The Great Transformation

THIS BOOK was written in America during the Second World War. But it was begun and finished in England, where the author was Lecturer for the Extramural Delegacy of the University of Oxford and the corresponding institutions of the University of London. Its main thesis was developed during the academic year 1939-40 in conjunction with his work in Tutorial Classes, organized by the Workers' Educational Association, at Morley College, London, at Canterbury and at Bexhill.

The story of this book is a story of generous friendships. Very much is due to the author's English friends, notably Irene Grant, with whose group he was associated. Common studies linked him to Felix Schafer of Vienna, an economist, at present in Wellington, New Zealand. In America John A. Kouwenhoven helped as a trusted friend with reading and editing; many of his suggestions have been incorporated in the text. Among other helpful friends were the author's Bennington colleagues, Horst Mendershausen and Peter F. Drucker. The latter and his wife were a source of sustained encouragement, notwithstanding their wholehearted disagreement with the author's conclusions; the former's general sympathy added to the usefulness of his advice. The author also owes thanks for a careful reading to Hans Zeisel of Rutgers University. The book was seen through the press entirely by Kouwenhoven, with the help of Drucker and Mendershausen, for which act of friendship the author feels deeply grateful.

To the Rockefeller Foundation he is indebted for a two-year Fellowship, 1941-43, which permitted him to complete the book at Bennington College, Vermont, following an invitation extended to him by Robert D. Leigh, then president of that college. Plans for the work were advanced by a series of public lectures and a seminar held during the academic year 1940-41. Research facilities were kindly granted by the Library of Congress in Washington, D. C., as well as by the Seligman Library of Columbia University, New York. To all of them his thanks are due.

K. P.

Shoreham, Sevenoaks, Kent.

HERE IS A BOOK that makes most books in its field seem obsolete or outworn. So rare an event is a portent of the times. Here, at a crucial hour, is a fresh comprehension of the form and the meaning of human affairs. Mr. Polanyi does not profess to be writing history - he is rewriting it. He is not bringing a candle light into one of its dark corners, nor is he plausibly making it the public scripture of his private faith; instead, with insight as well as with knowledge, he is shedding a new illumination on the processes and revolutions of a whole age of unexampled change.

Mr. Polanyi's immediate objective is to bring out, as he does with remarkable discernment, the social implications of a particular economic system, the market economy that grew to its full stature in the nineteenth century. The time has come when retrospective wisdom may assess it all, for, as Aristotle said, we can learn the nature of anything only when it has reached - and passed - its maturation. Events and processes, theories and actions, appear in a new perspective. Much that to the pedestrian writer of history seems merely episodic becomes invested with a deeper significance; much that seems merely bizarre is given a juster estimate. The reduction of man to labor and of nature to land under the impulsion of the market economy turns modern history into a high drama in which society, the chained protagonist, at last bursts its bonds.

Mr. Polanyi leaves far behind alike the dogmatics of Karl Marx and the apologetics of the reaction. He is concerned with the economic process in modern civilization but he offers no doctrine of economic determinism. He gives instead a penetrating analysis of a particular historical transformation in which the supersession of one economic system by another played the decisive role. This happened not because the economic relation is always primary but because in this instance, and in this instance alone, the "ideal system" of the new economics demanded a ruthless abnegation of the social status of the human being. Skillfully he adduces the colonial situation and the industrially invaded societies of primitive people in order to show, not what this "ideal system" meant for them but what it also imported for us. The "satanic mills" were heedless of all human needs but one; relentlessly they began to grind society itself into its atoms. Therefore men had to discover society. For Mr. Polanyi the last word is society. The major tragedy attendant on the Industrial Revolution was brought about not by the callousness and greed of profit-seeking capitalists - though there was inhumanity enough in the record - but by the social devastation of an uncontrolled system, the market economy. Men failed to realize what the cohesion of society meant. The inner temple of human life was despoiled and violated. The tremendous problem of the social control of a revolutionary change was unappreciated; optimistic philosophies obscured it, shortsighted philanthropies conspired with power interests to conceal it, and the wisdom of time was still unborn.

A book so stimulating and so deep-probing is bound to excite controversy and to be questioned at various points. Some may doubt whether the role of the market economy was so absolute, whether the logic of the system was in itself so rigorous and compelling. They may not be willing to go as far as the author when at one point he ways that "nations and peoples were mere puppets in a show utterly beyond their control." Some may wish that the different forms of "protection" against the self-regulating market were given different valuations and they may be a little uneasy that the tariff promoter and social legislator seem to appear as brothers-in-arms. And so forth. But they must all surely recognize the clear cogency of the total argument. We stand at a new vantage point, looking down, after the earthquake, on the ruined temples of our cherished gods. We see the weakness of the exposed foundations-perhaps we can learn how, and where, to rebuild the institutional fabric so that it may better withstand the shocks of change.

Of primary importance today is the lesson it carries for the makers of the coming international organization. For one thing it shows that such liberal formulas as "world peace through world trade" will not suffice. If we are content with such formulas we are the victims of a dangerous and deceptive simplification. Neither a national nor an international system can depend on the automatic regulants. Balanced budgets and free enterprise and world commerce and international clearinghouses and currencies maintained at par will not guarantee an international order. Society alone can guarantee it; international society must also be discovered. Here too the institutional fabric must maintain and control the economic scheme of things.

R. M. MACIVER

PART ONE

The International System

1

THE HUNDRED YEARS' PEACE

NINETEENTH CENTURY civilization has collapsed. This book is concerned with the political and economic origins of this event, as well as with the great transformation which it ushered in.

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. The gold standard was merely an attempt to extend the domestic market system to the international field; the balance-of-power system was a superstructure erected upon and, partly, worked through the gold standard; the liberal state was itself a creation of the self-regulating market. The key to the institutional system of the nineteenth century lay in the laws governing market economy.

Such an explanation of one of the deepest crises in man's history must appear all too simple. Nothing could seem more inept than the attempt to reduce a civilization, its substance and ethos, to a hard and fast number of institutions; to select one of them as fundamental and proceed to argue the inevitable self-destruction of civilization on account of some technical quality of its economic organization. Civilizations, like life itself, spring from the interaction of a great number of independent factors which are not, as a rule, reducible to circumscribed institutions. To trace the institutional mechanism of the downfall of a civilization may well appear as a hopeless endeavor.

Yet it is this we are undertaking. In doing so we are consciously adjusting our aim to the extreme singularity of the subject matter. For the civilization of the nineteenth century was unique precisely in that it centered on a definite institutional mechanism.

No explanation can satisfy which does not account for the suddenness of the cataclysm. As if the forces of change had been pent up for a century, a torrent of events is pouring down on mankind. A social transformation of planetary range is being topped by wars of an unprecedented type in which a score of states crashed, and the contours of new empires are emerging out of a sea of blood. But this fact of demoniac violence is merely superimposed on a swift, silent current of change which swallows up the past often without so much as a ripple on the surface! A reasoned analysis of the catastrophe must account both for the tempestuous action and the quiet dissolution.

Ours is not a historical work; what we are searching for is not a convincing sequence of outstanding events, but an explanation of their trend in terms of human institutions. We shall feel free to dwell on scenes of the past with the sole object of throwing light on matters of the present; we shall make detailed analyses of critical periods and almost completely disregard the connecting stretches of time; we shall encroach upon the field of several disciplines in the pursuit of this single aim.

First we shall deal with the collapse of the international system. We shall try to show that the balance-of-power system could not ensure peace once the world economy on which it rested had failed. This accounts for the abruptness with which the break occurred, the inconceivable rapidity of the dissolution.

But if the breakdown of our civilization was timed by the failure of world economy, it was certainly not caused by it. Its origins lay more than a hundred years back in that social and technological upheaval from which the idea of a self-regulating market sprang in Western Europe. The end of this venture has come in our time; it closes a distinct stage in the history of industrial civilization.

In the final part of the book we shall deal with the mechanism which governed social and national change in our time. Broadly, we believe that the present condition of man is to be defined in terms of the institutional origins of the crisis.

The nineteenth century produced a phenomenon unheard of in the annals of Western civilization, namely, a hundred years' peace - 1815-1914. Apart from the Crimean War - a more or less colonial event - England, France, Prussia, Austria, Italy, and Russia were engaged in war among each other for altogether only eighteen months. A computation of comparable figures for the two preceding centuries gives an average of sixty to seventy years of major wars in each. But even the fiercest of nineteenth century conflagrations, the Franco-Prussian War of 1870-71, ended after less than a year's duration with the defeated nation being able to pay over an unprecedented sum as an indemnity without any disturbance of the currencies concerned.

The entirely new factor, we submit, was the emergence of an acute peace interest. Traditionally, such an interest was regarded as outside the scope of the state system. Peace with its corollaries of crafts and arts ranked among the mere adornments of life. The Church might pray for peace as for a bountiful harvest, but in the realm of state action it would nevertheless advocate armed intervention; governments subordinated peace to security and sovereignty, that is, to intents that could not be achieved otherwise than by recourse to the ultimate means. Few things were regarded as more detrimental to a community than the existence of an organized peace interest in its midst. As late as the second half of the eighteenth century, J. J. Rousseau arraigned trades people for their lack of patriotism because they were suspected of preferring peace to liberty.

After 1815 the change is sudden and complete. The backwash of the French Revolution reinforced the rising tide of the Industrial Revolution in establishing peaceful business as a universal interest. Metternich proclaimed that what the people of Europe wanted was not liberty but peace. Gentz called patriots the new barbarians. Church and throne started out on the denationalization of Europe. Their arguments found support both in the ferocity of the recent popular forms of warfare and in the tremendously enhanced value of peace under the nascent economies.

Interests, however, like intents, necessarily remain platonic unless they are translated into politics by the means of some social instrumentality. Superficially, such a vehicle of realization was lacking; both the Holy Alliance and the Concert of Europe were, ultimately, mere groupings of independent sovereign states, and thus subject to the balance of power and its mechanism of war. How then was peace maintained?

True, any balance-of-power system will tend to prevent such wars as spring from one nation's failure to foresee the realignment of powers which will result from its attempt to alter the status quo. Famous instances were Bismarck's calling off of the press campaign against France, in 1875, on Russian and British intervention (Austria's aid to France was taken for granted). This time the Concert of Europe worked against Germany who found herself isolated. In 1877-78 Germany was unable to prevent a Russo-Turkish War, but succeeded in localizing it by backing up England's jealousy of a Russian move towards the Dardanelles; Germany and England supported Turkey against Russia - thus saving the peace. At the Congress of Berlin a long-term plan for the liquidation of the European possessions of the Ottoman Empire was launched; this resulted in averting wars between the Great Powers in spite of all subsequent changes in the status quo, as the parties concerned could be practically certain in advance of the forces they would have to meet in battle. Peace in these instances was a welcome by-product of the balance-of-power system.

Also, wars were sometimes avoided by deliberately removing their causes, if the fate of small powers only was involved. Small nations were checked and prevented from disturbing the status quo in any way which might precipitate war. The Dutch invasion of Belgium in 1831 eventually led to the neutralization of that country. In 1855 Norway was neutralized. In 1867 Luxembourg was sold by Holland to France; Germany protested and Luxembourg was neutralized. In 1856 the integrity of the Ottoman Empire was declared essential to the equilibrium of Europe, and the Concert of Europe endeavored to maintain that empire; after 1878, when its disintegration was deemed essential to that equilibrium, its dismemberment was provided for in a similarly orderly manner, though in both cases the decision meant life and death to several small peoples. Between 1852 and 1863 Denmark, between 1851 and 1856 the Germanies threatened to disturb the balance; each time the small states were forced by the Great Powers to conform. In these instances, the liberty of action offered to them by the system was used by the Powers to achieve a joint interest - which happened to be peace.

But it is a far cry from the occasional averting of wars either by a timely clarification of the power situation or by the coercing of small states to the massive fact of the Hundred Years' Peace. International disequilibrium may occur for innumerable reasons - from a dynastic love affair to the silting of an estuary, from a theological controversy to a technological invention. The mere growth of wealth and population, or, eventually, their decrease, is bound to set political forces in motion; and the external balance will invariably reflect the internal. Even an organized balance-of-power system can ensure peace without the permanent threat of war only if it is able to act upon these internal factors directly and prevent imbalance in statu nascendi. Once the imbalance has gathered momentum only force can set it right. It is a commonplace that to insure peace one must eliminate the causes of war; but it is not generally realized that to do so the flow of life must be controlled at its source.

The Holy Alliance contrived to achieve this with the help of instruments peculiar to it. The kings and aristocracies of Europe formed an international of kinship; and the Roman Church provided them with a voluntary civil service ranging from the highest to the lowest rung of the social ladder in Southern and Central Europe. The hierarchies of blood and grace were fused into an instrument of locally effective rule which needed only to be supplemented by force to ensure continental peace.

But the Concert of Europe, which succeeded it, lacked the feudal as well as the clerical tentacles; it amounted at the best to a loose federation not comparable in coherence to Metternich's masterpiece. Only on rare occasions could a meeting of the Powers be called, and their jealousies allowed a wide latitude to intrigue, crosscurrents, and diplomatic sabotage; joint military action became rare. And yet what the Holy Alliance, with its complete unity of thought and purpose, could achieve in Europe only with the help of frequent armed interventions was here accomplished on a world scale by the shadowy entity called the Concert of Europe with the help of a very much less frequent and oppressive use of force. For an explanation of this amazing feat, we must seek for some undisclosed powerful social instrumentality at work in the new setting, which could play the role of dynasties and episcopacies under the old and make the peace interest effective. This anonymous factor was haute finance.

Organizationally, haute finance was the nucleus of one of the most complex institutions the history of man has produced. Transitory though it was, it compared in catholicity, in the profusion of forms and instruments, only with the whole of human pursuits in industry and trade of which it became in some sort the mirror and counterpart. Besides the international center, haute finance proper, there were some half dozen national centers hiving around their banks of issue and stock exchanges. Also, international banking was not restricted to the financing of governments, their adventures in war and peace; it comprised foreign investment in industry, public utilities, and banks, as well as long-term loans to public and private corporations abroad. National finance again was a microcosm. England alone counted half a hundred different types of banks; France's and Germany's banking organization, too, was specific; and in each of these countries the practices of the Treasury and its relations to private finance varied in the most striking, and, often, as to detail, most subtle way. The money market dealt with a multitude of commercial bills, overseas acceptances, pure financial bills, as well as call money and other stockbrokers' facilities. The pattern was checkered by an infinite variety of national groups and personalities, each with its peculiar type of prestige and standing, authority and loyalty, its assets of money and contact, of patronage and social aura.

Finance - this was one of its channels of influence - acted as a powerful moderator in the councils and policies of a number of smaller sovereign states. Loans, and the renewal of loans, hinged upon credit, and credit upon good behavior. Since, under constitutional government (unconstitutional ones were severely frowned upon), behavior is reflected in the budget and the external value of the currency cannot be detached from the appreciation of the budget, debtor governments were well advised to watch their exchanges carefully and to avoid policies which might reflect upon the soundness of the budgetary position. This useful maxim became a cogent rule of conduct once a country had adopted the gold standard, which limited permissible fluctuations to a minimum. Gold standard and constitutionalism were the instruments which made the voice of the City of London heard in many smaller countries which had adopted these symbols of adherence to the new international order. The Pax Britannica held its sway sometimes by the ominous poise of heavy ship's cannon, but more frequently it prevailed by the timely pull of a thread in the international monetary network.

Trade had become linked with peace. In the past the organization of trade had been military and warlike; it was an adjunct of the pirate, the rover, the armed caravan, the hunter and trapper, the sword-bearing merchant, the armed burgesses of the towns, the adventurers and explorers, the planters and conquistadores, the manhunters and slave traders, the colonial armies of the chartered companies. Now all this was forgotten. Trade was now dependent upon an international monetary system which could not function in a general war. It demanded peace, and the Great Powers were striving to maintain it. But the balance-of-power system, as we have seen, could not by itself ensure peace. This was done by international finance, the very existence of which embodied the principle of the new dependence of trade upon peace.

It must be clear by this time that the peace organization rested upon economic organization. Yet the two were of very different consistency. Only in the widest sense of the term was it possible to speak of a political peace organization of the world, for the Concert of Europe was essentially not a system of peace but merely of independent sovereignties protected by the mechanism of war. The contrary is true of the economic organization of the world. Unless we defer to the uncritical practice of restricting the term "organization" to centrally directed bodies acting through functionaries of their own, we must concede that nothing could be more definite than the universally accepted principles upon which this organization rested and nothing more concrete than its factual elements. Budgets and armaments, foreign trade and raw material supplies, national independence and sovereignty were now the functions of currency and credit. By the fourth quarter of the nineteenth century, world commodity prices were the central reality in the lives of millions of Continental peasants; the repercussions of the London money market were daily noted by businessmen all over the world; and governments discussed plans for the future in light of the situation on the world capital markets. Only a madman would have doubted that the international economic system was the axis of the material existence of the race. Because this system needed peace in order to function, the balance of power was made to serve it. Take this economic system away and the peace interest would disappear from politics. Apart from it, there was neither sufficient cause for such an interest, nor a possibility of safeguarding it, in so far as it existed. The success of the Concert of Europe sprang from the needs of the new international organization of economy, and would inevitably end with its dissolution.

