The Great Transformation Part 9: The Rise of Fascism and Conclusion

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

The Great Transformation Part 8: Money as a Fictitious Commodity
karl-polanyi
Chapters 17-19 of The Great Transformation discuss the increasing strains in society brought on by the self-regulating market through the 1920s. In the wake of WWI, the dominant industrial nations attempted to restore the institutions of the self-regulating market, including the gold standard. The demands of maintaining the gold standard in the face of rapid economic growth in some of those countries culminated in the Great Depression. I won’t discuss this part in detail, but two points. First, the central feature of the debacle was the impact of the gold standard, which prevented nations from acting to protect themselves and their citizens from deflation. Second, Polanyi does not discuss one of the most important causes of the debacle, the astonishing level of corruption and fraud in financial markets, levels that were not reached in the US economy again until the George Bush administration.

In Chapter 21 Polanyi tells us:

Fascism, like socialism, was rooted in a market society that refused to function. Hence, it was worldwide, catholic in scope, universal in application; the issues transcended the economic sphere and begot a general transformation of a distinctively social kind. It radiated into almost every field of human activity whether political or economic, cultural, philosophic, artistic, or religious. And up to a point it coalesced with local and topical tendencies. No understanding of the history of the period is possible unless we distinguish between the underlying fascist move and the ephemeral tendencies with which that move fused in different countries. P. 248, emphasis added.

The socialist solution was to apply human thought to the organization of society, trying to enact legislation and rules to control some of the worst effects of the self-regulating market, including fraud and corruption, and to increase the power of labor as a counterweight to corporate capitalism. This worked more or less in the US, where eventually the Great Depression wore off, leaving a superstructure of regulatory power that protected society from the worst excesses of capitalism. Of course, the US never adopted socialism, and the elites continued to work to reduce the power of labor and of the working people generally beginning immediately after WWII with the Taft-Hartley Act.

Polanyi says the fascist solution was to restore the market by means of rooting out democracy and democratic institutions and replacing them with totalitarian government. The citizens of fascist countries were stripped of their role in government and society, and became mere tools in the operation of the totalitarian movement.

This reeducation, comprising the tenets of a political religion that denied the idea of the brotherhood of man in all its forms, was achieved through an act of mass conversion enforced against recalcitrants by scientific methods of torture. P. 245.

There were fascist movements in most countries, regardless of religion, wealth, level of industrial development, form of government or any other factor. Whether they were successful, as in Germany and Italy, or not, as in the US, depended on a number of factors specific to each country. Polanyi says that the first signs of a movement towards fascism were:

… the spread of irrationalistic philosophies, racialist aesthetics, anticapitalistic demagogy, heterodox currency views, criticism of the party system, widespread disparagement of the “regime,” or whatever was the name given to the existing democratic setup. P. 246.

In retrospect, these were symptoms of the crackup of the 19th Century global order and of the damage done to citizens and society through self-regulating markets. Polanyi says that Germany under Hitler was the first to recognize that the global structures created under the banner of the self-regulating market were falling apart, and set about helping in that destruction. Germany armed itself, and rejected all its obligations, both financial and under treaties, created under the previous global system. The other nations of the world, especially England, strangled themselves trying to restore that dead system. Among other things, Polanyi points to cuts to the army and navy, justified in the name of fiscal responsibility. It’s a fascinating story.

There is no point in discussing Polanyi’s conclusion, that in the wake of WWII there would be a great transformation from the dead structures of the 19th Century into a new form of world relations, one not based on markets. That didn’t happen, and we are still living under a system based on what Polanyi called the self-regulating market, Keynes called Lasissez-Faire, and Milton Friedman called classical liberalism. Today we call it neoliberalism.

——-

I’ll conclude this series with a couple of thoughts. First, it’s easy to compare Polanyi’s conditions supporting the rise of fascism in the early 30s to the changes in US society in the last 35 years. Several of the conditions are rampant in the US and other countries, encouraged by a large number of media, religious leaders, and political sources. For those of us who spend too much time reading this stuff, it is unnerving on its own, and Polanyi’s theory just adds to the upset.

Second, the neoliberal goal is to reduce citizenship to consumerism. The individual is stripped down from a participant in a society, with a role to play in government and in planning for the future. This is remarkably close to Polanyi’s statement about the reeducation of the citizen away from ideas about the brotherhood of man, which in turn bears an elegant but ugly similarity to Margaret Thatcher’s assertion that there is no such thing as society. Even in context, Thatcher’s denial of the importance of relationships beyond home and family, her denial we citizens bear a joint responsibility for the shape of the future, is just as chilling as Polanyi’s description of reeducation into fascism.

