Socialism and Freedom: Karl Polanyi’s Early Writings

Steven Klein reviews a new collection of Karl Polanyi's early writings.

Socialism and Freedom: Karl Polanyi’s Early Writings

Economy and Society by Karl Polanyi. Polity. 280 pages.

SOCIALISM IS BACK — a phoenix rising from the ashes, or a vampire emerging from the crypt, depending on who you ask. So real is the threat that the White House’s Council of Economic Advisors recently devoted their considerable resources to writing a report, “The Opportunity Costs of Socialism,” warning of the dangers of a socialist system, one in which the state spends other people’s money. Adding to the sense of déjà vu, much of the report concerns itself, not with the policy proposals of Jeremy Corbyn and Bernie Sanders, but with the disastrous collectivization of agriculture under Lenin, Stalin, and Mao.

If debates about socialism are stuck in the past, then let’s make the best of it and actually try to learn something. With this in mind, the English translation and publication of the Hungarian thinker Karl Polanyi’s pre-war writings, Economy and Society: Selected Writings, expertly edited by Michele Cangiani and Claus Thomasberger, comes at an auspicious moment.

Polanyi is most famous and influential for his critique of the ideology of the free market in his 1944 book The Great Transformation: The Political and Economic Origins of Our Time. In that book, Polanyi advances a simple and powerful argument: the formation of a market system — one in which all economic activities would be determined by prices — required a massive disruption of society, one which provoked counter-demands for protection from the ravages of the market. The idea that all of society could be organized along the lines of the self-regulating market was, Polanyi avers, a “stark utopia,” one with destructive social and political consequences.

Polanyi has become a cornerstone for contemporary accounts of the return of unregulated capitalism. But this posthumous intellectual fame, based on just this one book, has come at a cost. Polanyi is seen today as the great theorist of regulation and social protection, of the integrated welfare states of the Trente Glorieuses — and so a thinker who reinforces a melancholic lament for a lost order. His early writings reveal this view to be mistaken. Written while Polanyi lived in Vienna during the city’s remarkable experiment in municipal socialism, these essays and lectures reveal Polanyi as one of the greatest thinkers in the socialist tradition — someone who envisioned a democratic-socialist future that would build on, even as it transcended, the terms of the midcentury welfare state.

Raised in Budapest in a wealthy Jewish family in the waning days of the Austro-Hungarian Empire, Polanyi’s life traversed the 20th century, geographically and intellectually. In Budapest, the young Polanyi founded the Galileo Circle, a liberal and socialist discussion group that also included his childhood friend, the Marxist-Hegelian philosopher György Lukács. The Galileo Circle is also where Polanyi met his future wife Ilona Duczyńska, a communist writer, translator, and activist who would also become one of the leaders of the military resistance to the fascist government in Austria. From Budapest, Polanyi moved to Vienna during the heyday of socialist rule and then, after the fascist coup, to England, where he taught workers’ classes, and finally to Bennington College in the United States, where he would write The Great Transformation.

In each phase, Polanyi’s intellectual circles encompassed individuals and questions that would come to define subsequent debates about democracy, capitalism, and freedom. Even as Red Vienna was producing some of the most innovative Marxist thinking of the 20th century, Austrian liberals were plotting an intellectual counter-attack, one inspired by the marginalist economic theory of Carl Menger. At the center of this debate was the problem of “socialist accounting” — could a non-capitalist economy successfully aggregate information and use it to make accurate decisions about the production of goods? At the same time, the failures of the German Socialist Party were forcing a rethinking among socialists of the Second International’s interpretation of Marx, with its focus on laws of capitalist development. Central for this rethinking was the discovery and publication of Marx’s Economic and Philosophic Manuscripts, which opened up a reappraisal of the philosophical and humanistic foundations of socialism.

