Culture and Economy
Karl Polanyi has variously been described as an economic historian, economic
anthropologist, economic sociologist and, in Italy, also, an economist but his only
formal academic qualification was a degree in jurisprudence from the universities of
Budapest and Kolozsvár. His vocation was essentially that of a social philosopher and
educator in the broadest sense of the word. More exactly, a socialist educator, with a
vocation to lift our consciousness above bourgeois conditioning which has invested
commodity market relations with the aura of social-scientific truth. His was not the role
of the revolutionary, or political activist, but the often lonely role of the teacher and
scholar. The constant theme throughout his life and work was his abiding concern with
freedom in an increasingly commercialized, industrial society in ‘the machine age’. His
critique was directed at the creation of a market society which reduces the worth of all
human activity to exchange value determined by supply and demand in the market
place.
Wherever he lived, in Budapest or Vienna, London or New York, he was an engaged
observer of the issues of the day. The purpose of his writing was always the clear and
direct communication of ideas. With some exceptions, his lectures and essays were not
published in academic journals but appeared in weekly and monthly publications
addressed to the general public. It was not until he was passed the age of retirement that
he was invited to join the Department of Economics at Columbia University as visiting
professor in 1947.
For my father and his generation, the First World War which consumed so many
million lives, was a traumatic and transformative experience. It was, I believe, the
defining event of his adult life, which motivated him to engage in the search for the
ultimate origins of the collapse of all the apparent certainties of the world before 1914
and all the disasters which followed. In “The Calling of our Generation,” written in
1918, Karl Polanyi expressed the profound sense of disenchantment of a whole
generation. During the First World War, he was a cavalry officer in the AustroHungarian army on the Russian front. The conditions were appalling, and he was
tormented by a sense of personal responsibility for the disasters, the killings, the war,
and what he later described as the collapse of our civilization.
Before the war, Karl Polanyi was known as the founder and first president of the
Hungarian student movement, named for Galileo and dedicated to freedom of thought.
It challenged the old order of monarchy, aristocracy, gentry, and the Church, and
engaged in popular education, including thousands of literacy classes for young workers
and peasants. It received moral support from the poet Endre Ady and logistic assistance
from the free-masons. He supported the revolution which ended the war and the
monarchy, in 1918, but opposed the short-lived communist regime that followed. In
1919 he left for Vienna, soon followed by a large exodus of all sections of the political
left.
In the early 1920s, Polanyi engaged Ludwig von Mises, the leading Austrian economist,
in a debate on the feasibility of a socialist economy in the pages of the Archiv fur
Sozialwissenshaft und Sozialpolitik. At that time, no country in the world had yet
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constructed a socialist economy. The early Soviet Union was engaged in a civil war of
survival. His socialism was neither that of traditional European social democracy, nor
that of centralised communist planning. It was more akin to the third stream of the
European socialist tradition—the populist, syndicalist, quasi-anarchist, and communalist
one. Important influences included the cooperative vision of Robert Owen; the guild
socialism of G.H.Cole; the ‘democratic functional socialism’ of the Austromarxist Otto
Bauer; and Max Adler’s insistence on the socialist mission of the working class to raise
the cultural level of society above the commercial ethic of the bourgeoisie.
Polanyi admired the achievements of the Vienna Socialist municipal administration
including the creation of social housing that was bright and modern and designed by
some of the leading architects in Vienna. More than that, he valued the importance
placed on the organization of a variety of cultural, educational and recreational
activities. From 1924 until he left for England in 1933, his weekly column in
Oesterreichische Volkswirt commented on the current international, political, and
economic scene. In the political climate following the assassination of the Prime
Minister by a Nazi, the suspension of parliament, and the impending conflict with
organized labour and the social democratic party, in the autumn of 1933 Polanyi’s fulltime employment at the Oesterreichische Volkswirt was terminated and he left Vienna
for London. He retained his position on the editorial board as a non-resident Director
and continued to contribute to the journal until its dissolution in 1938, following the
German annexation of Austria.
In England he was associated with the Christian left and coedited Christianity and the
Social Revolution. In 1936 he found employment with the Workers’ Education
Association as a lecturer in small provincial towns of Kent and Sussex. He was shocked
by the cultural impoverishment of the working class in England, the richest country of
Europe, compared with economically impoverished, post-war Vienna. He was required
to teach courses on contemporary international affairs and on English economic and
social history. His research and lecture notes form the skeleton on which he constructed
The Great Transformation.