Third, in several places in The Great Transformation Polanyi acknowledges the material benefits that have come from industrialization, and recognizes that the miseries previously inflicted on humanity as a whole in the frantic transition cannot be undone. That does not mean that we are prisoners of the elites, that we have to accept their demands for specific changes or for immediate change. It does not mean that we have to continue to inflict misery in search of more capitalist growth. We always have the option to choose other paths to the future. For Polanyi, writing in 1944, slowing the pace of change might have sufficed. Today there are more important things than the pace of change, such as global warming, which requires a completely different approach to our production system. It’s more important to our interests as a species than the accumulation of more wealth in the hands of the fabulously wealthy. But finally:

It’s hard to miss the optimism in Polanyi’s book. He is convinced that society can heal itself, ameliorating the damage done by unrestricted economic growth. It’s really hard to feel optimistic today.

Notre Dame undergrad (math); JD, Indiana University at Bloomington; 1st Lieutenant, US Army.; private practice in corporate and securities law; Assistant AG in Tennessee for consumer protection and securities; Blue Sky Securities Commissioner, Tennessee; private practice, bankruptcy and corporate law.

I have had a lifelong interest in economics. For most of my career, that interest was practical, focused on the problems in front of me. Lately I have been more interested in economics as a theory, especially its impact on the lives of people like those I met in my bankruptcy practice, and on the politics of money in the US. I also enjoy reading philosophers, starting in college and steadily expanding my reading ever since. I wrote at FireDogLake for a number of years.

Generally, I think the problem facing the US is the dominance of neoliberal discourse. I think it clouds the vision, and limits the kinds of problems that can be identified and solved. For example, the existence and danger of climate change can easily be identified in a scientific discussion. However, the problem does not fit the neoliberal discourse because science insists that the pursuit of individual and corporate self-interest will lead to devastation. In neoliberal discourse, the pursuit of self-interest always leads to Eden.

The neoliberal project has two prongs. One is the police function of crushing dissent and alternative views. The police function is provided by government agencies and private and institutional actors. The counterpart is the economic system , which is operated by government and by private and institutional actors. Some of these actors operate in both spheres. I focus on the second prong.

17 replies
    • Alan says:

      I’m curious how you came to select Arendt’s book as your next topic for discussion. I think it’s an interesting choice as it is a potential bridge between the economic material you have tended to write about and the security material Marci writes about. It also inevitably connects to lots of other important work on our current predicament, how we got here and the possibility of resistance (or not) e.g. Weber, Foucault, Agamben, and the Dark Lord, Carl Schmitt.

  1. Maxcrat says:

    Thanks for this series on Polanyi. I had read this book in college and sometimes thought to unearth and reread it…but that didn’t happen.

  2. bevin says:

    Polanyi was unable to liberate himself from the notion, fundamental to capitalist culture, that society and the economy are evolving towards perfection. This was the basis, inter alia, of the Scots Enlightenment and stadial theories, we find it in Comte, Marx and Darwin in one form or another. What makes it so ubiquitous is that it is almost imperative that political activists use the idea that, “in the end we will prevail”. The Universe is tending that way. Such is the pattern of history… and so on.
    It is a dangerous nonsense: the ideas that one generation dismisses with scorn, the next generation adopts with the enthusiasm of the convert. One generation joins Unions and insists on taxation policies to spread the wealth. It regards the liberal discovery that the less the poor are paid the harder they will work while the rich will only perform if rewarded disproprtionately, as self serving ideology. Its children embrace the same ideas as the key unlocking the universe of social behaviour and economic development.
    The sad truth is that the critical factor is not philosophy but power: the welfare state was not dismantled because the shopworn nostrums of Mandeville and Defoe, Malthus and Bentham, channeled by Friedman and other moral mediocrities, blew the minds of the progeny of hippies. What happened was that corporatists took power in a cleverly planned and massively financed series of coups that propelled Reagan, Thatcher, Pinochet, Carlos Salinas et al into office.
    Polanyi’s discovery that people react to ill treatment by reforming society and controlling the economy depends upon the existence of some form of democracy. The capitalists understand this and, wherever democracy seems to be establishing itself, they undermine it with a view to replacing it-preferably while preserving its emptied shell.
    There is a constant struggle and there has been since the C16th, between the ‘money power’ or haute finance, and the poor. The financiers are perpetually interested in stripping away the property of the poor, most of which takes the form of commons, which may range from state provided medical care and pensions to tax supported highways, hunting rights and wilderness. The struggle is between community and monopoly. The most likely result is that it will still be raging, millions dying here of war, there of famine and disease, everywhere before their time, when the planet having been fukushima-ed once too often ceases to exist.