Polanyi’s early essays reveal the formative role of these debates for his later, more well-known thought. In 1920, the Austrian economist Ludwig von Mises kicked off the socialist calculation debate, arguing that, in the absence of prices, a planned economy would be incapable of making rational decisions about production and investment. This was not a mere theoretical possibility. The previous year the newly formed German-Austrian Republic held its first elections with universal male and female suffrage, and the Austrian socialists won decisive victories at the national level and in Vienna.

Polanyi’s intervention in this debate sought to escape the duality of planning versus markets. Polanyi’s basic objection is that both focus on questions of the just or fair distribution of goods rather than what he thinks is essential: realizing freedom. Both sides of the socialist calculation debate focus on what Polanyi calls justice — the appropriate distribution of the burdens and benefits of economic cooperation — to which Polanyi objects that there can be “dictatorial justice” just as much as democratic justice. Polanyi’s claim, of course, was borne out by the disastrous record of central planning in “actually-existing socialist” countries, which sacrificed political and individual freedom to economic production and distributive “justice.” Instead, Polanyi thinks the central problem of socialism is freedom — and specifically an ideal of democratic, collective freedom unrealizable under capitalism.

In this respect, Polanyi’s 1927 essay “On Freedom,” translated here for the first time, is among his most important. Polanyi’s vision is ambitious. Freedom, he argues, is inseparable from responsibility. So-called negative views of freedom, according to which freedom is characteristically the absence of some external constraint, fails to account for our distinctively human capacity to reflect upon and develop meaningful actions. And part of that capacity is the recognition that our actions have consequences we did not intend or predict. Genuine freedom — what Polanyi calls social freedom — requires also being able to take responsibility for these sorts of consequences of our decisions. Capitalism systematically blocks this form of responsibility and, therefore, social freedom. Some particularly idealistic individuals may take up the demands of responsibility — think of movements like “effective altruism,” which calls upon individuals to redistribute their earnings from high-income jobs to “proven” charities. The very heroic nature of these individual decisions illustrates Polanyi’s point. Responsibility requires an extraordinary act of will under capitalism, insofar as our economic institutions continually thwart such efforts.

But then what is the alternative? Polanyi’s approach to socialism as it comes through in these essays is democratic, experimental, and syncretic. What makes Polanyi’s analysis exciting is how he combines a down-to-earth political disposition with a remarkably capacious theoretical mind, drawing freely on ideas from Kantian philosophy, humanist Marxism, Christianity, German sociology, and guild socialism. He criticizes those who would look to some “artificially conceived administrative model” of socialism. Rather, his method is to try to reconstruct a broader political vision from the practical results of “the independent activity of workers and their advancing self-organization.” This means looking for the seeds of a new society as they arise organically over the course of democratic struggles within capitalism.

In addition to the union movement, Polanyi points to things like consumers cooperatives as the sprouts of socialism. In organizing and empowering workers, these institutional experiments help solve what Polanyi, following others in the socialist accounting debate, calls the problem of “oversight.” The idea is that workers’ and consumers’ cooperatives, as well as other democratic organizations like labor unions, are in relatively close contact with the needs and desires of their members. Polanyi envisions these decentralized, democratic organizations negotiating among each other — forming markets and prices within the context of cooperation. He only sketches these arguments, but they anticipate, for example, the Labour Shadow Chancellor John McDonnell’s recent call for an economic policy grounded in “co-operatives, shared ownership, and workplace democracy.”

The Great Depression destroyed the economy of the fledgling Austrian Republic. In 1932, Engelbert Dollfuss was elected Austria’s chancellor. A devout Catholic, Dollfuss responded to the increasing political pressures, especially from the right, by unilaterally creating a new “Austrofascist” constitution and violently suppressing the socialists. The short civil war delayed but did not prevent the eventual Nazi takeover. In 1933, Polanyi fled Austria and relocated to England, where he grappled with the rise of fascism. In “The Essence of Fascism,” he positions fascist ideology as the bastard offspring of Nietzsche and Hegel — a version of each that is “a caricature rather than a portrait.” Fascism takes Nietzsche shorn of his “anarchist-individualism” and combines that with Hegel stripped of his “revolutionary dynamics” — reducing the individual to irrational will and the community to total, hierarchical order.

