[ 701 The Great Transformation conditions. For any temporary intrusion of buyers or sellers in the market must destroy the balance and disappoint regular buyers or sell­ ers, with the result that the market will cease to function. The former purveyors will cease to offer their goods as they cannot be sure that CHAPTER SIX their goods will fetch a price, and the market left without sufficient The Self-Regulating Market and supply will become a prey to the monopolist. To a lesser degree, the same dangers were present on the demand side, where a rapid falling the Fictitious Commodities: off might be followed by a monopoly ofdemand. With every step that the state took to rid the market ofparticularist restrictions, oftolls and Labor, Land, and Money prohibitions, it imperiled the organized system ofproduction and dis­ tribution which was now threatened by unregulated competition and "his cursory outline of the economic system and markets, taken the intrusion ofthe interloper who "scooped" the market but offered .1 separately, shows that never before our own time were markets no guarantee ofpermanency. Thus it came that although the new na­ more than accessories ofeconomic life. As a rule, the economic system tional markets were, inevitably, to some degree competitive, it was the was absorbed in the social system, and whatever principle ofbehavior traditional feature ofregulation, not the new element ofcompetition, predominated in the economy, the presence ofthe market pattern was which prevailed. *The self-sufficing household ofthe peasant laboring found to be compatible with it. The principle ofbarter or exchange, for his subsistence remained the broad basis ofthe economic system, which underlies this pattern, revealed no tendency to expand at the which was being integrated into large national units through the for­ expense ofthe rest. Where markets were most highly developed, as un­ mation ofthe internal market. This national market now took its place der the mercantile system, they throve under the control ofa central­ alongside, and partly overlapping, the local and foreign markets. Agri­ ized administration which fostered autarchy both in the household of culture was now being supplemented by internal commerce-a sys­ peasantry and in respect to national life. Regulation and markets, tem ofrelatively isolated markets, which was entirely compatible with in effect, grew up together. The self-regulating market was unknown; the principle ofhouse holding still dominant in the countryside. indeed the emergence ofthe idea ofself-regulation was a complete re­ This concludes our synopsis ofthe history ofthe market up to the versal of the trend ofdevelopment. It is in the light ofthese facts that time ofthe Industrial Revolution. The next stage in mankind's history the extraordinary assumptions underlying a market economy can brought, as we know, an attempt to set up one big self-regulating alone be fully comprehended. market. There was nothing in mercantilism, this distinctive policy of A market economy is an economic system controlled, regulated, the Western nation-state, to presage such a unique development. The and directed by market prices; order in the production and distribu­ "freeing" of trade performed by mercantilism merely liberated trade tion ofgoods is entrusted to this self-regulating mechanism. An econ­ from particularism, but at the same time extended the scope ofregula­ omy ofthis kind derives from the expectation that human beings be­ tion. The economic system was submerged in general social relations; have in such a way as to achieve maximum money gains. It assumes markets were merely an accessory feature of an institutional setting markets in which the supply ofgoods (including services) available at controlled and regulated more than ever by social authority. a definite price will equal the demand at that price. It assumes the presence ofmoney, which functions as purchasing power in the hands * Montesquieu, L'Esprit des lois, 1748. "The English constrainthe merchant, but it is of its owners. Production will then be controlled by prices, for the in favour ofcommerce:' profits of those who direct production will depend upon them; the distribution ofthe goods also will depend upon prices, for prices form incomes, and it is with the h~p of these incomes that the goods pro­ duced are distributed amongst the members of society. Under these [ 71

-~ [ 72 The Great Transformation The Self-Regulating Market and the Fictitious Commodities [ 73 ] assumptions order in the production and distribution ofgoods is en­ system; its status and function were determined legal and sured by prices alone. customary rules. Whether its possession was transferable or not, and Self-regulation implies that all production is for sale on the market ifso, to whom and under what restrictions; what the rights ofproperty and that all incomes derive from such sales. Accordingly, there are entailed; to what uses some types of land might be put-all these markets for all elements of industry, not only for goods (always in­ questions were removed from the organization ofbuying and selling, cluding services) but also for labor, land, and money, their prices be­ and subjected to an entirely different set of institutional regulations. ing called