The Great Transformation PDF

 CHAPTER FOUR Societies and Economic Systems 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 e...

 CHAPTER FOUR Societies and Economic Systems 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 assump­ tions 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 orga­ nizing the whole of economic life without outside help or interference would certainly deserve to be called self-regulating. These rough indi­ cations 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, natu­ rally, 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 cen­ tury, gain and profit made on exchange never before played an impor­ tant 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 have good reason to insist on this point with all the emphasis at our command. No less a thinker than Adam Smith suggested that the division of labor in society was dependent upon the existence of markets, or, as he put it, upon man's "propensity to barter, truck and exchange one thing for another." This phrase was later to yield the concept of the Economic Man. In retrospect it can be said that no mis­ reading of the past ever proved more prophetic of the future. For while up to Adam Smith's time that propensity had hardly shown up on a considerable scale in the life of any observed community, and had re- [ 45 J [ 46 ] The Great Transformation mained, at best, a subordinate feature of economic life, a hundred years later an industrial system was in full swing over the major part of the planet which, practically and theoretically, implied that the hu­ man race was swayed in all its economic activities, if not also in its political, intellectual, and spiritual pursuits, by that one particular propensity. Herbert Spencer, in the second half of the nineteenth cen ­ tury, equated the principle o f the division o f labor with barter and ex­ change, and another fifty years later, Ludwig von Mises and Walter Lippmann could repeat this same fallacy. By that time there was no need for argument. A host of writers on political ec momy, social his­ tory, political philosophy, and general sociology had followed in Smith's wake and established his paradigm of the bartering savage as an axiom of their respective sciences. In point of fact, Adam Smith's suggestions about the economic psychology of early man were as false as Rousseau's were on the political psychology of the savage. Division of labor, a phenomenon as old as society, springs from differences in­ herent in the facts of sex, geography, and individual endowment; and the alleged propensity of man to barter, truck, and exchange is almost entirely apocryphal. While history and ethnography know of various kinds 'of economies, most of them comprising the institution of mar­ kets, they know of no economy prior to our own, even approximately controlled and regulated by markets. This will become abundantly clear from a bird's-eye view of the history of economic systems and of markets, presented separately. The role played by markets in the inter­ nal economy of the various countries, it will appear, was i nsign ificant up to recent times, and the changeover to an economy dominated by the market pattern will stand out all the more clearly. To start with, we must discard some nineteenth- century prejudices that underlay Adam Smith's hypothesis about primitive man's alleged predilection for gainful occupations. Since his axiom was much more relevant to the immediate future than to the dim past, it induced in his followers a strange attitude toward man's early history. On the face of it, the evidence seemed to indicate that prim itive man, far from hav­ ing a capitalistic psychology, had, in effect, a communistic one (later this also proved to be mistaken). Consequently, economic historians tended to confine their interest to that comparatively recent period of history in which truck and exchange were found on any considerable scale, and primitive economics was relegated to prehistory. Uncon- Societies and Economic Systems [ 47 1 sciously, this led to a weighting of the scales in favor of a marketin g psychology, for within the relatively short period of the past few cen­ turies everything might be taken to tend toward the establishment of that which was eventually established, i.e., a market system, irrespec­ tive of o ther tendencies which were temporarily submerged. The cor­ rective of such a "short-run" perspective would obviously have been the linking up of economic history with social anthropology, a course which was consistently avoided. We cannot continue today on these lines. The habit of looking at the past 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 ap ­ p roximately with the public atio n of the Wealth of Nations in 1776, is, to say the least, out of date. It is this episode which has come to a dose in our days, and in trying to gauge the alternatives of the future, we should subdue our natural proneness to follow the proclivities of o u r fathers. But the same bias which made Adam Smith's genera tion 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 al­ leged propensities of man in the state of nature, was replaced by an abandonment of all interest in the cultures of "uncivilized" man