Karl Polanyi: Land and Labor and the Resistance to the Market

Karl Polanyi 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. It is a ringing critique of the market economy.

In "Capitalism as a Utopian Movement" we discussed Polanyi's argument that capitalism was an ideological movement, followed by "Great Depression Failure of the English System" and "History of Exchange Prior to the Modern Market" and "The Self Regulating Market and Its Fictions" and "Speenhamland and the Poor Law" and "The Social Crisis of Poverty and Commodity Labor" and "The Market Economy Means Annihilation of Land and People."

It all comes down the the utopian economic liberal creed, and so Polanyi takes a look it in "The Special Pleadings of the Laissez-faire Creed."

What Polanyi really dislikes about the market in labor and in land is this:

To separate labor from other activities of life and to subject it to the laws of the market was the annihilate all organic forms of existence and to replace them by a different type of organization , an atomistic and individualistic one.

 The idea of freedom of contract meant that the ties of "kinship, neighborhood, profession and creed were to be liquidated" as a restraint on the freedom of the individual.

You can see how the idea of a market for labor breaks up traditional society by looking at the (in the 1940s) colonies of the western powers.

The natives are forced to make a living by selling their labor. To this end their traditional institutions must be destroyed[.]

The motivating idea to make the natives submit to the market is that in an individualistic market for labor the worker must either work or starve. In traditional rural society things are different. "There is not starvation in [traditional] societies living on the subsistence margin." (Really?)

The protection of society, in the first instance, falls to the rulers, who can directly enforce their will. However it is all too easily assumed by economic liberals that economic rulers tend to be beneficial, while political rulers do not. 

In the run-up to the Industrial Revolution it fell to the landlords to protect the people, and they did, in their way, with Speenhamland. And after the Poor Law reform in 1834 they continued to fight for the people with factory acts.

(Really? Or did the landed gentry merely hate the upstart industrialists the way that Lady Glencora Palliser hated Mr. Bott.)

What the working people really wanted, according to Polanyi, was to "discover a form of existence that would make man the master of the machine," and that was the purpose of the Owenite Movement. It was "a religion of industry, the bearer of which was the working class."  Then there was the Chartist Movement with its Six Points that "demanded an effective popular suffrage."

When the Industrial Revolution arrived in continental Europe it lured the peasants into the city with the promise of higher wages. And the peasants found there a lower middle class that could teach them "an urban tone." While the British working class left politics to his "betters" the European worker "became a political socialist." Social insurance, with the help of the reactionary elite, came earlier to Europe than to England.

The purpose of all the resistance to economic liberalism was to hinder the absolute rule of the market in labor, and that is what the "social legislation, factory laws, unemployment insurance... and... trade unions" achieved. They were intended to interfere with the laws of supply and demand, and they did.

No less weird than the idea of a market in labor was the idea of a market in land. Land is "tied up with the organizations of kinship, neighborhood, craft, and creed[.]" The market destroys these ties.

Really, the process was driven by the need of industrial towns for an unlimited supply of cheap food. Thus we get the "commercialization of the soil, mobilizing the feudal revenue of the land." Then comes the need to feed the towns in the industrializing nations. Then comes the extension of this system to the world, forcing everyone into the orbit of the market.

Common law and statute law sometimes encouraged, and sometimes slowed this process with respect to land. But the feudal and landed proprietors did what they could to slow down the commerce in land and slowing the migration to the city. And, with wars and rumors of wars, they could point to the importance of self-sufficiency in food.

Next, Polanyi shows how the conflict between the market ideology and peoples' instinct for self-protection created impossible economic and political contradictions and strains.

Karl Polanyi: The Special Pleadings of the Laissez-faire Creed

Karl Polanyi 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.

In "Great Depression Failure of the English System" Polanyi explains why the the "self-regulated market" and the gold standard failed in the years after World War I.

In "History of Exchange Prior to the Modern Market" Polanyi tells us that humans in the pre-market world lived perfectly happily without markets for everything.

In "The Self Regulating Market and Its Fictions" Polanyi talks about the commodification of labor, land, and money as "fictions."

In "Speenhamland and the Poor Law" Polanyi looked at how that the Speenhamland welfare law lowered wages in Napoleonic era England.

Then, with Speenhamland having demoralized the workers of England, along came the full-on commodification of labor in the national labor market, in "The Social Crisis of Poverty and Commodity Labor."

