Escola de EngenhariaUniversidade do Minho
Departamento de Sistemas de Informação
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“Unemployment and money” (Polanyi, 1940) :
audio comments transcript
Eduardo Beira
WP 121 (2012)
Working papers “Mercados e Negócios”
Julho 2012
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“Unemployment and money” (Polanyi, 1940) :
audio comments transcript
Eduardo Beira
(C) Eduardo Beira, 2012. All rights.
This work is licensed under the Creative Commons Attribution-Noncommercial-No Derivative Works
3.0 Unported License. To view a copy of this license, visit http://creativecommons.org/licenses/by-ncnd/3.0/ or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California,
94105, USA.
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CONTENTS:
1. Introduction
2. “Unemployment and money” (1940) audio script
Opening
Reel #1: Money
Reel #2: From pictures to symbols
Reel #3: Deflation and reflation. The simplest version.
Reel #4: Investment campaign
Reel #5: Renewals and re-payments
Reel #6: The trade cycle
Closing
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Introduction
1.
The audio comments of “The Economic Film” of Michael Polanyi, titled
“Unemployment and Money. The principles involved” in its final version, released in 1940,
are an important part of the message of the film.
Polanyi described the economical aspects of the film in his 1940 paper “Economics
my motion symbols”. But it does not include the audio script, although a first version of the
audio comments have been included in his 1938 lecture to the Manchester Statistical
Society, and published in the Transactions of the Society (1). At that stage was only at mid
way, and with conceptual and financing problems, and there happened a lot of changes in
the movie until the final version released in 1940. Most of the key ideas of the comments
are already there, in the script presented in the1938 lecture, but the 1940 comments are a
more elaborate product it has 3400 words, against 2000 words of the previous one. The
1938 version of the movie, presented in the Statistical Society had yet no audio. Probably
the comments of the movie included in the published version of the lecture should have
been read by Polanyi himself during projection of the images.
2.
We argue that the audio comments of this film are fundamental for the message
envisaged by Polanyi, and that the movie would be nearly impossible to understand without
the audio comments. We do not know any transcription of this audio script and we found no
related document in RPC Regenstein Polanyi Special Collection (University of Chicago).
This is the reason we decided to make a full transcription.
The transcription tries to follow the sentences of the audio, and it includes the
written messages appearing in the screen. These are the parts of the text in blue colour.
Audio only comments are in black colour. In a very few cases we had doubts about the right
word in the audio – we kept them in red colour.
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Time codes of the audio in the film are included by section, as (XX:YY) where XX
are minutes and YY are seconds from the beginning of the movie. We have used a digital
version of the positive copy of the film available in RPC (box 49). The Regenstein Library
cooperation is very much acknowledged.
3.
In his 1936 lecture “Visual presentation of the social matters”, Polanyi suggested
that a new kind of symbolism, based on “movie picture writing” or “diagrammatic symbols”
should be able to represent economic life and will empower the citizen with economic
knowledge sufficient to avoid the economic fallacies that had created so much tragedy in his
century (2). He added:
I merely wish to suggest that important comprehensive features of economic life
which cannot be conveyed to the general public by verbal explanation might be
easily made clear through a moving picture enacted on such a stage as our diagram
presents
He had high expectation on the potential of “moving economic symbols”, so much that
Using such populated diagrams we can dispense with the commentary .... Instead
we will see the figures act and hear them talking.
But reality has shown him this would not be feasible, Two years later, when
showing his prototype or first version of the movie he included a script for audio comments.
After two additional years of hard work in the movie, the importance of the script
increased. The final audio script is a sophisticated one. We feel it had been torque out for
easy of communication. Polanyi found by himself how ambitious and unrealistic his high
expectations on the universal potential of films based on moving symbols were.
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Notes:
(1) A full transcription of the Polanyi (1938) paper is available in Beira (2012b).
(2) For a transcription of the lecture and comments, see Beira (2012a)
References:
Beira, E., Michael Polanyi (1936): Visual presentation of social matters, Working Paper WP
123 (2012a), U. Minho
Beira, E., Michael Polanyi (1938): An outline of the working of money. Shown by a
diagrammatic film, Working paper WP 127 (2012b), U. Minho
Polanyi, M., “An outline of the working of money. Shown by a diagrammatic film”,
Transactions of the Manchester Statistical Society, 1938, 1-19
Polanyi, M., “Economics by motion symbols”, The Review of Economics, 8 (1940) 1-19
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2. “ Unemployment and money ” (1940) audio script
00:00 - 00:33
OPEN IN G (00:33 – 02:04)
(00:33) Unemployment and money. The principle involved
By Professor M. Polanyi
In consultation with Mary Field, R. Jeffryes, Prof. J. Jewkes
Animation by Diagram Films Ltd. and Science Films Ltd.