as ir­ relevant to an understandin g of the p rob lems of our age. Such an attitude of subj ectivism in regard to earlier civilizations should make no appeal to the scientific mind. The differences existing between civilized and "uncivilized" peoples h ave been vastly exagger­ ated, espe ci ally in the economic sphere. A c cording to the historians, the forms of industrial life in agricultural Europe were, until recently, not much different from what t hey had been several thousand years earlier. Ever since the introduction of the plough- essentially a large hoe drawn by animals-the methods of a griculture remained sub­ stantially unaltered over the major part of Western and Ce nt ra l Eu­ rope until the beginning of the modern age. Indeed, the progress of civilization was, in these regio ns , mainly political , intellectual, and spiritual; in respect to material conditions, the Western Europe of A. D. noo h a d hardly caught u p with the Roman world o f a th ousand years before. Even later, change flowed more easily in the channels of state­ craft, literature, and the arts, but particularly in those of rel ig ion and learning, than in those of industry. In its economics, medieval Europe [ 48 ] The Great Transformation was largely on a level with ancient Persia, India, or China, and cer ­ tainly could not rival in riches and culture the N e w Kingdom o f Egypt, two thousand years befo re. Max Weber was the first among modern economic historians to protest against the brushing aside of primitive economics as i rrelevant to the question of the motives and mecha­ nisms of civilized societies. The subsequent work of social anthropol­ ogy proved him emphatically ri ght. For if one conclusion stands out more clearly than another from the recent study of early societies , it is the changelessness of man as a social being. His natural endowments reappear with a remar kable constancy in societie$ of all times and places; and the necessary preconditions of the survival ofhuman sod­ ety appear to be immutably the sam e. The outstanding discovery of recent historical and anthropologi­ cal research is that man's economy, as a rule, is sub m erged in his social relationships. He does not act so as to safegu ar d his individual interest in the possession of material goods; he acts so as to safeguard his social standing , his social claims, his socia l assets. He values material goods only in so far as they se r ve this end. Neither the process of production nor th.at of di str ib u t i on is linked to sp eci fi c economic interests attached to the po sse ssion of goods; but every single step in that pro­ cess is geared to a number of social interests which eventually ensure that the required step be taken. These interests will be very d i fferent 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 noneco ­ nomic motives. The explanation , in terms of su r vival , is simple. Take the case of a tribal society. The individual's economic interest is rarely paramount, for the community keeps all its members from starv ing unless it is it­ self borne down by catastrophe, in which case interests are again threatened collectively, not individually. The maintenance of social ties, on the other hand , is c r u c ial. First, because by disregarding the ac­ cepted code of honor, or gene rosity, the individual cuts hi m self off from the community and becomes an outcast; second, because, in the long run, all social obligations are reciprocal, and their fulfillment serves also the individual's give - and - take interests best. Such a situa­ tion must exert a continuous pressure on the individual to eliminate economic self-interest from his consciousness to the point of m aking him unable, in many cases (but by no means in all ), even to compre- Societies and Economic Systems [ 49 ] hend the implications of his own actions in terms of such an interest. This attitude is reinforced by the frequency of communal activities such as partaking of food from the common catch or sharing in the re­ sults of some far- flung and dangerous tribal expedition. The premium set on generosity is so great when measured in terms of social prestige as to make any other behavior than that of utter self-forgetfulness sim­ ply not pay. Personal character has little to do with the matter. Man can be as good or evil, as social or asocial, jealous or generous, in respect to one set of values as in respect to another. Not to allow anybody reason for jealousy is, indeed, an accepted principle of ceremonial distribu­ tion, just as publicly bestowed praise is the due of the industrious, skil­ ful, or otherwise successful gardener ( unless he be too successful, in which case he may deservedly be allowed to wither away under the de­ lusion of being the victim of black magic). The human passions, good or bad, are merely directed toward noneconomic ends. Ceremonial display serves to spur emulation to the utmost and the custom of com­ munal labor tends to screw up both quantitative and qualitative stan ­ dards to the highest pitch. The performance of acts of exchange byway of free gifts that are expected to be reciprocated though not necessarily by the same individuals-a procedure minutely articulated and