Written by Claire Arp
“Nineteenth century civilization has collapsed,” So goes the opening words to The Great Transformation, Karl Polanyi’s magnum opus that laid the foundations for the modern fields of economic sociology and anthropology (Polanyi, 1944). From the context of his life, it’s not hard to see where this perspective stems from; born to a Jewish family in the late 1800s Austro-Hungarian Empire, Polanyi witnessed World War I firsthand on the Russian front and saw the Great Depression hit Vienna. He was then forced out of his job as senior editor of the Austrian Economist magazine and had to flee to England when the rise of the Nazi party made it too dangerous to be a prominent socialist Jew in Austria. The opening of the book is certainly dramatic, but it was a pretty reasonable observation for the time. Polanyi came of age as an economist just as the golden age of Classical economic theory began to collapse, taking the world with it. But his observations still resonate in the crises of today.
Our modern economy was built using the bones of the old world as scaffolding, and as such many of the problems we face today are similar to the ones of Polanyi’s time. While it may be a worrying omen of what lies in our future, this also means that we have the opportunity to turn to figures like Polanyi for some guidance on how to avert the next end of the world. However, saving the world from economic collapse is slightly outside the scope of this article. Let’s narrow our focus to one of Polanyi’s most important and relevant theories to the problems of our day and age: the concept of false commodities.
Commodity is a very common word in economics, but its meaning often becomes unclear. The technical definition of a commodity specifies that they are objects made for sale on a market that are treated as interchangeable with one another. These are usually resources: oil, apples, gold, lumber, the list goes on. Polanyi uses a more general definition, that commodities are simply anything produced to be sold on a market. They are the subjects acted upon by the forces of supply and demand, and thus make up the core of a market economy (Polanyi, 1944).
A false commodity, then, is created when something that was not created for the purpose of sale on a market is treated as such. False commodities are usually important aspects of economic life that have historically been governed by the laws and norms of society, and have then been extracted from their cultural context and had a price tag slapped on them. Polanyi identifies three key examples: land, labor, and money (though we are mostly interested in the first two of these). Land is, obviously, not something that is produced at all. Money is just a signifier of value. And labor is quite literally human lives. All of these things bear little to no resemblance to the goods you might find at the grocery store or in shipping containers, but in order for a true free market system, every piece of the economy must be subject to the laws of supply and demand. As Polanyi puts it, “A market economy can exist only in a market society.” (Polanyi, 1944)
Before the self-regulating market, most economic activity was inseparably linked to social activity, a phenomenon Polanyi calls embeddedness (Polanyi, 1944). Goods were not necessarily produced for sale on a market, but instead to fulfill some need or socio-cultural obligation. Things like land and labor were protected by laws and ethics. In order to make the transition to an economy governed not by law or custom but by supply and demand, society itself had to completely reorganize around it.
This becomes especially problematic in the case of labor. A purely rational market-based system has no sense of empathy or ethics, and having the rules and expectations for how, when, and why people should work be set by such a system is incredibly dangerous. When something like labor is disembedded from the social and cultural rules protecting it and turned into a commodity to sell on a market, we are essentially putting a monetary value on life itself. In the most insightful and grim quote from the book, Polanyi says the following: “But labor and land are no other than the human beings themselves of which every society consists and the natural surroundings in which it exists. To include them in the market mechanism means to subordinate the substance of society itself to the laws of the market.” (Polanyi, 1944)
The people of the 18th and 19th centuries who saw the transition into capitalism noticed this, however. They noticed when land that was once held in common for the use of all was enclosed by fences and divided up into plots, and they noticed when they were forced to begin making their livings by selling their labor at an hourly rate. This social reaction to the creation of the false commodities is called the double movement, and in it lies the root of the modern concepts of welfare and market regulation, especially labor laws.
This double movement is something we still see today. Economic forces push on our society to deregulate, to give up more to the market, to abandon the defenses we’ve put up like social security and a minimum wage. Social forces then push back against the commodification of human lives. Franklin Roosevelt, inspired by Keynes, created the New Deal in response to the unrestrained capitalism of the 1920s and the resulting Great Depression, then thirty years later Ronald Reagan, inspired by Friedman, pushed to dismantle it. This constant game of tug-of-war slowly rips society apart as our sense of ethics and morality clash with the requirements of a free market system.
And so we are faced with a harsh reality: the economic system on which we have relied and built our world upon for the last three centuries requires us to surrender our lives, our labor, and the land we live on to the market. Our cultural and ethical beliefs and our economic system are inherently opposed to one another. One of them will have to give eventually, otherwise we will continue the vicious cycle of regulation and deregulation, boom and bust, in perpetuity.
Today’s students of economics (including, hopefully, myself) will be the economists of tomorrow, and we will have to contend with the dire moral question of whether the runaway economic growth and obscene amounts of wealth our economic system has created is worth it. Capitalism has built the modern world. We have technological wonders and globe-spanning supply chains that can bring any good in the world we desire right to our doorstep. But that very same system demands that we turn over the hours of our lives, the ground under our feet, even money itself to the uncaring maelstrom of the self-regulating market, and it very well might end up being the thing that tears civilization apart. It almost happened once already, not much more than a hundred years ago. Will we heed Polanyi’s warning? That’s for each of us to decide.
References
Polanyi, K. (2014). The Great Transformation: The Political and Economic Origins of Our time. Beacon Press. First Published 1944.
Madhav Chinnappa, who has worked for Google and the BBC, spoke at DW's Global Media Forum in BonnImage: Björn Kietzmann/DW
