by Karl Polanyi
By accident only, as we see, was European fascism in the 1920s connected with national and counterrevolutionary tendencies. It was a case of symbiosis between movements of independent origin, which reinforced one another and created the impression of essential similarity, while being actually unrelated.
In reality, the part played by fascism was determined by one factor: the condition of the market system.
During the period 1917–23 governments occasionally sought fascist help to restore law and order: no more was needed to set the market system going. Fascism remained undeveloped.
In the period 1924–29, when the restoration of the market system seemed ensured, fascism faded out as a political force altogether.
After 1930 market economy was in a general crisis. Within a few years fascism was a world power.
The first period 1917–23 produced hardly more than the term. In a number of European countries—such as Finland, Lithuania, Estonia, Latvia, Poland, Romania, Bulgaria, Greece, and Hungary—agrarian or socialist revolutions had taken place, while in others—among them Italy, Germany, and Austria—the industrial working class had gained political influence. Eventually counterrevolutions restored the domestic balance of power. In the majority of countries the peasantry turned against the urban workers; in some countries fascist movements were started by officers and gentry, who gave a lead to the peasantry; in others, as in Italy, the unemployed and the petty bourgeoisie formed into fascist troops. Nowhere was any other issue than that of law and order mooted, no question of radical reform was raised; in other words, no sign of a fascist revolution was apparent. These movements were fascist only in form, that is to say only insofar as civilian bands, so-called irresponsible elements, made use of for connivance of persons in authority. The antidemocratic philosophy of fascism was already born, but was not as yet a political factor. Trotsky gave a voluminous report on the situation in Italy on the eve of the Second Congress of the Comintern in 1920, but did not even mention fascism, although fasci had been in existence for some time. It took another ten years or more before Italian fascism, long since established in the government of the country, developed anything in the nature of a distinctive social system.
In 1924 and after, Europe and the United States were the scene of a boisterous boom that drowned all concern for the soundness of the market system. Capitalism was proclaimed restored. Both Bolshevism and fascism were liquidated except in peripheric regions. The Comintern declared the consolidation of capitalism a fact; Mussolini eulogized liberal capitalism; all important countries except Great Britain were on the upgrade. The United States enjoyed a legendary prosperity, and the Continent was doing almost as well. Hitler’s putsch had been quashed; France had evacuated the Ruhr; the reichsmark was restored as by miracle; the Dawes Plan had taken politics out of reparations; Locarno was in the offing; and Germany was starting out on seven fat years. Before the end of 1926 the gold standard ruled again from Moscow to Lisbon.
It was in the third period—after 1929—that the true significance of fascism became apparent. The deadlock of the market system was evident. Until then fascism had been hardly more than a trait in Italy’s authoritarian government, which otherwise differed but little from those of a more traditional type. It now emerged as an alternative solution of the problem of industrial society. Germany took the lead in a revolution of European scope and the fascist alignment provided her struggle for power with a dynamic which soon embraced five continents. History was in the gear of social change.
An adventitious but by no means accidental event started the destruction of the international system. A Wall Street slump grew to huge dimensions and was followed by Great Britain’s decision to go off gold and, another two years later, by a similar move on the part of the United States. Concurrently, the Disarmament Conference ceased to meet, and, in 1933, Germany left the League of Nations.
These symbolic events ushered in an epoch of spectacular change in the organization of the world. Three Powers, Japan, Germany, and Italy, rebelled against the status quo and sabotaged the crumbling institutions of peace. At the same time the factual organization of world economy refused to function. The gold standard was at least temporarily put out of action by its Anglo-Saxon creators; under the guise of default, foreign debts were repudiated; capital markets and world trade dwindled away. The political and the economic system of the planet disintegrated conjointly.
Within the nations themselves the change was no less thorough. Two-party systems were superseded by one-party governments, sometimes by national governments. However, external similarities between dictatorship countries and countries which retained a democratic public opinion merely served to emphasize the superlative importance of free institutions of discussion and decision. Russia turned to socialism under dictatorial forms. Liberal capitalism disappeared in the countries preparing for war like Germany, Japan, and Italy, and, to a lesser extent, also in the United States and Great Britain. But the emerging regimes of fascism, socialism, and the New Deal were similar only in discarding laissez-faire principles.
While history was thus started on its course by an event external to all, the single nations reacted to the challenge according to whither they were bound. Some were averse to change; some went a long way to meet it when it came; some were indifferent. Also, they sought for solutions in various directions. Yet from the point of view of market economy these often radically different solutions merely represented given alternatives.