CONSERVATIVE TWENTIES, REVOLUTIONARY THIRTIES

THE BREAKDOWN of the international gold standard was the invisible link between the disintegration of world economy since the turn of the century and the transformation of a whole civilization in the thirties. Unless the vital importance of this factor is realized, it is not possible to see rightly either the mechanism which railroaded Europe to its doom, or the circumstances which accounted for the astounding fact that the forms and contents of a civilization should rest on so precarious foundations.

The true nature of the international system under which we were living was not realized until it failed. Hardly anyone understood the political function of the international monetary system; the awful suddenness of the transformation thus took the world completely by surprise. And yet the gold standard was the only remaining pillar of the traditional world economy; when it broke, the effect was bound to be instantaneous. To liberal economists the gold standard was a purely economic institution; they refused even to consider it as a part of a social mechanism. Thus it happened that the democratic countries were the last to realize the true nature of the catastrophe and the slowest to counter its effects. Not even when the cataclysm was already upon them did their leaders see that behind the collapse of the international system there stood a long development within the most advanced countries which made that system anachronistic; in other words, the failure of market economy itself still escaped them.

Economically, the policy of Geneva was much more consistent in pressing for the restoration of world economy as a second line of defense for peace. For even a successfully re-established balance-of-power system would have worked for peace only if the international monetary system was restored. In the absence of stable exchanges and freedom of trade the governments of the various nations, as in the past, would regard peace as a minor interest, for which they would strive only as long as it did not interfere with any of their major interests. First among the statesmen of the time, Woodrow Wilson appears to have realized the interdependence of peace and trade, not only as a guarantee of trade, but also of peace. No wonder that the League persistently strove to reconstruct the international currency and credit organization as the only possible safeguard of peace among sovereign states, and that the world relied as never before on haute finance. J. P. Morgan had replaced N. M. Rothschild as the demiurge of a rejuvenated nineteenth century.

According to the standards of that century the first postwar decade appeared as a revolutionary era; in the light of our own recent experience it was precisely the contrary. The intent of that decade was deeply conservative and expressed the almost universal conviction that only the re-establishment of the pre-1914 system, "this time on solid foundations," could restore peace and prosperity. Indeed, it was out of the failure of this effort to return to the past that the transformation of the thirties sprang. Spectacular though the revolutions and counter-revolutions of the post-war decade were, they represented either mere mechanical reactions to military defeat or, at most, a re-enacting of the familiar liberal and constitutionalist drama of Western civilization on the Central and Eastern European scene; it was only in the thirties that entirely new elements entered the pattern of Western history.

The Central and Eastern European upheavals and counter-upheavals of 1917-20 in spite of their scenario were merely roundabout ways of recasting the regimes that had succumbed on the battlefields. When the counter-revolutionary smoke dissolved, the political systems in Budapest, Vienna, and Berlin were found to be not very far different from what they had been before the War. This was true, roughly, of Finland, the Baltic states, Poland, Austria, Hungary, Bulgaria, and even Italy and Germany, up to the middle of the twenties. In some countries a great advance was made in national freedom and land reform - achievements which had been common to Western Europe since 1789. Russia, in this respect, formed no exception. The tendency of the times was simply to establish (or re-establish) the system commonly associated with the ideals of the English, the American, and the French revolutions. Not only Hindenburg and Wilson, but also Lenin and Trotzky were, in this broad sense, in the line of Western tradition.

In the early thirties, change set in with abruptness. Its landmarks were the abandonment of the gold standard by Great Britain; the Five-Year Plans in Russia; the launching of the New Deal; the National Socialist Revolution in Germany; the collapse of the League in favor of autarchist empires. While at the end of the Great War nineteenth century ideals were paramount, and their influence dominated the following decade, by 1940 every vestige of the international system had disappeared and, apart from a few enclaves, the nations were living in an entirely new international setting.

The first shock occurred within the national spheres. Some currencies, such as the Russian, the German, the Austrian, the Hungarian, were wiped out within a year. Apart from the unprecedented rate of change in the value of currencies there was the circumstance that this change happened in a completely monetarized economy. A cellular process was introduced into human society, the effects of which were outside the range of experience. Internally and externally alike, dwindling currencies spelled disruption. Nations found themselves separated from their neighbors, as by a chasm, while at the same time the various strata of the population were affected in entirely different and often opposite ways. The intellectual middle class was literally pauperized; financial sharks heaped up revolting fortunes. A factor of incalculable integrating and disintegrating force had entered the scene.

"Flight of capital" was a novum. Neither in 1848, nor in 1866, nor even in 1871 was such an event recorded. And yet, its vital role in the overthrow of the liberal governments of France in 1925, and again in 1938, as well as in the development of a fascist movement in Germany in 1930, was patent.

Belief in the gold standard was the faith of the age. With some it was a naive, with some a critical, with others a satanistic creed implying acceptance in the flesh and rejection in the spirit. Yet the belief itself was the same, namely, that bank notes have value because they represent gold. Whether the gold itself has value for the reason that it embodies labor, as the socialists held, or for the reason that it is useful and scarce, as the orthodox doctrine ran, made for once no difference. The war between heaven and hell ignored the money issue, leaving capitalists and socialists miraculously united. Where Ricardo and Marx were at one, the nineteenth century knew not doubt. Bismarck and Lassalle, John Stuart Mill and Henry George, Philip Snowden and Calvin Coolidge, Mises and Trotzky equally accepted the faith. Karl Marx had gone to great pains to show up Proudhon's utopian labor notes (which were to replace currency) as based on self-delusion; and Das Kapital implied the commodity theory of money, in its Ricardian form. The Russian Bolshevik Sokolnikoff was the first postwar statesman to restore the value of his country's currency in terms of gold; the German Social Democrat Hilferding imperiled his party by his staunch advocacy of sound currency principles; the Austrian Social Democrat Otto Bauer supported the monetary principles underlying the restoration of the krone attempted by his bitter opponent Seipel; the English Socialist, Philip Snowden, turned against Labor when he believed the pound sterling not to be safe at their hands; and the Duce had the gold value of the lira at 90 carved in stone, and pledged himself to die in its defense. It would be hard to find any divergence between utterances of Hoover and Lenin, Churchill and Mussolini, on this point. Indeed, the essentiality of the gold standard to the functioning of the international economic system of the time was the one and only tenet common to men of all nations and all classes, religious denominations, and social philosophies. It was the invisible reality to which the will to live could cling, when mankind braced itself to the task of restoring its crumbling existence.

This trend was abruptly reversed with the final fall of the gold standard. The sacrifices that were made to restore it had now to be made once more in order that we might live without it. The same institutions which were designed to constrict life and trade in order to maintain a system of stable currencies were now used to adjust industrial life to the permanent absence of such a system. Perhaps that is why the mechanical and technological structure of modern industry survived the impact of the collapse of the gold standard. For in the struggle to retain it, the world had been unconsciously preparing for the kind of efforts and the type of organizations necessary to adapt itself to its loss. Yet the intent was now the opposite; in the countries that had suffered most during the long-drawn fight for the unattainable, titanic forces were released on the rebound. Neither the League of Nations nor international haute finance outlasted the gold standard; with its disappearance both the organized peace interest of the League and its chief instruments of enforcement - the Rothschilds and Morgans - vanished from politics. The snapping of the golden thread was the signal for a world revolution.

It was not by accident that the transformation was accompanied by wars on an unprecedented scale. History was geared to social change; the fate of nations was linked to their role in an institutional transformation. Such a symbiosis is no exception in history; though national groups and social institutions have origins of their own, they tend to hitch on to one another in their struggle for survival. A famous instance of such a symbiosis linked capitalism and the seaboard nations of the Atlantic. The Commercial Revolution, so closely connected with the rise of capitalism, became the vehicle to power for Portugal, Spain, Holland, France, England and the United States, each of them benefiting from the chances offered by that broad and deep-seated movement, while, on the other hand, capitalism itself was spreading over the planet through the instrumentality of these rising Powers.

The law applied also in the reverse. A nation may be handicapped in its struggle for survival by the fact that its institutions, or some of them, belong to a type that happens to be on the down grade - the gold standard in World War II was an instance of such an antiquated outfit. Countries, on the other hand, which, for reasons of their own, are opposed to the status quo, would be quick to discover the weaknesses of the existing institutional order and to anticipate the creation of institutions better adapted to their interests. Such groups are pushing that which is falling and holding on to that which, under its own steam, is moving their way. It may then seem as if they had originated the process of social change, while actually they were merely its beneficiaries, and may be even perverting the trend to make it serve their own aims.

Thus Germany, once defeated, was in the position to recognize the hidden shortcomings of the nineteenth century order, and to employ this knowledge to speed the destruction of that order. A kind of sinister intellectual superiority accrued to those of her statesmen in the thirties who turned their minds to this task of disruption, which often extended to the development of new methods of finance, trade, war, and social organization, in the course of their attempt to force matters into the trend of their policies. However, these problems themselves were emphatically not created by the governments which turned them to their advantage; they were real - objectively given - and will remain with us whatever be the fate of the individual countries. Again, the distinction between World Wars I and II is apparent: the former was still true to nineteenth century type - a simple conflict of powers, released by the lapse of the balance-of-power system; the latter already is part of the world upheaval.

This should allow us to detach the poignant national histories of the period from the social transformation that was in progress. It will then be easy to see in what manner Germany and Russia, Great Britain and the United States, as power units, were helped or hampered by their relation to the underlying social process. But the same is true of the social process itself: fascism and socialism found a vehicle in the rise of individual Powers which helped to spread their creed. Germany and Russia respectively became the representatives of fascism and socialism in the world at large. The true scope of these social movements can be gauged only if, for good or evil, their transcendant character is recognized and viewed as detached from the national interests enlisted in their service.

The roles which Germany or Russia, or for that matter, Italy or Japan, Great Britain or the United States, are playing in World War II, though forming part of universal history, are no direct concern of this book; fascism and socialism, however, were live forces in the institutional transformation which is its subject. The elan vital which produced the inscrutable urge in the German and Russian people to claim a greater share in the record of the race must be taken as factual data of the conditions under which our story unfolds, while the purport of Fascism and Socialism or New Deal is part of the story itself.

The assertion appears extreme, if not shocking in its crass materialism. But the peculiarity of the civilization the collapse of which we have witnessed was precisely that it rested on economic foundations. Other societies and other civilizations, too, were limited by the material conditions of their existence - this is a common trait of all human life, indeed, of all life, whether religious or nonreligious, materialist or spiritualist. All types of societies are limited by economic factors. Nineteenth century civilization alone was economic in a different and distinctive sense, for it chose to base itself on a motive only rarely acknowledged as valid in the history of human societies, and certainly never before raised to the level of a justification of action and behavior in everyday life, namely, gain. The self-regulating market system was uniquely derived from this principle.

The mechanism which the motive of gain set in motion was comparable in effectiveness only to the most violent outburst of religious fervor in history. Within a generation the whole human world was subjected to its undiluted influence. As everybody knows, it grew to maturity in England, in the wake of the Industrial Revolution, during the first half of the nineteenth century. It reached the Continent and America about fifty years later. Eventually in England, on the Continent, and even in America, similar alternatives shaped daily issues into a pattern the main traits of which were identical in all countries of Western civilization. For the origins of the cataclysm we must turn to the rise and fall of market economy.

Market society was born in England - yet it was on the Continent that its weaknesses engendered the most tragic complications. In order to comprehend German fascism, we must revert to Ricardian England. The nineteenth century, as cannot be overemphasized, was England's century. The Industrial Revolution was an English event. Market economy, free trade, and the gold standard were English inventions. These institutions broke down in the twenties everywhere - in Germany, Italy, or Austria the event was merely more political and more dramatic. But whatever the scenery and the temperature of the final episodes, the long-run factors which wrecked that civilization should be studied in the birthplace of the Industrial Revolution, England.

Rise and Fall of Market Economy

3

"HABITATION VERSUS IMPROVEMENT"

AT THE HEART of the Industrial Revolution of the eighteenth century there was an almost miraculous improvement in the tools of production, which was accompanied by a catastrophic dislocation of the lives of the common people.

We will attempt to disentangle the factors that determined the forms of this dislocation, as it appeared at its worst in England about a century ago. What "satanic mill" ground men into masses? How much was caused by the new physical conditions? How much by the economic dependencies, operating under the new conditions? And what was the mechanism through which the old social tissue was destroyed and a new integration of man and nature so unsuccessfully attempted?

Nowhere has liberal philosophy failed so conspicuously as in its understanding of the problem of change. 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. The elementary truths of political science and statecraft were first discredited, then forgotten. It should need no elaboration that a process of undirected change, the pace of which is deemed too fast, should be slowed down, if possible, so as to safeguard the welfare of the community. Such household truths of traditional statesmanship, often merely reflecting the teachings of a social philosophy inherited from the ancients, were in the nineteenth century erased from the thoughts of the educated by the corrosive of a crude utilitarianism combined with an uncritical reliance on the alleged self-healing virtues of unconscious growth.

Enclosures were an obvious improvement if no conversion to pasture took place. Enclosed land was worth double and treble the unenclosed. Where tillage was maintained, employment did not fall off, and the food supply markedly increased. The yield of the land manifestly increased, especially where the land was let.

But even conversion of arable land to sheep runs was not altogether detrimental to the neighborhood in spite of the destruction of habitations and the restriction of employment it involved. Cottage industry was spreading by the second half of the fifteenth century, and a century later it began to be a feature of the countryside. The wool produced on the sheep farm gave employment to the small tenants and landless cottagers forced out of tillage, and the new centers of the woolen industry secured an income to a number of craftsmen.

But - this is the point - only in a market economy can such compensating effects be taken for granted. In the absence of such an economy the highly profitable occupation of raising sheep and selling their wool might ruin the country. The sheep which "turned sand into gold" could well have turned the gold into sand as happened ultimately to the wealth of seventeenth century Spain whose eroded soil never recovered from the overexpansion of sheep farming.

An official document of 1607, prepared for the use of the Lords of the Realm, set out the problem of change in one powerful phrase: "The poor man shall be satisfied in his end: Habitation; and the gentleman not hindered in his desire: Improvement." This formula appears to take for granted the essence of purely economic progress, which is to achieve improvement at the price of social dislocation. But it also hints at the tragic necessity by which the poor man clings to his hovel, doomed by the rich man's desire for a public improvement which profits him privately.

A belief in spontaneous progress must make us blind to the role of government in economic life. This role consists often in altering the rate of change, speeding it up or slowing it down as the case may be; if we believe that rate to be unalterable - or even worse, if we deem it a sacrilege to interfere with it - then, of course, no room is left for intervention. Enclosures offer an example. In retrospect nothing could be clearer than the Western European trend of economic progress which aimed at eliminating an artificially maintained uniformity of agricultural technique, intermixed strips, and the primitive institution of the common. As to England, it is certain that the development of the woolen industry was an asset to the country, leading, as it did, to the establishment of the cotton industry - that vehicle of the Industrial Revolution. Furthermore, it is clear that the increase of domestic weaving depended upon the increase of a home supply of wool. These facts suffice to identify the change from arable land to pasture and the accompanying enclosure movement as the trend of economic progress. Yet, but for the consistently maintained policy of the Tudor and early Stuart statesmen, the rate of that progress might have been ruinous, and have turned the process itself into a degenerative instead of a constructive event. For upon this rate, mainly, depended whether the dispossessed could adjust themselves to changed conditions without fatally damaging their substance, human and economic, physical and moral; whether they would find new employment in the fields of opportunity indirectly connected with the change; and whether the effects of increased imports induced by increased exports would enable those who lost their employment through the change to find new sources of sustenance.

This time also the event was peculiar to England; this time also sea-borne trade was the source of a movement which affected the country as a whole; and this time again it was improvement on the grandest scale which wrought unprecedented havoc with the habitation of the common people. Before the process had advanced very far, the laboring people had been crowded together in new places of desolation, the so-called industrial towns of England; the country folk had been dehumanized into slum dwellers; the family was on the road to perdition; and large parts of the country were rapidly disappearing under the slack and scrap heaps vomited forth from the "satanic mills." Writers of all views and parties, conservatives and liberals, capitalists and socialists invariably referred to social conditions under the Industrial Revolution as a veritable abyss of human degradation.

No quite satisfactory explanation of the event has yet been put forward. Contemporaries imagined they had discovered the key to damnation in the iron regularities governing wealth and poverty, which they called the law of wages and the law of population; they have been disproved. Exploitation was put forth as another explanation both of wealth and of poverty; but this was unable to account for the fact that wages in the industrial slums were higher than those in any other areas and on the whole continued to rise for another century. More often a convolute of causes was adduced, which again was hardly satisfactory.

The story has been told innumerable times: how the expansion of markets, the presence of coal and iron as well as a humid climate favorable to the cotton industry, the multitude of people dispossessed by the new eighteenth century enclosures, the existence of free institutions, the invention of the machines, and other causes interacted in such a manner as to bring about the Industrial Revolution. It has been shown conclusively that no one single cause deserves to be lifted out of the chain and set apart as the cause of that sudden and unexpected event.

But how shall this Revolution itself be defined? What was its basic characteristic? Was it the rise of the factory towns, the emergence of slums, the long working hours of children, the low wages of certain categories of workers, the rise in the rate of population increase, or the concentration of industries? We submit that all these were merely incidental to one basic change, the establishment of market economy, and that the nature of this institution cannot be fully grasped unless the impact of the machine on a commercial society is realized. We do not intend to assert that the machine caused that which happened, but we insist that once elaborate machines and plant were used for production in a commercial society, the idea of a self-regulating market was bound to take shape.

