completely that all but one of its commissioned warships [USS CONSTITUTION] would be destroyed & the US Navy be permanently deformed, never again being regarded as an Atlantic Ocean navy, always a Pacific Ocean navy.
          iii)that the US Government itself would go bankrupt—I’m sorry—that the US Government itself would DEFAULT & issue WAR SCRIP [a promise to pay US Government debts whenever the enemy let it]
          Having tried to steal Canada from the Canadians–& failed,
          Madison had tried to steal the Indian Territory [today’s Ohio, Illinois & Michigan] & was successful [but only after Tecumseh’s death] so had to try a & steal from Americans—which is what war scrip was—a promise to pay BUT IN PUBLIC LANDS & NOT CASH.The only problem was the only public lands the USA had access to—at that time– were in the Appalachians—economically useless—the Congress was still dealing with the mess as a late as 1853.
          [ERROR CORRECTION#3 Central banks could adjust the amount of credit in a country’s economy to offset the worst of the consequences of sticking to the gold standard] and spreading the burden of sudden changes in the relation between the national currency and the price of gold.
          The only instrument available to a Central bank prior to WWI (1914-1918/1919) to regulate the amount of credit would have been the changing of the rate of newly issued Government debt——-is that what you meant????
          The full collection of instruments available to a Central bank to control credit wasn’t made available to them[outside the Soviet Union perhaps] as Barry Eichengreen details in his book HALL OF MIRRORS [ISBN: 978-0-19-939200-1] until after the 1930s

          • bevin says:

            Your point about Townsend seems strained. I am unsure what your objection to Townsend is, as Polanyi suggests, he seems to have been a herald of the Political Economist/Utilitarian/Evangelical Victorian conventional wisdom.
            Do you not agree in calling him pre Malthusian?

            Mary was not the legitimate successor to James II, and William was made King at his insistence: he made it clear that either the Convention made him King or he was returning, with his Dutch Guard, whence he came. You are right about the importance of Dutch financial practise in the new era, post 1688. On the other hand William Temple (Swift’s employer!) had been commending the Amsterdam model long before William arrived. So had Locke. Disraeli called the funding system the Dutch system of finance.

            One thing that is clear in Polanyi’s polemic, is that his account of rural distress was far from being exaggerated. In fact you would be hard pressed to find a single contemporary witness who was not appalled by the suffering to be found in the villages. It is a salutary reminder of the shocking nature of C19th society that, by the end of the century recruiters for the army found average physiques to have deteriorated even from the starvation years after the 1780s.

            By the way Paper Against Gold is available on the internet, while the online Library of Liberty (which sounds rather ominous) has recently published a large selection of Cobbett’s writtings on the gold standard, Malthus, Wilberforce and other subjects which doubtless will interest you. If you are acquainted with them please excuse my presumption in recommending them!

            • IAN TURNER says:

              REPLY TO BEVIN:
              I have to confess to you—& also to Ed Walker by a different post—that I had no interest in Polyani’s work—& his speculations—until he(or Ed by paraphrasing Polyani) started to describe a fiction of How & Why “the Industrial Revolution” started in Northern England & Southern England in the 1760-1830 period—-& NOT in, say, Argentina during an earlier period—or the western portion of Europe in the 1340’s [when the 1st windmills as a power source seem to have recorded/found by the archeologists—windmills v coal fired steam engines/furnaces]..
              Accordingly I had never reviewed even the most basic of material on Polyani & Townsend—until this evening..
              Having now reviewed some very basic material I would like to:
              a) THANK YOU for labeling Polyani’s work as a “polemic”—when an author finds the sources he is looking for & “endorses them” [see this gentleman agrees with my great theory even if he did die 100 years ago] –rather than looking for the sources & then create the theory to explain the factual material the sources disclose—I prefer to be told that the author is “cherry picking” to support his/her own ideas—rather than be left to find out for oneself.
              b) As to Townsend, my concern with pre-Malthusians or Malthusians or Malthus himself—has always been their basic premise of “mankind will always expand in number geometrically vs Sources of supply can never ever have productivity because they are not called “Mothers having babies”—only Mothers having babies can expand in large amounts.
              It is my understanding that both premises were & are false. It is further my understanding that the Rev. Townsend & the Rev. Malthus knew,or ought to have known, the productivity of the factors of supply could be increased solely by mankind’s own efforts AT THE TIME THEY WROTE THEIR BOOKS.
              c) Thank you for the clarification about William & Mary, Britain’s only Co-Sovereigns.
              d) I was familiar with the recruiting sergeants records for the British Army’s recruits both pre & during WWI–& also with Freidrich Engels comments about housing conditions in Manchester in 1844 et al. I was however far more comfortable with the response over the years to correct these symptoms—slum clearance in Manchester started in the 1880s, continued in London in the 1920s,returned to Manchester in the 1930s & 1970s etc–& in the schools[i.e. pre-British Army recruiting sergeants]a number of school districts in the 1930s discovering cases of “rickets”’& took corrective action & of course the “school milk program” went nationwide post-WWII.
              By nature I recognize any 1st in world achievement may be a mistaken pathway—I tend to be very sarcastic about those institutions / countries / societies that cannot; or choose not to; make some attempt to correct mistakes.
              As to the other works recommended: I have some of Cobbetts writings [as a reprinted book] & I thank you for recommending the others.