    • Ed Walker says:

      I think of the assumption that society proceeds on an upward pace into the future as the liberal myth: that a battle can be won and the war is over, and we all march on to a glorious future. In fact, the gains of the liberals have been won in the face of great opposition, and that opposition works on a much longer time horizon. BC Forbes was one of those people whose hatred for FDR and the New Deal was implacable. His son Malcolm agreed, and Forbes was at the forefront of the battle over FDR’s legacy. Malcolm’s creepy son Steve continues the battles of the long-dead BC, including the Gold Standard and the flat tax.
      .
      Liberals haven’t even tried to keep up with those battles until recently. The democrats purged the left from the party in the late 1940s and early 50s, and did nothing to advance the cause of workers after that, leading to the gradual destruction of the labor movement and the atomization of the working clasee. The few gestures toward the left were all on liberty interests, and all economic matters were abandoned. When the Great Crash came, there was no left alternative to the neoliberal curse.
      .
      The forces of capitalism have a mythos and they adhere to it in the face of all the damage it has done to the working classes. The pitiful remnants of the left have no power, and little to offer beyond explication of that mythos and its internal contradictions. The the audience for that explication is small, and the number of people willing to push forward in the face of the power of the capitalist mythos is tiny. It certainly doesn’t include meny nominally democratic politicians. The democrats do not speak about their policies, leaving the policy and education discussions solely to the other party, meaning that loons and cranks can spout whatever nonsense they like with no fear of being called out as loons and cranks.
      .
      If I correctly perceive your comment as pessimistic, I think that pessimism is fully justified. I only add that Bernie Sanders does not share that pessimism, and believes, and says out loud, that people can reclaim their power. http://washingtonspectator.org/bernie-sanders-populist-movement/ Maybe so. Maybe optimism has a place, as earlofhuntingdon urges.

      • earlofhuntingdon says:

        Gotta hand it to Harry Truman. For a guy who famously claimed that the buck stopped with him, he sure knew little about what to do with it when he got it, except to defer to his right wing advisers. The bomb; its massive industrial base and associated secrecy bureaucracy; mandatory (govt employment) and “voluntary” (private industrial) loyalty oaths; a rigid cold war mentality (permanent war footing military and economy); and general purging of the left, women and non-conformists. Quite a legacy for a clothing salesman cum Pendergast machine politician who seems never to have met a complexity he couldn’t ignore or delegate away.

    • Alan says:

      Polanyi was unable to liberate himself from the notion, fundamental to capitalist culture, that society and the economy are evolving towards perfection. This was the basis, inter alia, of the Scots Enlightenment and stadial theories, we find it in Comte, Marx and Darwin in one form or another.

      I think agree with you about Polanyi not being able to free himself from the notion of society evolving towards perfection. (Prediction aside, his anthropology and history leaves much to be desired as well in my opinion.) However, I think this is a questionable characterization of Scottish Enlightenment thinking. Prediction is almost completely absent from Smith’s writings. He sees an increasing division of labour but he’s both optimistic and pessimist about its effects (“when a person’s whole attention is bestowed on the seventeenth part of a pin or the eightieth part of a button, he becomes stupid.”). Hume and Smith have a good sense of the messiness of human life. They are pragmatic; not idealist. In Wealth, Smith has little patience for Utopian speculation:

      To expect, indeed, that the freedom of trade should ever be entirely restored in Great Britain is as absurd as to expect that an Oceana or Utopia should ever be established in it. Not only the prejudices of the public, but what is much more unconquerable, the private interests of many individuals, irresistibly oppose it.

      Without, however, pretending to determine whether such a union be practicable or impracticable, it may not, perhaps, be improper, in a speculative work of this kind, to consider how far the British system of taxation might be applicable to all the different provinces of the empire, what revenue might be expected from it if so applied, and in what manner a general union of this kind might be likely to affect the happiness and prosperity of the different provinces comprehended within it. Such a speculation can at worst be regarded but as a new Utopia, less amusing certainly, but not more useless and chimerical than the old one.

      And in Moral Sentiments he writes:

      The man of system, on the contrary, is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably, and the society must be at all times in the highest degree of disorder.

  3. earlofhuntingdon says:

    “Self-regulation” happens when a firm or industry restrains its excesses when it is convenient and profitable to do so. Occasionally, a firm or industry can be forced to exercise restraint in response to persistent public outcry. Given the sophistication and growth of the persuasion-propaganda industry since WWI, it is increasingly hard for the public to persist in demanding anything that imposes real restraint on private firms. Just as it is hard not to pick up those fresh, new, improved industrial salt-sugar-fat goodies at the grocery store.