And according to Polanyi, "The Market Economy Means Annihilation of Land and People" because of commodification.

All this disaster, on Polanyi's account issues from the "utopian" creed of economic liberalism, the idea of the "self-regulating market." It is time, therefore, to inquire more deeply into the birth and development of the "liberal creed." For him, the "fanaticism" of economic liberalism arose in response to the "magnitude of the sufferings that had to be inflected on innocent persons" in order to realize a "fully deployed market economy." It had to be a fighting faith to push through to victory.

It is a mistake to date economic liberalism to the invention of the term "laissez-faire" in the 18th century. In England it initially just meant "freedom from regulation in production" rather than free trade in general.

Not until 1830 did economic liberalism burst forth as a crusading passion and laissez-faire become a militant creed.

And despite the warning from numerous pens that the "allowances" under the Poor Law should be reduced over a period of decades, the newly victorious middle class of 1832 abolished "outdoor relief" in one fell swoop.

Likewise in money: it was not until after the crash of 1825 and its "enormous number of financial casualties" that the "automatic steering mechanism of the gold standard" become holy writ. In fact, economic liberalism needed all three legs of its stool, a free market in labor, in land, and a rigid gold standard.

The expansion of the market system in the nineteenth century was synonymous with the simultaneous spreading of free trade, competitive labor market, and gold standard; they belonged together. 

And here Polanyi makes an unusual argument. Economic liberalism did not do away with intervention in the economy. On the contrary, it required an "enormous increase in the administrative functions of the state."

The road to the free market was opened and kept open by an enormous increase in continuous, centrally organized and controlled interventionism... [It] was a most complicated affair.

On the other hand, Polanyi writes, the reaction to laissez-faire was unplanned and spontaneous. The Liberal A.V. Dicey looked into the origins of "anti-lassez-faire" and "collectivism" in public opinion.

He was surprised to find that no evidence of the existence of such a trend could be traced save the acts of legislation themselves... The legislative spearhead of the countermovement against a self-regulating market as it developed in the half century following 1860 turned out to be spontaneous, undirected by opinion, and actuated by a purely pragmatic spirit.

The epigones of laissez-faire, "Spencer and Sumner, Mises and Lippmann", do not dispute this. They just say that "protectionism was a mistake due to impatience, greed, and shortsightedness." But they are blind. Our age will see "the end of the self-regulating market." From the heights of its fame in the 1920s to its depths in the 1930s to its defeat in the 1940s, economic liberalism is over.

It was the "weaknesses and perils inherent in a self-regulating market" that called forth the spontaneous and practical movement of self-protection. He cites four main supports for his argument. First, there were numerous areas in which action was taken having nothing to do with collectivism, from water analysis to inspections to child labor to vaccinations. Second, legislation such as workmen's compensation acts make an employer as responsible for damage to his workers as to his customers. How collectivist is that? Thirdly, all governments did it, from Victorian England to Bismarck's Prussia. Fourthly, "liberals themselves advocated restrictions on the freedom of contract and on laissez-faire" in a number of instances.

The facts are clear. The movement of self-protection was natural and spontaneous. Its truth is emphasized by the similarities between the Marxist theory of the 19th century and the liberal theory. While economic liberals argue that protectionism was the result of "sinister interests of agrarians, manufacturers, and trade unionists," the Marxists argue that "protectionism was the result of class action... [serving] the economic interests of the members of the classes involved." No difference.

But these class arguments put the cart before the horse. Of course sectional interests battle for advantage, but "the ultimate cause is set by external forces... The 'challenge' is to society as a whole; the 'response' comes through groups, sections, and classes." Of course economic matters are important, but they are not as important as purely social matters such as "standing and rank... status and security."

For sure, the development of machine production meant that "trading classes" came to the fore. But it was also natural for the landed and working classes to act in defense of the "social fabric." And in an emergency -- in the frequent panics and crashes -- the landed classes looked to a return to martial virtues and the workers to "a cooperative commonwealth of labor."

Some economic historians are now arguing that the Industrial Revolution was not as bad as advertised. After all, were not the workers better off afterwards? But this misses the fact that great changes always involve cultural catastrophes. The Industrial Revolution transformed in half a century the rural "settled folk" of England into "shiftless migrants", their ancient way of life destroyed. We see this happening now across the world, from the disaster of the village community in India in the late 19th century to the injection of the market economy into Africa.

