Reading Block and Somers’ The Power of Market Fundamentalism (Part 4)

In chapter three, Block and Somers examined some of the contradictions that appear in The Great Transformation. Of particular importance was Polanyi’s tendency to write as if market autonomy was a real possibility as opposed to a utopian construct of both economic liberals and (some) Marxists. This tendency created enough of an appearance of belief in an autonomous market that market fundamentalists later used large selections of his text to support their positions. Yet Polanyi’s argument was fundamentally opposed to the idea of market autonomy, and his view that markets are always embedded in social institutions led him to focus on the case of Speenhamland and the system of poor laws.

Chapters four and five take up these two topics–free market utopianism and Speenhamland–in greater detail. At the center of both chapters is the idea of “social naturalism,” which assumes that society is governed by the same laws that govern natural phenomena. Elaborated first by Malthus, social naturalism explained human behavior as an outcome of biological instincts to eat and reproduce. According to Malthus, competition for scarce natural resources leads to a self-regulating system that tends toward equilibrium and order. Without the threat of starvation, the poor consume and reproduce at an unsustainable rate. Market fundamentalists such as Hayek and Friedman later evoked social naturalism as the source of the “perversity thesis,” which posits that “any public policy aiming to change market outcomes, such as prices, wages, or inequality, automatically becomes a noxious interference with nature’s equilibrating processes” (pp. 103-104). Policies such as unemployment benefits and the minimum wage are harmful because they create perverse incentives to remain jobless or raise unemployment. In short, conservative intellectuals have argued for two centuries that “an egalitarian social order would destroy any incentives for effort and creativity” (p. 98).

Because society is governed by natural laws rooted in animal reactions to scarcity, interference in competition for scarce resources is an unwarranted and undesirable exercise of power, particularly state power. The free market, by contrast, is the social manifestation of natural law and “the belated restoration of the natural” (p. 106). According to Block and Somers, three main assumptions underlie the free-market doctrine:

“that power resides exclusively in the state, that political power is a chronic threat to freedom and commerce, and that the economic sphere does not entail the exercise of power” (p. 101).

As earlier chapters have made clear, Polanyi argues that because the market is always embedded and that people subject to the negative effects of the market generate counter-movements that seek protection from the market, an autonomous market is impossible. More to the point, perhaps, Polanyi points out that the free-market economy is a consequence of state action; it is a planned project as opposed to a resurgence of nature. For Polanyi, “It is the dream of eliminating the need for political power or government that makes these assumptions utopian” (p. 101).

Rejecting the social naturalist argument about perverse incentives, Polanyi insists that it is actually the free-market fantasy that is harmful. Specifically, the inclusion of labor, land, and money in the market as fictitious commodities “threatens to annihilate the human relationships on which society rests” (p. 108). According to Polanyi, “The Industrial Revolution was a cultural catastrophe that stripped people of the social and cultural supports on which they relied” (p. 109). Communities’ noncontractual foundations are liquidated as people are subjected to the “free labor contract.” When land is turned into a source of profit-making, societies privilege industrial raw materials over food. And banking systems pursue expansions of credit and profit with increased risk of financial collapse when money and credit becomes the sole province of the banks.

Because free-market utopianism is so damaging when the fictitious commodities of labor, land, and money are treated as real commodities, institutions emerge to protect society. Chapter 5 looks more closely at the case of Speenhamland to show how Polanyi used this case to illustrate the idea of the double movement but also how Polanyi misinterpreted the events surrounding Speenhamland. In the process, they show how contemporary policy debates are carried out with the same misunderstandings. As Block and Somers’ put it, “our recent welfare legislation was passed in the shadow of Speenhamland” (p. 116).

So how did the 18th century Poor Law have such a long-lasting effect and what does it say about Polanyi’s central thesis that ideas matter for how markets are shaped? Polanyi argued that classical political economy was itself shaped by the effort to explain persistence poverty during this period. Reports on the effects of the Poor Law, particularly the Royal Commission Report of 1834, contended that poor relief created perverse incentives and led to “Exponential increases in childbirth and illegitimacy, declining wages and productivity, assaults on public morality and personal responsibility, and the development of a culture indolence” (p. 118). They drew on Malthus’ arguments to make the claim that hunger would tame these poor animals.

The leftist critique held that rather than create perverse incentives, the poor laws allowed employers to push down wages since the parishes would step in and supplement them. The Poor Law led to increased poverty because wages plummeted. Polanyi did not challenge the basic argument that the Poor Law was central to the increased poverty of the time. Rather, he argued that there was no working class that could mobilize in defense of its own interests. Anti-Combination Laws prohibited trade union activity and the payment system initiated in Speenhamland obscured the shared class position of rural workers. As a result, there was no possibility for a counter-movement to the unilateral wage reductions by employers who shifted their costs on the parish. Rather than target relief programs and make futile efforts to produce an autonomous market, the logic of Polanyi’s argument points to strengthening the institutions of the rural poor that can be used to generate protection from market pressures. Although this is an improvement on utopian arguments there are several shortcomings in Polanyi’s interpretation of Speenhamland.

At the time of the writing of The Great Transformation, other scholars recognized that there were problems with generalizing from the specific case of Speenhamland since there were important county differences in wage policy and welfare provision. According to Block and Somers, “parishes experimented with a broad array of different ways of distributing relief that would have quite varying consequences” (p. 127). Additionally, there were until recently no available testimonies from relief recipients to hold up against the accounts of local elites that denigrated the character of the poor according to social naturalist assumptions.

When restricting the discussion of Speenhamland as a policy to the use of the bread scale to determine assistance according to family size and wheat costs, it appears that, “the use of the bread scale was a very logical method to respond to the threat of famine without permanently altering wage rates or long-term relief patterns” (p. 135). Block and Somers identify three episodes where the bread scale was used to show that a confluence of several factors produced the hardship attributed to the Poor Law. In the first case (1795), bad harvests and war on the European continent combined to drive up food costs, and outlays fell as the price of wheat came down. in the second case (1802-1803) and third case (1813), wheat prices collapsed following the Napoleonic Wars, banks collapsed on a massive scale destroying wealth and credit, and farm employment declined as farms went out of business, scaled back, and/or mechanized some jobs. Yet, contrary to both the market fundamentalist and leftist accounts, productivity did not fall but rather increased during these periods.

Apart from these specific episodes, Block and Somers identify three trends that mad poor relief increasingly important. First, rural craft industries declined rapidly in the region as industrial production accelerated. Second, land consolidation and ongoing enclosure eliminated the possibility of supplementing falling incomes with small-scale agricultural production. Third, the demand for farm labor fell as a result of mechanization.

The problems of the rural economy were made permanent by the return to gold as the source of value for the pound in 1821 (on Ricardo’s advice) due to the deflationary impact of the decision. Parity and deflationary pressures prevented the government from enacting policies that might have revived the rural economy and restricted the availability of credit to farmers. However, the ongoing crisis was not seen as a failure of political economy, which was then in its infancy, but as Block and Somers show was largely seen through the lens of social naturalism and the hidden causal logic it presented. They write,

What the Royal Commissioners succeeded in doing was to mobilize and modify Malthus’s arguments to rescue political economy from its responsibility for the plight of the rural poor. By effectively blaming the victims for the macroeconomic policy mistakes that had intensified rural poverty, they turned a potential disaster into a policy triumph (p. 147).

The result was the New Poor Law as a response to an imagined problem of individual morality. It was an effort to return to the natural state of scarcity and enforce self-discipline on the poor. In chapter six, Block and Somers look at how this noxious mix of ideology and policy continues to shape policy.

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