Although The Great Transformation was written at Bennington College, Vermont, from
1940 to 1943, it was in England that Polanyi found the origins of the disasters that
befell Europe from 1914 to 1945. In the first part of the book he tracked attempts by the
victorious Western powers to restore the old economic order, including the gold
standard, in the ‘Conservative Twenties’, and the effects of the collapse of capitalism
on the weaker defeated countries of Germany and regions of Austro-Hungary in the
‘Revolutionary Thirties’. These insights were gained from Polanyi’s central European
perspective of smaller and weaker countries tied to the credit strings of the City of
London and the Bourse of Paris and, ultimately, on Wall Street. Western creditors
imposed austerity programs that demanded budget cuts, wiped out social programs, and
dismissed public servants. They resembled the structural adjustment programs imposed
by the IMF and World Bank on indebted Third World countries in the 1980s and 90s
and, currently, the austerity measures demanded by international creditors from the
countries of the Southern periphery of Europe from Greece to Portugal. In 1932, in
Germany, with 5 million unemployed, Chancellor Brüning proudly announced that the
government had balanced the budget, precipitating the political crisis that brought
Hitler to office in January, 1933. In Italy, Austria, Spain, Portugal, Poland and other
weakened, vulnerable countries of post-1918 continental Europe, Catholic fascist
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regimes assumed office, used exchange controls to defend currencies and imposed
tariffs and other economic protective measures. The lessons of this history for Europe at
the opening of the 21st century are inescapable.
In the closing passages of this account of the interwar years, Polanyi wrote; “In order to
comprehend German fascism, we must revert to Ricardian England.” Like Marx before
him, Polanyi located the origins of industrial capitalism in England. “The Industrial
Revolution was an English event. Market economy, free trade, and the gold standard
were English inventions.” The origins and the consequences of the liberal economic
order which collapsed in 1914 “should be studied in the birthplace of the Industrial
Revolution, England.” (Polanyi, 1944[2001]: 32)
The favourable reception of The Great Transformation in the United States resulted in
Polanyi’s appointment to Columbia University. There he taught a course in General
Economic History and engaged in research on the substantive economy1 of primitive
and archaic societies with the aid of his now well-known paradigm of reciprocity,
redistribution, and exchange as forms of economic integration. His intention was not to
provide academic economic anthropologists with an intellectual toy to explore ‘distant’
and esoteric cultures. It was rather to suggest that never in human history, or human
experience, has the economy been uprooted or disembedded from its societal matrix as
in the English Industrial Revolution, which opened the Pandora’s Box of exponential
economic growth accompanied by exponential social dispossession. He found that
“never before in human history has the principle of gain been elevated to the organizing
principle of economic life” (Polanyi, 1947 [1968]: 43) and in no previous society were
people permitted to fall into a state of destitution unless the whole society suffered
famine or other disasters. His anthropological research was a gigantic detour in aid of
proving that the 19th century market economy, better known as free-enterprise
capitalism, was a ‘fateful error’, an historic aberration that threatens the future of
mankind with destruction.
The demise of ‘really existing socialism’ put new wind into the sails of policies of
deregulation, privatisation, and liberalisation of trade and finance. It is no exaggeration
to say that the post-communist restructuring of the international economic order is
ruthlessly subordinating the human community to market forces seeking financial gain
on a global scale. Like free trade and laissez faire in the 19th century, the construction of
the free market economy of the 21st century has been instituted by deliberate
governmental intervention. The more than 2000 ‘enhanced’ free trade and bilateral
investment agreements negotiated by national and multi-national agencies, employing
many thousands of highly-paid technocrats, has created a global network of legal
obligations subordinating national governments to the global rule of financial and
corporate capital. This project is accompanied by an economic discourse claiming
universal benefits and the common good of humanity. The scientific validity of these
claims is grounded in mathematical general equilibrium models produced in
universities, think tanks, and governmental institutions.
According to the “substantive definition” the economy is “the interchange with its natural and social
environment, in so far as this results in supplying him with the means of material wants satisfaction.”
Polanyi opposes this definition to the “formal” one, which is usually adopted by neoclassical economics.
From the “formal” point of view, the economic behavior consists in “economizing” the use of scarce
means for alternative ends: K. Polanyi, “The economy as Instituted Process”, in Trade and Market in the
Early Empires, ed. by K. Polanyi, C.M. Arensberg e H.W. Pearson, Glencoe, Ill.: The Free Press, p. 243.