respectively commodity prices, wages, rent, and interest. The same was true of the organization of labor. Under the The very terms indicate that prices form incomes: interest is the price system, as under every other economic system in previous history, the for the use ofmoney and forms the income ofthose who are in the po­ motives and circumstances ofproductive activities were embedded in sition to provide it; rent is the price for the use ofl,!nd and forms the the general organization ofsociety. The relations of master, journey­ income ofthose who supply it; wages are the price for the use oflabor man, and apprentice; the terms of the craft; the number of appren­ power and form the income of those who sell it; commodity prices, tices; the wages of the workers were all regulated by the custom and contribute to the incomes ofthose who sell their entrepreneur­ rule of the guild and the town. What the mercantile system did was ial services, the income called profit being actually the difference be­ merely to unify these conditions either through statute as in England, tween two sets of prices, the price of the goods produced and or through the "nationalization" ofthe guilds as in France. As to cost, i.e., the price of the goods necessary to produce them. If these its feudal status was abolished only insofar as it was linked with pro- conditions are fulfilled, all incomes derive from sales on the market, privileges; for the rest, land remained extra commercium, in and incomes will be just sufficient to buy all the goods produced. England as in France. Up to the time ofthe Great Revolution Of1789, A further group ofassumptions follows in respect to the state and landed estate remained the source of social privilege in France, and its policy. Nothing must be allowed to inhibit the formation of mar­ even after that time in England Common Law on land was essentially kets, nor must incomes be permitted to be formed otherwise than medieval. Mercantilism, with all its tendency toward commercializa­ through sales. Neither must there be any interference with the adjust­ tion, never attacked the safeguards which protected these two basic el­ ment ofprices to changed market conditions-whether the prices are ements ofproduction-labor and land-from becoming the objects those of goods, labor, land, or money. Hence there must not only be of commerce. In England the "nationalization" of labor legislation markets for all elements ofindustry, but no measure or policy must be through the Statute of Artificers (1563) and the Poor Law (1601) re­ countenanced that would influence the action of these markets. Nei­ moved labor from the danger zone, and the anti-enclosure policy of ther price, nor supply, nor demand must be fixed or regulated; the Tudors and early Stuarts was one consistent protest against the such policies and measures are in order which help to ensure the self­ principle ofthe gainful use oflanded property. regulation ofthe market by creating conditions which make the mar- mercantilism, however emphatically it insisted on commer­ the only organizing power in the economic sphere. * cialization as a national policy, thought of markets in a way exactly To realize fully what this means, let us return for a moment to the contrary to market economy, is best shown by its vast extension of mercantile system and the national markets which it did so much to state intervention in industry. On this point there was no difference develop. Under feudalism and the guild system land and labor formed between mercantilists and feudalists, between crowned planners and part ofthe social organization itself (money had yet hardly developed vested interests, between centralizing bureaucrats and conservative into a major element of industry). Land, the pivotal element in particularists. They disagreed only on the methods of regulation: feudal order, was the basis ofthe military, judicial, administrative, and guilds, towns, and provinces appealed to the force ofcustom and tra­ dition, while the new state authority favored statute and ordinance. * Henderson, H. D., Supply and Demand, 1922. The function ofthe market is two­ fold: the apportionment of factors between different uses and the organizing of the But they were all equally averse to the idea of commercializing labor forces influencing aggregate supplies offactors. andland-the precondition ofmarket economy. Craft guilds and feu­

...... [ 74 The Great Transformation The Self-Regulating Market and the Fictitious Commodities [75] dal privileges were abolished in France only in 1790; in England the reaching institutional consequences.) But labor and land are no other Statute was repealed only in 1813-14, the Elizabethan Poor than the human beings themselves ofwhich every society consists and Law in 1834. Not before the last decade ofthe eighteenth century was, the natural surroundings in which it exists. To include them in the in either country, the establishment of a free labor market even market mechanism means to subordinate the substance ofsociety it­ cussed; and the idea ofthe self-regulation ofeconomic life was self to the laws ofthe market. beyond the horizon ofthe age. The mercantilist was concerned We are now in the position to develop in a more concrete form the the development of the resources of