The competitive labor market hit the bearer of labor power, namely, man. International free trade was primarily a threat to the largest industry dependent upon nature, namely, agriculture. The gold standard imperiled productive organizations depending for their functioning on the relative movement of prices.

It is hardly surprising that people rose up to protect themselves from this utopian scheme.

In the next installment, Polanyi looks at the specificities of the movement to resist the process of the commodification of labor into the labor market, and land into private ownership.

Karl Polanyi: The Market Economy Means Annihilation of Land and People

The Austrian Karl Polanyi 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.

In "Great Depression Failure of the English System" Polanyi explains why the the "self-regulated market" and the gold standard failed in the years after World War I.

In "History of Exchange Prior to the Modern Market" Polanyi tells us that humans in the pre-market world lived perfectly happily without markets for everything.

In "The Self Regulating Market and Its Fictions" Polanyi talks about the commodification of labor, land, and money as "fictions."

In "Speenhamland and the Poor Law" Polanyi looked at how that the Speenhamland welfare law lowered wages in Napoleonic era England.

Then, with Speenhamland having demoralized the workers of England, along came the full-on commodification of labor in the national labor market, in "The Social Crisis of Poverty and Commodity Labor."

We now turn to Polanyi's "Part II. Self-Protection of Society," in which he develops the idea that the anti-capitalist politics and legislation of the later 19th century was "more than the usual defensive behavior of a society faced with change."

The growth of the market economy meant that, by 1914, "a new way of life" had spread across the world, like any religion. But this was a way of life solely "on a purely material level." It was a "dislocation which attacked the very fabric of society[.]"

Robert Owen's was a true insight: market economy if left to evolve according to its own laws would create great and permanent evils.

"Production is interaction of man and nature" and the market economy requires that labor and land be commodified, for sale, with labor for sale at a "price called wages" and land "at a price called rent".

Capital invested in various combinations of labor and land could thus flow from one branch of production to another, as was required for an automatic levelling of earnings in the various branches.

But while production could theoretically be organized in this way, the commodity fiction disregarded the fact that leaving the fate of soil and people to the market would be tantamount to annihilating them. 

For Polanyi, the self-protective politics of interventionism arose to stop this annihilation. And, of course, an enterprise could be annihilated not just by a "fall in costs" elsewhere in the economy but by "monetary" factors.

Thus factory legislation was "required to protect industrial man" from the "commodity fiction [of] labor power", "land laws and agrarian tariffs" were needed to protect land from the commodity fiction of land rent, and "central banking and the management of the monetary system" were needed to protect from the "commodity fiction as applied to money."

So we have a "double movement" that had a class basis. The trading classes believed in economic liberalism and a "self-regulating market" and free trade. The "working and the landed classes" believed in "protective legislation, restrictive associations... and intervention" to push back against the market. But the trading classes could not see the damage they were causing, in "exploitation... of the worker, the destruction of family life," etc., that "did not affect profits."

It all ended up with the various interests using political and economic means as weapons in their sectional struggles, and that led, after World War I, to the fascist crisis that sent Karl Polanyi into exile.

Obviously, the driving force behind the push for the market economy was "the liberal creed" and Polanyi devotes the next two chapters to this topic.

Karl Polanyi: The Social Crisis of Poverty and Commodity Labor

The Austrian Karl Polanyi 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.

In "Great Depression Failure of the English System" Polanyi explains why the the "self-regulated market" and the gold standard failed in the years after World War I.

In "History of Exchange Prior to the Modern Market" Polanyi tells us that humans in the pre-market world lived perfectly happily without markets for everything.

In "The Self Regulating Market and Its Fictions" Polanyi talks about the commodification of labor, land, and money as "fictions."

In "Speenhamland and the Poor Law" Polanyi looked at how that the Speenhamland welfare law lowered wages in Napoleonic era England.

Now he sets the Speenhamland laws in context, between the era of labor regulated by the Elizabethan Poor Law and Statute of Artificers and the Poor Law Reform Act of 1834 that passed immediately after the middle class came to political power through the Reform Bill of 1832 and plunged the working poor into a full-scale labor market.