Such a danger was, in fact, imminent. We shall perceive its true character if we examine the laws which govern the mechanism of a self-regulating market.

SOCIETIES AND ECONOMIC SYSTEMS

BEFORE WE CAN proceed to the discussion of the laws governing a market economy, such as the nineteenth century was trying to establish, we must first have a firm grip on the extraordinary assumptions underlying such a system.

Market economy implies a self-regulating system of markets; in slightly more technical terms, it is an economy directed by market prices and nothing but market prices. Such a system capable of organizing the whole of economic life without outside help or interference would certainly deserve to be called self-regulating. These rough indications should suffice to show the entirely unprecedented nature of such a venture in the history of the race.

Let us make our meaning more precise. No society could, naturally, live for any length of time unless it possessed an economy of some sort; but previously to our time no economy has ever existed that, even in principle, was controlled by markets. In spite of the chorus of academic incantations so persistent in the nineteenth century, gain and profit made on exchange never before played an important part in human economy. Though the institution of the market was fairly common since the later Stone Age, its role was no more than incidental to economic life.

We cannot continue today on these lines. The habit of looking at the last ten thousand years as well as at the array of early societies as a mere prelude to the true history of our civilization which started approximately with the publication of the Wealth of Nations in 1776, is, to say the least, out of date. It is this episode which has come to a close in our days, and in trying to gauge the alternatives of the future, we should subdue our natural proneness to follow the proclivities of our fathers. But the same bias which made Adam Smith's generation view primeval man as bent on barter and truck induced their successors to disavow all interest in early man, as he was now known not to have indulged in those laudable passions. The tradition of the classical economists, who attempted to base the law of the market on the alleged propensities of man in the state of nature, was replaced by an abandonment of all interest in the cultures of "uncivilized" man as irrelevant to an understanding of the problems of our age.

The outstanding discovery of recent historical and anthropological research is that man's economy, as a rule, is submerged in his social relationships. He does not act so as to safeguard his individual interest in the possession of material goods; he acts so as to safeguard his social standing, his social claims, his social assets. He values material goods only in so far as they serve this end. Neither the process of production nor that of distribution is linked to specific economic interests attached to the possession of goods; but every single step in that process is geared to a number of social interests which eventually ensure that the required step be taken. These interests will be very different in a small hunting or fishing community from those in a vast despotic society, but in either case the economic system will be run on noneconomic motives.

In this sketch of the general traits characteristic of a Western Melanesian community we took no account of its sexual and territorial organization, in reference to which custom, law, magic, and religion exert their influence, as we only intended to show the manner in which so-called economic motives spring from the context of social life. For it is on this one negative point that modern ethnographers agree: the absence of the motive of gain; the absence of the principle of laboring for remuneration; the absence of the principle of least effort; and, especially, the absence of any separate and distinct institution based on economic motives. But how, then, is order in production and distribution ensured?

The principle of redistribution is no less effective. A substantial part of all the produce of the island is delivered by the village headmen to the chief who keeps it in storage. But as all communal activity centers around the feasts, dances, and other occasions when the islanders entertain one another as well as their neighbors from other islands (at which the results of long distance trading are handed out, gifts are given and reciprocated according to the rules of etiquette, and the chief distributes the customary presents to all), the overwhelming importance of the storage system becomes apparent. Economically, it is an essential part of the existing system of division of labor, of foreign trading, of taxation for public purposes, of defense provisions. But these functions of an economic system proper are completely absorbed by the intensely vivid experiences which offer superabundant noneconomic motivation for every act performed in the frame of the social system as a whole.

However, principles of behavior such as these cannot become effective unless existing institutional patterns lend themselves to their application. Reciprocity and redistribution are able to ensure the working of an economic system without the help of written records and elaborate administration only because the organization of the societies in question meets the requirements of such a solution with the help of patterns such as symmetry and centricity.

The institutional pattern of centricity, again, which is present to some extent in all human groups, provides a track for the collection, storage, and redistribution of goods and services. The members of a hunting tribe usually deliver the game to the headman for redistribution. It is in the nature of hunting that the output of game is irregular, besides being the result of a collective input. Under conditions such as these no other method of sharing is practicable if the group is not to break up after every hunt. Yet in all economies of kind a similar need exists, be the group ever so numerous. And the larger the territory and the more varied the produce, the more will redistribution result in an effective division of labor, since it must help to link up geographically differentiated groups of producers.

Symmetry and centricity will meet halfway the needs of reciprocity and redistribution; institutional patterns and principles of behavior are mutually adjusted. As long as social organization runs in its ruts, no individual economic motives need come into play; no shirking of personal effort need be feared; division of labor will automatically be ensured; economic obligations will be duly discharged; and, above all, the material means for an exuberant display of abundance at all public festivals will be provided. In such a community the idea of profit is barred; higgling and haggling is decried; giving freely is acclaimed as a virtue; the supposed propensity to barter, truck, and exchange does not appear. The economic system is, in effect, a mere function of social organization.

The Trobriand Islands belong to an archipelago forming roughly a circle, and an important part of the population of this archipelago spends a considerable proportion of its time in activities of the Kula trade. We describe it as trade though no profit is involved, either in money or in kind; no goods are hoarded or even possessed permanently; the goods received are enjoyed by giving them away; no niggling and haggling, no truck, barter, or exchange enters; and the whole proceedings are entirely regulated by etiquette and magic. Still, it is trade, and large expeditions are undertaken periodically by natives of this approximately ring-shaped archipelago in order to carry one kind of valuable object to peoples living on distant islands situated clockwise, while other expeditions are arranged. carrying another kind of valuable object to the islands of the archipelago lying counterclockwise. In the long run, both sets of objects - white-shell armbands and red-shell necklaces of traditional make - will move round the archipelago, a traject which may take them up to ten years to complete. Moreover, there are, as a rule, individual partners in Kula who reciprocate one another's Kula gift with equally valuable armbands and necklaces, preferably such that have previously belonged to distinguished persons. Now, a systematic and organized give-and-take of valuable objects transported over long distances is justly described as trade. Yet this complex whole is exclusively run on the lines of reciprocity. An intricate time-space-person system covering hundreds of miles and several decades, linking many hundreds of people in respect to thousands of strictly individual objects, is being handled here without any records or administration, but also without any motive of gain or truck. Not the propensity to barter, but reciprocity in social behavior dominates. Nevertheless, the result is a stupendous organizational achievement in the economic field. Indeed, it would be interesting to consider whether even the most advanced modern market organization, based on exact accountancy, would be able to cope with such a task, should it care to undertake it. It is to be feared that the unfortunate dealers, faced with innumerable monopolists buying and selling individual objects with extravagant restrictions attached to each transaction, would fail to make a standard profit and might prefer to go out of business.

All large-scale economies in kind were run with the help of the principle of redistribution. The kingdom of Hammurabi in Babylonia and, in particular, the New Kingdom of Egypt were centralized despotisms of a bureaucratic type founded on such an economy. The household of the patriarchal family was reproduced here on an enormously enlarged scale, while its "communistic" distribution was graded, involving sharply differentiated rations. A vast number of storehouses was ready to receive the produce of the peasant's activity, whether be was cattle breeder, hunter, baker, brewer, potter, weaver, or whatever else. The produce was minutely registered and, in so far as it was not consumed locally, transferred from smaller to larger storehouses until it reached the central administration situated at the court of the Pharaoh. There were separate treasure houses for cloth, works of art, ornamental objects, cosmetics, silverware, the royal wardrobe; there were huge grain stores, arsenals, and wine cellars.

Under feudal conditions also this principle held. In the ethnically stratified societies of Africa it sometimes happens that the superior strata consist of herdsmen settled among agriculturalists who are still using the digging stick or the hoe. The gifts collected by the herdsmen are mainly agricultural - such as cereals and beer - while the gifts distributed by them may be animals, especially sheep or goats. In these cases there is division of labor, though usually an unequal one, between the various strata of society: distribution may often cover up a measure of exploitation, while at the same time the symbiosis benefits the standards of both strata owing to the advantages of an improved division of labor. Politically, such societies live under a regime of feudalism, whether cattle or land be the privileged value. There are "regular cattle fiefs in East Africa." Thurnwald, whom we follow closely on the subject of redistribution, could therefore say that feudalism implied everywhere a system of redistribution. Only under very advanced conditions and exceptional circumstances does this system become predominantly political as happened in Western Europe, where the change arose out of the vassal's need for protection, and gifts were converted into feudal tributes.

These instances show that redistribution also tends to enmesh the economic system proper in social relationships. We find, as a rule, the process of redistribution forming part of the prevailing political regime, whether it be that of tribe, city-state, despotism, or feudalism of cattle or land. The production and distribution of goods is organized in the main through collection, storage, and redistribution, the pattern being focused on the chief, the temple, the despot, or the lord. Since the relations of the leading group to the led are different according to the foundation on which political power rests, the principle of redistribution will involve individual motives as different as the voluntary sharing of the game by hunters and the dread of punishment which urges the fellaheen to deliver his taxes in kind.

The third principle, which was destined to play a big role in history and which we will call the principle of householding, consists in production for one's own use. The Greeks called it oeconomia, the etymon of the word "economy." As far as ethnographical records are concerned, we should not assume that production for a person's or group's own sake is more ancient than reciprocity or redistribution. On the contrary, orthodox tradition as well as some more recent theories on the subject have been emphatically disproved. The individualistic savage collecting food and hunting on his own or for his family has never existed. Indeed, the practice of catering for the needs of one's household becomes a feature of economic life only on a more advanced level of agriculture; however, even then it has nothing in common either with the motive of gain or with the institution of markets. Its pattern is the closed group. Whether the very different entities of the family or the settlement or the manor formed the self-sufficient unit, the principle was invariably the same, namely, that of producing and storing for the satisfaction of the wants of the members of the group. The principle is as broad in its application as either reciprocity or redistribution. The nature of the institutional nucleus is indifferent: it may be sex as with the patriarchal family, locality as with the village settlement, or political power as with the seigneurial manor. Nor does the internal organization of the group matter. It may be as despotic as the Roman familia or as democratic as the South Slav zadruga; as large as the great domains of the Carolingian magnates or as small as the average peasant holding of Western Europe. The need for trade or markets is no greater than in the case of reciprocity or redistribution.

The Greco-Roman period, in spite of its highly developed trade, represented no break in this respect; it was characterized by the grand scale on which redistribution of grain was practiced by the Roman administration in an otherwise householding economy, and it formed no exception to the rule that up to the end of the Middle Ages, markets played no important part in the economic system; other institutional patterns prevailed.

From the sixteenth century onwards markets were both numerous and important. Under the mercantile system they became, in effect, a main concern of government; yet there was still no sign of the coming control of markets over human society. On the contrary. Regulation and regimentation were stricter than ever; the very idea of a self-regulating market was absent. To comprehend the sudden changeover to an utterly new type of economy in the nineteenth century, we must now turn to the history of the market, an institution we were able practically to neglect in our review of the economic systems of the past.

EVOLUTION OF THE MARKET PATTERN

The market pattern, on the other hand, being related to a peculiar motive of its own, the motive of truck or barter, is capable of creating a specific institution, namely, the market. Ultimately, that is why the control of the economic system by the market is of overwhelming consequence to the whole organization of society: it means no less than the running of society as an adjunct to the market. Instead of economy being embedded in social relations, social relations are embedded in the economic system. The vital importance of the economic factor to the existence of society precludes any other result. For once the economic system is organized in separate institutions, based on specific motives and conferring a special status, society must be shaped in such a manner as to allow that system to function according to its own laws. This is the meaning of the familiar assertion that a market economy can function only in a market society.

The step which makes isolated markets into a market economy, regulated markets into a self-regulating market, is indeed crucial. The nineteenth century - whether hailing the fact as the apex of civilization or deploring it as a cancerous growth - naively imagined that such a development was the natural outcome of the spreading of markets. It was not realized that the gearing of markets into a self-regulating system of tremendous power was not the result of any inherent tendency of markets towards excrescence, but rather the effect of highly artificial stimulants administered to the body social in order to meet a situation which was created by the no less artificial phenomenon of the machine. The limited and unexpansive nature of the market pattern, as such, was not recognized; and yet it is this fact which emerges with convincing clarity from modern research.

The presence or absence of markets or money does not necessarily affect the economic system of a primitive society - this refutes the nineteenth century myth that money was an invention the appearance of which inevitably transformed a society by creating markets, forcing the pace of the division of labor, and releasing man's natural propensity to barter, truck, and exchange. Orthodox economic history, in effect, was based on an immensely exaggerated view of the significance of markets as such. A "certain isolation," or, perhaps, a "tendency to seclusion" is the only economic trait that can be correctly inferred from their absence; in respect to the internal organization of an economy, their presence or absence need make no difference.

The reasons are simple. Markets are not institutions functioning mainly within an economy, but without. They are meeting places of long-distance trade. Local markets proper are of little consequence. Moreover, neither long-distance nor local markets are essentially competitive, and consequently there is, in either case, but little pressure to create territorial trade, a so-called internal or national market. Every one of these assertions strikes at some axiomatically held assumption of the classical economists, yet they follow closely from the facts as they appear in the light of modern research.

The logic of the case is, indeed, almost the opposite of that underlying the classical doctrine. The orthodox teaching started from the individual's propensity to barter; deduced from it the necessity of local markets, as well as of division of labor; and inferred, finally, the necessity of trade, eventually of foreign trade, including even long-distance trade. In the light of our present knowledge we should almost reverse the sequence of the argument: the true starting point is long-distance trade, a result of the geographical location of goods, and of the "division of labor" given by location. Long-distance trade often engenders markets, an institution which involves acts of barter, and, if money is used, of buying and selling, thus, eventually, but by no means necessarily, offering to some individuals an occasion to indulge in their alleged propensity for bargaining and haggling.

Internal trade in Western Europe was actually created by the intervention of the state. Right up to the time of the Commercial Revolution what may appear to us as national trade was not national, but municipal. The Hanse were not German merchants; they were a corporation of trading oligarchs, hailing from a number of North Sea and Baltic towns. Far from "nationalizing" German economic life, the Hanse deliberately cut off the hinterland from trade. The trade of Antwerp or Hamburg, Venice or Lyons, was in no way Dutch or German, Italian or French. London was no exception: it was as little "English" as Luebeck was "German." The trade map of Europe in this period should rightly show only towns, and leave blank the countryside - it might as well have not existed as far as organized trade was concerned. So-called nations were merely political units, and very loose ones at that, consisting economically of innumerable smaller and bigger self-sufficing households and insignificant local markets in the villages. Trade was limited to organized townships which carried it on either locally as neighborhood trade or as long-distance trade - the two were strictly separated, and neither was allowed to infiltrate the countryside indiscriminately.

Such a permanent severance of local trade and long-distance trade within the organization of the town must come as another shock to the evolutionist, with whom things always seem so easily to grow into one another. And yet this peculiar fact forms the key to the social history of urban life in Western Europe. It strongly tends to support our assertion in respect to the origin of markets which we inferred from conditions in primitive economies. The sharp distinction drawn between local and long-distance trade might have seemed too rigid, especially as it led us to the somewhat surprising conclusion that neither long-distance trade nor local trade was the parent of the internal trade of modern times-thus apparently leaving no alternative but to turn for an explanation to the deus ex machina of state intervention. We will see presently that in this respect also recent investigations bear out our conclusions. But let us first give a bare outline of the history of urban civilization as it was shaped by the peculiar severance of local and long-distance trade within the confines of the medieval town.

In practice this meant that the towns raised every possible obstacle to the formation of that national or internal market for which the capitalist wholesaler was pressing. By maintaining the principle of a noncompetitive local trade and an equally noncompetitive long-distance trade carried on from town to town, the burgesses hampered by all means at their disposal the inclusion of the countryside into the compass of trade and the opening up of indiscriminate trade between the towns of the country. It was this development which forced the territorial state to the fore as the instrument of the "nationalization" of the market and the creator of internal commerce.

Deliberate action of the state in the fifteenth and sixteenth centuries foisted the mercantile system on the fiercely protectionist towns and principalities. Mercantilism destroyed the outworn particularism of local and intermunicipal trading by breaking down the barriers separating these two types of noncompetitive commerce and thus clearing the way for a national market which increasingly ignored the distinction between town and countryside as well as that between the various towns and provinces.

This concludes our synopsis of the history of the market up to the time of the Industrial Revolution. The next stage in mankind's history brought, as we know, an attempt to set up one big self-regulating market. There was nothing in mercantilism, this distinctive policy of the Western nation-state, to presage such a unique development. The "freeing" of trade performed by mercantilism merely liberated trade from particularism, but at the same time extended the scope of regulation. 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 SELF-REGULATING MARKET AND THE FICTITIOUS COMMODITIES: LABOR, LAND, AND MONEY

THIS CURSORY OUTLINE Of the economic system and markets, taken separately, shows that never before our own time were markets more than accessories of economic life. As a rule, the economic system was absorbed in the social system, and whatever principle of behavior predominated in the economy, the presence of the market pattern was found to be compatible with it. The principle of barter or exchange, which underlies this pattern, revealed no tendency to expand at the expense of the rest. Where markets were most highly developed, as under the mercantile system, they throve under the control of a centralized administration which fostered autarchy both in the households of the peasantry and in respect to national life. Regulation and markets, in effect, grew up together. The self-regulating market was unknown; indeed the emergence of the idea of self-regulation was a complete reversal of the trend of development. It is in the light of these facts that the extraordinary assumptions underlying a market economy can alone be fully comprehended.

