Kuttner observes that the “period between the two world wars, free-market liberals governing Britain, France, and the US tried to restore the pre–World War I laissez-faire system. They resurrected the gold standard and put war debts and reparations ahead of economic recovery. It was an era of free trade and rampant speculation, with no controls on private capital. The result was a decade of economic insecurity ending in depression, a weakening of parliamentary democracy, and fascist backlash.”
Marx didn’t predict this, but Polanyi did: “Marx expected the crisis of capitalism to end in universal worker revolt and communism. Polanyi, with nearly a century more history to draw on, appreciated that the greater likelihood was fascism.”
For Polanyi, the deep cause of this development was the “disembedding” of markets from society, which causes such severe dislocations that people revolt: “Polanyi saw the catastrophe of World War I, the interwar period, the Great Depression, fascism, and World War II as the logical culmination of market forces overwhelming society – ‘the utopian endeavor of economic liberalism to set up a self-regulating market system’ that began in nineteenth-century England.'”Polanyi’s solution was “highly mobilized, shrewd, and sophisticated worker movements,” and this conviction didn’t rise from Marxism but from his own experience as an economic journalist in 1920s Vienna. “Red Vienna” represented the strength of the working class. Polanyi wrote: “While [English poor-law reform] caused a veritable disaster of the common people, Vienna achieved one of the most spectacular triumphs of Western history.”
His main worry over the political consequences of concentrated wealth. Without the counter-weight of a strong labor movement, he thought, big money would translate into lopsided political influence, and democracy would collapse into plutocracy. On that point, his worries were well-founded.