[ 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.