A market economy is an economic system controlled, regulated, and directed by markets alone; order in the production and distribution of goods is entrusted to this self-regulating mechanism. An economy of this kind derives from the expectation that human beings behave in such a way as to achieve maximum money gains. It assumes markets in which the supply of goods (including services) available at a definite price will equal the demand at that price. It assumes the presence of money, which functions as purchasing power in the hands of its owners. Production will then be controlled by prices, for the profits of those who direct production will depend upon them; the distribution of the goods also will depend upon prices, for prices form incomes, and it is with the help of these incomes that the goods produced are distributed amongst the members of society. Under these assumptions order in the production and distribution of goods is ensured by prices alone.

Self-regulation implies that all production is for sale on the market and that all incomes derive from such sales. Accordingly, there are markets for all elements of industry, not only for goods (always including services) but also for labor, land, and money, their prices being called respectively commodity prices, wages, rent, and interest. The very terms indicate that prices form incomes: interest is the price for the use of money and forms the income of those who are in the position to provide it; rent is the price for the use of land and forms the income of those who supply it; wages are the price for the use of labor power, and form the income of those who sell it; commodity prices, finally, contribute to the incomes of those who sell their entrepreneurial services, the income called profit being actually the difference between two sets of prices, the price of the goods produced and their costs, i.e., the price of the goods necessary to produce them. If these conditions are fulfilled, all incomes will derive from sales on the market, and incomes will be just sufficient to buy all the goods produced.

The same was true of the organization of labor. Under the gild system, as under every other economic system in previous history, the motives and circumstances of productive activities were embedded in the general organization of society. The relations of master, journeyman, and apprentice; the terms of the craft; the number of apprentices; the wages of the workers were all regulated by the custom and rule of the gild and the town. What the mercantile system did was merely to unify these conditions either through statute as in England, or through the "nationalization" of the gilds as in France. As to land, its feudal status was abolished only in so far as it was linked with provincial privileges; for the rest, land remained extra commercium, in England as in France. Up to the time of the Great Revolution of 1789, landed estate remained the source of social privilege in France, and even after that time in England Common Law on land was essentially medieval. Mercantilism, with all its tendency towards commercialization, never attacked the safeguards which protected these two basic elements of production - labor and land - from becoming the objects of commerce. In England the "nationalization" of labor legislation through the Statute of Artificers (1563) and the Poor Law (1601), removed labor from the danger zone, and the anti-enclosure policy of the Tudors and early Stuarts was one consistent protest against the principle of the gainful use of landed property.

A self-regulating market demands nothing less than the institutional separation of society into an economic and political sphere. Such a dichotomy is, in effect, merely the restatement, from the point of view of society as a whole, of the existence of a self-regulating market. It might be argued that the separateness of the two spheres obtains in every type of society at all times. Such an inference, however, would be based on a fallacy. 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, in which it is contained. Neither under tribal, nor feudal, nor mercantile conditions was there, as we have shown, a separate economic system in society. Nineteenth century society, in which economic activity was isolated and imputed to a distinctive economic motive, was, indeed, a singular departure.

Such an institutional pattern could not function unless society was somehow subordinated to its requirements. A market economy can exist only in a market society. We reached this conclusion on general grounds in our analysis of the market pattern. We can now specify the reasons for this assertion. A market economy must comprise all elements of industry, including labor, land, and money. (In a market economy the last also is an essential element of industrial life and its inclusion in the market mechanism has, as we will see, far-reaching institutional consequences.) But labor and land are no other than the human beings themselves of which every society consists and the natural surroundings in which it exists. To include them in the market mechanism means to subordinate the substance of society itself to the laws of the market.

Now, in regard to labor, land, and money such a postulate cannot be upheld. To allow the market mechanism to be sole director of the fate of human beings and their natural environment, indeed, even of the amount and use of purchasing power, would result in the demolition of society. For the alleged commodity "labor power" cannot be shoved about, used indiscriminately, or even left unused, without affecting also the human individual who happens to be the bearer of this peculiar commodity. In disposing of a man's labor power the system would, incidentally, dispose of the physical, psychological, and moral entity "man" attached to that tag. Robbed of the protective covering of cultural institutions, human beings would perish from the effects of social exposure; they would die as the victims of acute social dislocation through vice, perversion, crime, and starvation. Nature would be reduced to its elements, neighborhoods and landscapes defiled, rivers polluted, military safety jeopardized, the power to produce food and raw materials destroyed. Finally, the market administration of purchasing power would periodically liquidate business enterprise, for shortages and surfeits of money would prove as disastrous to business as floods and droughts in primitive society. Undoubtedly, labor, land, and money markets are essential to a market economy. But no society could stand the effects of such a system of crude fictions even for the shortest stretch of time unless its human and natural substance as well as its business organization was protected against the ravages of this satanic mill.

But the more complicated industrial production became, the more numerous were the elements of industry the supply of which had to be safeguarded. Three of these, of course, were of outstanding importance: labor, land, and money. In a commercial society their supply could be organized in one way only: by being made available for purchase. Hence, they would have to be organized for sale on the market - in other words, as commodities. The extension of the market mechanism to the elements of industry - labor, land, and money - was the inevitable consequence of the introduction of the factory system in a commercial society. The elements of industry had to be on sale.

This was synonymous with the demand for a market system. We know that profits are ensured under such a system only if self-regulation is safeguarded through interdependent competitive markets. As the development of the factory system had been organized as part of a process of buying and selling, therefore labor, land, and money had to be transformed into commodities in order to keep production going. They could, of course, not be really transformed into commodities, as actually they were not produced for sale on the market. But the fiction of their being so produced became the organizing principle of society. Of the three, one stands out: labor is the technical term used for human beings, in so far as they are not employers but employed; it follows that henceforth the organization of labor would change concurrently with the organization of the 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. All along the line, human society had become an accessory of the economic system.

We recall our parallel between the ravages of the enclosures in English history and the social catastrophe which followed the Industrial Revolution. Improvements, we said, are, as a rule, bought at the price of social dislocation. If the rate of dislocation is too great, the community must succumb in the process. The Tudors and early Stuarts saved England from the fate of Spain by regulating the course of change so that it became bearable and its effects could be canalized into less destructive avenues. But nothing saved the common people of England from the impact of the Industrial Revolution. A blind faith in spontaneous progress had taken hold of people's minds, and with the fanaticism of sectarians the most enlightened pressed forward for boundless and unregulated change in society. The effects on the lives of the people were awful beyond description. Indeed, human society would have been annihilated but for protective countermoves which blunted the action of this self-destructive mechanism.

Social history in the nineteenth century was thus the result of a double movement: the extension of the market organization in respect to genuine commodities was accompanied by its restriction in respect to fictitious ones. While on the one hand markets spread all over the face of the globe and the amount of goods involved grew to unbelievable proportions, on the other hand a network of measures and policies was integrated into powerful institutions designed to check the action of the market relative to labor, land, and money. While the organization of world commodity markets, world capital markets, and world currency markets under the aegis of the gold standard gave an unparalleled momentum to the mechanism of markets, a deep-seated movement sprang into being to resist the pernicious effects of a market-controlled economy. Society protected itself against the perils inherent in a self-regulating market system-this was the one comprehensive feature in the history of the age.

SPEENHAMLAND, 1795

EIGHTEENTH CENTURY society unconsciously resisted any attempt at making it a mere appendage of the market. No market economy was conceivable that did not include a market for labor; but to establish such a market, especially in England's rural civilization, implied no less than the wholesale destruction of the traditional fabric of society. During the most active period of the Industrial Revolution, from 1795 to 1834, the creating of a labor market in England was prevented through the Speenhamland Law.

The market for labor was, in effect, the last of the markets to be organized under the new industrial system, and this final step was taken only when market economy was set to start, and when the absence of a market for labor was proving 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.

Yet it was only now that the crucial problem appeared. The economic advantages of a free labor market could not make up for the social destruction wrought by it. Regulation of a new type had to be introduced under which labor was again protected, only this time from the working of the market mechanism itself. Though the new protective institutions, such as trade unions and factory laws, were adapted, as far as possible, to the requirements of the economic mechanism, they nevertheless interfered with its self-regulation and, ultimately, destroyed the system.

In the broad logic of this development the Speenhamland Law occupied a strategic position.

The paradox was merely apparent. Allegedly, Speenhamland meant that the Poor Law was to be administered liberally - actually, it was turned into the opposite of its original intent. Under Elizabethan Law the poor were forced to work at whatever wages they could get and only those who could obtain no work were entitled to relief; relief in aid of wages was neither intended nor given. Under the Speenhamland Law a man was relieved even if he was in employment, as long as his wages amounted to less than the family income granted to him by the scale. Hence, no laborer had any material interest in satisfying his employer, his income being the same whatever wages he earned; this was different only in case standard wages, i.e., the wages actually paid, exceeded the scale, an occurrence which was not the rule in the countryside since the employer could obtain labor at almost any wages; however little he paid, the subsidy from the rates brought the workers' income up to scale. Within a few years the productivity of labor began to sink to that of pauper labor, thus providing an added reason for employers not to raise wages above the scale. For, once the intensity of labor, the care and efficiency with which it was performed, dropped below a definite level, it became indistinguishable from "boondoggling" or the semblance of work maintained for the sake of appearances. Though in principle work was still enforced, in practice outdoor relief became general and even when relief was administered in the poorhouse the enforced occupation of the inmates now hardly deserved the name of work. This amounted to the abandonment of Tudor legislation not for the sake of less but of more paternalism. The extension of outdoor relief, the introduction of aid-in-wages supplemented by separate allowances for wife and children, each item rising and falling with the bread price, meant a dramatic re-entry in regard to labor of that same regulative principle that was being rapidly eliminated in regard to industrial life as a whole.

In the long run the result was ghastly. Although it took some time till the self-respect of the common man sank to the low point where he preferred poor relief to wages, his wages which were subsidized from public funds were bound eventually to be bottomless, and to force him upon the rates. Little by little the people of the countryside were pauperized; the adage, "once on the rates, always on the rates" was a true saying. But for the protracted effects of the allowance system, it would be impossible to explain the human and social degradation of early capitalism.

The Speenhamland episode revealed to the people of the leading country of the century the true nature of the social adventure on which they were embarking. Neither the rulers nor the ruled ever forgot the lessons of that fool's paradise; if the Reform Bill of 1832 and the Poor Law Amendment of 1834 were commonly regarded as the starting point of modern capitalism, it was because they put an end to the rule of the benevolent landlord and his allowance system. The attempt to create a capitalistic order without a labor market had failed disastrously. The laws governing such an order had asserted themselves, and manifested their radical antagonism to the principle of paternalism. The rigor of these laws had become apparent and their violation had been cruelly visited upon those who had disobeyed them.

This is not the place to expatiate upon the economics of Speenhamland; there will be occasion for that later on. On the face of it the "right to live" should have stopped wage labor altogether. Standard wages should have gradually dropped to zero, thus putting the actual wage bill wholly on the parish, a procedure which would have made the absurdity of the arrangement manifest. But this was an essentially precapitalistic age, when the common people were still traditionally minded, and far from being directed in their behavior by monetary motives alone. The great majority of the countryfolk were occupier-owners or lifeholders, who preferred any kind of existence to the status of pauper, even if it was not deliberately burdened by irksome or ignominious disabilities, as subsequently happened. If laborers had been free to combine for the furtherance of their interests, the allowance system might, of course, have had a contrary effect on standard wages: for trade union action would have been greatly helped by the relief of the unemployed implied in so liberal an administration of the Poor Law. That was presumably one of the reasons for the unjust Anti-Combination Laws of 1799-1800, which would be otherwise hardly explicable since the Berkshire magistrates and members of Parliament were both, on the whole, concerned about the economic condition of the poor, and after 1797 political unrest had subsided. Indeed, it might be argued that the paternalistic intervention of Speenhamland called forth the Anti-Combination Laws, a further intervention, but for which Speenhamland might have had the effect of raising wages instead of depressing them as it actually did. In conjunction with the Anti-Combination Laws, which were not revoked for another quarter century, Speenhamland led to the ironical result that the financially implemented "right to live" eventually ruined the people whom it was ostensibly designed to succor.

The pitfalls of the market system were not readily apparent. To realize this clearly we must distinguish between the various vicissitudes to which the laboring people were exposed in England since the coming of the machine: first, those of the Speenhamland period, 1795 to 1834; second, the hardships caused by the Poor Law Reform, in the decade following 1834; third, the deleterious effects of a competitive labor market after 1834, until in the 1870's the recognition of the trade unions offered sufficient protection. Chronologically, Speenhamland antedated market economy; the decade of the Poor Law Reform Act was a transition to that economy. The last period - overlapping the former - was that of market economy proper.

The three periods differed sharply. Speenhamland was designed to prevent the proletarianization of the common people, or at least to slow it down. The outcome was merely the pauperization of the masses, who almost lost their human shape in the process.

The problems of the third period went incomparably deeper. The bureaucratic atrocities committed against the poor during the decade following 1834 by the new centralized Poor Law authorities were merely sporadic and as nothing compared to the all-round effects of that most potent of all modern institutions, the labor market. It was similar in scope to the threat Speenhamland offered, with the significant difference that not the absence but the presence of a competitive labor market was now the source of danger. If Speenhamland had prevented the emergence of a working class, now the laboring poor were being formed into such a class by the pressure of an unfeeling mechanism. If under Speenhamland the people had been taken care of as none too precious beasts deserved to be, now they were expected to take care of themselves, with all the odds against them. If Speenhamland meant the snug misery of degradation, now the laboring man was homeless in society. If Speenhamland had overworked the values of neighborhood, family, and rural surroundings, now man was detached from home and kin, torn from his roots and all meaningful environment. In short, if Speenhandand meant the rot of immobility, now the peril was that of death through exposure.

Not until 1834 was a competitive labor market established in England; hence, industrial capitalism as a social system cannot be said to have existed before that date. Yet almost immediately the self-protection of society set in: factory laws and social legislation, and a political and industrial working class movement sprang into being. It was in this attempt to stave off the entirely new dangers of the market mechanism that protective action conflicted fatally with the self-regulation of the system. It is no exaggeration to say that the social history of the nineteenth century was determined by the logic of the market system proper after it was released by the Poor Law Reform Act of 1834. The starting point of this dynamic was the Speenhamland Law.

The form in which the nascent reality came to our consciousness was political economy. Its amazing regularities and stunning contradictions had to be fitted into the scheme of philosophy and theology in order to be assimilated to human meanings. The stubborn facts and the inexorable brute laws that appeared to abolish our freedom had in one way or another to be reconciled to freedom. This was the mainspring of the metaphysical forces that secretly sustained the positivists and utilitarians. Unbounded hope and limitless despair looking towards unexplored regions of human possibilities were the mind's ambivalent response to these awful limitations. Hope - the vision of perfectibility - was distilled out of the nightmare of population and wage laws, and was embodied in a concept of progress so inspiring that it appeared to justify the vast and painful dislocations to come. Despair was to prove an even more powerful agent of transformation.

Man was forced to resign himself to secular perdition: he was doomed either to stop the procreation of his race or to condemn himself wittingly to liquidation through war and pestilence, hunger and vice. Poverty was nature surviving in society; that the limitedness of food and the unlimitedness of men had come to an issue just when the promise of a boundless increase of wealth burst in upon us made the irony only the more bitter.

Pauperism, political economy, and the discovery of society were closely interwoven. Pauperism fixed attention on the incomprehensible fact that poverty seemed to go with plenty. Yet this was only the first of the baffling paradoxes with which industrial society was to confront modern man. He had entered his new abode through the door of economics, and this adventitious circumstance invested the age with its materialist aura. To Ricardo and Malthus nothing seemed more real than material goods. The laws of the market meant for them the limit of human possibilities. Godwin believed in unlimited possibilities and hence had to deny the laws of the market. That human possibilities were limited, not by the laws of the market, but by those of society itself was a recognition reserved to Owen who alone discerned behind the veil of market economy the emergent reality: society. However, his vision was lost again for a century.

Meanwhile, it was in relation to the problem of poverty that people began to explore the meaning of life in a complex society. The induction of political economy into the realm of the universal happened in two opposite perspectives, that of progress and perfectibility on the one hand, determinism and damnation on the other; its translation into practice was also achieved in two opposite ways, through the principle of harmony and self-regulation on the one hand, competition and conflict on the other. Economic liberalism and the class concept were preformed in these contradictions. With the finality of an elemental event, a new set of ideas entered our consciousness.

ANTECEDENTS AND CONSEQUENCES

THE SPEENHAMLAND SYSTEM was originally no more than a makeshift. Yet few institutions have shaped the fate of a whole civilization more decisively than this, which had to be discarded before the new era could begin. It was the typical product of an age of transformation and deserves the attention of any student of human affairs today.