per­ fectly safeguarded by elaborate methods of publicity, by magic rites, and by the establishment of "dualities" in which groups are linked in mutual obligations-should in itself explain the absence of the notion of gain or even of wealth other than that consisting of objects tradi­ tionally enhancing social prestige. In this sketch of the general traits characteristic of a Western Mela­ nesian community we took no account of its sexual and territorial or­ ganization, in reference to which custom, law, magic, and religion ex­ ert 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, es­ pecially, the absence of any separate and distinct institution based on economic motives. But how, then, is order in production and distribu­ tion ensured? The answer is provided in the main by two principles of behavior not primarily associated with economics: reciprocity and redistribu- [ 50 ] The Great Transformation tion. * With the Trobriand Islanders of Western Malanesia, who serve as an illustration of this type of economy, reciprocity works mainly in regard to the sexual organ ization of society, that is, family and kinship; redistribution is mainly effective in respect to all those who are u nder a common chief and is, therefore, of a territorial character. Let us take these principles separately. The sustenance of the family the female and the children-is the obligation of their matrilineal relatives. The male, who provides for his sister and her family by delivering the finest specimens of his crop, will mainly earn the credit due to his goo behavior, but will reap little immediate material benefit in exchange; if he is slack, it is first and foremost his reputation that will suffer. It is for the benefit of his wife and her children that the principle of reciprocity will work, and thus com pensate him economically for his acts of civic virtue. Ceremonial display of food both in his own garden and before t he re­ cipient's storehouse will ensure that the high quality of his gardening b e known to all. It is apparent that the economy of garden and house­ hold here forms part of the social relations connected with good hus­ bandry, and fine citizenship. The broad principle of reciprocity helps to safe guard both production and family sustenance. 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 cen­ ters 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 longdistance 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 im­ portance of the storage system becomes apparent. Economically, it is an essential part of the existing system of division of labor, of foreign trading, of t axation for public purposes, of defense provisions. But these functions of an economic system proper are completely ab­ sorbed by the intensely vivid experiences which offer superabundant noneconomic motivation for every act performed in the frame of t he social system as a whole. However, principles of behavior such as these cannot become effective unless existing institutional patterns lend themselves to their " Cf. Notes on Sources, p. 277. The works of Malinowski and Thu rnwald have been extensively used in this chapter. Societies and Economic Systems [ 51 ] application. Reciprocity and redistribution are able to ensure the working of an economic system without the help of written records and elaborate admin istration only because the organization of the so­ cieties in question meets the requirements of such a solution with the help of patterns such as symmetry and centricity. Reciprocity is enormou sly facilitated by the institutional pattern of symmetry, a frequent feature of social organization among nonlit­ erate peoples. The st riking "duality" which we find in tribal subdivi­ sions lends itself to the pairing out of individual relations and thereby ass ists the give- and-take of goods and services in the absence of per­ manent records. The moieties of savage society which tend to create a "p endant" to each subdivision, turned out to result from, as well as help to perform, the acts of reciprocity on which the system rests. Lit­ tle is known of the origin of "duality"; but each coastal village on the Trobriand Islands appears to have its counterpart in an inland village, so that the important exchange of breadfruits and fish, though dis­ guised as a reciprocal distribution of gifts, and actually disjoint in time, can be organized smoothly. In the Kula trade, too, each individ­ ual has his partner on another isle, thus personalizing to a remarkable extent the relationship of reciprocity. But fo r the frequency of the symmetrical pattern in the subdivisions of the tribe, in the location of settlements, as well as in intertribal relations, a b road reciprocity rely­ ing on the long- run working of separated acts of give-and- take would be impracticable. The institutional pattern of centricity, again, which is present to some extent in all human groups, provide 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 redistribu­ tion. It is in the nat u re of hunting that the output of game is irregular, besides b eing the result of a collective input. Under cond itions such as these no other method of sharing is practicable if the group is not to b reak up after every hunt. Yet in all economies of kind a similar need exists, be the group ever so nu merous. 