Editing and technical supervision by G.B. Instructional Ltd. Produced by private
subscription.
(01:04) Millions were unemployed when the greatest wave of unemployment on record
broke out in the autumn of 1929. Year by year the numbers increased to figures ranging
over forty millions.
The nations tried to keep unemployment away at their frontiers by imposing various
restrictions on trade, migration and currency. They erected tariff barriers, passed
immigration laws and made currency restrictions.
These measures brought relief only for the moment, even progressing further causing
unrest, an open conflict, even contributing to the causes of war
This film is a study of the principles which caused the recurrence of unemployment. The
main source is in the nature of money.
REEL #1: M ONEY (02:05 – 08:54)
(02:05) These houses represent the homes of the community. From them lead two roads.
One leads to the places where people have their jobs or where they look after their property.
In the morning people take this road to go to work or to attend to their business interests.
The other road leads in the opposite direction towards the shops. The housekeepers take
this way to do daily shopping. They carry their money to shops. When they return they
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bring their parcels of goods- At the end of the working day, workers return to their homes
to rest.
This is the daily routine until comes pay-day. The day starts like any other day. Work
begins as usual. Shopping goes on as before.
But there is a change at night. The workers come home with the money. Each brings back
the income of the past period. Be it wage, or sharing in profit, or revenue from interest.
But shortly the money paid up by the home keepers to the shops somehow creates the
income brought home by the workers. The money must eventually go round and complete
THE MONEY CIRCLE. This money circle can bee seem in the action if the view enlarges to
show where people earn their living
The workers go the various places where they have their jobs or properties. Some people go
to the fields, and mines, where food and raw materials for industry are produced. Others go
to the factories and offices where finished industrial goods are made and distributed.
Others again work on shops where they wait for customers or manage the business. To the
shops, go the home workers to make their purchases
Part of the money which the customers bring to the shops is retained there to pay for the
wages and profits. The rest goes on to the factories to pay for these crates of goods. Some
money is retained here for profits and wages and the rest goes to the fields and mines to
buy raw materials symbolised by these sacks.
Money accumulated in all the places where men work. Some accumulate in shops, some
goes on to accumulate in factories and offices. The rest is collected by primary producers
All day long the money is being spend and paid, and so distributed. At the end of the
working day, activity closes down and the workers go home. This is how the days pass. But
presently there come another pay day
It begins as usual. The workers leave home for their jobs. Primary producers, artisans and
wholesalers workers, retailers. Spending the paying, the distribution of money is resumed.
But this night there is a change. The workers now gather the money which has been piling
up in the places where they make their living. From this accumulated stores of money, each
takes home a share that is his or her income.
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(07:55) Thus. perpetually, from income, expenditure is made and ??? (not clear)
REEL #2: FROM PICTU RES TO SYM BOLS (08:55 – 12:50)
Symbols (?) that have been used, must be further simplified. Mines, factories and shops are
lumped together and they become rectangles called Business Units
In the same way the houses become one rectangle called Homes
Take a single section of the Homes and a corresponding section of the Business Units
The business unit contains a pile of money. This is its business capital which is part of its
equipment.
As production starts in the machinery of the factory works, a parcel of manufactured goods
is made. Such parcels are produced day by day and accumulate inside the business unit
until the end of the week.
Then on pay day a pile of money is handed over to the homes. The money enables buying to
restart from the homes, the next morning
In this picture, one day expenditure goes to buy one day production. The money is held by
the Business Unit. A production parcel goes to the Home.
By the evening of the day a new production parcel is finished.
Next working morning buying starts again and by the evening another parcel is
produced and ready for marketing.
This buying and selling goes on day after day until eventually all the money will
get back again into the business units.
On the evening of pay day the whole pile is again handed over to the Homes. So
another week of buying can restart and the money circulates again from the Homes
to the Business Units and back again.