Under the mercantile system the labor organization of England rested on the Poor Law and the Statute of Artificers. Poor Law, as applied to the laws of 1536 to 1601, is admittedly a misnomer; actually these laws, and subsequent amendments, formed half of the labor code of England; the other half consisted of the Statute of Artificers of 1563. The latter dealt with the employed; the Poor Law, with what we would call the unemployed and unemployable (apart from the aged and children). To these measures were added later, as we saw, the Act of Settlement of 1662 concerning the legal abode of the people which restricted their mobility to the utmost. (The neat distinction between employed, unemployed, and unemployable is, of course, anachronistic since it implies the existence of a modern wage system which was absent for another 250 years or so; we use these terms for the sake of simplicity in this very broad presentation.)

The Statute of Artificers was thus supplemented by the Poor Laws, a most confusing term in modern ears, to which "poor" and "pauper" sound much alike. Actually, the gentlemen of England judged all persons poor who did not command an income sufficient to keep them in leisure. "Poor" was thus practically synonymous with "common people," and the common people comprised all but the landed classes (hardly any successful merchant failed to acquire landed property). Hence the term "poor" meant all people who were in need and all the people, if and when they were in need. This, of course, included paupers, but not them alone. The aged, the infirm, the orphans had to be taken care of in a society which claimed that within its confines there was a place for every Christian. But over and above, there were the able-bodied poor, whom we would call the unemployed, on the assumption that they could earn their living by manual work if only they could find employment. Beggary was severely punished; vagrancy, in case of repetition, was a capital offense. The Poor Law of 1601 decreed that the able-bodied poor should be put to work so as to earn their keep, which the parish was to supply; the burden of relief was put squarely on the parish, which was empowered to raise the necessary sums by local taxes or rates. These were to be levied upon all householders and tenants, rich and nonrich alike, according to the rental of the land or houses they occupied.

Yet under a national system of labor, the local organization of unemployment and poor relief was a patent anomaly. The greater the variety of local provisions for the poor, the greater the danger to the well-kept parish that it would be swamped by the professional pauper. After the Restoration the Act of Settlement and Removal was passed to protect the "better" parishes from the influx of paupers. More than a century later, Adam Smith inveighed against this Act because it immobilized the people, and thus prevented them from finding useful employment as it prevented the capitalist from finding employees. Only with the good will of the local magistrate and the parish authorities could a man stay in any other but his home parish; everywhere else he was liable to expulsion even though in good standing and employed. The legal status of the people was therefore that of freedom and equality subject to incisive limitations. They were equal before the law, and free as to their persons. But they were not free to choose their occupations or those of their children; they were not free to settle where they pleased; and they were forced to labor. The two great Elizabethan Statutes and the Act of Settlement together were a charter of liberty to the common people as well as a seal of their disabilities.

But the generation of Speenhamland was unconscious of what was on its way. 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. For some time England had been actually expecting a permanent recession of foreign trade when the dam burst, and the old world was swept away in one indomitable surge towards a planetary economy.

However, not until the 1850's could anybody have said so with assurance. The key to the comprehension of the Speenhamland magistrates' recommendation lay in their ignorance of the wider implications of the development they were facing. In the retrospect it may seem as if they had not only attempted the impossible, but had done so by means the inner contradictions of which should have been apparent at the time. Actually, they were successful in achieving their aim of protecting the village against dislocation, while the effects of their policy were all the more disastrous in other, unforeseen directions. Speenhamland policy was the outcome of a definite phase in the development of a market for labor power and should be understood in the light of the views taken of that situation by those in the position to shape policy. From this angle the allowance system will appear as a device contrived by squirearchy to meet a situation in which physical mobility could no longer be denied to labor, while the squire wished to avoid such unsettlement of local conditions, including higher wages, as was involved in the acceptance of a free national labor market.

The true answer almost certainly was that the aggravation of pauperism and the higher rates were due to an increase in what we would today call invisible unemployment. Such a fact would not be obvious at a time when even employment was, as a rule, invisible, as it necessarily was up to a point under cottage industry. Still there remain these questions: how to account for this increase in the number of the unemployed and underemployed? and why did the signs of imminent changes in industry escape the notice even of observant contemporaries?

The explanation lies primarily in the excessive fluctuations of trade in early times which tended to cover up the absolute increase in trade. While the latter accounted for the rise in employment, the fluctuations accounted for the much bigger rise in unemployment. But while the increase in the general level of employment was slow, the increase in unemployment and underemployment would tend to be fast. Thus the building up of what Friedrich Engels called the industrial reserve army outweighed by much the creation of the industrial army proper.

This had the important consequence that the connection between unemployment and the rise of total trade could be easily overlooked. While it was often remarked that the rise in unemployment was due to the great fluctuations in trade, it escaped notice that these fluctuations formed part of an underlying process of even greater amplitude, namely, a general growth of commerce increasingly based on manufactures. For the contemporaries, there seemed to be no connection between the mainly urban manufactories and the great increase of the poor in the countryside.

Much of the social damage done to England's countryside sprang at first from the dislocating effects of trade directly upon the countryside itself. The Revolution in Agriculture definitely antedated the Industrial Revolution. Both enclosures of the common and consolidations into compact holdings, which accompanied the new great advance in agricultural methods, had a powerfully unsettling effect. The war on cottages, the absorption of cottage gardens and grounds, the confiscation of rights in the common deprived cottage industry of its two mainstays: family earnings and agricultural background. As long as domestic industry was supplemented by the facilities and amenities of a garden plot, a scrap of land, or grazing rights, the dependence of the laborer on money earnings was not absolute; the potato plot or "stubbing geese," a cow or even an ass in the commons made all the difference; and family earnings acted as a kind of unemployment insurance. The rationalization of agriculture inevitably uprooted the laborer and undermined his social security.

On the urban scene the effects of the new scourge of fluctuating employment were, of course, manifest. Industry was generally regarded as a blind alley occupation. "Workmen who are today fully employed may be tomorrow in the streets begging for bread...," wrote David Davies and added: "Uncertainty of labor conditions is the most vicious result of these new innovations." "When a Town employed in a Manufactory is deprived of it, the inhabitants are as it were struck with a palsy, and become instantly a rent-charge upon the Parish; but the mischief does not die with that generation..." For in the meantime division of labor wreaks its vengeance: the unemployed artisan returns in vain to his village for "the weaver can turn his hand to nothing." The fatal irreversibility of urbanization hinged upon this simple fact which Adam Smith foresaw when he described the industrial worker as intellectually the inferior of the poorest tiller of the soil, for the latter can usually take himself to any job. Still, up to the time Adam Smith published his Wealth of Nations pauperism was not increasing alarmingly.

However, many things had to happen before (only five years later) a man as removed from politics, as successful, and as matter-of-fact as the Scotch bridgebuilder, Telford, could burst forth with the bitter complaint that little change is to be expected from the ordinary course of government, and that revolution was the only hope. A single copy of Paine's Rights of Man mailed by Telford to his home village caused a riot to break out there. Paris was catalyzing the European fermentation.

In Canning's conviction the Poor Law saved England from a revolution. He was primarily thinking of the 1790's and the French Wars. The new outburst of enclosures further depressed the standards of the poor in the countryside. J. H. Clapham, an apologist of these enclosures, conceded that the "coincidence of the area in which wages were most systematically augmented from the rates with the area of maximum recent enclosures is striking." In other words, but for aidin-wages the poor would have sunk below the starvation level in wide areas of rural England. Rick burning was rampant. The Popgun Plot found wide credence. Rioting was frequent; rumors of rioting very much more so. In Hampshire - and not there alone - the Courts threatened death for any attempt at "forcibly lowering the price of commodities, either at market or on the road"; yet simultaneously, the magistrates of that same county urgently pressed for the general granting of subsidies to wages. Clearly, the time for preventive action had come.

The supremacy of squire and parson was even enhanced in consequence of Speenhamland, if such a thing was at all possible. The "undistinguishing benevolence of power," of which the overseers of the poor complained, was at its best in that role of "Tory socialism" in which the justices of peace swayed the benevolent power, while the brunt of the rates was borne by the rural middle class. The bulk of yeomanry had long vanished in the vicissitudes of the Agricultural Revolution, and the remaining lifeholders and occupying-proprietors tended to merge with the cottagers and scrap-holders into one social stratum in the eyes of the potentate of the countryside. He did not too well distinguish between needy people, and people who happened to be in need; from the lofty heights from which he was watching the struggling life of the village there seemed to be no hard and fast line separating the poor from the destitute, and he may have been not unduly surprised to learn in a bad year that a small farmer was going "on the rates," after having been ruined by their disastrous level. Surely such cases were not frequent, but their very possibility emphasized the fact that many ratepayers were themselves poor. On the whole, the relationship of the ratepayer and the pauper was somewhat similar to that of the employed and the unemployed of our times under various schemes of insurance which make the employed bear the burden of keeping the temporarily unemployed. Still, the typical ratepayer was usually not eligible for poor relief, and the typical agricultural laborer paid no rates. Politically, the squire's pull with the village poor was strengthened by Speenhamland while that of the rural middle class was weakened.

Speenhamland precipitated a social catastrophe. We have become accustomed to discount the lurid presentations of early capitalism as "sob-stuff." For this there is no justification. The picture drawn by Harriet Martineau, the perfervid apostle of Poor Law Reform, coincides with that of the Chartist propagandists who were leading the outcry against the Poor Law Reform. The facts set out in the famous Report of the Commission on the Poor Law (1834), advocating the immediate repeal of the Speenhamland Law, could have served as the material for Dickens' campaign against the Commission's policy. Neither Charles Kingsley nor Friedrich Engels, neither Blake nor Carlyle, was mistaken in believing that the very image of man had been defiled by some terrible catastrophe. And more impressive even than the outbursts of pain and anger that came from poets and philanthropists was the icy silence with which Malthus and Ricardo passed over the scenes out of which their philosophy of secular perdition was born.

The repeal of Speenhamland was the work of a new class entering on the historical scene, the middle classes of England. Squirearchy could not do the job these classes were destined to perform: the transformation of society into a market economy. Dozens of laws were repealed and others enacted before that transformation was on the way. The Parliamentary Reform Bill of 1832 disfranchised the rotten boroughs and gave power in the Commons once and for all to commoners. Their first great act of reform was the abolishing of Speenhamland. Now that we realize the degree to which its paternalist methods were merged with the life of the country, we will understand why even the most radical supporters of reform hesitated to suggest a shorter period than ten or fifteen years for the transition. Actually, it took place with an abruptness which makes nonsense of the legend of English gradualism fostered at a later time when arguments against radical reform were sought. The brutal shock of that event haunted for generations the daydreams of the British working class. And yet the success of this lacerating operation was due to the deep-seated convictions of the broad strata of the population, including the laborers themselves, that the system which to all appearances supported them was in truth despoiling them, and that the "right to live" was the sickness unto death.

In 1834 industrial capitalism was ready to be started, and Poor Law Reform was ushered in. The Speenhamland Law which had sheltered rural England, and thereby the laboring population in general, from the full force of the market mechanism was eating into the marrow of society. By the time of its repeal huge masses of the laboring population resembled more the specters that might haunt a nightmare than human beings. But if the workers were physically dehumanized, the owning classes were morally degraded. The traditional unity of a Christian society was giving place to a denial of responsibility on the part of the well-to-do for the conditions of their fellows. The Two Nations were taking shape. To the bewilderment of thinking minds, unheard-of wealth turned out to be inseparable from unheard-of poverty. Scholars proclaimed in unison that a science had been discovered which put the laws governing man's world beyond any doubt. It was at the behest of these laws that compassion was removed from the hearts, and a stoic determination to renounce human solidarity in the name of the greatest happiness of the greatest number gained the dignity of secular religion.

The mechanism of the market was asserting itself and clamoring for its completion: human labor had to be made a commodity. Reactionary paternalism had in vain tried to resist this necessity. Out of the horrors of Speenhamland men rushed blindly for the shelter of a utopian market economy.

PAUPERISM AND UTOPIA

THE PROBLEM of poverty centered around two closely related subjects: pauperism and political economy. Though we will deal with their impact on modern consciousness separately, they formed part of one indivisible whole: the discovery of society.

In actual fact, prosperity was just round the corner, a prosperity of gigantic proportions which was destined to become a new form of life not for one nation alone but for the whole of mankind. But neither statesmen nor economists had the slightest intimation of its oncoming. As for the statesmen, this may have been a matter of indifference, as for another two generations the rocketing trade figures only dented the edge of popular misery. But in the case of the economists it was singularly unfortunate as their whole theoretical system was erected during this spate of "abnormalcy," when a tremendous rise in trade and production happened to be accompanied by an enormous increase in human misery - in effect, the apparent facts on which the principles of Malthus, Ricardo, and James Mill were grounded reflected merely paradoxical tendencies prevailing during a sharply defined period of transition.

The Quakers, these pioneers in the exploration of the possibilities of modern existence, were the first to recognize that involuntary unemployment must be the outcome of some defect in the organization of labor. With their strong faith in businesslike methods they applied to the poor amongst themselves that principle of collective self-help which they occasionally practiced as conscientious objectors when wishing to avoid supporting the authorities by paying for their keep in prison. Lawson, a zealous Quaker, published an Appeal to the Parliament concerning the Poor that there be no beggar in England as a "Platforme," in which he suggested the establishment of Labor Exchanges in the modern sense of the public employment agency. This was in 1660; an "Office of Addresses and Encounters" had been proposed ten years before by Henry Robinson. But the Restoration government favored more pedestrian methods; the tendency of the Act of Settlement in 1662 was directly contrary to any rational system of labor exchanges, which would have created a wider market for labor; settlement - a term used for the first time in the Act - bound labor to the parish.

Owen took over from Bellers the labor-notes idea and applied it in his National Equitable Labor Exchange in 1832; it failed. The closely related principle of the economic self-sufficiency of the laboring class - also an idea of Bellers - was at the back of the famous Trades-Union movement in the next two years. The Trades-Union was a general association of all trades, crafts, and arts, not excluding small masters, with the vague purpose of constituting them the body of society, in one peaceful manifestation. Who would have thought that this was the embryo of all violent One Big Union attempts for a hundred years to come? Syndicalism, capitalism, socialism, and anarchism were indeed almost indistinguishable in their plans for the poor. Proudhon's Bank of Exchange, the first practical exploit of philosophical anarchism, in 1848, was, essentially, an outgrowth of Owen's experiment. Marx, the state-socialist, sharply assailed Proudhon's ideas and henceforth it was the state that would be called upon tc supply the capital for collectivist schemes of this type, of which Louis Blanc's and Lassalle's went down to history.

That the question was in its chrysalid stage was shown by the amazing congruence of the projects reflecting minds as different as those of the Quaker Bellers, the atheist Owen, and the utilitarian Bentham. Owen, a socialist, was an ardent believer in the equality of man and his inborn rights; while Bentham despised equalitarianism, ridiculed the rights of man and bent heavily towards laissez-faire. Yet Owen's "parallelograms" resembled Bentham's Industry-Houses so closely that one might imagine he was solely inspired by them until his indebtedness to Bellers is remembered. All three men were convinced that an appropriate organization of the labor of the unemployed must produce a surplus, which Bellers, the humanitarian, hoped to use primarily for the relief of other sufferers; Bentham, the utilitarian liberal, wanted to turn over to the shareholders; Owen, the socialist, wished to return to the unemployed themselves. But while their differences merely revealed the almost imperceptible signs of future rifts, their common illusions disclosed the same radical misunderstanding of the nature of pauperism in the nascent market economy. More important than all other differences between them, there had been meanwhile a continuous growth in the number of the poor: in 1696, when Bellers wrote, total rates approximated 400,000 pounds; in 1796, when Bentham struck out against Pitt's bill, they must have passed the 2 million mark; by 1818, Robert Owen's beginnings, they were nearing 8 million. In the 120 years that elapsed between Bellers and Owen the population may have trebled, but rates increased twentyfold. Pauperism had become a portent. But its meaning was still anybody's guess.

POLITICAL ECONOMY AND THE DISCOVERY OF SOCIETY

WHEN THE SIGNIFICANCE of poverty was realized, the stage was set for the nineteenth century. The watershed lay somewhere around I78o. In Adam Smith's great work poor relief was no problem as yet; only a decade later it was raised as a broad issue in Townsend's Dissertation on the Poor Laws and never ceased to occupy men's minds for another century and a half.

Smith wished to regard the wealth of the nations as a function of their national life, physical and moral; that is why his naval policy fitted in so well with Cromwell's Navigation Laws and his notions of human society harmonized with John Locke's system of natural rights. In his view nothing indicates the presence of an economic sphere in society that might become the source of moral law and political obligation. Self-interest merely prompts us to do what, intrinsically, will also benefit others, as the butcher's self-interest will ultimately supply us with a dinner. A broad optimism pervades Smith's thinking since the laws governing the economic part of the universe are consonant with man's destiny as are those that govern the rest. No hidden hand tries to impose upon us the rites of cannibalism in the name of self-interest. The dignity of man is that of a moral being, who is, as such, a member of the civic order of family, state, and "the great Society of mankind." Reason and humanity set a limit to piecework; emulation and gain must give way to them. Natural is that which is in accordance with the principles embodied in the mind of man; and the natural order is that which is in accordance with those principles. Nature in the physical sense was consciously excluded by Smith from the problem of wealth. "Whatever be the soil, climate or extent of territory of any particular nation, the abundance or scantiness of its annual supply, must, in that particular situation, depend upon two circumstances," namely, the skill of labor and the proportion between the useful and the idle members in society. Not the natural, but only the human factors enter. This exclusion of the biological and geographical factor in the very beginning of his book was deliberate. The fallacies of the Physiocrats served him as a warning; their predilection for agriculture tempted them to confuse physical nature with man's nature, and induced them to argue that the soil alone was truly creative. Nothing was further from the mind of Smith than such a glorification of Physis. Political economy should be a human science; it should deal with that which was natural to man, not to Nature.