The Statute of Artificers was passed in 1563 and "enforced labor, seven years apprenticeship, and yearly wage assessment by public officials." After about a century its provisions became less rigorously enforced and the wage and apprenticeship clauses were repealed in 1813 and 1814.

The Poor Law covered the relief of all those -- unemployed, aged, infirm, and orphaned -- in a society where "there was a place for every Christian." Beggary and vagrancy were severely punished. But a further Act of Settlement and Removal was passed after 1660 to prevent the poor from moving around because the poor naturally moved to parishes with the best benefits. In 1795, as the Industrial Revolution was getting into gear, this "parish serfdom was abolished" and labor mobility restored. At the same time the Elizabethan "enforced labor" system was ended and replaced by a "right to live" under Speenhamland. On the one hand the government was setting up a national labor market; on the other hand it was destroying the labor market by subsidizing wages with "grants-in-aid of wages.

This all may seem clueless. That's because it was.

On the eve of the greatest industrial revolution in history, no signs and portents were forthcoming. Capitalism arrived unannounced. No-one had forecast the development of a machine industry; it came as a complete surprise.

Indeed, people were expecting "a permanent recession of foreign trade" just as the world lurched "toward a planetary economy." Instead, everyone was concerned about the rise of pauperism, and wondering where the poor came from and writers were found aplenty to come up with wacky ideas to explain everything.

Polanyi inclines towards Engels' theory of the "industrial reverse army" under which the slow increase of overall employment was masked by the sudden increases in unemployment caused by fluctuations in trade.

But nothing can hide the fact of brutal transformation. On the one hand, "Speenhamland was an unfailing instrument of popular demoralization...  an automaton for demolishing the standards on which any kind of society could be based", encouraging shirking and trapping the poor in the poorhouse. But then Speenhamland was repealed in 1834 in a sudden move that pitched the entire working class into the wage system "making nonsense of the legend of English gradualism... The memory of that brutal shock haunted for generations the British working class.

In 1834 industrial capitalism was ready to be started, and Poor Law Reform was ushered in. 

Speenhamland had protected the laborers against "the full force of the market mechanism" but had "eaten into the marrow of society." Yet reform led to a "denial of responsibility" by the well-to-do. "Unheard-of wealth" combined with "unheard-of poverty." Pro-market activists proclaimed that science showed how the world worked, and removed compassion and human solidarity "in the name of the greatest happiness of the greatest number."

"Human labor had to be made a commodity", and the reactionaries "tried in vain to resist." It was a blind rush into a "utopian market economy."

But where had the poor come from?

It was in the first part of the sixteenth century that the poor first appeared in England; they became conspicuous as individuals unattached to the manor, "or to any feudal superior"[.]

The poor were experienced at that time as a hostile army: hence the Poor Law. But by the 18th century the poor were "merely a burden on the rates" and writers were generally agreed that poverty came with increased trade: "pauperism and progress were inseparable."

Everyone had an idea about what to do about the unemployed poor. The Quakers proposed "Colleges of Industry" It was the first of numerous plans to make the poor profitable. Jeremy Bentham proposed using the poor to run machinery; his Panopticon was a way to run prisons on a cost-effective plan. Robert Owen revived the Quaker plan and called it Villages of Union.  Nothing seemed to work, and meanwhile the cost of the poor kept going up, from 400,000 pounds in 1696 to 8 million pounds in 1818.

Meanwhile men like Adam Smith were coming to think that they knew how the "economy" worked. On his system "Self-interest merely prompts us to do what, intrinsically, will also benefit others". On the other hand were those like Joseph Townsend who reckoned that "it is the quantity of food which regulates the number of the human species." Edmund Burke had a different concern. He saw a link between the security of white slave masters in the West Indies and the security of the better classes in England. All in all, the Smithian notion of self-interest could combine with Townsend's notion of the natural limit of population and the need for security and end up with a policy that farmed out the poor to factories where "'the more persistent and more minutely detailed authority of the employer' took the place of the government's and the parish's enforcement of work."

Whereas Adam Smith seemed to prophesy an overall increase in prosperity, the Townsend idea and the growing ranks of paupers helped popularize the iron law of wages  that explained why wages stayed at bare subsistence level. It was not till a century after Smith that it was "clearly realized that under a market system the factors of production shared in the product".

"One man alone" understood the "meaning of the ordeal" of the working man, writes Polanyi, and that man was Robert Owen. He rejected the "animalistic approach" of the iron law of wages. But he also rejected the individualism of Christianity, that made men "incapable of union though all eternity."