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 cent ricity will meet halfway the needs of reciproc­ ity and redistribution; institutional patterns and principles of behav­ ior are mutually adjusted. As long as social organ ization runs in its [ 52 ] The Great Transformation ruts, no individual economic motives need com e into play; no shirk­ ing of personal effort need be feared; division o f labor will autom ati­ cally be ensured; economic obligations will be duly d ischarged; 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 ac­ claimed as a virtue; the supposed propensity to barter, truck, and ex­ change does not appear. The economic system is, in effect, a mere function of social organization. It should by no means be inferred that socioec nomic principles of this type are restricted to primitive proced ures or small communities; that a gainless and marketless economy must necessarily be simple. The Kula ring, in western Melanesia, based on the principle of reci­ procity, is one of the most elaborate trading transactions known to man; and redistribution was present on a gigantic scale in the civiliza­ tion of the Pyr am ids. The Trobriand Islands belong to an archipelago forming roughly a circle, and an important part of the population of this archipelago spends a considerable p roportion 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 good s are hoarded or even p ossessed perma­ nently; the goods received are enjoyed by giving them away; no hig­ gling 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 obj ect to peoples living on distant islands situated dock­ wise, while other expeditions are arranged carrying another kind of valuable obj ect to the islands of the arch ipelago lying counterclock­ wise. In the long run, both sets of objects-white-shell arm band s and red-shell necklaces of traditional make-wil l move round the archi­ p elago, a traj ect which m ay take them up to ten years to complete. Moreover, there are, as a rule, individual partners in Kula who recipro­ cate one another's Ku la gifts with equally valuable armbands and necklaces, preferably such as have previously belonged to distin­ guished persons. Now, a 1;ystematic and organized give and take of - - valuable objects transported over long distances is j u stly described as trade. Yet this complex whole is exclusively run on the lines of reci­ procity. An intricate time-space-person system covering hundreds of Societies and Economic Systems [ 53 ] miles and several decades, l inking many hund red s of people in respect to thousands of strictly individual objects, is being handled here with­ out any records or ad ministration, but also without any motive of gain or truck. Not the propensity to barter, but reciprocity in social behav­ ior do minates. Nevertheless, the result is a stupendous organizational achievement in the economic fi eld. Indeed, it would be interesting to consider whether even the most advanced modern market organiza­ tion, 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 unfor­ tunate dealers, faced with innumerable monopolists buying and sell­ ing individual objects with extravagant restrictions attached to each transaction, would fail to make a standard profit and might prefer to go out ofbusiness. Redistribution also has its long and variegated history which leads up al most to modern t imes. The Berg dama returning from his hunt­ ing excursion, the woman coming back from her search for roots, fruit, or leaves are expected to offer the greater part of their spoil for the benefit of the community. In practice, this means that the produce of their activity is shared with the other persons who happen to be liv­ ing with them. Up to this point the idea of reciprocity prevails: today's giving will be recompensed by tomorrow's taking. Among some tribes, however, there is an intermed iary in the person of the headman or other prominent member of the group; it is he who receives and dis­ tributes the supplies, esp ecially if they need to be stored. This is redis­ tribution proper. Obviously, the social consequences ofsuch a method of distribution may be far-reaching, since not all societies are as demo­ cratic as th e primitive hunters. Whether the redistributing is p er­ for med by an influential family or an outstanding individual , a ruling aristocracy or a group of bureaucrats, they will often attempt to in­ crease their political power by the manner in which they redistribute the goods. In the potlatch ofthe Kwakiutl it is a point o fhonor with the chief to display his wealth of hides and to d istribute them; but h e does this also in order to place the recipients under an obligation, to make them his debtors, and ultimately, his retainers. All large-scale economies in kind were run with the help of the principle of redistribution. The kingdom ofHammurab i in Babylonia and, in particular, the New Kingdom o f Egypt were centralized despo­ tisms of a bureaucratic type fou nded on such an economy. The house­ hold of the patriarchal family was reproduced here on an enormously [ 54 ] The Great Transformation enlarged scale, wh i le its "communistic" distr ibut ion was graded, in­ l vo v i n g sharply differentiated rations. A vast number of storehouses was ready to receive the produce of the peasant's activity, wheth er he was cattle-breeder, hunter, baker, brewer, potter, weaver, or whatever else. The produce was m in utely registered and, insofar as it was not consumed locally, transfe rred from smaller to larger storehouses until it reached the central a dmin i strat ion situated at the court of the Ph a­ raoh. There were separate treasure houses for cloth, works of art, orn a­ mental obj ects, cosmetics, silverware, the royal wardrobe; there were huge grain stores, arsenals, and wine cellars. But redistribution on the scale practiced by the pyramid builders was not restric ted to economies wh i ch knew not money. Indeed, all ar­ chai c kingdoms made use of metal currencies for the payment of taxes and salari e s , but rel i ed for the rest on payments in kind from granaries and warehouses of every description, from which they distributed the most varied goods for use and consumption mai nly to the nonpro­ d ucing part of the population, that is, to the officials, the military, and the leisure class1 This was the system practiced in ancient Ch i na, in the empire of the Incas, in the kingdoms of lndia, and also in Babylonia. In these, and many other civilizations ofhigh economic achievement, an elaborate division oflabor was worked by the mechanism of redis­ tribution. Under feudal conditions also th i s principle held. In the ethnically stratified societies of Africa it sometimes happens that the superior stratum consist of herdsmen settled among agricultu ralists who are still using the d igging stick or the hoe. The gifts collected by the herds­ men are mai nly 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 bene­ fits the standards of both strata owing to the advantages of an im­ proved division oflabor. 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 subj e c t of redistribution, could therefore say that feu­ dalism implied everywhere a system of redistribution. Only under very advan ced conditions and exceptional circumstances does this system become predominantly politic al, as happen ed in Western Eu- Societies and Economic Systems [ 55 1 rope, 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 re­ gime, whether it be that of tribe, city- state, despotism, or feudalism of cattle or l and. The production and distribution of goods is organized in the main through.collection, storage, and redistribution, the pat­ tern being focused on the chief, the temple, the despot, or the lord. Since the relations of the leading group to the led are different ac­ cord ing 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 punish­ ment which urges the fellaheen to deliver their taxes in kind. We deliberately d isregarded in this p resentation the vital distinc.: tion between homogeneous and stratified societies, i.e., societies wh ich are on the whole socially unified, and as such are split into rul­ ers and ruled. Though the relative status of slaves and masters may be worlds apart from that of the free and equal members of some hunting tribes, and, consequently, motives in the two societies will differ widely, the organization of the economic system may still be based on the same principles, though accompanied by very different culture traits, according to the very different human relations with which the economic system is intertwined. The third principle, which was destined to play a big role in history and which we will call the principle of householding, consists in pro­ duct ion for one's own use. The Greeks called it reconomia, the etymon of the word "economy." As far as ethnograph ical records are con­ cerned, 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 theo­ ri es on the subject have been emphatically disproved. The individual­ ist ic savage collecting food and hunting on his own or for his fami ly 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 ad­ vanced level of agriculture; however, even then it has nothing in com­ mon 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 [ 56 ) The Great Transformation 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 indiffer­ ent: it may be sex as with the patriarchal family, locality as with the vil­ lage settlement, or political power as with the seigneurial manor. Nor does the i nternal organization of the group matter. It may be as des­ potic 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 ofWestern Europe.. The need for trade or markets is no greater than in the case of reciprocity or redistri­ bution. It is such a condition of affairs which Aristotle tried to establish as a norm more than two thousand years ago. Looking back from the rapidly declining heights of a worldwide market economy, we must concede that his famous distinction of householding proper and money-making, in the introductory chapter ofhis Politics, was proba­ bly the most prophetic pointer ever made in the realm ofthe social sci­ ences; it is certainly still the best analysis of the subject we possess. Ar­ istotle insists on production fo r use as against production for gain as the essence of householding proper; yet