Polanyi’s reflections on fascism are also significant for revealing how starkly he opposes his own project to the fascist one. He sees that a total hatred of democracy propelled fascism — a hatred animated by the conviction that mass democracy leaned toward socialism. The conviction that “Democracy leads to Socialism” united fascists with classical liberals like Ludwig von Mises, who served as an economic advisor for Dollfuss. With the socialists in the majority, democracy enabled their continuous interference in the functioning of the market and the price mechanism. Liberals like von Mises saw Austrian fascism as a makeshift response to the threat of socialism. Yet the fascists went one step further than the liberals. For the fascists, the problem was not democracy but the entire modern ideology of individualism, one shared by liberals and socialists. The fascists broke with the liberals because they were committed to more than just stopping socialism: they sought to establish “a structure of society which would eliminate the very possibility of its reversion to Democracy.”

Polanyi’s postwar writings are aimed at reconstruction. In draft manuscripts that laid the groundwork for The Great Transformation, Polanyi declares, “the various shades of anti-democrats each have their own story of the world catastrophe — the democrat has yet to produce his own.” His great hope was that Labour in the United Kingdom and the New Deal in the United States could be the basis for a new, more fundamentally democratic political order. At the same time, he sketched a vision of global cooperation between grand regional associations along the lines of the European Union. The Great Transformation was, then, to provide a historical narrative that would point toward this alternative future.

The midcentury welfare state paradigm — tamed and regulated markets, combined with ritualized union bargaining and Keynesian demand management — was only ever the starting point for Polanyi. As these early essays make clear, his vision always pointed beyond that moment, toward something more ambitious and more interesting — a continuous, democratic transformation of major economic institutions. Genuine freedom can only be realized insofar as economic institutions become organized on a cooperative, reciprocal basis. And this ideal was only partially achieved by social democracy. As social democratic parties became integrated into the ordinary functioning of the postwar state, they gradually replaced Polanyi’s vision of activist, bottom-up democratization with Keynesian managerialism.

The postwar social democratic regimes were also enabled by the global Bretton Woods monetary system, which fixed exchange rates to the American dollar. Bretton Woods allowed countries to impose restrictions on the movement of capital, while today, global flows of capital restrict the capacity of countries to raise revenues. But the Bretton Woods system rested on the United States’s postwar global dominance, helping to entrench Western economic hegemony in the wake of formal decolonization. So even as it undermined the Northern welfare states, the regime’s breakdown opened the Global South to much-needed capital investment. However lamentable, the decline of Bretton Woods also enables an honest reckoning with the global, neo-colonial entanglements of social democracy.

What can we draw from this vision today? For Polanyi, the great importance of the socialist movement was its combination of economic and political demands — freedom in the economy could only be pursued through a more fundamental democratic organization of the state, and vice versa. While the immediate postwar period seemed to have reconciled democracy with capitalism, today we are witnessing a return to the condition Polanyi described. But there is one crucial difference: the sociologist Colin Crouch has aptly named our condition post-democratic — we live in societies that exist after the achievement of universal suffrage but that are witnessing the decline of the real power of democratic majorities. Although much is made of the recent crisis of democracy, less remarked upon is its steady erosion over the preceding 40 years, as a global system of legal and regulatory structures were constructed to reassert the global rights of capital-owners against democratic majorities. Polanyi’s great legacy is to help us see this problem more clearly, leaving us better positioned to continue the great, unfinished task of building a democratic world.


Steven Klein is an assistant professor of political theory at the University of Florida.

LARB Contributor

Steven Klein is an assistant professor of political theory at the University of Florida. In addition to his academic articles, his essays have appeared in Aeon, The Baffler, the Washington Post, and Democracy. He is completing a book manuscript titled The Work of Politics: Making a Democratic Welfare State.


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