[Owen's] socialism, one might say, was based on a reform of human consciousness to be reached through the recognition of the reality of society.

Society was the reality, not the individual. And to Owen,

the general diffusion of manufactures... generates a new character in its inhabitants... on a principle quite unfavorable to individual and general happiness [and] it will produce the most lamentable and permanent evils, unless its tendency be counteracted by legislative interference and direction.

Polanyi now proceeds to the discussion of this tug of war, between the market economy and legislative intervention, in "Part II. Self-Protection of Society."  It is the next exciting installment in this review. 

Karl Polanyi: Speenhamland and the Poor Law

The Austrian Karl Polanyi 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.

In "Great Depression Failure of the English System" Polanyi explains why the the "self-regulated market" and the gold standard failed in the years after World War I.

In "History of Exchange Prior to the Modern Market" Polanyi tells us that humans in the pre-market world lived perfectly happily without markets for everything.

In "The Self Regulating Market and Its Fictions" Polanyi talks about the commodification of labor, land, and money as "fictions."

Now Karl Polanyi takes up the question of the English Poor Law, that was enacted at the end of the Elizabethan era in response to the first wave of enclosures at the beginning of the agricultural revolution, and was notably expanded in 1795 by the so-called Speenhamland Law. This law (actually a set of protocols agreed to at a meeting of rural justices) set up an allowance system indexed to the price of bread to guarantee the poor a minimum standard of living. But one result was to lower wage rates into the cellar.

In Polanyi's view the market economy demands that everything have its market price, including labor, and this is a bad thing because it subordinates society to the economy. But if Britain was going to have a market economy it had to have a market in labor. Speenhamland delayed the creation of a labor market in Britain until the support of the poor under the Poor Law was destroyed by the Poor Law reform of 1834, and the workers were probably worse off under Speenhamland than they would have been if there had been no Poor Law.

[T]he absence of a market for labor [proved] a greater evil even to the common people themselves than the calamities that were to accompany its introduction. In the end the free labor market, in spite of the inhuman methods employed in creating it, proved financially beneficial to all concerned.

But the benefits of the market system "could not make up for the social destruction wrought by" the labor market, leading to regulation to protect labor, such as trade unions and factory laws, that "ultimately destroyed the [market] system."

All in all it was a rough time to be poor. Speenhamland was designed "to prevent the proletarianization of the common people", but instead it pauperized them. Then the Poor Law Reform of 1834 suddenly removed support for the poor, and many "of the most needy poor... were left to their fate." But the effect of plunging the working poor into the labor market was the worst, tossing working people from an admittedly threadbare community into an unfeeling market mechanism.

The crisis of community caused by the sudden creation of the labor market led to the discovery of "society," starting with political economy, and for Polanyi, it was only Robert Owen that understood that "human possibilities were limited, not by the laws of the market, but by those of society itself".

Should the rulers have seen all this coming? Not really, because in the next exciting installment we shall see that nobody had a clue about what was happening and what was coming -- this during the greatest social revolution of all time! But they were not short of proposals to deal with the crisis.

Karl Polanyi: The Self-Regulating Market and Its Fictions

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.

In "Great Depression Failure of the English System" Polanyi explains why the the "self-regulated market" and the gold standard failed in the years after World War I.

In "History of Exchange Prior to the Modern Market" Polanyi tells us that humans in the pre-market world lived perfectly happily without markets for everything.

For Polanyi, a market system is ruled by three "fictitious" commodities, labor, land, and money. And above all prices. The supposed self-regulation depends upon prices. It assumes that supply will equal demand at the market price; it assumes the presence of money; it assumes that production and distribution will be controlled by prices. In other words "everything is for sale on the market" and "all incomes derive from such sales."

If everything is bought and sold at a price then everything, including labor, and, and money, are treated as commodities, completely different from the pre-industrial era when they were not commodities but rather "part of the social organization itself," In the feudal order, land was a military, political thing, removed from buying and selling. So also was labor in the guild system run according to custom and rule of the town. Things were no different in the mercantilist era: all interests, whether crown or town or noble, oppposed "commercializing labor and land". Then came the birth of the self-regulating market and a complete upset of old relationships, in particular the "separation of society into an economic and a political sphere." This was new.