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In Polanyi’s language, the imposition on the rest of the world of this radical AngloAmerican vision of the autonomy of market forces backed by measures to subordinate
nations, peoples and communities to the priorities of investors, is a stark Utopia which
threatens to unleash uncontrollable reactionary political forces. It is incompatible with
democratic governance, cultural diversity and pluralism and the natural environment is
now too fragile to be subjected to criteria of profitability.
It is painfully clear that economics is not capable of guiding us safely through the 21st
century. But, we cannot dismiss its power in maintaining the present economic order,
however problematic we may know it to be. Albert Einstein, whose genius hastened the
unlocking of the secrets of nuclear power, was tormented by the fear that “the creations
of our mind shall be a blessing and not a curse to (hu)mankind.” Capitalist economies
driven by individual gain have produced extraordinary economic growth but the
accompanying societal and environmental destruction now threatens the existence of
humanity. All the social sciences must—to use Karl Polanyi’s words—be “subjected to
total reconsideration,” beginning with economics with its simplistic and deeply
erroneous assumption concerning human nature and ‘man’ in society. Let me indicate
briefly an agenda of three fallacies so we can attempt to repair the damage. Not that it
will be easy given the power which can be, and has been mobilized to subject and ‘open
up’ human societies to the dictates and dominance of capital over labour, of money over
people.
Fallacy No. 1: Homo Economicus
The concept of a maximizing and minimizing individual motivated by the desire to get
the most for the least effort by a calculus of ‘utility’ and ‘disutility’ is an fiction, but we
have been socialized to behave as if this were indeed the nature of human beings.
Putting it simply, greed and laziness have been enthroned as basic human motivations
(called ‘real’ because they are ‘material’), whereas the human need for love,
companionship, community, respect, creativity, a sense of purpose to the meaning of
life, and harmony with nature are considered secondary (or ‘ideal’ because they are not
believed to be essential to us as producers and consumers). Such a distortion of human
behaviour is a consequence— and a necessity— of the universalization of commodity
relations. Here the basic texts are the opening chapters of Marx’s Capital in which he so
powerfully explains that behind the exchange of commodities lie social relations. From
here Karl Polanyi derived the concept of the ‘fictitious’ commodities of labour, land,
and money. But children are not conceived and nurtured because parents are creating
the ‘supply side of a labour market.’ The Creator has not endowed us with fertile land,
water or useful minerals to be bought, sold, or owned as private property. As for money
and its price (interest), this was a social construct for the benefit of society, and all
societies prior to ours considered it sinful and illegal to permit usurous interest by those
with power to extract it.
The truth is that humans are essentially social creatures. That must be the beginning of
our reconstruction of the place of economy in society. The reality of society, as Karl
Polanyi was so insistent upon, means more than the triviality that we live in society and
cannot escape it. It means that within each of us is the need for the protection of a
communal and social support system that accords us self-respect and dignity, and thus
personal freedom.
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Fallacy no. 2: Belief in Economic Determinism
Economic Determinism is a philosophy shared by technocratic capitalism and by
technocratic Marxism. It is the ideology of technocracy, which would have us believe
that modern industrial society must universally and everywhere assume the particular
characteristics which it acquired in its European and American manifestations. The
laws of exchange which govern the capitalist economy are made out to be the general
laws of society. Socialism as we knew it in its East European form suffered from the
same European arrogance. So, writes Polanyi, economic determinism is as unacceptable
from socialist as from capitalist ideologues, and the central question of man in society is
“how to organize human life in a machine society.”2
Here lies the significance of Polanyi’s twenty years of research into economic
anthropology from which he concluded, and I quote, that “[nothing] is more obvious to
the student of anthropology than the variety of institutions found to be compatible with
practically identical instruments of production.”3 It follows that economics must be
dethroned as the king or queen of the social sciences. We must seek to reverse the trend
to over specialization, to reintegrate the study of the individual in society, to understand
the relationship between the manner in which our livelihood is secured, and the manner
in which we in society organize the polity within the larger reality of the cultural matrix
of each and every society. We must recognize that we are blessed in the diversity of our
cultures, that we need the familiarity of our particular cultural milieu, and that it is
humanly intolerable to be forced to live under alien cultural values.
To me the paradise of the Garden of Eden, of biblical mythology, is the remarkable
fortune of humankind on planet earth to be blessed with abundant variety in nature and
culture. The dangers of eating of the fruits of the tree of knowledge are the fears
expressed by Albert Einstein that we can, with knowledge untempered by morality,
destroy the richness of human existence. Our science fiction points to the hell on earth
that could await us in a world in which technocracy would triumph over humanity.