The new foundations closely fitted the society that was emerging. Since the middle of the eighteenth century national markets had been developing; the price of grain was no longer local, but regional; this presupposed the almost general use of money and a wide marketability of goods. Market prices and incomes, including rents and wages, showed considerable stability. The Physiocrats were the first to note these regularities, which they could not even theoretically fit into a whole as feudal incomes were still prevalent in France, and labor was often semiservile, so that neither rents nor wages were, as a rule, determined in the market. But the English countryside in Adam Smith's time had become part and parcel of a commercial society; the rent due to the landlord as well as the wages of the agricultural laborer showed a marked dependence on prices. Only exceptionally were wages or prices fixed by the authorities. And yet in this curious new order the old classes of society continued to exist more or less in their former hierarchy, notwithstanding the disappearance of their legal privileges and disabilities. Though no law constrained the laborer to serve the farmer, nor the farmer to keep the landlord in plenty, laborers and farmers acted as if such compulsion existed. By what law was the laborer ordained to obey a master, to whom he was bound by no legal bond? What force kept the classes of society apart as if they were different kinds of human beings? And what maintained balance and order in this human collective which neither invoked nor even tolerated the intervention of political government?

The paradigm of the goats and the dogs seemed to offer an answer. The biological nature of man appeared as the given foundation of a society that was not of a political order. Thus it came to pass that economists presently relinquished Adam Smith's humanistic foundations, and incorporated those of Townsend. Malthus' population law and the law of diminishing returns as handled by Ricardo made the fertility of man and soil constitutive elements of the new realm the existence of which had been uncovered. Economic society had emerged as distinct from the political state.

The acceptance of near-indigency of the mass of the citizens as the price to be paid for the highest stage of prosperity was accompanied by very different human attitudes. Townsend righted his emotional balance by indulging in prejudice and sentimentalism. The improvidence of the poor was a law of nature, for servile, sordid, and ignoble work would otherwise not be done. Also what would become of the fatherland unless we could rely on the poor? "For what is it but distress and poverty which can prevail upon the lower classes of the people to encounter all the horrors which await them on the tempestuous ocean or on the field of battle?" But this display of a rugged patriotism still left room for more tender sentiments. Poor relief should, of course, be abolished outright. The Poor Laws "proceed from principles which border on absurdity, as professing to accomplish that which, in the very nature and constitution of the world, is impracticable." But once the indigent were left to the mercy of the well-to-do, who can doubt that "the only difficulty" is to restrain the impetuosity of the latter's benevolence? And are the sentiments of charity not far nobler than those that flow from hard and fast legal obligations? "Can in nature anything be more beautiful than the mild complacency of benevolence?" he cried out, contrasting it with the cold heartlessness of "a parish pay-table," which knew not those scenes of an "artless expression of unfeigned gratitude for unexpected favors..." "When the poor are obliged to cultivate the friendship of the rich, the rich will never want inclination to relieve the distress of the poor..." No one who has read this touching portrayal of the intimate life of the Two Nations can doubt that, unconsciously, it was from the island of the goats and dogs that Victorian England drew its sentimental education.

Bentham possessed neither the sleek complacency of a Townsend nor the all too precipitate historicism of a Burke. Rather, to this believer in reason and reform the newly discovered realm of social law appeared as the coveted no man's land of utilitarian experimentation. Like Burke, he refused to defer to zoological determinism, and he too rejected the ascendency of economics over politics proper. Though author of the Essay on Usury, and of a Manual of Political Economy, he was an amateur at that science and even failed to provide the one great contribution which utilitarianism might have been expected to make to economics, namely, the discovery that value derived from utility. Instead, he was induced by associationist psychology to give rein to his boundless imaginative faculties as a social engineer. Laissez-faire meant to Bentham only another device in social mechanics. Social not technical invention was the intellectual mainspring of the Industrial Revolution. The decisive contribution of the natural sciences to engineering was not made until a full century later, when the Industrial Revolution was long over. To the practical bridge or canal builder, the designer of machines or engines, knowledge of the general laws of nature was utterly useless before the new applied sciences in mechanics and chemistry were developed. Telford, founder and lifelong President of the Society of Civil Engineers, refused membership in that body to applicants who had studied physics and, according to Sir David Brewster, never made himself acquainted with the elements of geometry. The triumphs of natural science had been theoretical in the true sense, and could not compare in practical importance with those of the social sciences of the day. It was to these latter that the prestige of science as against routine and tradition was due, and, unbelievable though it may seem to our generation, the standing of natural science greatly gained by its connection with the human sciences. The discovery of economics was an astounding revelation which hastened greatly the transformation of society and the establishment of a market system, while the decisive machines had been the inventions of uneducated artisans some of whom could hardly read or write. It was thus both just and appropriate that not the natural but the social sciences should rank as the intellectual parents of the mechanical revolution which subjected the powers of nature to man.

Bentham himself was convinced that he had discovered a new social science, that of morals and legislation. It was to be founded on the principle of utility, which allowed of exact calculation with the help of associationist psychology. Science, precisely because it became effective within the circumference of human affairs, meant in eighteenth century England invariably a practical art based on empirical knowledge. The need for such a pragmatic attitude was indeed overwhelming. As statistics were not available it was often not possible to say whether population was on the increase or decrease, what the trend of the balance of foreign trade was, or which class of the population was gaining on the other. It was frequently a mere matter of guesswork whether the wealth of the country was waxing or waning, where the poor came from, what the situation of credit, of banking, or profits was. An empirical instead of a purely speculative or antiquarian approach to matters such as these was what was in the first place meant by "science"; and as practical interests were naturally paramount, it fell to science to suggest how to regulate and organize the vast realm of new phenomena. We have seen how puzzled the Saints were by the nature of poverty, and how ingeniously they experimented with the forms of self-help; how the notion of profits was hailed as a cure-all for the most diverse ills; how none could say whether pauperism was a good or a bad sign; how bewildered scientific workhouse managements were to find themselves unable to make money out of the poor; how Owen made his fortune by running his factories on the lines of a conscious philanthropy; and how a number of other experiments which seemed to involve the same technique of enlightened self-help failed pitifully, thus causing dire perplexity to their philanthropic authors. Had we extended our purview from pauperism to credit, specie, monopolies, savings, insurance, investing, public finance or, for that matter, prisons, education, and lotteries we might have easily adduced as many new types of ventures in respect to each of them.

Townsend's naturalism was doubtless not the only possible basis for the new science of political economy. The existence of an economic society was manifest in the regularities of prices, and the stability of the incomes dependent upon those prices; consequently, economic law may well have been based directly on prices. What induced orthodox economics to seek its foundations in naturalism was the otherwise inexplicable misery of the great mass of the producers which, as we know today, could never have been deduced from the laws of the old market. But the facts as they appeared to contemporaries were roughly these: in times past the laboring people had habitually lived on the brink of indigence (at least, if one accounted for changing levels of customary standards); since the coming of the machine they had certainly never risen above subsistence level; and now that the economic society was finally taking shape, it was an indubitable fact that decade after decade the material level of existence of the laboring poor was not improving a jot, if, indeed, it was not becoming worse.

If ever the overwhelming evidence of the facts seemed to point in one direction, it was, therefore, in the case of the iron law of wages, which asserted that the bare subsistence level on which laborers actually lived was the result of a law which tended to keep their wages so low that no other standard was possible for them. This semblance was, of course, not only misleading but indeed implied an absurdity from the point of view of any consistent theory of prices and incomes under capitalism. Yet, in the last analysis, it was on account of this false appearance that the law of wages could not be based on any rational rule of human behavior, but had to be deduced from the naturalistic facts of the fertility of man and soil, as they were presented to the world by Malthus' law of population combined with the law of diminishing returns. The naturalistic element in the foundations of orthodox economics was the outcome of the conditions primarily created by Speenhamland.

Second, given the conditions under which the problem represented itself, no other result was possible. No unitary system could have explained the facts, as they did not form part of any one system, but were actually the result of the simultaneous action on the body social of two mutually exclusive systems, namely, a nascent market economy and a paternalistic regulationism in the sphere of the most important factor of production, labor.

Third, the solution hit upon by the classical economists had the most far-reaching consequences for the understanding of the nature of economic society. As gradually the laws governing a market economy were apprehended, these laws were put under the authority of Nature herself. The law of diminishing returns was a law of plant physiology. The Malthusian law of population reflected the relationship between the fertility of man and that of the soil. In both cases the forces in play were the forces of Nature, the animal instinct of sex and the growth of vegetation in a given soil. The principle involved was the same as that in the case of Townsend's goats and dogs: there was a natural limit beyond which human beings could not multiply and that limit was set by the available food supply. Like Townsend, Malthus concluded that the superfluous specimens would be killed off; while the goats are killed off by the dogs, the dogs must starve for lack of food. With Malthus the repressive check consisted in the destruction of the supernumerary specimens by the brute forces of Nature. As human beings are destroyed also by other causes than starvation - such as war, pestilence, and vice - these were equated with the destructive forces of Nature. This involved, strictly, an inconsistency as it made social forces responsible for achieving the balance required by Nature, a criticism, however, to which Malthus might have answered that in absence of wars and vice - that is, in a virtuous community - as many more people would have to starve as were spared by their peaceful virtues. Essentially, economic society was founded on the grim realities of Nature; if man disobeyed the laws which ruled that society, the fell executioner would strangle the offspring of the improvident. The laws of a competitive society were put under the sanction of the jungle.

Owen may have nourished an exaggerated notion of those powers; otherwise he hardly could have suggested to the magistrates of the County of Lanark that society should be forthwith newly started from the "nucleus of society" which he had discovered in his village communities. Such flux of the imagination is the privilege of the genius, but for whom mankind could not exist for lack of understanding of itself. All the more significant was the irremovable frontier of freedom to which he pointed, that was given by the necessary limits set to the absence of evil in society. But not until man had transformed society with the help of the new powers he acquired would this frontier become apparent, Owen felt; then man would have to accept this frontier in the spirit of maturity which knows not childish complaint.

He did not, at this time, foresee that the self-protection of society for which he was calling would prove incompatible with the functioning of the economic system itself.

11

MAN, NATURE, AND PRODUCTIVE ORGANIZATION

FOR A CENTURY the dynamics of modern society was governed by a double movement: the market expanded continuously but this movement was met by a countermovement checking the expansion in definite directions. Vital though such a countermovement was for the protection of society, in the last analysis it was incompatible with the self-regulation of the market, and thus with the market system itself.

That system developed in leaps and bounds; it engulfed space and time, and by creating bank money it produced a dynamic hitherto unknown. By the time it reached its maximum extent, around 1914, every part of the globe, all its inhabitants and yet unborn generations, physical persons as well as huge fictitious bodies called corporations, were comprised in it. A new way of life spread over the planet with a claim to universality unparalleled since the age when Christianity started out on its career, only this time the movement was on a purely material level.

Yet simultaneously a countermovement was on foot. This was more than the usual defensive behavior of a society faced with change; it was a reaction against a dislocation which attacked the fabric of society, and which would have destroyed the very organization of production that the market had called into being.

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; if this process is to be organized through a self-regulating mechanism of barter and exchange, then man and nature must be brought into its orbit; they must be subject to supply and demand, that is, be dealt with as commodities, as goods produced for sale.

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. Accordingly, the countermove consisted in checking the action of the market in respect to the factors of production, labor, and land. This was the main function of interventionism.

Productive organization also was threatened from the same quarter. The danger was to the single enterprise - industrial, agricultural, or commercial - in so far as it was affected by changes in the price level. For under a market system, if prices fell, business was impaired; unless all elements of cost fell proportionately, "going concerns" were forced to liquidate, while the fall in prices might have been due not to a general fall in costs, but merely to the manner in which the monetary system was organized. Actually, as we shah see, such was the case under a self-regulating market.

Therefore, in respect to business a very similar situation existed as in respect to the natural and human substance of society. The self-regulating market was a threat to them all, and for essentially similar reasons. And if factory legislation and social laws were required to protect industrial man from the implications of the commodity fiction in regard to labor power, if land laws and agrarian tariffs were called into being by the necessity of protecting natural resources and the culture of the countryside against the implications of the commodity fiction in respect to them, it was equally true that central banking and the management of the monetary system were needed to keep manufactures and other productive enterprises safe from the harm involved in the commodity fiction as applied to money. Paradoxically enough, not human beings and natural resources only but also the organization of capitalistic production itself had to be sheltered from the devastating effects of a self-regulating market.

Let us return to what we have called the double movement. It can be personified as the action of two organizing principles in society, each of them setting itself specific institutional aims, having the support of definite social forces and using its own distinctive methods. The one was the principle of economic liberalism, aiming at the establishment of a self-regulating market, relying on the support of the trading classes, and using largely laissez-faire and free trade as its methods; the other was the principle of social protection aiming at the conservation of man and nature as well as productive organization, relying on the varying support of those most immediately affected by the deleterious action of the market - primarily, but not exclusively, the working and the landed classes - and using protective legislation, restrictive associations, and other instruments of intervention as its methods.

The emphasis on class is important. The services to society performed by the landed, the middle, and the working classes shaped the whole social history of the nineteenth century. Their part was cut out for them by their being available for the discharge of various functions that derived from the total situation of society. The middle classes were the bearers of the nascent market economy; their business interests ran, on the whole, parallel to the general interest in regard to production and employment; if business was flourishing, there was a chance of jobs for all and of rents for the owners; if markets were expanding, investments could be freely and readily made; if the trading community competed successfully with the foreigner, the currency was safe. On the other hand, the trading classes had no organ to sense the dangers involved in the exploitation of the physical strength of the worker, the destruction of family life, the devastation of neighborhoods, the denudation of forests, the pollution of rivers, the deterioration of craft standards, the disruption of folkways, and the general degradation of existence including housing and arts, as well as the innumerable forms of private and public life that do not affect profits. The middle classes fulfilled their function by developing an all but sacramental belief in the universal beneficence of profits, although this disqualified them as the keepers of other interests as vital to a good life as the furtherance of production. Here lay the chance of those classes which were not engaged in applying expensive, complicated, or specific machines to production. Roughly, to the landed aristocracy and the peasantry fell the task of safeguarding the martial qualities of the nation which continued to depend largely on men and soil, while the laboring people, to a smaller or greater extent, became representatives of the common human interests that had become homeless. But at one time or another, each social class stood, even if unconsciously, for interests wider than its own.

From these two angles, then, do we intend to outline the movement which shaped the social history of the nineteenth century. The one was given by the clash of the organizing principles of economic liberalism and social protection which led to a deep-seated institutional strain; the other by the conflict of classes which, interacting with the first, turned the crisis into a catastrophe.

BIRTH OF THE LIBERAL CREED

ECONOMIC LIBERALISM was the organizing principle of a society engaged in creating a market system. Born as a mere penchant for non-bureaucratic methods, it evolved into a veritable faith in man's secular salvation through a self-regulating market. Such fanaticism was the result of the sudden aggravation of the task it found itself committed to: the magnitude of the sufferings that were to be inflicted on innocent persons as well as the vast scope of the interlocking changes involved in the establishment of the new order. The liberal creed assumed its evangelical fervor only in response to the needs of a fully deployed market economy.

To antedate the policy of laissez-faire, as is often done, to the time when this catchword was first used in France in the middle of the eighteenth century would be entirely unhistorical; it can be safely said that not until two generations later was economic liberalism more than a spasmodic tendency. Only by the 1820's did it stand for the three classical tenets: that labor should find its price on the market; that the creation of money should be subject to an automatic mechanism; that goods should be free to flow from country to country without hindrance or preference; in short, for a labor market, the gold standard, and free trade.

To credit François Quesnay with having envisaged such a state of affairs would be little short of fantastic. All that the Physiocrats demanded in a mercantilistic world was the free export of grain in order to ensure a better income to farmers, tenants, and landlords. For the rest their ordre naturel was no more than a directive principle for the regulation of industry and agriculture by a supposedly all-powerful and omniscient government. Quesnay's Maximes were intended to provide such a government with the viewpoints needed to translate into practical policy the principles of the Tableau on the basis of statistical data which he offered to have furnished periodically. The idea of a self-regulating system of markets had never as much as entered his mind.

In England, too, laissez-faire was interpreted narrowly; it meant freedom from regulations in production; trade was not comprised. Cotton manufactures, the marvel of the time, had grown from insignificance into the leading export industry of the country - yet the import of printed cottons remained forbidden by positive statute. Notwithstanding the traditional monopoly of the home market an export bounty for calico or muslin was granted. Protectionism was so ingrained that Manchester cotton manufacturers demanded, in 1800, the prohibition of the export of yarn, though they were conscious of the fact that this meant loss of business to them. An Act passed in 1791 extended the penalties for the export of tools used in manufacturing cotton goods to the export of models or specifications. The free trade origins of the cotton industry are a myth. Freedom from regulation in the sphere of production was all the industry wanted; freedom in the sphere of exchange was still deemed a danger.