  2. bevin says:

    The problem with Polanyi’s argument here is that the adoption of the Gold Standard was at the expense of British agriculture and the landed interest. It signalled a social and economic revolution which had two faces- the steady decline of the landed interest and the decimation and proletarianisation of the people of Britain.

    Both consequences were well telegraphed and both were choices made in the face of considerable political opposition. What is now held to be the “lost cause” of the romantics, nostalgic and impractical, deaf to the spirit of the age fuelled not only the radicals of early C19th England but much of the Tory and traditionalist thought.

    And the mechanism of the revolution was gold. After 1797 the Bank of England suspended cash payments- the promise to pay the bearer on demand was dishonoured. This temporary measure lasted until 1819 and was not reversed fully for twenty more years.

    During the period in which cash payments were suspended the Bank issued hundreds of millions in debt. The National Debt rose by several hundred per cent so that, by 1820 Ricardo was seriously proposing that landlords be required to sell half their holdings and the proceeds used to pay down the debt.

    For creditors these were wonderful times- they had lent the government money at high rates of interest, and the money they had lent was greatly inflated, paper worth much less than the gold for which it could no longer be exchanged. This meant that the resumption of cash payments- the gold standard- was bound to lead to deep and immediate depression. It did and the age became one of terrible unemployment, widespread pauperisation, failing businesses and falling prices.

    Far from taking measures to prevent this catastrophe, society, in the interests of the creditors, embraced it. Rather than, as Polanyi argues, introducing a more generous Poor Law (his depiction of Speenhamland) it dismantled the Poor Law, finally, in 1834 replacing it with a regime whose strictness and inhumanity was widely prophesied and became immediately apparent. Society was being ripped into pieces- millions were driven into city slums, early deaths, coffin ships, all choices preferred to the dread workhouse.

    At every inch of the way the imposition of the Gold Standard was fought, most notably by William Cobbett whose Paper Against Gold is one of the classics of the language and was echoed by the Jacksonian “sound money” men and later Silver enthusiasts alike.

    The currency issue-the question essentially of how much the average citizen is ready to sacrifice to protect a currency whose sole basis is tax revenues- is once more alive. The Gold Standard is no more but the value of the dollar and euro is guarded by central banks just as jealously as sterling was. The Greeks could attest to that. and attest too that those running the system are no more inclined now to countenance an audit of the public debt than they were in 1819 to make the “equitable adjustment” that Cobbett said was necessary if society were to be saved.

    He didn’t reckon with the fact that the financiers were quite happy to sacrifice society in order to collect the full value of their inflated profits. Polanyi couldn’t quite believe it either. But the fate, most vividly exemplified in the Irish Famine of the hungry 1840s, of that society was far from being hidden.

    What happened in the US after 1873, and reached a climax in the People’s Party and the 1896 election, when the gold bugs were temporarily displaced by a grassroots revolt in the democratic party (what a concept!) was by way of being a coda to the British experience.

    • orionATL says:

      such interesting history. i recall reading some months ago, prompted by one of ed walker’s essays, about the economic theory steadfastly held (by one of bertrand russell’s ancestors if i’m remembering correctly) that doomed the irish, unnecessarily, to starvation.

      it was a beautiful example of my bias that economic theory rarely determines the thrust and direction of an economy or what fate citizens end up enduring. rather, in a two-step process, economists routinely have their work adapted and exploited by ideologues, and subsequently, that adaptation is enacted into law by subservient, camp-following politicians.

      the case of the neo-liberals skips a step. their work required no adaptation by idealogues; they were the ideologues. their economic theory fit perfectly into an economic version of a command-and-control neoliberal economy where the wealthy have their gold and their status always secure from any economic needs of hoi polloi.