accessory production for the market need not, he argues, destroy the self-sufficiency of the house­ hold as long as the cash crop would also otherwise be raised on the farm for sustenance, as cattle or grain; the sale of the surpluses need not destroy the basis ofhouseholding. Only a genius of com m on sense could have maintained, as he did, that gain was a motive peculiar to production for the market, and that the money factor introduced a new element into the situation, yet nevertheless, as long as markets and money were mere accessories to an otherwise self-sufficient household, the principle of production for use could operate. Un­ doubtedly, in this he was right, though he failed to see how impractica­ ble it was to ignore the existence of markets at a time when Greek econ­ omy had made itself dependent upon wholesale trading and loaned capital. For this was the century when Delos and Rhodes were devel­ oping into emporia of freight insurance, sea-loans, and giro-banking, compared with which the Western Europe of a thousand years later was the very picture of primitivity. Yet Jowett, Master of Balliol, was grievously mistaken when he took it for granted that his Victorian En­ gland had a fairer grasp than Aristotle of the nature of the difference Societies and Economic Systems [ 57 ] between householding and money-making. He excused Aristotle by conceding that the "subjects of knowledge that are concerned with m an run into one another; and in the age of Aristotle were not easily distinguished." Aristotle, it is true, did not recognize clearly the impli­ cations of the division of labor and its connection with markets and money; nor did he realize the uses of money as credit and capital. So far Jowett's strictures were justified. But it was the Master of Balliol, not Aristotle, who was impervious to the human implications of money-making. He failed to see that the d istinction between the prin­ ciple of use and that o f gain was the key to the utterly different civiliza­ tion the outlines of which Aristotle accurately forecast two thousand years before its advent out of the bare rudiments of a market economy available to him, while Jowett, with the full- grown specimen before him, overlooked its existence. In denouncing the principle of produc­ tion for gain as boundless and limitless, "as not natural to man;' Aris­ totle was, in effect, aiming at the crucial point, namely, the divorce of the economic motive from all concrete social relationships which would by their very nature set a limit to that motive. Broadly, the proposition holds that all economic systems known to us up to the end of feudalism in Western Europe were organized either on the principle of reciprocity or redistribution, or house­ holding, or some combination of th e three. These principles were in­ stitutionalized with the help of a social organization which, inter alia, made use of the patterns of symmetry, centricity, and autarchy. In this framework, the orderly production and distribution of goods was se­ cured through a great variety of individual motives disciplined by general principles of behavior. Among these motives gain was not prominent. Custom and law, magic and religion cooperated in induc­ ing the individual to comply with rules of behavior which, eventually, ensured his functioning in the economic system. 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 ad­ ministration 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 o nward markets were b oth numerous y and important. Under the mercantile system the became, in effect, a [ 58 ] The Great Transformation 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 p ractically to neglect in our review of the economic systems of th e p ast.  CHAPTER SIX The Self-Regulating Market and the Fictitious Commodities: Labor, Land, and Money T his cursory oudine 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 expan d at the expense of the rest. Where markets were most highly developed, as un­ der the mercantile system, they throve under the control of a central­ ized administration which fostered autarchy both in the household 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 re­ versal 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 market prices; order in the production and distribu­ tion of goods is entrusted to thi s self-regulating mechan ism. An econ­ omy of this kind derives from the expectation that human beings be­. have in such a way as to achieve maximum money gains. It assumes markets in which the supply of good s ( 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 depen d upon them; the distribution of the goods also will depend upon prices, for prices form £1- incomes, and it is with the h p of these incomes that the goods pro­ duced are distrib uted amongst the members of society. Under these [ 71 ] [ 72 ] The Great Transformatio n assumptions order in the production and distribution of goods is en sured by prices alone. Self-regulati on 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 in­ cluding services) but also for labor, land, and money, their prices be­ ing 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 po ­ sition to provide it; rent is the price for the use of