Tuesday, October 20, 2015

Karl Polanyi: Great Depression Failure of the English System

Karl Polanyi, a native of Austria, wrote The Great Transformation: The Political and Economic Origins of Our Time in the Second World War while a refugee from fascist Europe in Britain and the US.

In "Capitalism as a Utopian Movement" we discussed Polanyi's argument that capitalism was an ideological movement that ruthlessly imposed its will on Europe in the mid 19th century.
Now Polanyi explains why the English System failed in the years after World War I.

In the first place, it had already failed, but nobody understood that, so world leaders through national and international institutions tried fruitlessly to restore the gold standard in the post-war period but utterly failed in a chaos of inflations and "flights of capital." "An almost unbroken series of currency crises" buffeted the various countries in Europe and the Americas until "the United States itself was engulfed by the effects of the premature stabilization of European currencies."

Ths was all because of a profound belief in the gold standard. Everyone agreed on the centrality of money, from Marx to Ricardo, from Mises to Trotsky, but the effort to return to gold (and thus, the hope to return to pre-war stability) broke the weaker nations and then the stronger, with the US providing "support to the pound sterling in 1927". Then came the crash and with the US going off gold in 1933 "the last vestige of the traditional world economy vanished." And why? Because the efforts to preserve currencies drove countries "into an autarchized economy." The effort to return to gold standard parity and full participation in the world economy could only be done by separating a national economy from the world. And the effort destroyed the old world economy.

"The snapping of the golden thread was the signal for world revolution." The failure of the world economy and its gold standard also encompassed the destruction of many 19th century national institutions and the replacement of many liberal states with totalitarian dictatorships. And many of the new states instinctively knew how to exploit the weaknesses of the old order and hasten its destruction.

What was the factor that underlaid the collapse of the balance-of-power, the gold standard, the liberal state. It comes down to the notion of the "self-regulating market." For never before in history had society been built upon economic foundations. Never before had "gain" been "raised to the level of a justification of action and behavior in everyday life".
The mechanism which the motive of gain set in motion was comparable in effectiveness only to the most violent outbursts of religious fervor in history. Within a generation the whole human world was subjected to its undiluted influence.
And then it all broke down, most especially in Germany, Italy and Austria. But the place to look for "the long-run factors which wrecked that civilization should be studied in the birthplace of the Industrial Revolution, England."

And that is the next exciting installment in this series.

No comments:

Post a Comment