    The history of anti-competition/antitrust laws suggests that business competition is much lauded but more often dispensed with it. That leaves only government as a counterweight to private businesses. Corporate response to that has been to co-opt the state through extensive lobbying (in effect, legalized bribery). The extensive politicization of business after WWII, and the persistent if episodic dismantling of the regulatory state, attests to that. The usual ROI would make a tech billionaire blush.

  4. earlofhuntingdon says:

    Optimism is inherent to the species. Churchill appealed to it during the Blitz. It’s what keeps us buying lottery tickets, or hoping that one more year of total, effusively smiling effort at Amazon, Wal-Mart or Sullivan & Cromwell will earn us that raise, promotion or reward.

    Thankfully, it also keeps us together, whether our Christmas meal is underneath the overpass or at the polo club. Our need for each other we express in our schools, churches, neighborhoods and families. It binds us, and that’s why Thatcher, Rand, Reagan and their patrons devoted so much energy to undermining it. Pity them, and thanks to us, because tomorrow is always another day.

  5. Dave S says:

    I like some aspects of this article, Polyani’s ideas about a tendency toward fascisim seem on point. Also the undermining of workers movements and cartelization of many economies is very clear. However, these things are done mostly by government coercion, not markets, and the points about the gold standard being so deflationary as to strangle the economy I find almost laughable. Having read honest monetary historians like Grant, Stockman, and many others, it’s quite clear that immediately after the “Federal Reserve” (qaint name for a Marxist cartel) was created they immediately began debasing the currency in the United states, setting up the so called roaring twenties leading to a massive deflationary collapse do to overinvestment in the United states. It’s a virtual copy of what is going on today, massive over investment in productive capacity due to easy money policies of central banks. Deflation is a natural martket response to improving means of production and technology. The fact that “deflation” is disparaged is because Keynesians, have dogmatic ideas about running an economy with a printing press. If it isn’t clear as day to any rational person, once the US defaulted, again in 1971 and left the gold standard, the entire US and frankly developed world has become hyper finacialized, due to central bank freedom to create money out of thin air. Where the idea that sound money is a bad thing came from, is hard to say, but I’ve yet to see a convincing argument to the contrary.

    • Jonf says:

      It has always seemed odd to me to run a global or national economy on how much gold one could dig out of the ground. Why should our economy depend on how much gold we discovered under the earth? You seem to think fiat money cannot be controlled. Even if you dig it out of the ground you will still need to control it and the banking industry.

  6. orionATL says:

    i would really like to know what “fascism” is taken to mean. obviouly, it’s a oft used pejorative.

    but my sense was that it described a particular form of government, one in which the bureaucracies of the state entered into agreement with bureaucracies of private corporations in orxer to insurd the longevity of the state and enhanced profitability for corporations.

    this is how i mean the term and how i use it in reference to the very radical (by american constitutional standards) cisa corporate-government spying bill now being slipped thru congress, and backed, apparently, by the president.

    yet when i read about the term today it seems like a muddle of meanings none of which match the clear definition i (thought) i had learned earlier.

    any thoughts would be appreciated.

      • orionATL says:

        thanks.

        these essays of yours push me to learn anew, or at least look up and refresh, like nothing else ever published here.

        what prompted my question was the cisa legislation slithering thru congress which, in my words, is a corporate bureaucracy-gov bureaucracy spying combine that seems the very defn of fascism.

        but then, i can’t find any particular agreement that the central feature of fascism is as i described above.

  7. Nigel says:

    Thatcher’s denial of the importance of relationships beyond the home and family…

    That is an absurd misrepresentation of what she actually said:

    http://www.margaretthatcher.org/document/106689
    who is society? There is no such thing! There are individual men and women and[fo 29] there are families and no government can do anything except through people and people look to themselves first. It is our duty to look after ourselves and then also to help look after our neighbour and life is a reciprocal business and people have got the entitlements too much in mind without the obligations, because there is no such thing as an entitlement unless someone has first met an obligation and it is, I think, one of the tragedies in which many of the benefits we give, which were meant to reassure people that if they were sick or ill there was a safety net and there was help, that many of the benefits which were meant to help people who were unfortunate—“It is all right. We joined together and we have these insurance schemes to look after it”. That was the objective, but somehow there are some people who have been manipulating the system and so some of those help and benefits that were meant to say to people: “All right, if you cannot get a job, you shall have a basic standard of living!” but when people come and say: “But what is the point of working? I can get as much on the dole!” You say: “Look” It is not from the dole. It is your neighbour who is supplying it and if you can earn your own living then really you have a duty to do it and you will feel very much better!”
    There is also something else I should say to them: “If that does not give you a basic standard, you know, there are ways in which we top up the standard. You can get your housing benefit.”
    But it went too far. If children have a problem, it is society that is at fault. There is no such thing as society.[fo 30] There is living tapestry of men and women and people and the beauty of that tapestry and the quality of our lives will depend upon how much each of us is prepared to take responsibility for ourselves and each of us prepared to turn round and help by our own efforts those who are unfortunate…

    There are many ways in which Thatcher was wrong, but setting up a caricature of her views as a basis for dismissing them is intellectually weak.