the country, including fun em­ institutional nature of a market economy, and the perils to society ployment, through trade and commerce; the traditional organization We will, first. describe the methods bv which the ofland and labor he took for granted. He was in this respect as far re­ moved from modern concepts as hewas in the realm ofpolitics, where ments ofindustrial his belief in the absolute powers of an enlightened despot was tem­ effects of such a mechanism on the society pered by no intimations of democracy. And just as the transition to a action. democratic system and representative politics involved a complete re­ It is with the help ofthe commodity concept that the mechanism versal the trend of the age, the change from regulated to self­ ofthe market is geared to the various elements ofindustrial Com­ regulating markets at the end of the eigllteenth century represented a modities are here empirically defined as objects produced for sale on complete transformation in the structure ofsociety. the market; markets, again, are empirically defined as actual contacts A self-regulating market demands nothing less than the institu­ between buyers and sellers. Accordingly, every element ofindustry is into an economic and a political sphere. regarded as having been produced for sale, as then and then only will Such a dichotomy is, in effect, merely the restatement, from it be subject to the supply-and-demand mechanism interacting with ofview ofsociety as a whole, ofthe existence ofa self-regulating price. In practice this means that there must be markets for every ele­ keto It migllt be argued that the separateness ofthe two spheres that in these markets each ofthese elements is orga­ in every type ofsociety at all times. Such an inference, however, would into a supply and a demand group; and that each element has a be based on a fallacy. True, no society can exist without a system of price which interacts with demand and supply. These markets-and some kind which ensures order in the production and distribution of they are interconnected and form One Big Market." goods. But that does not imply the existence ofseparate economic in­ The crucial point is this: labor, land, and money are ele­ stitutions; normally, the economic order is merely a function of the ments of industry; they also must be organized in in social order. Neither under tribal nor under feudal nor under mercan­ these markets form an absolutely vital part of the economic system. tile conditions was there, as we saw, a separate economic system in so­ But labor, land, and money are obviously notcommodities; the postu­ ciety. Nineteenth-century society, in which economic activity was Iso­ late that anythingthat is bought and sold must have been produced for and imputed to a distinctive economic motive, was a singular sale is emphatically untrue in 'regard to them. In other words, ac­ cording to the empirical definition ofa commodity they are not com­ could not have functioned unless so­ modities. Labor is only another name for a human activity which goes subordinated to its requirements. A market econ­ withlife itself, which in its turn is not produced for sale but for entirely omy can exist only in a market society. We reached this conclusion on different reasons, nor can that activity be detached from the rest oflife, general grounds in our analysis of the market pattern. We can now be stored or mobilized; land is only another name for nature, which is specify the reasons for this assertion. A market economy must com­ not produced by man; actual money, finally, is merely a token ofpur­ prise all elements ofindustry, including labor, land, and money. (In a chasing power which, as a rule, is not produced at all, but comes into market economy money also is an essential element ofindustrial life * in making "the relative and its inclusion in the market mechanism has, as we will see, far- market values ... [ 76] The Great Self-Regulating Market and the Fictitious Commodities [ 77] being through the mechanism of banking or state finance. None of substance as well as its business organization was pro­ them is produced for sale. The commodity description oflabor, land, tected against the ravages ofthis satanic milL and money is entirely fictitious. extreme artificiality of market economy is rooted in the fact Nevertheless, it is with the help ofthis fiction that the actual mar­ that the process of production itself is here organized in the form of kets for labor, land, and money are organized*; these are being actually buying and selling. No other way of organizing production for the bought and sold on the market; their demand and supply are real mag­ market is possible in a commercial society.