International free trade involved no less an act of faith. Its implications were entirely extravagant. It meant that England would depend for her food supply upon overseas sources; would sacrifice her agriculture, if necessary, and enter on a new form of life under which she would be part and parcel of some vaguely conceived world unity of the future; that this planetary community would have to be a peaceful one, or, if not, would have to be made safe for Great Britain by the power of the Navy; and that the English nation would face the prospects of continuous industrial dislocations in the firm belief in its superior inventive and productive ability. However, it was believed that if only the grain of all the world could flow freely to Britain, then her factories would be able to undersell all the world. Again, the measure of the determination needed was set by the magnitude of the proposition and the vastness of the risks involved in complete acceptance. Yet less than complete acceptance would have spelt certain ruin.

The utopian springs of the dogma of laissez-faire are but incompletely understood as long as they are viewed separately. The three tenets - competitive labor market, automatic gold standard, and international free trade - formed one whole. The sacrifices involved in achieving any one of them were useless, if not worse, unless the other two were equally secured. It was everything or nothing.

Anybody could see that the gold standard, for instance, meant danger of deadly deflation and, maybe, of fatal monetary stringency in a panic. The manufacturer could, therefore, hope to hold his own only if he was assured of an increasing scale of production at remunerative prices (in other words, only if wages fell at least in proportion to the general fall in prices, so as to allow the exploitation of an ever-expanding world market). Thus the Anti-Corn Law Bill of 1846 was the corollary of Peel's Bank Act of 1844, and both assumed a laboring class which, since the Poor Law Amendment Act of 1834, was forced to give their best under the threat of hunger, so that wages were regulated by the price of grain. The three great measures formed a coherent whole.

There was nothing natural about laissez-faire; free markets could never have come into being merely by allowing things to take their course. Just as cotton manufactures - the leading free trade industry - were created by the help of protective tariffs, export bounties, and indirect wage subsidies, laissez-faire itself was enforced by the state. The thirties and forties saw not only an outburst of legislation repealing restrictive regulations, but also an enormous increase in the administrative functions of the state, which was now being endowed with a central bureaucracy able to fulfill the tasks set by the adherents of liberalism. To the typical utilitarian, economic liberalism was a social project which should be put into effect for the greatest happiness of the greatest number; laissez-faire was not a method to achieve a thing, it was the thing to be achieved. True, legislation could do nothing directly, except by repealing harmful restrictions. But that did not mean that government could no nothing, especially indirectly. On the contrary, the utilitarian liberal saw in government the great agency for achieving happiness. In respect to material welfare, Bentham believed, the influence of legislation "is as nothing" in comparison with the unconscious contribution of the "minister of the police." Of the three things needed for economic success - inclination, knowledge, and power - the private person possessed only inclination. Knowledge and power, Bentham taught, can be administered much cheaper by government than by private persons. It was the task of the executive to collect statistics and information, to foster science and experiment, as well as to supply the innumerable instruments of final realization in the field of government. Benthamite liberalism meant the replacing of Parliamentary action by action through administrative organs.

This paradox was topped by another. While laissez-faire economy was the product of deliberate state action, subsequent restrictions on laissez-faire started in a spontaneous way. Laissez-faire was planned; planning was not. The first half of this assertion was shown above to be true. If ever there was conscious use of the executive in the service of a deliberate government-controlled policy, it was on the part of the Benthamites in the heroic period of laissez-faire. The other half was first mooted by that eminent liberal, Dicey, who made it his task to inquire into the origins of the "anti-laissez-faire" or, as he called it, the "collectivist" trend in English public opinion, the existence of which was manifest since the late 1860's. He was surprised to find that no evidence of the existence of such a trend could be traced save the acts of legislation themselves. More exactly, no evidence of a "collectivist trend" in public opinion prior to the laws which appeared to represent such a trend could be found. As to later "collectivist" opinion, Dicey inferred that the "collectivist" legislation itself might have been its prime source. The upshot of his penetrating inquiry was that there had been complete absence of any deliberate intention to extend the functions of the state, or to restrict the freedom of the individual, on the part of those who were directly responsible for the restrictive enactments of the 1870's and 1880's. The legislative spearhead of the countermovernent 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.

Economic liberals must strongly take exception to this view. Their whole social philosophy hinges on the idea that laissez-faire was a natural development, while subsequent anti-laissez-faire legislation was the result of a purposeful action on the part of the opponents of liberal principles. In these two mutually exclusive interpretations of the double movement, it is not too much to say, the truth or untruth of the liberal position is involved today.

In retrospect our age will be credited with having seen the end of the self-regulating market. The 1920's saw the prestige of economic liberalism at its height. Hundreds of millions of people had been afflicted by the scourge of inflation; whole social classes, whole nations had been expropriated. Stabilization of currencies became the focal point in the political thought of peoples and governments; the restoration of the gold standard became the supreme aim of all organized effort in the economic field. The repayment of foreign loans and the return to stable currencies were recognized as the touchstones of rationality in politics; and no private suffering, no infringement of sovereignty, was deemed too great a sacrifice for the recovery of monetary integrity. The privations of the unemployed made jobless by deflation; the destitution of public servants dismissed without a pittance; even the relinquishment of national rights and the loss of constitutional liberties were judged a fair price to pay for the fulfillment of the requirement of sound budgets and sound currencies, these a priori of economic liberalism.

The thirties lived to see the absolutes of the twenties called in question. After several years during which currencies were practically restored and budgets balanced, the two most powerful countries, Great Britain and the United States, found themselves in difficulties, dismissed the gold standard, and started out on the management of their currencies. International debts were repudiated wholesale and the tenets of economic liberalism were disregarded by the wealthiest and most respectable. By the middle of the thirties France and some other states still adhering to gold were actually forced off the standard by the Treasuries of Great Britain and the United States, formerly jealous guardians of the liberal creed.

Secular tenets of social organization embracing the whole civilized world are not dislodged by the events of a decade. Both in Great Britain and in the United States millions of independent business units derived their existence from the principle of laissez-faire. Its spectacular failure in one field did not destroy its authority in all. Indeed, its partial eclipse may have even strengthened its hold since it enabled its defenders to argue that the incomplete application of its principles was the reason for every and any difficulty laid to its charge.

This, indeed, is the last remaining argument of economic liberalism today. Its apologists are repeating in endless variations that but for the policies advocated by its critics, liberalism would have delivered the goods; that not the competitive system and the self-regulating market, but interference with that system and interventions with that market are responsible for our ills. And this argument does not find support in innumerable recent infringements of economic freedom only, but also in the indubitable fact that the movement to spread the system of self-regulating markets was met in the second half of the nineteenth century by a persistent countermove obstructing the free working of such an economy.

The testimony of the facts contradicts the liberal thesis decisively. The antiliberal conspiracy is a pure invention. The great variety of forms in which the "collectivist" countermovement appeared was not due to any preference for socialism or nationalism on the part of concerted interests, but exclusively to the broader range of the vital social interests affected by the expanding market mechanism. This accounts for the all but universal reactions of predominantly practical character called forth by the expansion of that mechanism. Intellectual fashions played no role whatever in this process; there was, accordingly, no room for the prejudice which the liberal regards as the ideological force behind the antiliberal development. Although it is true that the 1870's and 1880's saw the end of orthodox liberalism, and that all crucial problems of the present can be traced back to that period, it is incorrect to say that the change to social and national protectionism was due to any other cause than the manifestation of the weaknesses and perils inherent in a self-regulating market system. This can be shown in more than one way.

Incidentally, this helps to clarify the true meaning of the term "interventionism" by which economic liberals like to denote the opposite of their own policy, but merely betray confusion of thought. The opposite of interventionism is laissez-faire and we have just seen that economic liberalism cannot be identified with laissez-faire (although in common parlance there is no harm in using them interchangeably). Strictly, economic liberalism is the organizing principle of a society in which industry is based on the institution of a self-regulating market. True, once such a system is approximately achieved, less intervention of one type is needed. However, this is far from saying that market system and intervention are mutually exclusive terms. For as long as that system is not established, economic liberals must and will unhesitatingly call for the intervention of the state in order to establish it, and once established, in order to maintain it. The economic liberal can, therefore, without any inconsistency call upon the state to use the force of law; he can even appeal to the violent forces of civil war to set up the preconditions of a self-regulating market. In America the South appealed to the arguments of laissez-faire to justify slavery; the North appealed to the intervention of arms to establish a free labor market. The accusation of interventionism on the part of liberal writers is thus an empty slogan, implying the denunciation of one and the same set of actions according to whether they happen to approve of them or not. The only principle economic liberals can maintain without inconsistency is that of the self-regulating market, whether it involves them in interventions or not.

Our own interpretation of the double movement is, we find, borne out by the evidence. For if market economy was a threat to the human and natural components of the social fabric, as we insisted, what else would one expect than an urge on the part of a great variety of people to press for some sort of protection? This was what we found. Also, one would expect this to happen without any theoretical or intellectual preconceptions on their part, and irrespective of their attitudes towards the principles underlying a market economy. Again, this was the case. Moreover, we suggested that comparative history of governments might offer quasi-experimental support of our thesis if particular interests could be shown to be independent of the specific ideologies present in a number of different countries. For this also we could adduce striking evidence. Finally, the behavior of liberals themselves proved that the maintenance of freedom of trade - in our terms, of a self-regulating market - far from excluding intervention, in effect, demanded such action, and that liberals themselves regularly called for compulsory action on the part of the state as in the case of trade union law and antitrust laws. Thus nothing could be more decisive than the evidence of history as to which of the two contending interpretations of the double movement was correct: that of the economic liberal who maintained that his policy never had a chance, but was strangled by shortsighted trade unionists, Marxist intellectuals, greedy manufacturers, and reactionary landlords; or that of his critics, who can point to the universal "collectivist" reaction against the expansion of market economy in the second half of the nineteenth century as conclusive proof of the peril to society inherent in the utopian principle of a self-regulating market.

BIRTH OF THE LIBERAL CREED (Continued): CLASS INTEREST AND SOCIAL CHANGE

Actually, class interests offer only a limited explanation of long-run movements in society. The fate of classes is much more often determined by the needs of society than the fate of society is determined by the needs of classes. Given a definite structure of society, the class theory works; but what if that structure itself undergoes change? A class that has become functionless may disintegrate and be supplanted overnight by a new class or classes. Also, the chances of classes in a struggle will depend upon their ability to win support from outside their own membership, which again will depend upon their fulfillment of tasks set by interests wider than their own. Thus, neither the birth nor the death of classes, neither their aims nor the degree to which they attain them; neither their co-operations nor their antagonisms can be understood apart from the situation of society as a whole.

Now, this situation is created, as a rule, by external causes, such as a change in climate, in the yield of crops, a new foe, a new weapon used by an old foe, the emergence of new communal ends, or, for that matter, the discovery of new methods of achieving the traditional ends. To such a total situation must sectional interests be ultimately related if their function in social development should become clear.

The essential role played by class interests in social change is in the nature of things. For any widespread form of change must affect the various parts of the community in different fashions, if for no other reason than that of differences of geographical location, and of economic and cultural equipment. Sectional interests are thus the natural vehicle of social and political change. Whether the source of the change be war or trade, startling inventions or shifts in natural conditions, the various sections in society will stand for different methods of adjustment (including forcible ones) and adjust their interests in a different way from those of other groups to whom they may seek to give a lead; hence only when one can point to the group or groups that effected a change is it explained how that change has taken place. Yet the ultimate cause is set by external forces, and it is for the mechanism of the change only that society relies on internal forces. The "challenge" is to society as a whole; the "response" comes through groups, sections, and classes.

Second, there is the equally mistaken doctrine of the essentially economic nature of class interests. Though human society is naturally conditioned by economic factors, the motives of human individuals are only exceptionally determined by the needs of material want-satisfaction. That nineteenth century society was organized on the assumption that such a motivation could be made universal was a peculiarity of the age. It was therefore appropriate to allow a comparatively wide scope to the play of economic motives when analyzing that society. But we must guard against prejudging the issue, which is precisely to what extent such an unusual motivation could be made effective.

Purely economic matters such as affect want-satisfaction are incomparably less relevant to class behavior than questions of social recognition. Want-satisfaction may be, of course, the result of such recognition, especially as its outward sign or prize. But the interests of a class most directly refer to standing and rank, to status and security, that is, they are primarily not economic but social.

The spread of the market was thus both advanced and obstructed by the action of class forces. Given the need of machine production for the establishment of a market system, the trading classes alone were in the position to take the lead in that early transformation. A new class of entrepreneurs came into being out of the remnants of older classes, in order to take charge of a development which was consonant with the interests of the community as a whole. But if the rise of the industrialists, entrepreneurs, and capitalists was the result of their leading role in the expansionist movement, the defense fell to the traditional landed classes and the nascent working class. And if among the trading community it was the capitalists' lot to stand for the structural principles of the market system, the role of the die-hard defender of the social fabric was the portion of the feudal aristocracy on the one hand, the rising industrial proletariat on the other. But while the landed classes would naturally seek the solution for all evils in the maintenance of the past, the workers were, up to a point, in the position to transcend the limits of a market society and to borrow solutions from the future. This does not imply that the return to feudalism or the proclamation of socialism was amongst the possible lines of action; but it does indicate the entirely different directions in which agrarians and urban workingclass forces tended to seek for relief in an emergency. If market economy broke down, as in every major crisis it threatened to do, the landed classes might attempt a return to a military or feudal regime of paternalism, while the factory workers would see the need for the establishment of a co-operative commonwealth of labor. In a crisis "responses" might point towards mutually exclusive solutions. A mere clash of class interests, which otherwise would have been met by compromise, was invested with a fatal significance.

In order to fix safely the blame on the alleged collectivist conspiracy, economic liberals must ultimately deny that any need for the protection of society had arisen. Recently they acclaimed views of some scholars who had rejected the traditional doctrine of the Industrial Revolution according to which a catastrophe broke in upon the unfortunate laboring classes of England about the 1790's. Nothing in the nature of a sudden deterioration of standards, according to these writers, ever overwhelmed the common people. They were, on the average, substantially better off after than before the introduction of the factory system, and, as to numbers, nobody could deny their rapid increase. By the accepted yardsticks of economic welfare - real wages and population figures - the Inferno of early capitalism, they maintained, never existed; the working classes, far from being exploited, were economically the gainers and to argue the need for social protection against a system that benefited all was obviously impossible.

Actually, of course, a social calamity is primarily a cultural not an economic phenomenon that can be measured by income figures or population statistics. Cultural catastrophes involving broad strata of the common people can naturally not be frequent; but neither are cataclysmic events like the Industrial Revolution - an economic earthquake which transformed within less than half a century vast masses of the inhabitants of the English countryside from settled folk into shiftless migrants. But if such destructive landslides are exceptional in the history of classes, they are a common occurrence in the sphere of culture contacts between peoples of various races. Intrinsically, the conditions are the same. The difference is mainly that a social class forms part of a society inhabiting the same geographical area, while culture contact occurs usually between societies settled in different geographical regions. In both cases the contact may have a devastating effect on the weaker part. Not economic exploitation, as often assumed, but the disintegration of the cultural environment of the victim is then the cause of the degradation. The economic process may, naturally, supply the vehicle of the destruction, and almost invariably economic inferiority will make the weaker yield, but the immediate cause of his undoing is not for that reason economic; it lies in the lethal injury to the institutions in which his social existence is embodied. The result is loss of selfrespect and standards, whether the unit is a people or a class, whether the process springs from so-called "culture conflict" or from a change in the position of a class within the confines of a society.

Nothing obscures our social vision as effectively as the economistic prejudice. So persistently has exploitation been put into the forefront of the colonial problem that the point deserves special attention. Also, exploitation in a humanly obvious sense has been perpetrated so often, so persistently, and with such ruthlessness on the backward peoples of the world by the white man that it would seem to argue utter insensibility not to accord it pride of place in any discussion of the colonial problem. Yet, it is precisely this emphasis put on exploitation which tends to hide from our view the even greater issue of cultural degeneration. If exploitation is defined in strictly economic terms as a permanent inadequacy of ratios of exchange, it is doubtful whether, as a matter of fact, there was exploitation. The catastrophe of the native community is a direct result of the rapid and violent disruption of the basic institutions of the victim (whether force is used in the process or not does not seem altogether relevant). These institutions are disrupted by the very fact that a market economy is foisted upon an entirely differently organized community; labor and land are made into commodities, which, again, is only a short formula for the liquidation of every and any cultural institution in an organic society. Changes in income and population figures are evidently incommensurable with such a process. Who, for instance, would care to deny that a formerly free people dragged into slavery was exploited, though their standard of life, in some artificial sense, may have been improved in the country to which they were sold as compared with what it was in their native bush? And yet nothing would be altered if we assumed that the conquered natives had been left free and not even been made to overpay the cheap cotton goods thrust upon them, and that their starvation was "merely" caused by the disruption of their social institutions.

