Karl Polanyi on the Rise of Fascism and Market Economy

A spectre is haunting the US, parts of Europe and the world — the spectre of Fascism and authoritarian Neoliberalism, veiled as “defensive democracy” and “common-sense patriotism”, disguised as social protectionism, perceived by laymen as innocuous populism. The bothering question of our troubling times is not whether history repeats itself — it does; but at what stage are we now: tragedy or farce? and what does the future hold?
the-great-transformationKarl Polanyi was deeply concerned by the essence of Fascism focusing on the institutional structure from which Fascism starts its march. He devoted the final parts of his magnum opus The Great Transformation (1944) specifically to this crucial topic and elaborated a bright analysis of the dark rise of Fascism between the two world wars.
The following passages I selected from this striking classic book and assembled them as a short article. I urge you to delve into this piece (and then to read the full original chapters) and to mull over the substance of fascist situations and moves, as well as their linkage to free market and economy of self-interest, which generate anti-individualistic and repressing endeavors directed to change not only the political sphere and societal fabricsbut human consciousness itself.
[T]he moment would come when both the economic and the political systems were threatened by complete paralysis. Fear would grip the people, and leadership would be thrust upon those who offered an easy way out at whatever ultimate price. The time was ripe for the fascist solution. (p. 236)
If ever there was a political movement that responded to the needs of an objective situation and was not a result of fortuitous causes it was fascism. At the same time, the degenerative character of the fascist solution was evident. It offered an escape from an institutional deadlock which was essentially alike in a large number of countries, and yet, if the remedy were tried, it would everywhere produce sickness unto death. That is the manner in which civilizations perish.
The fascist solution of the impasse reached by liberal capitalism can be described as a reform of market economy achieved at the price of the extirpation of all democratic institutions, both in the industrial and in the political realm. The economic system which was in peril of disruption would thus be revitalized, while the people themselves were subjected to a re-education designed to denaturalize the individual and make him unable to function as the responsible unit of the body politic. This re-education, comprising the tenets of a political religion that denied the idea of the brotherhood of man in all its forms, was achieved through an act of mass conversion enforced against recalcitrants by scientific methods of [mental] torture.
The appearance of such a movement in the industrial countries of the globe, and even in a number of only slightly industrialized ones, should never have been ascribed to local causes, national mentalities, or historical backgrounds as was so consistently done by contemporaries.(237)
In fact, there was no type of background— of religious, cultural, or national tradition—that made a country immune to fascism, once the conditions for its emergence were given.
Moreover, there was a striking lack of relationship between its material and numerical strength and its political effectiveness. The very term “movement” was misleading since it implied some kind of enrollment or personal participation of large numbers. If anything was characteristic of fascism it was its independence of such popular manifestations. Though usually aiming at a mass following, its potential strength was reckoned not by the numbers of its adherents but by the influence of the persons in high position whose good will the fascist leaders possessed, and whose influence in the community could be counted upon to shelter them from the consequences of an abortive revolt, thus taking the risks out of revolution.
A country approaching the fascist phase showed symptoms among which the existence of a fascist movement proper was not necessarily one. At least as important signs were the spread of irrationalistic philosophies, racialist esthetics, anticapitalistic demagogy, heterodox currency views, criticism of the party system, widespread disparagement of the “regime,” or whatever was the name given to the existing democratic set-up… In no case was an actual revolution against constituted authority launched; fascist tactics were invariably those of a sham rebellion arranged with the tacit approval of the authorities who pretended to have been overwhelmed by force. (238)
Fascism was an ever given political possibility, an almost instantaneous emotional reaction in every industrial community since the 1930’s. One may call it a “move” in preference to a “movement” to indicate the impersonal nature of the crisis the symptoms of which were frequently vague and ambiguous. People often did not feel sure whether a political speech or a play, a sermon or a public parade, a metaphysics or an artistic fashion, a poem or a party program was fascist or not. There were no accepted criteria of fascism, nor did it possess conventional tenets. Yet one significant feature of all its organized forms was the abruptness with which they appeared and faded out again, only to burst forth with violence after an indefinite period of latency. All this fits into the picture of a social force that waxed and waned according to the objective situation.
What we termed, for short, “fascist situation” was no other than the typical occasion of easy and complete fascist victories. All at once, the tremendous industrial and political organizations of labor and of other devoted upholders of constitutional freedom would melt away, and minute fascist forces would brush aside what seemed until then the overwhelming strength of democratic governments, parties, trade unions. If a “revolutionary situation” is characterized by the psychological and moral disintegration of all forces of resistance to the point where a handful of scantily armed rebels were enabled to storm the supposedly impregnable strongholds of reaction, then the “fascist situation” was its complete parallel except for the fact that here the bulwarks of democracy and constitutional liberties were stormed and their defenses found wanting in the same spectacular fashion. (239)
The nascent fascist movement put itself almost everywhere into the service of the national issue; it could hardly have survived without this “pick-up” job.
Yet, it used this issue only as a stepping stone; at other times it struck the pacifist and isolationist note…
In its struggle for political power fascism is entirely free to disregard or to use local issues, at will. Its aim transcends the political and economic framework: it is social. It puts a political religion into the service of a degenerative process. In its rise it excludes only a very few emotions from its orchestra; yet once victorious it bars from the band wagon all but a very small group of motivations, though again extremely characteristic ones. Unless we distinguish closely between this pseudo intolerance on the road to power and the genuine intolerance in power, we can hardly hope to understand the subtle but decisive difference between the sham-nationalism of some fascist movements during the revolution, and the specifically imperialistic nonnationalism which they developed after the revolution. (241)
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. (242)
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…
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 an industrial society. (243)
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…
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 induce 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. (249)
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. (250)
The passing of market-economy can become the beginning of an era of unprecedented freedom. Juridical and actual freedom can be made wider and more general than ever before; regulation and control can achieve freedom not only for the few, but for all. Freedom not as an appurtenance of privilege, tainted at the source, but as a prescriptive right extending far beyond the narrow confines of the political sphere into the intimate organization of society itself. Thus will old freedoms and civic rights be added to the fund of new freedom generated by the leisure and security that industrial society offers to all. Such a society can afford to be both just and free.
Yet we find the path blocked by a moral obstacle. Planning and control are being attacked as a denial of freedom. Free enterprise and private ownership are declared to be essentials of freedom. No society built on other foundations is said to deserve to be called free. The freedom that regulation creates is denounced as unfreedom; the justice, liberty and welfare it offers are decried as a camouflage of slavery. (256)
With the liberal the idea of freedom thus degenerates into a mere advocacy of free enterprise—which is today reduced to a fiction by the hard reality of giant trusts and princely monopolies. This means the fullness of freedom for those whose income, leisure and security need no enhancing, and a mere pittance of liberty for the people, who may in vain attempt to make use of their democratic rights to gain shelter from the power of the owners of property. Nor is that all. Nowhere did the liberals in fact succeed in re-establishing free enterprise, which was doomed to fail for intrinsic reasons. It was as a result of their efforts that big business was installed in several European countries and, incidentally, also various brands of fascism, as in Austria. Planning, regulation and control, which they wanted to see banned as dangers to freedom, were then employed by the confessed enemies of freedom to abolish it altogether. Yet the victory of fascism was made practically unavoidable by the liberals’ obstruction of any reform involving planning, regulation, or control.
Freedom’s utter frustration in fascism is, indeed, the inevitable result of the liberal philosophy, which claims that power and compulsion are evil, that freedom demands their absence from a human community. No such thing is possible; in a complex society this becomes apparent. This leaves no alternative but either to remain faithful to an illusionary idea of freedom and deny the reality of society, or to accept that reality and reject the idea of freedom. The first is the liberal’s conclusion; the latter the fascist’s. (257)