    • earlofhuntingdon says:

      Mrs. Thatcher was quite capable of caricaturing herself. Her words may have rhetorically enabled people individually. Her actions relegated their working together to voluntary charitable and neighbourly concerns. She denied the status of rights to those needs, as she worked to deny their fulfillment through the use of government – a quintessential acting together. She did not deny business their accustomed right to use government to meet its needs, which were often diametrically opposed to the social needs of individuals and family. The litany of depressed social needs under her premiership would dismay a Spanish cardinal, not least the tripling of the number of children living in poverty.

  8. Alan says:

    …until the George Bush administration

    Let’s not forget Clinton. Democrats and Republicans all have their little piggy noses in the same trough.

    The socialist solution was to apply human thought to the organization of society, trying to enact legislation and rules to control some of the worst effects of the self-regulating market, including fraud and corruption, and to increase the power of labor as a counterweight to corporate capitalism.

    But who believes in laissez faire? There are always rules and legislation. The issue isn’t regulation versus no regulation; the issue is whether the rules serve the interests of the many versus the few. In fact, as I understand it, that’s Polanyi’s point that where ‘laissez faire’ exists there is an institutional order that imposes it. The issue is, whether factionalism dominates or not, whether the institutional structures support concentration of power and wealth or not. And ‘socialism’, ‘organized labor’ etc. can be just as factional as ‘corporate capitalism’. They can all be bought. Take a look at the House of Lords in the UK: it’s full of ermine-clad socialists. It’s a regular old animal farm.
    *
    The welfare state is also problematic. Yes, it mitigated the effects of American market economy and you could argue prevented either the rise of socialism or fascism but it is also is the start of the rise of the administrative state. The welfare state leads into the security state and eventually the surveillance state. You have enormous and increasingly unaccountable power being concentrated in the executive, meaning the administrative apparatus of the state. In the American context much of the state apparatus is privatized. We have an expansive version of what Eisenhower called the military industrial complex:

    This conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence — economic, political, even spiritual — is felt in every city, every State house, every office of the Federal government. We recognize the imperative need for this development. Yet we must not fail to comprehend its grave implications. Our toil, resources and livelihood are all involved; so is the very structure of our society. In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military industrial complex. The potential for the disastrous rise of misplaced power exists and will persist. We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.

    Wishful thinking from 1961. Look at the stuff Marci writes about on surveillance. Who does the surveillance? The NSA? Sort of. Most of the NSA’s budget goes to private contractors. Check out the revolving doors. You could do the same type of analysis elsewhere e.g. banking. There are plenty of rules and regulations–but for whose benefit? And who gets to hold any of these relationships between the state and corporations to account? Is the post-Snowden surveillance state being held to account? Were the financial institutions held to account?
    *
    Yes, lots on the Right go on about freedom, reducing the state, the free market, blah, blah blah. What they say and what they do aren’t the same. The state and the private interests it serves just expands. And as Mirowski points out in his book of the financial crisis, the system loves crisis, risk, threats, real or manufactured. They are an opportunity to further collusion between private interests, the administrative elite, and the political elite.

    There is no point in discussing Polanyi’s conclusion, that in the wake of WWII there would be a great transformation from the dead structures of the 19th Century into a new form of world relations, one not based on markets.

    Because there are always have been market type exchanges to one degree or another in all societies. Market type exchanges become more important in industrial and urban societies because most of the people a person deals with on a daily basis aren’t kin or close friends. It’s also interesting that Polanyi wants to deny the significance of market exchanges in other contexts and neoliberals want to deny the significance of non-market exchanges in any context i.e. reduce all behavior to rational individuals maximizing utility (a completely anti-social ‘social’ science).

    That didn’t happen, and we are still living under a system based on what Polanyi called the self-regulating market, Keynes called Lasissez-Faire, and Milton Friedman called classical liberalism. Today we call it neoliberalism.

    I think we tend to smoosh a lot of things under the term “market” ignoring the fact that what we call the market has very different characteristics at different times and places, i.e. relative to institutional context.

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