The Poor under Capitalism

The New Poor Law abolished the general category of the poor, the “honest poor,” or “laboring poor” — terms against which Burke had inveighed.  The former poor were now divided into physically helpless paupers whose place was in the workhouse, and independent workers who earned their living by laboring for wages.  This created an entirely new category of the poor, the unemployed, who made their appearance on the social scene.  While the pauper, for the sake of humanity, should be relieved, the unemployed, for the sake of industry, should not be relieved.  That the unemployed worker was innocent of his fate did not matter.  The point was not whether he might or might not have found work had he only really tried, but that unless he was in danger of famishing with only the abhorred workhouse for an alternative, the wage system would break down, thus throwing society into misery and chaos.  That this meant penalizing the innocent was recognized.  The perversion of cruelty consisted precisely in emancipating the laborer for the avowed purpose of making the threat of destruction through hunger effective.  This procedure makes intelligible that dismal feeling of desolation which speaks for us from the works of the classical economists. (232-233)

Karl Polanyi | The Great Transformation: The Political and Economic Origins of Our Times


American Market

The separation of powers, which Montesquieu (1748) had meanwhile invented, was now used to separate the people from power over their own economic life.  The American Constitution, shaped in a farmer-craftsman’s environment by a leadership forewarned by the English industrial scene, isolated the economic sphere entirely from the jurisdiction of the Constitution, put private property thereby under the highest conceivable protection, and created the only legally grounded market society in the world.  In spite of universal suffrage, American voters were powerless against their owners. (233-234)

Karl Polanyi | The Great Transformation: The Political and Economic Origins of Our Times

The Illusion of Freedom

Clearly, at the root of the dilemma there is the meaning of freedom itself.  Liberal economy gave a false direction to our ideals.  It seemed to approximate the fulfillment of intrinsically utopian expectations.  No society is possible in which power and compulsion are absent, nor a world in which force has no function.  It was an illusion to assume a society shaped by man’s will and wish alone.  Yet this was a result of a market view of society which equated economics with contractual relationships, and contractual relationships with freedom.  The radical illusion was fostered that there is nothing in human society that is not derived from the volition of individuals and that could not, therefore, be removed again by their volition.  Vision was limited by the market which “fragmented” life into the producers’ sector that ended when his product reached the market, and the sector of the consumer for whom all goods sprang from the market.  The one derived his income “freely” from the market, the other spent it “freely” there.  Society as a whole remained invisible.  The power of the state was of no account, since the less its power, the smoother the market mechanism would function.  Neither voters, nor owners, neither producers, nor consumer could be held responsible for such brutal restrictions of freedom as were involved in the occurrence of unemployment and destitution.  Any decent individual could imagine himself free from all responsibility for acts of compulsion on the part of a state which he, personally, rejected; or for economic suffering in society from which he, personally, had not benefitted.  He was “paying his way,” was “in nobody’s debt,” and was unentangled in the evil of power and economic value.  His lack of responsibility for them seemed so evident that he denied their reality in the name of his freedom. (266)

Karl Polanyi | The Great Transformation: The Political and Economic Origins of Our Times

Colonialism & the Labor Market

Now, what the white man may still occasionally practice in remote regions today, namely, the smashing up of social structures in order to extract the element of labor from them, was done in the eighteenth century to white populations by white men for similar purposes.  Hobbes’s grotesque vision of the state — a human Leviathan whose vast body was made up of an infinite number of human bodies — was dwarfed by the Ricardian construct of the labor market: a flow of human lives the supply of which was regulated by the amount of food put at their disposal.  Although it was acknowledged that there existed a customary standard below which no laborer’s wages could sink, this was reduced to the choice of being left without food or of offering his labor in the market for the price it would fetch.  This explains, incidentally, an otherwise inexplicable omission of the classical economists, namely, why only the penalty of starvation, not also the allurement of high wages, was deemed capable of creating a functioning labor market.  Here also colonial experience confirmed their own.  For the higher the wages the smaller the inducement to exertion on the part of the native, who unlike the white man was not compelled by his cultural standards to make as much money as he possibly could.  The analogy was all the more striking as the early laborer, too, abhorred the factory, where he felt degraded and tortured, like the native who often resigned himself to work in our fashion only when threatened with corporal punishment, if not physical mutilation.  The Lyons manufacturers of the eighteenth century urged low wages for social reasons.  Only an overworked and downtrodden laborer would forgo to associate with his like in order to escape from that state of personal servitude under which he could be made to do whatever his master required from him.  Legal compulsion and parish serfdom as in England, the rigors of an absolutist labor police as on the Continent, indentured labor as in the early Americas were the prerequisite of the “willing worker.”  But the final stage was reached with the application of “nature’s penalty,” hunger.  In order to release it, it was necessary to liquidate organic society, which refused to let the individual starve. (172-173)

Karl Polanyi | The Great Transformation: The Political and Economic Origins of Our Times

The Underlying Liberal Prejudice

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

Such a scheme of destruction was best served by the application of the principle of freedom of contract.  In practice this meant that the noncontractual organizations of kinship, neighborhood, profession, and creed were to be liquidated since they claimed the allegiance of the individual and thus restrained his freedom.  To represent this principle as one of noninterference, as economic liberals were wont to do, was merely the expression of an ingrained prejudice in favor of a definite kind of interference, namely, such as would destroy noncontractual relations between individuals and prevent their spontaneous reformation. (171)

Karl Polanyi | The Great Transformation: The Political and Economic Origins of Our Times