* During the late Middle nitudes; and any measures or policies that would inhibit the forma­ Ages industrial production for export was organized tion ofsuch markets would ipso facto endanger the self-regulation of gesses, and carried on under their direct supervision the system. The commodity fiction, therefore, supplies a vital orga­ town. Later, in the mercantile society, production was organized nizing principle in regard to the whole ofsociety affecting almost all merchants and was not restricted any more to the towns; this was the its institutions in the most varied way, namely, the principle according age of "putting out" when domestic industry was provided with raw to which no arrangement or behavior should be allowed to exist that materials by the merchant capitalist, who controlled the process of might prevent the actual functioning ofthe market mechanism on the production as a purely commercial enterprise. Itwas then that indus­ lines ofthe commodity fiction. trial production was definitely and on a large scale put under the orga­ in regard to labor, land, and money such a postulate cannot nizing leadership ofthe merchant. He knew the market, the volume as be upheld. To allow the market mechanism to be sole director of the well as the quality ofthe demand; and he could vouch also for the sup­ and their natural environment indeed, even of plies which, incidentally, consisted merely ofwool, woad, and, some­ the amount and use ofpurchasing power, would result in the demoli­ times, the looms or the knitting frames used bythe cottage industry. If tion of society. For the alleged commodity "labor power" cannot be supplies failed it was the cottager who was worst hit, for his employ­ shoved about, used indiscriminately, or even left unused, without ment was gone for the time; but no expensive plant was involved and affecting also the human individual who happens to be the bearer of the merchant incurred no serious risk in shouldering the responsibil­ this peculiar commodity. In disposing ity for production. For centuries this system grew in power and scope tem would, incidentally, dispose of until in a country like England the wool industry, the national staple, moral entity "man" attached to that tag. Robbed of the protective covered large sectors ofthe country where production was organized covering ofcultural institutions, humanbeings would perish from the the clothier. He who bought and sold, incidentally, provided for effects ofsocial exposure; they would die as the victims ofacute social production-no separate motive was required. The creation ofgoods dislocation through vice, perversion, crime, and starvation. Nature reciprocating attitudes of mutual aid; nor the would be reduced to its elements, neighborhoods and landscapes de­ householder for those whose needs are left to his care; filed, rivers polluted, military safety jeopardized, the power to pro­ exercise ofhis trade; nor the satisfac­ duce food and raw materials destroyed. Finally, the market adminis­ tion ~ tration of purchasing power would periodically liquidate business to the man whose profession is buying and selling. Up to enterprise, for shortages and surfeits of money would prove as disas­ eighteenth century, industrial production in Western hurope was a trous to business as floods and droughts in primitive society. Un­ mere accessory to commerce. doubtedly, labor, land, and money markets are essential to a market As long as the machine was an inexpensive and unspecific tool economy. But no society could stand the effects of such a system of there was no change in this position. The mere fact that the cottager crude fictions even for the shortest stretch of time unless its human could produce larger amounts than before within the same time might induce him to use machines to increase earnings, but this fact * Marx's assertion ofthe fetish character of the value of commodities refers to the exchange value of genuine commodities and has nothing in common with the ficti­ tious commodities mentioned in the text. * Cunningham, W., "Economic Change:' in Cambridge Modern History, VoL I.

~ .~ 78] The Great Transformation Self-Regulating Market and the Fictitious Commodities [ 79] in itself did not necessarily affect the organization of production. part of a process of buying and selling, therefore labor, land, and Whether the cheap machinery was owned by the worker or by the money had to be transformed into commodities in order to keep pro­ merchant made some difference in the social position of the parties duction going. They could, ofcourse, not be really transformed into and almost certainly made a difference in the earnings ofthe worker, commodities, as actually they were not produced for sale on the mar­ who was better off as long as he owned his tools; but it did not force the ket. But the fiction oftheir being so produced became the organizing merchant to become an industrial capitalist, or to restrict himself to principle ofsociety. Ofthe three, one stands out: labor is the technical lending his money to such persons as were. The vent ofgoods rarely term used for human beings, insofar as they are not employers but em­ gave out; the greater difficulty continued to be on the side ofsupply of played; it follows that henceforth the organization of labor would raw materials, which was sometimes unavoidably interrupted. But, change concurrently with the organization ofthe market system. But even in such cases, the loss to the merchant who owned the machines as the organization oflabor is only another word for the forms ofUfe was not substantial. Itwas not the coming ofthe machine as such ofthe common people, this means that the development ofthe market the invention ofelaborate and therefore specific machinery and system would be accompanied by a change in the organization ofsoci­ which completely changed the relationship