l nd and forms the income of those who supply it; wages are the price for the use of labor p ower and form the income of those who sel l it; commodity prices, finally, contribute to the incomes of those who sell their entrepreneur­ ial services, the income called profit being actually the difference be­ tween two sets of prices, the price of the goods produced and their cost, i.e. , the price of the goods necessary to produce them. If these conditions are fulfilled, all i ncomes derive from sales on the market, and incomes will be just sufficient to buy all the goods produced. A further group of assumptions follows in respect to the state and its policy. Nothing must be allowed to inhibit the formation of mar­ kets, nor must incomes be permitted to be formed otherwise than through sales. Neither must there be any interference with the adjust­ ment of prices to changed market conditions-whether the prices are those of goods, labor, land, or money. Hence there must not only be markets for all elements of industry, but no measure or policy m ust be countenanced that would influence the action of these markets. Nei­ ther price, nor supply, nor demand must be fixed or regulated; o n ly such policies and measures are in order which help to ensure the sel f­ regulation of the market by creating conditions which make the mar­ ket the only organizing power in the economic sphere.* To realize fully what this means, let us return for a moment to the mercantile system and the national markets which it did so much to develop. Under feudalism and the guild system land and labor formed part of the social organization itself (money had yet hardly developed into a major element of industry). Land, the pivotal element in the feudal order, was the basis of the m ilitary, judicial, administ rative, and * Henderson, H. D., Supply and Demand, 1922. The function of the market is two­ fold: the apportionment of factors between different uses and the organizing of the forces influencing aggregate supplies of factors. Th e Self-Regulating Market and the Fictitious Commodit ies [ 73 ] political system; its status and function were determined by legal and customary rules. Whether its possession was transferable or not, and if so, to whom and under what restrictions; what the rights of property entailed; to what uses some types of lan d m ight be put-all these questions were removed from the organ ization ofbuying and selling, and subjected to an entirely different set of instit utional regulations. The same was true of the organization of labor. Under the guild 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 relation s of master, journey­ man, and apprentice; the terms of the craft; the number of appren­ tices; the wages of the workers were all regulated by the custom and rule of the guild and the town. What the mercantile system did was merely to un ify these conditions either through statute as in En gland, or through the "nationalization'' of the guilds as in France. As to land, its feudal status was abolished only insofar as it was linked with pro ­ vincial priv ileges; for the rest, land remained extra commercium, in England as in France. Up to the time of the Great Revolution of 1 789, landed estate remained the source of social privilege in France, and even after that time in Englan d Common Law on land was essentially medieval. Mercantil ism, with all its tendency toward commercializa­ tion, never attacked the safeguards which protected these two basic el­ ements 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) re­ moved labor fro m the danger zone, and the anti-enclosure policy of the Tudors and early Stuarts was one consistent protest agai nst the principle of the gainful use of landed property. That mercantil ism, however emphatically it insisted on commer­ cialization as a national policy, thought of markets in a way exactly contrary to market economy, is best shown by its vast extension of state intervention in industry. On this point there was no difference between mercantilists and feudalists, between crowned plan ners and vested i nterests, between centralizing b ureaucrats and conservative particularists. They disagreed only on the methods of regulatio n: guilds, towns, and provinces appealed to the force o f custom and tra­ dition, while the new state authority favored statute and ordinance. But they were all equally averse to the idea of commercializing labor and land-the precondition of market economy. Craft guilds and feu- [ 74 ] The Great Transformation dal privileges were abolished in france only in 1790; in England the Statute of Artificers was repealed only in 1813-14, the Elizabethan Poor Law in 1834. Not before the last decade of the eighteenth century was, in either country, the establishment of a free labor market even dis­ cussed; and the idea of the self-regulation of economic life was utterly beyond the horizon of the age. The mercantilist was concerned with the development of the resources of the country, including full em­ ployment, through trade and commerce; the traditional organiz at ion of land and labor he took for granted. He was in this respect as far re­ moved from modern concepts as he was in the realm of politics, where