(10:34) Circulation can be made continuous
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Now the symbols can be further simplified. Pay day is as usual, but now as buying
restarts, a pile of coins is spread out through the business units into an imaginary
flow.
Soon the money is circulating round continuously in six groups buying day by day
the produce of the business units.
Four coins still buy a parcel, in the same daily routine in which there were buying
before
(11:37) – simpler –
Now it would be simpler to have the flow of coins spread out even
(11:50) – and more convenient for later purposes
And more convenient still for later purposes will be to make the circular flow into a
square, and fuse the coins into a belt.
Here is the money belt passing upwards through one of the Business Units. And
now through the complete business symbol.
Here is the money belt passing downwards through one section of the Homes
corresponding with one section of the Business Units, and here it is passing
through the rest of the Home symbol
Here is the money belt passing through Homes and Business Units.
REEL #3: DEFLACTION AN D REFLACTION . The sim plest version.
(12:51 – 20:43)
(12:51) Deflation and reflation
An important feature should now be added to the system. This is the Bank.
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Some people go to the Bank to deposit their Savings. These savings are against a
rainy day or for some bright occasion. There is a continuous putting away of
money.
There is also people who draw on their deposits in the bank and who go to the
shops to spend the money.
Thus all the time money goes on trickling from the bank back into circulation
again.
The flows of money called Saving and Spending represent money being taken to the
bank and being taken from the bank.
It may happen that Saving and Spending are exactly equal, in which case there
have no effect in the general circulation of money.
As an experiment, let’s Saving be for a while in excess of spending. We shall see the
consequences when we start the flow. The extra savings are reducing the grey flow
of expenditure. Watch the reduced flow approaching the Business Units
As a result of excess Savings the Business Units receive less money and pay out
less money.
Incomes will now be reduced accordingly so that the circulation is reduced all
around.
Finish the experiment by making Saving equal again to Spending. Then no further
reduction takes place in the circulation.
Now for the reverse experiment. For a time there will be an excess of spending.
This causes monetary circulation to expand again.
In fact all the money that was accumulated in the bank by excess saving is now
being put back in circulation
If the Spending and Saving flows again become equal the money belt remains
constant
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(16:10) Inside the bank
Inside the bank changes must obviously be taking place during such experiment.
There is an accumulation of money received, which we will call Deposits. The level
of deposits remain low as long as saving equal spending.
When savings are in excess of spending, deposits rise. This is were the money goes
that is taken out of circulation
Now lets spending exceed saving. This reduces the deposits and puts money back
in circulation again
(17:05) Money and people in Business
Naturally such changes produce reactions in business. These are the Business
Units. It will be more convenient to see them separated.
The money that goes into the units represent expenditure to the buyers. The
earners receive the money as wages, as rent and interest or as profits.
To the manager of the business, part of the money going out is cost and the rest is
profits. The money coming in represents receipts
The amount of profit varies in the three business units. They are arranged in order
of profitability. This unit, on the left, having the least profit
(18:14 Deflation
We return to our starting point. Spending and saving are equal and monetary
equilibrium prevails.
A saving experiment will disturb that equilibrium.
Once more monetary circulation is being reduced and, to the same extent, in the
business units receipts are falling. Profits fall to the same extent. They fall in all
three units.
Here the manager finds although they have fallen, they have not vanished. Here
too there is still some profit left
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But in this unit profits have disappeared altogether. What is to be done? Close it
down.
The unprofitable unit recovers its business capital by selling off its stock. This
closing down of a unit further reduces circulation.
There is les money to flow through the Homes and here unemployment arises. The
period of excess saving has caused business contraction
(19:46) Reflaction
Now let spending increase and circulation will expand again Receipts and profits
rise.
This businessman sees that with receipts like this he could reopen the closed unit
and work it at a profit. So he restarts the business and begins paying up wages
again. The business capital that had accumulated does come once more into
circulation
It closes round to the home unit where unemployment ceases. In fact the original
equilibrium is restored.
This is the simplest version of deflation and reflation
REEL #4: IN VESTM EN T CAM PAIGN (20:44 – 27:13)
(20:44) New investment and new saving
A stimulus for new investment may come from new inventions. Such a stimulus
will be most effective if there is also an increase in employable population. This
makes more workers available.