Economistic prejudice was the source both of the crude exploitation theory of early capitalism and of the no less crude, though more scholarly, misapprehension which later denied the existence of a social catastrophe. The significant implication of this latter and more recent interpretation of history was the rehabilitation of laissez-faire economy. For if liberal economics did not cause disaster, then protectionism, which robbed the world of the benefits of free markets, was a wanton crime. The very term "Industrial Revolution" was now frowned upon as conveying an exaggerated idea of what was essentially a slow process of change. No more had happened, these scholars insisted, than that a gradual unfolding of the forces of technological progress transformed the lives of the people; undoubtedly, many suffered in the course of the change but on the whole the story was one of continuous improvement. This happy outcome was the result of the almost unconscious working of economic forces which did their beneficial work in spite of the interference of impatient parties who exaggerated the unavoidable difficulties of the time. The inference was no less than a denial that danger had threatened society from the new economy. Had the revised history of the Industrial Revolution been true to fact, the protectionist movement would have lacked all objective justification and laissez-faire would have been vindicated. The materialistic fallacy in regard to the nature of social and cultural catastrophe thus bolstered the legend that all the ills of the time had been caused by our lapse from economic liberalism.

The danger points were given by the main directions of the attack. 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. In each of these fields markets were developed, which implied a latent threat to society in some vital aspects of its existence.

Markets for labor, land, and money are easy to distinguish; but it is not so easy to distinguish those parts of a culture the nucleus of which is formed by human beings, their natural surroundings, and productive organizations, respectively. Man and nature are practically one in the cultural sphere; and the money aspect of productive enterprise enters only into one socially vital interest, namely, the unity and cohesion of the nation. Thus, while the markets for the fictitious commodities labor, land, and money were distinct and separate, the threats to society which they involved were not always strictly separable.

In spite of this an outline of the institutional development of Western society during the critical eighty years (1834-1914) might refer to each of these danger points in similar terms. For whether man, nature, or productive organization was concerned, market organization grew into a peril, and definite groups or classes pressed for protection. In each case the considerable time lag between English, Continental, and American development had important bearings, and yet by the turn of the century the protectionist countermove had created an analogous situation in all Western countries.

Accordingly, we will deal separately with the defense of man, nature, and productive organization-a movement of self-preservation as the result of which a more closely knit type of society emerged, yet one which stood in danger of total disruption.

MARKET AND MAN

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 re-formation.

Even if the Owenite movement had resulted only in inconsiderable local activities, it would have formed a monument to the creative imagination of the race, and even if Chartism had never penetrated beyond the confines of that nucleus which conceived of the idea of a "national holiday" to gain the rights of the people, it would have shown that some of the people were still able to dream their own dreams, and were taking the measure of a society which had forgotten the shape of man. Yet neither the one nor the other was the case. Owenism was not the inspiration of a minute sect, nor was Chartism restricted to a political elite; both movements comprised hundreds of thousands of craftsmen and artisans, laborers and working people, and with their vast following ranked among the biggest social movements in modern history. And yet different as they were and similar only in the measure of their failure, they served to prove how inevitable from the first the necessity was of protecting man against the market.

The Owenite Movement originally was neither political nor working class. It represented the cravings of the common people, smitten by the coming of the factory, to discover a form of existence which would make man mastcr of the machine. Essentially, it aimed at what would appear to us as a by-passing of capitalism. Such a formula would, of course, be bound to be somewhat misleading, since the organizing role of capital and the nature of a self-regulating market were still unknown. Yet it expresses perhaps best the spirit of Owen, who emphatically was not an enemy of the machine. In spite of the machine, he believed, man should remain his own employer; the principle of co-operation or "union" would solve the problem of the machine without sacrificing either individual freedom or social solidarity, either man's dignity or his sympathy with his fellows.

The Chartist Movement appealed to a set of impulses so different that its emergence after the practical failure of Owenism and its premature initiatives might have been almost predicted. It was a purely political effort which made a bid for influence on government through constitutional channels; its attempt to put pressure on the government was on the traditional lines of the Reform Movement which had secured the vote to the middle classes. The Six Points of the Charter demanded an effective popular suffrage. The uncompromising rigidity with which such an extension of the vote was rejected by the Reformed Parliament for a third of a century, the use of force in view of the mass support that was manifest for the Charter, the abhorrence in which the liberals of the 1840's held the idea of popular government all prove that the concept of democracy was foreign to the English middle classes. Only when the working class had accepted the principles of a capitalist economy and the trade unions had made the smooth running of industry their chief concern did the middle classes concede the vote to the better situated workers; that is, long after the Chartist Movement had subsided and it had become certain that the workers would not try to use the franchise in the service of any ideas of their own. From the point of view of the spreading of the market forms of existence this may have been justified, since it helped to overcome the obstacles presented by the surviving organic and traditional forms of life among the laboring people. As to the entirely different task of restoring the common people, whose lives had been uprooted in the Industrial Revolution, and inducting them into the fold of a common national culture, it was left undone. Their investment with the vote at a time when irreparable damage had already been inflicted upon their capacity for sharing in leadership, could not retrieve the position. The ruling classes had committed the error of extending the principle of uncompromising class rule to a type of civilization which demanded the cultural and educational unity of the commonwealth if it should be safe from degenerative influences.

If there was a time-lag of some half a century between the industrialization of Great Britain and that of the Continent, there was a very much greater lag between the establishment of national unity. Italy and Germany arrived only during the second half of the nineteenth century at that stage of unification which England achieved centuries before, and smaller Eastern Europe states reached even later. In this process of state building the working classes played a vital part, which further enhanced their political experience. In the industrial age such a process could not fail to comprise social policy. Bismarck made a bid for unification of the Second Reich through the introduction of an epochal scheme of social legislation. Italian unity was speeded up by the nationalization of the railways. In the Austro-Hungarian monarchy, that congeries of races and peoples, the Crown itself repeatedly appealed to the laboring classes for support in the work of centralization and imperial unity. In this wider sphere also, through their influence on legislation, the socialist parties and trade unions found many openings for serving the interests of the industrial worker.

The Continental worker needed protection not so much against the impact of the Industrial Revolution - in the social sense there never was such a thing on the Continent - as against the normal action of factory and labor market conditions. He achieved it mainly by the help of legislation, while his British comrades relied more on voluntary association - trade unions - and their power to monopolize labor. Social insurance came, relatively, very much sooner on the Continent than in England. The difference was readily explained by the Continental's political bent, and by the comparatively early extension of the vote to the working masses on the Continent. While economically the difference between compulsory and voluntary methods of protection - legislation versus unionism - can be easily overrated, politically its consequences were great. On the Continent trade unions were a creation of the political party of the working class; in England the political party was a creation of the trade unions. While on the Continent unionism became more or less socialist, in England even political socialism remained essentially trade unionist. Universal suffrage, therefore, which in England tended to increase national unity, had sometimes the opposite effect on the Continent. There, rather than in England, did Pitt's and Peel's, Tocqueville's and Macaulay's misgivings come true that popular government would involve a danger to the economic system.

The natural aim of all social protection was to destroy such an institution and make its existence impossible. Actually, the labor market was allowed to retain its main function only on condition that wages and conditions of work, standards and regulations should be such as would safeguard the human character of the alleged commodity, labor. To argue that social legislation, factory laws, unemployment insurance, and, above all, trade unions have not interfered with the mobility of labor and the flexibility of wages, as is sometimes done, is to imply that those institutions have entirely failed in their purpose, which was exactly that of interfering with the laws of supply and demand in respect to human labor, and removing it from the orbit of the market.

MARKET AND NATURE

WHAT WE CALL LAND is an element of nature inextricably interwoven with man's institutions. To isolate it and form a market out of it was perhaps the weirdest of all undertakings of our ancestors.

Traditionally, land and labor are not separated; labor forms part of life, land remains part of nature, life and nature form an articulate whole. Land is thus tied up with the organizations of kinship, neighborhood, craft, and creed - with tribe and temple, village, gild, and church. One Big Market, on the other hand, is an arrangement of economic life which includes markets for the factors of production Since these factors happen to be indistinguishable from the elements of human institutions, man and nature, it can be readily seen that market economy involves a society the institutions of which are subordinated to the requirements of the market mechanism.

The proposition is as utopian in respect to land as in respect to labor. The economic function is but one of many vital functions of land. It invests man's life with stability; it is the site of his habitation; it is a condition of his physical safety; it is the landscape and the seasons. We might as well imagine his being born without hands and feet as carrying on his life without land. And yet to separate land from man and organize society in such a way as to satisfy the requirements of a real-estate market was a vital part of the utopian concept of a market economy.

Again, it is in the field of modern colonization that the true significance of such a venture becomes manifest. Whether the colonist needs land as a site for the sake of the wealth buried in it, or whether he merely wishes to constrain the native to produce a surplus of food and raw materials, is often irrelevant; nor does it make much difference whether the native works under the direct supervision of the colonist or only under some form of indirect compulsion, for in every and any case the social and cultural system of native life must be first shattered.

The challenge came from the growth of other than purely commercial forms of capitalism. There was, starting in England with the Tudors, argricultural capitalism with its need for an individualized treatment of the land, including conversions and enclosures. There was industrial capitalism which - in France as in England - was primarily rural and needed sites for its mills and laborers' settlements, since the beginning of the eighteenth century. Most powerful of all, though affecting more the use of the land than its ownership, there was the rise of industrial towns with their need for practically unlimited food and raw material supplies in the nineteenth century.

Superficially, there was little likeness in the responses to these challenges, yet they were stages in the subordination of the surface of the planet to the needs of an industrial society. The first stage was the commercialization of the soil, mobilizing the feudal revenue of the land. The second was the forcing up of the production of food and organic raw materials to serve the needs of a rapidly growing industrial population on a national scale. The third was the extension of such a system of surplus production to overseas and colonial territories. With this last step land and its produce were finally fitted into the scheme of a self-regulating world market.

Eventually agglomeration of the population in the industrial towns of the second half of the eighteenth century changed the situation completely - first on a national, then on a world scale.

To effect this change was the true meaning of free trade. The mobilization of the produce of the land was extended from the neighboring countryside to tropical and subtropical regions - the industrial-agricultural division of labor was applied to the planet. As a result. peoples of distant zones were drawn into the vortex of change the origins of which were obscure to them, while the European nations became dependent for their everyday activities upon a not yet ensured integration of the life of mankind. With free trade the new and tremendous hazards of planetary interdependence sprang into being.

The scope of social defense against all-round dislocation was as broad as the front of attack. Though common law and legislation speeded up change at times, at others they slowed it down. However, common law and statute law were not necessarily acting in the same direction at any given time.

In the advent of the labor market common law played mainly a positive part - the commodity theory of labor was first stated emphatically not by economists but by lawyers. On the issue of labor combinations and the law of conspiracy, too, the common law favored a free labor market, though this meant restricting the freedom of association of organized workers.

The inertia of the common law was deliberately enhanced by statutes expressly passed in order to protect the habitations and occupations of the rural classes against the effects of freedom of contract. A comprehensive effort was launched to ensure some degree of health and salubrity in the housing of the poor, providing them with allotments, giving them a chance to escape from the slums and to breathe the fresh air of nature, the "gentleman's park." Wretched Irish tenants and London slum dwellers were rescued from the grip of the laws of the market by legislative acts designed to protect their habitations against the juggernaut, improvement. On the Continent it was mainly statute law and administrative action that saved the tenant, the peasant, the agricultural laborer from the most violent effects of urbanization. Prussian conservatives such as Rodbertus, whose Junker socialism influenced Marx, were blood brothers to the Tory-Democrats of England.

The trading classes sponsored the demand for mobilization of the land. Cobden set the landlords of England aghast with his discovery that farming was "business" and that those who were broke must clear out. The working classes were won over to free trade as soon as it became apparent that it made food cheaper. Trade unions became the bastions of anti-agrarianism and revolutionary socialism branded the peasantry of the world an indiscriminate mass of reactionaries. International division of labor was doubtless a progressive creed; and its opponents were often recruited from amongst those whose judgment was vitiated by vested interests or lack of natural intelligence. The few independent and disinterested minds who discovered the fallacies of unrestricted free trade were too few to make any impression.

On the continent of Europe, again, agrarian protectionism was a necessity. But the most active intellectual forces of the age were engaged in an adventure which happened to shift their angle of vision so as to hide from them the true significance of the agrarian plight. Under the circumstances, a group able to represent the endangered rural interests could gain an influence out of proportion to their numbers. The protectionist countermovement actually succeeded in stabilizing the European countryside and in weakening that drift towards the towns which was the scourge of the time. Reaction was the beneficiary of a socially useful function which it happened to perform. The identical function which allowed reactionary classes in Europe to make play with traditional sentiments in their fight for agrarian tariffs was responsible in America about a half century later for the success of the TVA and other progressive social techniques. The same needs of society which benefited democracy in the New World strengthened the influence of the aristocracy in the Old.

Opposition to mobilization of the land was the sociological background of that struggle between liberalism and reaction that made up the political history of Continental Europe in the nineteenth century. In this struggle, the military and the higher clergy were allies of the landed classes, who had almost completely lost their more immediate functions in society. These classes were now available for any reactionary solution of the impasse to which market economy and its corollary, constitutional government, threatened to lead since they were not bound by tradition and ideology to public liberties and parliamentary rule.

Such thoughts were narrowly time-bound. The stupendous industrial achievements of market economy had been bought at the price of great harm to the substance of society. The feudal classes found therein an occasion to retrieve some of their lost prestige by turning advocates of the virtues of the land and its cultivators. In literary romanticism Nature had made its alliance with the Past; in the agrarian movement of the nineteenth century feudalism was trying not unsuccessfully to recover its past by presenting itself as the guardian of man's natural habitat, the soil. If the danger had not been genuine, the stratagem could not have worked.

The fierce agrarianism of postwar Europe was a side light on the preferential treatment accorded to the peasant class for political reasons. From the Lappo movement in Finland to the Austrian Heimwehr the peasants proved the champions of market economy; this made them politically indispensable. The scarcity of food in the first postwar years to which their ascendency was sometimes credited had little to do with this. Austria, for instance, in order to benefit the peasants financially, had to lower her food standards by maintaining duties for grain, though she was heavily dependent upon imports for her food requirements. But the peasant interest had to be safeguarded at all cost even though agrarian protectionism might mean misery to the town dwellers and an unreasonably high cost of production to the exporting industries. The formerly uninfluential class of peasants gained in this manner an ascendency quite disproportionate to their economic importance. Fear of Bolshevism was the force which made their political position impregnable. And yet that fear, as we saw, was not fear of a working-class dictatorship - nothing faintly similar was on the horizon - but rather the dread of a paralysis of market economy, unless all forces were eliminated from the political scene that, under duress, might set aside the rules of the market game. As long as the peasants were the only class able to eliminate these forces, their prestige stood high and they could hold the urban middle class in ransom. As soon as the consolidation of the power of the state andeven before that - the forming of the urban lower middle class into storm troops by the fascists, freed the bourgeoisie from dependence upon the peasantry, the latter's prestige was quickly deflated. Once the "internal enemy" in town and factory had been neutralized or subdued, the peasantry was relegated to its former modest position in industrial society.

Free trade which, in 1846, had been fought and won on the Corn Laws, was eighty years later fought over again and this time lost on the same issue. The problem of autarchy haunted market economy from the start. Accordingly, economic liberals exorcised the specter of war and naively based their case on the assumption of an indestructible market economy. It went unnoticed that their arguments merely showed how great was the peril of a people which relied for its safety on an institution as frail as the self-regulating market. The autarchy movement of the twenties was essentially prophetic: it pointed to the need for adjustment to the vanishing of an order. The Great War had shown up the danger and men acted accordingly; but since they acted ten years later, the connection between cause and effect was discounted as unreasonable. "Why protect oneself against passed dangers?" was the comment of many contemporaries. This faulty logic befogged not only an understanding of autarchy but, even more important, that of fascism. Actually, both were explained by the fact that, once the common mind has received the impress of a danger, fear remains latent, as long as its causes are not removed.

A similar fallacy tricked those critics of fascism - they formed the great majority - who described fascism as a freak devoid of all political ratio. Mussolini, it was said, claimed to have averted Bolshevism in Italy, while statistics proved that for more than a year before the March on Rome the strike wave had subsided. Armed workers, it was conceded, occupied the factories in 1921. But was that a reason for disarming them in 1923, when they had long climbed down again from the walls where they had mounted guard? Hitler claimed he had saved Germany from Bolshevism. But could it not be shown that the flood of unemployment which preceded his chancellorship had ebbed away before his rise to power? To claim that he averted that which no longer existed when he came, as was argued, was contrary to the law of cause and effect, which must also hold in politics.

Actually, in Germany as in Italy, the story of the immediate postwar period proved that Bolshevism had not the slightest chance of success. But it also showed conclusively that in an emergency the working class, its trade unions and parties, might disregard the rules of the market which established freedom of contract and the sanctity of private property as absolutes - a possibility which must have the most deleterious effects on society, discouraging investments, preventing the accumulation of capital, keeping wages on an unremunerative level, endangering the currency, undermining foreign credit, weakening confidence and paralyzing enterprise. Not the illusionary danger of a communist revolution, but the undeniable fact that the working classes were in the position to force possibly ruinous interventions, was the source of the latent fear which, at a crucial juncture, burst forth in the fascist panic.

MARKET AND PRODUCTIVE ORGANIZATION

EVEN CAPITALIST business itself had to be sheltered from the unrestricted working of the market mechanism. This should dispose of the suspicion which the very terms "man" and "nature" sometimes awaken in sophisticated minds, who tend to denounce all talk about protecting labor and land as the product of antiquated ideas if not as a mere camouflaging of vested interests.

Actually, in the case of productive enterprise as in that of man and nature the peril was real and objective. The need for protection arose on account of the manner in which the supply of money was organized under a market system. Modern central banking, in effect, was essentially a device developed for