his belief in the absolute powers of an enlightened despot was tem­ pered by no intimations of democracy. And j ust as the transition to a democratic system and representative politics involved a complete re­ versal of the tren d of the age, the change from regulated to self­ regulating markets at th e end of the eighteenth century represented a complete transformation in the structure of society. A self--regulating market demands nothing less than the institu­ tional separation of society into an econo m ic and a 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 mar­ ket. It m ight be argued that the separateness ofthe two spheres obtai ns in every type of society at all times. S uch an i n ference, however, would be based on a fallacy. True, no society can exist without a system of some kind which ensures order in the p roduction and distrib ution of goods. But that does not imp ly the existence of separate economic i n­ stitutions; normally, the economic order is merely a function of the social order. N either u nder tribal nor under feudal nor under mercan ­ tile conditions was there, as we saw, a separate econ omic system in so­ ciety. Nineteenth-century society, in which econ omic activity was iso­ lated and imputed to a distinctive economic motive, was a singular departure. Such an institutional pattern could not have functioned unless so­ ciety was somehow subordinated to its requirements. A market econ­ omy can exist only in a market society. We reached this conclusion on general gro unds in our analysis of the market pattern. We can now specify the reasons for this assertion. A market economy must com­ prise all elements of industry, including labor, land, and money. ( In a market economy money also is an essential element of industrial life and its inclusion in the market mechanism has, as we will see, far- The Se lf Regulating Market· and the Fictitious Commodities f 75 ] reaching institutional conse quences. ) B ut labor and land are no other than the human b eings th emselves ofwhich every society consists a n d the natural sur r oundings in which it exists. To include them in the market mechanism means to subordinate the substance of society it­ self to the laws of the market. We are now in the position to develop in a more con crete form the institutional nature of a market economy, and the perils to society which it involves. We will, first, describe the methods by which the market mechanism is enabled to control and direct the actual ele­ ments o f industrial life; s econdly, we will try to gauge the nature o f the effects of such a mechan is m on the society which i s subjected to its action. It is with the help of the commodity concept that the mechanism of the market is geared to the various elements of industrial life. Com­ modi ties are here empirically defined as obj ects produced for sale on the market ; markets, aga i n, are empirically defined as actual contacts between buyers and sellers. Accordingly, every element of industry is regarded as having been produced for sale, as then and t hen only will it be subject to the supply-and- demand mechanism interacting with price. In practice this means that there must b e markets for every ele­ ment of industry; that in these markets each of these elements is o rga­ nized into a supply and a demand group ; and that each element has a price which interac ts with demand and supply. These markets-and they are numberless-are interconnected and form One Big Market. * The crucial point is this: labor, land, and money are essential ele­ ments of industry; they also must be organized in markets; in fact, these markets form an ab sol utely vital part of the economic system. But labor, land, an d money are obviously n o t comm odities; the postu­ late that anything that is bought and sold must have been produced for sale is emphatically untrue in regard to them. In other words, ac­ cording to the empirical definition of a comm odity they are not com­ modities. Labor is only another name for a human activity which goes with life itself, which in its tum is not produced for sale but for entirely different reasons, nor can that activity be detached from the rest oflife, be stored or mobili d; land is only another name for nature, which is not pro duced by man; actual money, finally, is merely a token of pur­ chasing power which, as a rule, is not pro d uce d at all, but comes into Hawtrey, G. R., op. cit I t fu n ct i o n is seen by Hawtrey in making "the relative market values of all commodities mutually consistent. ".. [ 76 ] The Great Transformation being through the mechanism of banking or state finance. None of them is p roduced for sale. The commodity description of labor, land, and money is entirely fictitious. Nevertheless, it is with the help of this fiction that the actual mar­ kets for labor, land, and money are organized*; these are being actually bought and sold on the market; their demand and supply are real mag­ nitudes; and any measures or policies that would inhibit the forma­ tion of such markets would ipso facto endanger the self-regulation of the system. The commodity fiction, therefore, supplies a vital orga­ nizing principle in regard to the whole of society