Nineteenth-century civilization rested on four institutions. The first was the balance-of-power system which… — Karl Polanyi
Nineteenth-century civilization rested on four institutions. The first was the balance-of-power system which for a century prevented the occurrence of any long and devastating war between the Great Powers. The second was the international gold standard which symbolized a unique organization of world economy. The third was the self-regulating market which produced an unheard-of material welfare. The fourth was the liberal state. Classified in one way, two of these institutions were economic, two political. Classified in another way, two of them were national, two international. Between them they determined the characteristic outlines of the history of our civilization.
Of these institutions the gold standard proved crucial; its fall was the proximate cause of the catastrophe. By the time it failed, most of the other institutions had been sacrificed in a vain effort to save it. But the fount and matrix of the system was the self-regulating market. It was this innovation which gave rise to a specific civilization.
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How far the state was induced to interfere depended on the constitution of the political sphere and on the degree of economic distress. As long as the vote was restricted and only the few exerted political influence, interventionism was a much less urgent problem than it became after universal suffrage made the state the organ of the ruling million—the identical million who, in the economic realm, had often to carry in bitterness the burden of the ruled. And as long as employment was plentiful, incomes were secure, production was continuous, living standards were dependable, and prices were stable, interventionist pressure was naturally less than it became when protracted slumps made industry a wreckage of unused tools and frustrated effort.
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.
The dangers to man and nature cannot be neatly separated. The reactions of the working class and the peasantry to market economy both led to protectionism, the former mainly in the form of social legislation and factory laws, the latter in agrarian tariffs and land laws. Yet there was this important difference: in an emergency, the farmers and peasants of Europe defended the market system, which working-class policies endangered. While the crisis of the inherently unstable system was brought on by both wings of the protectionist movement, the social strata connected with the land were inclined to compromise with the market system, while the broad class of labor did not shrink from breaking its rules and challenging it outright.