Uncomplaining acceptance of the reality of society gives man indomitable courage and strength to remove all removable injustice and unfreedom. As long as he is true to his task of creating more abundant freedom for all, he need not fear that either power or plan­ning will turn against him and destroy the freedom he is building by their instrumentality. This is the meaning of freedom in a complex society; it gives us all the certainty that we need. (Polanyi 1944: 236-258; bold emphasises are mine, italics by the author)


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  1. […] The point is that society needs to recognise that the “commodification of everything”, with a strong focus on the essentials for life, is a major component of the latest neo-liberal phase of free-market capitalism. In the last forty years it has succeeded in pushing the commodification of fictitious commodities to impressive heights never before seen. Land is commodified to such an extent that houses are no longer homes but, in places like London, mansions sit empty as wealth-stores for the super-rich while corporations scour the Global South for new lands ripe for primitive accumulation. And although labour under the wage system has always been commodified, the latest stages of neo-liberalism, with its “Uberfication” of employment directly exposing workers’ wages to the “free-market” pricing mechanism, has had devastating effects on job security and, as predicted by Polanyi, fuelled the subsequent rise in Fascism. […]

  2. […] At the beginning of The Great Transformation Polanyi writes: “Nineteenth-century civilization has collapsed. This book is concerned with the political and economic origins of this event, as well as with the great transformation which it ushered.” As we are witnessing the erosion of the post-WWII 20th century foundations and order, Polanyi’s The Great Transformation is not just a timely read about the past but also a wake-up call regarding the future. […]

  3. Thank you, Oleg. This is even more relevant now than it was in 2017, as our American liberal leaders find themselves unable to get beyond classical liberalism/neoliberalism. I wonder a bit at the utopianism in the final bit: “Uncomplaining acceptance of the reality of society gives man indomitable courage and strength to remove all removable injustice and unfreedom. As long as he is true to his task of creating more abundant freedom for all, he need not fear that either power or plan­ning will turn against him and destroy the freedom he is building by their instrumentality. This is the meaning of freedom in a complex society; it gives us all the certainty that we need.” Who is this “man” that will “remove all removable injustice and unfreedom” over the opposition of the powerful forces that benefit from injustice and unfreedom?

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