Libertarianism's Battle With History

Economic libertarianism’s most amusing failing is philosophical. In particular, the non-aggression form of libertarianism so popular among the Paul clan and their followers quite straightforwardly generates the conclusion that all private property is unjust theft. Internal contradictions abound in libertarianism, but that is surely the most problematic one. As much as I enjoy the philosophical arguments, experience tells me others prefer an approach that seem less like game-playing.

If you are that kind of person, then you are in luck. Karl Polanyi wrote The Great Transformation in 1944 to provide a more meaty historical and sociological takedown of the libertarian approach to the market economy.

The first thing to note is that free market capitalism hasn’t always been around. If you listen to libertarians long enough, you may get the sense that laissez-faire capitalism is the natural and default way of the world. But in fact, it's a newcomer in the historical scene. All of known human existence and economic production prior to a few hundred years ago was organized quite differently.

Thus, all societies that have moved into market economic systems have necessarily undergone massive transformation. How do transformations come about? The state, in concert with specific private interests, crams change down everyone’s throats. For instance, in Britain, you have the famous transferral of common land into private hands as the jumping off point. Such a revolutionary transformation of society does not happen organically, but by force and government planning.

In the case of market capitalism, the transformation is an especially traumatic affair. In most other systems, Polanyi argues, it is clear that economic systems are subordinate to society. Society—including families, norms, traditions, and all the rest—requires economic production to reproduce itself and thrive, and production is therefore organized towards that end. But with market capitalism—especially the sort libertarians are so fond of—the economic system takes on a life of its own that is, at times, detached and disembedded from the overall social system.

As Polanyi puts it:

True, no society can exist without a system of some kind which ensures order in the production and distribution of goods. But that does not imply the existence of separate economic institutions; normally, the economic order is merely a function of the social order. Neither under tribal nor under feudal nor under mercantile conditions was there, as we saw, a separate economic system in society. Nineteenth-century society, in which economic activity was isolated, and imputed a distinctive economic motive, was a singular departure.

But as much as market fanatics tried, they never could succeed in casting the economy as something separate from or above social order. Instead, what we saw (and what we see in developing countries today) is a constant rhythm of a double movement. In the first move, market mechanisms expand into new areas of social life, and in the second move, people fight to check this movement insofar as it is utterly ruinous to the functioning of a human society.

Labor is perhaps the best example of this phenomenon. The idea of a labor market where you sell labor itself as a commodity to an employer is an utterly novel fiction of market capitalism. And this market transformation has massive social implications. As Polanyi writes:

Labor is the technical term used for human beings, insofar as they are not employers but employed; it follows that henceforth the organization of labor would change concurrently with the organization of the free market system. But as the organization of labor is only another word for the forms of life of the common people, this means that the development of the market system would be accompanied by a change in the organization of society itself.

What does this corresponding social change look like initially? Utter horror:

Dumped into the the bleak slough of misery, the immigrant peasant, or even the former yeoman or copyholder, was soon transformed into a nondescript animal of the mire. It was not that he was paid too little, or even that he labored too long—though both happened often to excess—but that he was now existing under physical conditions which denied the human shape of life.

Polanyi continues later:

What [Robert Owen] observed was true of town and village laborers alike, namely, that “they are at present in a situation infinitely more degraded and miserable than they were before the introduction of those manufactories, upon the success of which their bare subsistence now depends.” [...] [Owen] Grasped the fact that what appeared primarily as an economic problem was essentially a social one. In economic terms the worker was certainly exploited: he did not get in exchange that which was his due. But important though this was, it was far from all. In spite of exploitation, he might have been financially better off than before. But a principle quite unfavorable to individual and general happiness was wreaking havoc with his social environment, his neighborhood, his standing in the community, his craft; in a word, with those relationships to nature and man in which his economic existence was formerly embedded. The industrial revolution was causing a social dislocation of stupendous proportions, and the problem of poverty was merely the economic aspect of this event.

Applying this analysis to labor, we can see one problem with making human labor a commodity to be offered up on the market is that, unlike real commodities, human beings have social interests, communities, families, personal projects, and so on. Ultimately, the commodification of labor winds up running against the kind of social existence human beings want to live. Something has to give, and since society will not ultimately stand for its own annihilation, the creeping expansion of free market tendencies is met with the countermovement of society to keep the economic system properly subordinated.

For labor issues, this countermovement takes the form of unions, economic regulations, state economic development, welfare programs, social insurance, and everything else libertarians hate. If there is any demonstrated natural tendency of market development, it is that the countermovements to keep the “satanic mill” of capitalism at least somewhat under social control always happen, no matter the country. Although libertarians present such countermovements as corruptions of the naturally-existing market, they are actually efforts to prevent the market from corrupting the naturally-existing society. Libertarians hell bent on dismantling our long history of successful countermovements against disastrous encroachments of unfettered markets are fighting against both good policy sense and the basic dynamics of actually-existing social development.

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