  3. Ed Walker says:

    I see that you don’t think much of Polanyi’s evidence, either as you read it or as I have rephrased it, and certainly I may have misunderstood or made mistakes in describing the evidence.
    The point of this and the previous two posts is to explain Polanyi’s theory that bringing land, labor and money was necessary for the perfection of the self-regulating market, and that the damage inflicted by treating these fictitious commodities in the same manner as shoes or potatoes causes immense harm to society, damage which society has to try to ameliorate at the risk of destruction. The general layout of the evidence is that the imposition of the self-regulating market caused enormous damage to a huge number of people, damage which the elites were perfectly willing to impose on people because someday the magic of the self-regulating market would make their lives better. Do you disagree?
    The project of imposing the self-regulating market on society was an elite project, done primarily to benefit the business sector, supported by the Aristos and other rich people who stood to gain, and buttressed by the arguments of Bentham and Townsend and plenty of others. It was not a project that arose from the needs of the people who lived in England, just as the corrupt and fraudulent business sector in the US after the Civil War did not arise from the needs of the people of the US. Any gains to the bulk of the population were won at the cost of violence and ugly lives, and only after years of misery. Do you disagree with this?
    I write about these ideas because I think that the neoliberal project that has been the dominant discourse of US and UK elites for decades is also a project of the elites. It was designed to overturn the New Deal in the US, and to get rid of the entire social project in the UK that grew up after WWII, from strong unions to the NHS. It has inflicted enormous damage on people, both in their economic lives and in their connections to other members of the society they live in. Do you disagree?
    I think the neoliberal project is as poisonous today as its ancestral version was in the 1800s. Do you disagree?

    • IAN TURNER says:

      I have to confess to you—& have already confessed to Bevin by a different post —that I had no interest in Polyani’s work—& his speculations—until he(or you by paraphrasing Polyani) started to describe a fiction of How & Why “the Industrial Revolution” started in Northern England & Southern England in the 1760-1830 period—-& NOT in, say, Argentina during an earlier period—or the western portion of Europe in the 1340’s [when the 1st windmills as a power source seem to have recorded/found by the archeologists—windmills v coal fired steam engines/furnaces]..
      Accordingly I had never reviewed even the most basic of material on Polyani & Townsend—until this evening..
      Having now reviewed some very basic material I would like to make some attempt to answer your questions:
      a) I firmly believe that it was the INDUSTRIAL REVOLUTION that caused the great rise in material prosperity—that the Industrial Revolution itself was nothing more than the injection of productivity to the industries that make things & move things—-AND NOTHING MORE.
      That is the only way I can account for The United Kingdom of Great Britain; the Dominion of Canada; the Republic of the United States of America; the Republic of the United Mexican States; the Union of Soviet Socialist Republics [the USSR/CCCP] & the People’s Republic of China [PRC] all achieving a significant increase in material things at [approx] about the same time.
      b) I DO NOT believe that the “self-regulating market” was operating in the Soviet Union during the 1926-1991 period [yet they achieved a substantial increase in material things under the GOSPLAN system of command & control]
      c) I DO NOT BELIEVE the “self-regulating market” was imposed “by the elites” of the USA. Because I do not count the US electorate as “downtrodden & oppressed” I would use the word “tolerated” by the US electorate—just as the US electorate tolerate President Madison II ( & will tolerate the President Madison III) as yet another “War Criminal President”.
      e) I would NEVER describe the USA as a ‘pure’ laissez-faire economy either in 2015 or in the 1789-1975 period
      The population of Ireland, of Great Britain & the German-speaking lands are fully aware of the the ultimate very high price that needs to be paid for achieving “more out of life” because all three[3] peoples have a very long history of EMIGRATING.
      The US Business World is amongst the most Internationalist of all American institutions. BECAUSE I DON’T BELIEVE THERE WAS ANYTHING AS ORGANIZED AS A “PROJECT” TO IMPOSE UPON THE AMERICAN POPULATION “THE SELF-REGULATING MARKET”…You will find an increasing number of Internationalist/[Virtual-ly] Emigrating/ organizations choosing to “Take the Underground Railroad”
      f) So, do I agree/disagree with the idea that “The Project”is harmful: NOT HARMFUL
      g)Do I think Polyani’s idea will be the winning idea for life in the USA—NO I THINK YOU WILL GET AN AYN RAND SITUATION AS PORTRAYED IN “ATLAS SHRUGGED”—even US citizens can “Walk to Freedom”—
      the USA has already lost(gone abroad):
      i)the Re-Insurance industry
      ii)the [Commercial] Insurance Broker
      iii) the Sovereign [countries government] debt market
      iii)the Sovereign Wealth Fund [was in Washington-now London]
      Microsoft is trying to escape the USA’s NSA
      Silent Circle [NSA-proof smartphone/cellphone maker]has already moved to Switzerland

      • IAN TURNER says:

        I SAID:
        the Sovereign Wealth Fund [was in Washington-now London]

        The International Forum of Sovereign Wealth Funds []—and manage
        close to four-fifths of the capital held by sovereign wealth funds globally—was in Washington DC & is now in the City of London

  4. earlofhuntingdon says:

    The Industrial Revolution achieved a great deal more than the increase “prosperity” and “productivity”. The questions are always for whom and at what cost. Capitalism is a culture more than an economic system. It attempts to aggregate profits in as few hands as possible, most effectively with substantial government exemptions, subsidies and support. Freedom and democracy, whatever those emotive words mean, are rhetorical adjuncts to it, not necessary elements of it. Indeed, as Latin American experience shows, they are usually considered inimical to it.

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