Among those determined to make use of a general dislocation to further their own interests was a group of dissatisfied Powers for whom the passing of the balance-of-power system, even in its weakened form of the League, appeared to offer a rare chance. Germany was now eager to hasten the downfall of traditional world economy, which still provided international order with a foothold, and she anticipated the collapse of that economy, so as to have the start of her opponents. She deliberately cut loose from the international system of capital, commodity, and currency so as to lessen the hold of the outer world upon her when she would deem it convenient to repudiate her political obligations. She fostered economic autarchy to ensure the freedom required for her far-reaching plans. She squandered her gold reserves, destroyed her foreign credit by gratuitous repudiation of her obligations and even, for a time, wiped out her favorable foreign trade balance. She easily managed to camouflage her true intentions since neither Wall Street nor the City of London nor Geneva suspected that the Nazis were actually banking on the final dissolution of nineteenth-century economy. Sir John Simon and Montagu Norman firmly believed that eventually Schacht would restore orthodox economics in Germany, which was acting under duress and which would return to the fold, if she were only assisted financially. Illusions such as these survived in Downing Street up to the time of Munich and after. While Germany was thus greatly assisted in her conspirative plans by her ability to adjust to the dissolution of the traditional system, Great Britain found herself severely handicapped by her adherence to that system.
Although England had temporarily gone off gold, her economy and finance continued to be based on the principles of stable exchanges and sound currency. Hence the limitations under which she found herself in respect to rearmament. Just as German autarchy was an outcome of military and political considerations that sprang from her intent to forestall a general transformation, Britain’s strategy and foreign policy were constricted by her conservative financial outlook. The strategy of limited warfare reflected the view of an island emporium, which regards itself safe as long as its Navy is strong enough to secure the supplies that its sound money can buy in the Seven Seas. Hitler was already in power when, in 1933, Duff Cooper, a die-hard, defended the cuts in the Army budget of 1932 as made “in the face of the national bankruptcy, which was then thought to be an even greater danger than having an inefficient fighting service.” More than three years later Lord Halifax maintained that peace could be had by economic adjustments and that there should be no interference with trade
since this would make such adjustments more difficult. In the very year of Munich, Halifax and Chamberlain still formulated Britain’s policy in terms of “silver bullets” and the traditional American loans for Germany. Indeed, even after Hitler had crossed the Rubicon and had occupied Prague, Sir John Simon approved in the House of Commons of Montagu Norman’s part in the handing over of the Czech gold reserves to Hitler. It was Simon’s conviction that the integrity of the gold standard, to the restoration of which his statesmanship was dedicated, outweighed all other considerations. Contemporaries believed that Simon’s action was the result of a determined policy of appeasement. Actually, it was an homage to the spirit of the gold standard, which continued to govern the outlook of the leading men of the City of London on strategic as well as on political matters. In the very week of the outbreak of the war the Foreign Office, in answer to a verbal communication of Hitler to Chamberlain*, formulated Britain’s policy in terms of the traditional American loans for Germany. England’s military unpreparedness was mainly the result of her adherence to gold standard economics.
Germany reaped the advantages of those who help to kill that which is doomed to die. Her start lasted as long as the liquidation of the outworn system of the nineteenth century permitted her to keep in the lead. The destruction of liberal capitalism, of the gold standard, and of absolute sovereignties was the incidental result of her marauding raids. In adjusting to an isolation sought by herself and, later, in the course of her slave-dealer’s expeditions, she developed tentative solutions of some problems of the transformation.
Her greatest political asset, however, lay in her ability to compel the countries of the world into an alignment against Bolshevism. She made herself the foremost beneficiary of the transformation by taking the lead in that solution of the problem of market economy which for a long time appeared to enlist the unconditional allegiance of the propertied classes, and indeed not always of these alone. Under the liberal and Marxist assumption of the primacy of economic class interests, Hitler was bound to win. But the social unit of the nation proved, in the long run, even more cohesive than the economic unit of class.
Russia’s rise also was linked with her role in the transformation. From 1917 to 1929 the fear of Bolshevism was no more than the fear of disorder which might fatally hamper the restoration of a market economy which could not function except in an atmosphere of unqualified confidence. In the following decade socialism became a reality in Russia. The collectivization of the farms meant the supersession of market economy by cooperative methods in regard to the decisive factor of land. Russia, which had been merely a seat of revolutionary agitation directed toward the capitalistic world, now emerged as the representative of a new system which could replace market economy.
It is not usually realized that the Bolsheviks, though ardent socialists themselves, stubbornly refused to “establish socialism in Russia.” Their Marxist convictions alone would have precluded such an attempt in a backward agrarian country. But apart from the entirely exceptional episode of so-called “War Communism” in 1920, the leaders adhered to the position that the world revolution must start in industrialized Western Europe. Socialism in one country would have appeared to them a contradiction in terms, and when it became reality, the Old Bolsheviks rejected it almost to a man. Yet it was precisely this departure which proved an amazing success.
Looking back upon a quarter-century of Russian history, it appears that what we call the Russian Revolution really consisted of two separate revolutions, the first of which embodied traditional Western European ideals, while the second formed part of the utterly new development of the thirties. The Revolution of 1917–24 was indeed the last of the political upheavals in Europe that followed the pattern of the English Commonwealth and of the French Revolution; the revolution that started with the collectivization of the farms, about 1930, was the first of the great social changes that transformed our world in the thirties. For the first Russian Revolution achieved the destruction of absolutism, feudal land tenure, and racial oppression—a true heir to the ideals of 1789; the second Revolution established a socialist economy. When all is said, the first was merely a Russian event—it fulfilled a long process of Western development on Russian soil—while the second formed part of a simultaneous universal transformation.
