The Battle of 1944 (Polanyi vs Hayek)

1944 was the year Allied forces took to the beaches at Normandy, beginning one of the bloodiest and most pivotal phases in World War II.

It was also the year in which two mighty salvos were fired in the battle of ideas about political economy: Karl Polanyi's 'The Great Transformation' and F.A Hayek's 'The Road to Serfdom'.

Both texts have the rare quality of being intimately linked to their context while retaining the power to inform today's debates.

Hayek's work is arguably more famous and influential, courtesy of his status as one of the 20th Century's great economists and role in shaping the 'neoliberal' revolution and its leaders: Thatcher and Reagan (and in Australia, John Howard) all regarded Hayek as a guiding light.

'The Road to Serfdom' tried to hang fascism and communism by the same noose, arguing that both had the same roots in denial of individual freedom and overarching belief in the state. More explosively, Hayek argued that even seemingly benign state interventions in the economy - such as the welfare state and demand management (e.g. fiscal stimulus) - were likely to result in deprivation of liberty and authoritarian government as the 'planners' took over.

Hayek's book was a direct challenge to the Keynesian consensus that emerged in Britain and the US during and after World War II. Later, it would shape the neoliberal reaction that swept the Anglosphere from the 1970s.

Polanyi's book will never be as iconic but provides a compelling alternative to Hayek's neoliberal interpretation of modern political economy.

'The Great Transformation' begins with an examination of how the Industrial Revolution ruptured the fabric of British society in the 18th and 19th centuries. Polanyi shows how the creation of national markets for labour and land was based on the belief that economic forces were autonomous and could not (and should not) be subject to social control. The result was a dizzying increase in production accompanied - and driven by - a stagnation in the wages and living conditions of the working poor.

Polayni also argues that reactions against laissez faire in the 19th Century - labour laws, minumum wages, trade unions and 'poor relief' - were spontaneous attempts to limit the damage caused by the unfettered market, rather than a conspiracy of 'vested interests' against 'progress', as was claimed by some liberals. He dubbed this process of economic liberalisation followed by attempts at social protection as a 'double movement'.

As it turns out, both Polanyi and Hayek were right and wrong.

Hayek was right about the market economy being a more efficient and individual liberty-enhancing mechanism than command and control, but wrong in his doomsday predictions about social democracies turning into authoritarian monsters (Sweden anyone?).

Polayni was right about the legitimacy and importance of social protection in providing an acceptable level of equity but probably wrong in assuming the working class would be worse off under capitalism.

Either way, its fascinating to see how many of these debates resonate in the current (post?)-GFC climate - think of the term 'market fundamentalism' (made popular in Australia by our very own Prime Minister) or anxieties over the corrosive effect of 'middle-class welfare'.

It all goes to show while the guns of Normandy have died down, the battle of 1944 continues...