For Hayek, the departure from minimalist laissez-faire government was the road to serfdom. For Polanyi, the self-regulating market was the road to the ruin of the western democracies.
In From the Great Transformation to the Great Financialization (2013), we trace the conflicting philosophies of Hayek and Polanyi to their origins, in Socialist Vienna of the 1920s.
Polanyi and Hayek arrived in England as émigré intellectuals in the early 1930s. The opening sentence of the Great Transformation reads: “Nineteenth century civilization has collapsed.” Note the present tense of these words, written 30 years after the start of the Great War. Nowhere was the collapse of that civilization more evident than in Vienna, the former glittering capital of the Hapsburg Empire of 50 million people reduced to the impoverished capital of the 6 million Republic of Austria. In the socialist Red Vienna of my childhood, Hayek and his mentor Ludwig von Mises were the misfits, the remnants of the old order. As recalled by Mises in his memoirs: “To appreciate duly Doctor Hayek’s achievements, one must take into account political, economic, and ideological conditions as they prevailed in Europe and especially in Vienna at the time the First World War came to an end” (M Mises, 1976: 183). They were traumatized by the socialist municipal administration that favoured the working classes. They considered socialism of all varieties and economic planning of any kind to be an infringement on personal liberty. They looked back on the liberal utopia of the pre-1914 economic order as an ideal to be recovered and refashioned.
In Chapter 2, we follow Hayek’s career from Vienna to the London School of Economics to his influence on the Chicago School and the international thought collective of the Mont Pelerin Society. Neoliberal ideology was consciously constructed from European sources, but took root in the United States where it found support from opponents of New Deal policies. In its most radical form, neoliberalism defines freedom in purely economic terms. Politics is reduced to the rule of law by a strong state dedicated to the preservation of private property and free enterprise.
In Chapter 3, we introduce the reader to the formative influences on Karl Polanyi in pre-1914 Vienna, where Russian revolutionaries of all varieties were welcomed and assisted by family and family friends, and to Budapest, where he was a founding member and first president of a Hungarian student movement dedicated to Free Thought. In Vienna of the 1920s, he engaged Mises in the socialist accountancy debates and outlined a model of associational functionalist socialism, moderating criteria of economic efficiency with social justice and participatory democracy. His socialism was neither that of traditional European social democracy, nor that of centralized communist planning. It was more akin to the third stream of the European socialist tradition- the populist, syndicalist and quasi-anarchist one of corporatist guild socialism.
Kari Polanyi Levitt, Montreal, June 2014