of the merchant to pro­ ety itself. All along the line, human society had become an accessory of duction. Although the new productive organization was introduced the economic system. by the merchant-a fact which determined the whole course of the We recall our parallel between the ravages ofthe enclosures in En­ transformation-the use of elaborate machinery and plant involved glish history and the social catastrophe which followed the Industrial the development ofthe factory system and therewith a decisive shift in Improvements, we said, are, as a rule, bought at the price the relative importance ofcommerce and industry in favor ofthe lat­ ofsocial dislocation. Ifthe rate ofdislocation is too great, the commu­ ter. Industrial production ceased to be an accessory ofcommerce or­ nity must succumb in the process. The Tudors and early Stuarts saved ganized by the merchant as a buying and selling proposition; it now England from the fate ofSpain by regulating the course of change so involved long-term investment with corresponding risks. Unless the, that it became bearable and its effects could be canalized into less de­ continuance of production was reasonably assured, such a risk was structive avenues. But nothing saved the common people ofEngland not bearable. from the impact ofthe Industrial Revolution. A blind faith in sponta­ But the more complicated industrial production became, the neous progress had taken hold ofpeople's minds, and with the fanati­ more numerous were the elements ofindustrythe supplyofwhich had cism ofsectarians the most enlightened pressed forward for boundless to be safeguarded. Three ofthese, ofcourse, were of outstanding im­ and unregulated change in society. The on the lives ofthe peo­ portance: labor, land, and money. In a commercial society their ple were awful beyond description. Indeed, human society would have could be organized in one way only: by being made available for pur­ been annihilated but for protective counter-moves which blunted the chase. Hence, they would have to be organized for sale on the mar­ action ofthis self-destructive mechanism. ket-in other words, as commodities. The extension of the market Social history in the nineteenth century was thus the result of a mechanism to the elements of industry-labor, land, and money­ double movement: the extension ofthe market organization in respect was the inevitable consequence ofthe introduction ofthe factory sys­ to genuine commodities was accompanied by its restriction in respect tem in a commercial society. The elements of industry had to be on to fictitious ones. While on the one hand markets spread allover the sale. face ofthe globe and the amount ofgoods involved grew to unbeliev­ This was synonymous with the demand for a market system. We able dimensions, on the other hand a network of measures and poli­ know that profits are ensured under such a system only if self­ cies was integrated into powerful institutions designed to check the regulation is safeguarded through interdependent competitive mar­ action ofthe market relative to labor, land, and money. While the or­ kets. As the development ofthe factory system had been organized as ganization ofworld commodity markets, world capital markets, [80 1 The Great Transformation world currency markets under the aegis of the gold standard gave an unparalleled momentum to the mechanism ofmarkets, a deep-seated movement sprang into being to resist the pernicious effects of a market-controlled economy. Society protected itself against the perils CHAPTER SEVEN inherent in a self-regulating market system-this was the one com­ Speenhamland, 1795 prehensive feature in the history ofthe age.

eighteenth-century society unconsciously resisted any attempt at L-being made into a mere appendage ofthe market. No market econ­ omywas conceivable that did not include a market for labor; but to es­ tablish such a market, especially in England's rural civilization, im­ plied no less than the wholesale destruction ofthe traditional fabric of society. During the most active period of the Industrial Revolution, from 1795 to 1834, the creating ofa labor market in England was pre­ vented through the Speenhamland Law. The market for labor was, in effect, the last ofthe markets to be or­ ganized under the new industrial system, and this final step was taken only when market economy was set to start, and when the absence ofa market for labor was proving a greater evil even to the common people themselves than the calamities that were to accompany its introduc­ tion. In the end the free labor market, in spite ofthe inhuman methods employed in creating it, proved financially beneficial to all concerned. Yet it was only now that the crucial problem appeared. The eco­ nomic advantages ofa free labor market could not make up for the so­ cial destruction wrought by it. Regulation of a new type had to be in­ troduced under which labor was again protected, only this time from the working ofthe market mechanism itself. Though the new protec­ tive 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 ofthis development the Speenhamland Law oc­ cupied a strategic position.

In England both land and money were mobilized before labor was. The latter was prevented from forming a national market by strict le­ [ 81]