Fallacy No. 3: Economic freedom = personal freedom
To descend from the philosophical to the more immediately mundane, I would like to
close by identifying a more obvious fallacy— the idea that economic liberalism and
free enterprise is the way to expand personal freedom. This idea, which many of us
believed was well and truly discredited, acquired a new life with the accession of
Thatcher and Reagan to office in the 1980s. It has become the radical ideology of the
Right. The roots of the idea go back to the era of the emergence of Europe from
feudalism, and the cry that the peasant, not the landlord, should own the product of the
sweat of his brow and the worker should have the right to the fruits of his labour. This
was the original case for the rights of property over the rights of privilege of feudal
tyrants. The extension of the principle of the rights of property to gigantic impersonal
accumulators of capital— to transnational corporations and transnational banks— is
totally unacceptable. The Western initiatives to open-up Third World societies to the
unrestricted rights of foreign investors will be met, must be met, by strategies to protect
the sovereign rights of nations and, more specifically, to dethrone the US dollar as the
dominant reserve currency.
2
K. Polanyi, Our obsolete market mentality, 1947, in K. Polanyi: Primitive, archaic and modern
economies, G. Dalton ed., Boston: Beacon Press, 1971, p. xx.
3
Ibid. Compare also: K. Polanyi, “On belief in economic determinism”, Sociological Review, 1947, vol.
37, no. 1, pp. 96-112; translated in the present volume, pp. …
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The international economic and political order must proceed with due respect to the
sovereignty of nations which are the political manifestations of modern cultural
communities. In an effort to outline the basis of a viable and humane order of things,
Polanyi identified what he called four vistas of a humanist socialism:
1.
2.
3.
4.
Pluralist democracy, i.e. freedom within society.
National independence, i.e. freedom from imperialist domination.
Industrial culture, i.e. acceptance of modern technology.
A socialist international order, i.e. the coexistence of different cultures and
respect for national sovereignty.
In this perspective, the nation remains the fundamental cultural as well as political unit
of society. In a letter written in 1957, Polanyi argued:
Few words in political sociology are so perverted as nation, national or
nationalistic. After the feudal nation, came the bourgeois nation, which is
now being superseded by the socialist nation. The essential connotation is
always about the communion of humans. The heart of the feudal nation
was privilege; the heart of the bourgeois nation was property; the heart of
the socialist nation is the people, where collective existence is the
enjoyment of a community of culture. I myself have never lived in such a
society.4
But socialism, as Polanyi conceived it, must be redefined as beyond mere property
terms. It must involve the deliberate subordination of the economy to the ends of the
human community. Material needs and their satisfaction— the technology of
production— are merely accessories to a tissue of society, a web of social relations
which inhere in lives under humane conditions.
We should not, cannot afford to be afraid of restoring morality to the social sciences. As
Einstein, the greatest natural scientist of our era, warned, concern for man himself and
his fate must always form the chief interest for all technical endeavours. For this we
may not get rewards within the narrow confines of our academic institutions, but we
can enjoy the satisfaction of having contributed a little trickle to a human stream that is
asserting the will of life to conquer destruction and death.
It is a tribute to the moral force of his spirit that Polanyi’s work has retained a freshness
and a relevance which continues to speak to us across the seven decades which have
passed since it was written. His work is ever more frequently cited. A re-reading of The
Great Transformation comes across as an urgent appeal to associate in solidarity to
protect communities, peoples and nations against the atomization of society and the
cannibalization of the cultural and natural resources of the planet, by the rapacious
forces of global capital markets.
Karl Polanyi’s vision of a free, co-operative, democratic and just society based on
social ownership and control of economic resources lives on because it is not grounded
in technological or economic determinism. It was nourished by the indomitable human
spirit that he so admired in Bakunin, Zasulich, and the other early Russian
4
Letter to Rudolph Schlesinger, prospective editor of the journal Co-existence, founded by Karl Polanyi
in 1964.
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revolutionaries—and all other rebels who confronted authoritarian power, including
Jesus of Nazareth. His Christianity—at no time practised within the institution of any
Church—was grounded in the communion of humans. Freedom, so central to his
concerns throughout his life, was rooted within “the reality of society.” But the reality
of society, and the constraints which this reality places upon the actions, values and
ideas of all of us who inescapably live within society, do not release us from the
responsibility to exercise freedom of action and thought and never to give in to
determinism and fatalism.
KARI POLANYI
LEVITT
Montreal, 2014
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