The separation of economy and politics means a subordination of society to the economy, for labor and land are human beings. Now they were to be subordinated to the market system as commodities. But labor is not a commodity; it is an "activity that goes with life itself". Land is just "another name for nature". Money comes into being through "banking or state finance." These commodities are "entirely fictitious."

And yet it is on this fiction that the entire market economy is based, a "postulate that cannot be upheld." It would mean the "demolition of society." You cannot just shove around humans as commodity "labor power". Nature as commodity would be destroyed, human settlements defiled and rivers polluted. Shortages and surfeits of money are just as band as "floods and droughts." Society must be protected against this "satanic mill."

Why then did this inhuman system and its reduction of labor, land, and money to fictitious commodities arise? It was the complications introduced into the economy by the factory system. If the factory system was to work, everything "had to be on sale" and thus society had to be subordinated to the market.

It was natural for the fictitious commodities to rise up and object to their commoditization.

Social history in the nineteenth century was thus the result of a double movement: the extension of the market in respect to genuine commodities was accompanied by its restriction in respect to fictitious ones... Society protected itself against the perils inherent in a self-regulating market system[.]

Next up is the history of society's great effort to resist its commodification: the English Speenhamland Law.

Karl Polanyi: History of Exchange Prior to the Modern Market

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.

In "Great Depression Failure of the English System" Polanyi explains why the the "self-regulated market" and the gold standard failed in the years after World War I.

But how did the English ideological system of liberal government, self-regulating markets and the gold standard get started? And why did it achieve astonishing improvements in the "tools of production" while causing "catastrophic dislocation in the lives of the common people?" In other words, was it the "satanic mills... new physical conditions... new economic dependencies" and how did the "old social tissue" get destroyed?

Polanyi answers the question immediately.

Fired by an emotional faith in spontaneity, the common-sense attitude toward change was discarded in favor of a mystical readiness to accept the social consequences of economic improvement, whatever they might be.

So Polanyi sets the stage for understanding the modern economy by looking at markets prior to the modern age. But first he must make the history of the enclosure movement that began in Tudor England look like a walk in the park compared to the grueling forced march of the industrial revoluion

Discovering the profits obtainable from enclosing the common land and converting it to pasture or intensive tillage the owners of land started at the end of the 15th century to run the common people off the land and turn them into thieves and vagabonds.  There were efforts to mitigate the rate or reverse the rate of enclosures, but nothing changed the basic trend, leading many to argue that it was useless to oppose it. But this misses the point. Government has a role to play in "altering the rate of change." But for the policy of "Tudor and early Stuart statesmen, the rate of progress might have been ruinous". Things were different in the Industrial Revolution. Here there was no brake upon change, and the resulting social dislocation was far worse.

The point is that suddenly, in a matter of years, all human activity came under the control of markets, an economy directed by prices, with the consequent "gain and profit [that] never before played an important role in human economy." Viewing the new economy Adam Smith and others proposed that "truck, barter and exchange" was a natural human thing. But Polanyi argues that exchange was a minor factor in human life prior to the industrial revolution. Change, when it came, flowed more through "statecraft, literature, and the arts". Polanyi backs this up with a long disquisition into anthropology and scholarly investigations into hunter-gatherer and agricultural societies. Society was organized on the basis of "reciprocity or redistribution or householding" or some combination. "Custom and law, magic and religion" induced individual cooperation, not "gain."  True, markets became important in the 16th century but there was no "control of markets over society" that came suddenly in the 19th century.

What was this new market culture, and where did it come from? It came, initially, from long-distance, "external" trade that began more in the nature of "adventure, exploration, hunting, piracy, and war than of barter." The local economy was little affected. But still, the purpose and operation of both external and local trade were complementary, the reciprocal exchange of unlike goods. But there is a third type of trade, "internal" trade, and it is different from the other two, because it is competitive, it occurs in markets where "similar goods... are offered in competition with one another." Prior to the modern era governments were pretty careful to separate local and external trade and to limit the scope of internal trade. They wanted to avoid ruinous competition. Under mercantilism, just before the 19th century,

The economic system was submerged in general social relations; markets were merely an accessory feature of an institutional setting controlled and regulated more than ever by social authority.

The stage is now set for the entry of full-blown exchange and the reduction of social relations to commodity relations in the next exciting episode.