Seemingly in the 1920s Russia stood apart from Europe and was working out her own salvation. A closer analysis might disprove this appearance. For among the factors which forced upon her a decision in the years between the two revolutions was the failure of the international system. By 1924 “War Communism” was a forgotten incident and Russia had reestablished a free domestic grain market, while maintaining state control of foreign trade and key industries. She was now bent on increasing her foreign trade, which depended mainly on exports of grain, timber, furs, and some other organic raw materials, the prices of which were slumping heavily in the course of the agrarian depression which preceded the general break in trade. Russia’s inability to develop an export trade on favorable terms restricted her imports of machinery and hence the establishment of a national industry; this, again, affected the terms of barter between town and countryside—the so-called “scissors”—unfavorably, thus increasing the antagonism of the peasantry to the rule of the urban workers. In this way the disintegration of world economy increased the strain on the makeshift solutions of the agrarian question in Russia, and hastened the coming of the kolkhoz. The failure of the traditional political system of Europe to provide safety and security worked in the same direction since it induced the need for armaments, thus enhancing the burdens of high-pressure industrialization. The absence of the nineteenth-century balance-of-power system, as well as the inability of the world market to absorb Russia’s agricultural produce, forced her reluctantly into the paths of self-sufficiency. Socialism in one country was brought about by the incapacity of market economy to provide a link between all countries; what appeared as Russian autarchy was merely the passing of capitalist internationalism.
The failure of the international system let loose the energies of history—the tracks were laid down by the tendencies inherent in a market society.
* Polanyi, K., “The Essence of Fascism,” in Christianity and the Social Revolution, 1935.
* Rauschning, H., The Voice of Destruction, 1940.
† Heymann, H., Plan for Permanent Peace, 1941. Cf. Brüning’s letter of January 8, 1940.
* British Blue Book, No. 74, Cmd. 6106, 1939.
C H A P T E R T W E N T Y - O N E
Freedom in a Complex Society
Nineteenth-century civilization was not destroyed by the external or internal attack of barbarians; its vitality was not sapped by the devastations of World War I nor by the revolt of a socialist proletariat or a fascist lower middle class. Its failure was not the outcome of some alleged laws of economics such as that of the falling rate of profit or of underconsumption or overproduction. It disintegrated as the result of an entirely different set of causes: the measures which society adopted in order not to be, in its turn, annihilated by the action of the self-regulating market. Apart from exceptional circumstances such as existed in North America in the age of the open frontier, the conflict between the market and the elementary requirements of an organized social life provided the century with its dynamics and produced the typical strains and stresses which ultimately destroyed that society. External wars merely hastened its destruction.
After a century of blind “improvement” man is restoring his “habitation.” If industrialism is not to extinguish the race, it must be subordinated to the requirements of man’s nature. The true criticism of market society is not that it was based on economics—in a sense, every and any society must be based on it—but that its economy was based on self-interest. Such an organization of economic life is entirely unnatural, in the strictly empirical sense of exceptional. Nineteenth-century thinkers assumed that in his economic activity man strove for profit, that his materialistic propensities would i
nduce him to choose the lesser instead of the greater effort and to expect payment for his labor; in short, that in his economic activity he would tend to abide by what they described as economic rationality, and that all contrary behavior was the result of outside interference. It followed that markets were natural institutions, that they would spontaneously arise if only men were let alone. Thus, nothing could be more normal than an economic system consisting of markets and under the sole control of market prices, and a human society based on such markets appeared, therefore, as the goal of all progress. Whatever the desirability or undesirability of such a society on moral grounds, its practicability—this was axiomatic—was grounded in the immutable characteristics of the race.
Actually, as we now know, the behavior of man both in his primitive state and right through the course of history has been almost the opposite from that implied in this view. Frank H. Knight’s “no specifically human motive is economic” applies not only to social life in general, but even to economic life itself. The tendency to barter, on which Adam Smith so confidently relied for his picture of primitive man, is not a common tendency of the human being in his economic activities, but a most infrequent one. Not only does the evidence of modern anthropology give the lie to these rationalistic constructs, but the history of trade and markets also has been completely different from that assumed in the harmonistic teachings of nineteenth century sociologists. Economic history reveals that the emergence of national markets was in no way the result of the gradual and spontaneous emancipation of the economic sphere from governmental control. On the contrary, the market has been the outcome of a conscious and often violent intervention on the part of government which imposed the market organization on society for noneconomic ends. And the self-regulating market of the nineteenth century turns out on closer inspection to be radically different from even its immediate predecessor in that it relied for its regulation on economic self-interest. The congenital weakness of nineteenth-century society was not that it was industrial but that it was a market society. Industrial civilization will continue to exist when the utopian experiment of a self-regulating market will be no more than a memory.