The events arising from the situation start on the other side of the monetary circle,
among the business units coming into the picture
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Now, this businessman observes the prevailing level of receipts. Considering the
cost of his own plan based on new processes he decides he could start a new factory
here and run it to a profit
With this plan in his mind he goes to the bank to get the capital he needs for his
new investment. This capital is drawn from deposits.
The new machinery needed for the new enterprise is made in the Machine Works.
So the money, as a new investment flow, passes into the Machine Works.
From here the money goes on to the Homes in the form of wages paid to people in
the Machine Works.
Thus more people are employed and their wages leaving their hands join the flow
of general expenditure. Thus an addition is made to the circulation of money, it is
equal to the amount of newly invested funds
In the course of one week this addition is made to the general income and
expenditure. See the widening belt passing through the business units. From their
increased income, people save more money.
The continuation of the investment causes a further increase of monetary
circulation, an addition to incomes and further increase in saving.
Ultimately incomes increase so much that additional savings fully offset the flow of
investment.
Expansion of a general flow has started. This steady state lasts while investment
goes on.
The increase of income is mainly in profits, seen here on the left of the business
units. These profits are divided between the units. Such profits are characteristics
of a period of new investment in large scale and are called “windfall profits”
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Some of the newly invested money is gone into circulation to form these windfall
profits. The rest is paid back by saving to the bank. Here it is stored up. Deposits
rise belonging to firms or private persons who are enjoying the windfall profits.
Such is the passage of money while new capital is being invested.
When construction is completed, the investment flow ends.
The businessman takes possession of his new business unit. The unit receives from
the bank a sum of money as business capital. The Business units are rearranged to
make a space into which the new unit will fit
On the other side, in the Homes, the unemployed section is moved to a
corresponding position
The unit now takes its place in order according to profitability. It opens up by
paying out its business capital The unemployed are now put to work
The windfall profits can not long outlast the period of investment. They are drained
away by the continuous excess of saving. Incomes become smaller. This makes
saving begin to fall.
As windfall profits are finally wiped up, the greater savings vanish altogetherThis ends the first chapter in the story of investment with saving and expenditure
rebalanced.
But look inside the bank. Where is the money which was spent from this container?
It has been returned to the bank and it is among the deposits of those who
benefited from the windfall profits of the investment period.
REEL #5 REN EW ALS AN D REPAYM EN TS (27:14 – 32:07)
(27:14) Repayments and renewals: a sequel to investments
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Leave for the time the general circulation of money and concentrate on the finances
of the new business unit
(27:34) Ageing of equipment
From the first day of its life the new unit will lose value by ageing shown by the
darkening of the wheels.
Restored to newness again.
Its original value is a hundred percent, but the process of ageing reduces the value
by about 1/6 in one year. The falling value goes on steadily year-by-year.
During this period of first ageing the major part of plant value can be lost before
renewals are started. But ultimately the time comes for renewals- This makes the
value of the plant to go up again.
After a varying time renewals become so evenly spread out that ageing and
renewals practically balance. In this steady state the value of the plant remains at
about fifty per cent of the original investment.
Take the unit back to its first stage.
(29:11) Repayments
Now replace the business units among the others. The manager observes the line of
ageing. He sees as ageing proceeds a sum equal to the loss of value is withdrawn
from the business and returned to the deposits from which the investment was
paid up.
This becomes a flow of repayments and insures that none of the money originally
invested is lost by depreciation.
The container of the bank during the period of first ageing is refilled at the rate
which value is lost by ageing. While the value of the equipment has gone down, the
level in the container has risen
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If renewals are now set in hand, the manager spends money from the container at
Machine Works. This becomes a flow of renewals.
It passes to the Homes and so into the general flow of expenditure.
At this stage the renewals flow is greater than the repayment flow, so it is causing
an increase in the value of the business unit ta the expense of money being paid
from the container
As the value of the equipment goes up, the money in the container goes down. But
eventually the replacements of machinery slow down and there is a fall in
renewals.
Repayments and renewals become about equal and a steady state is reached. It
may be assumed that all of the business units have all reached the steady state.
Accordingly, for them the flows of repayments and renewals are equal. Such
balanced repayments and renewals have therefore no influence on the general
circulation of money.
REEL #6 TH E TRADE CYCLE (32:08 – 38:35)
(32:08) THE TRADE CYCLE
Investments and savings, when they are followed by first ageing of the new
equipment have definite consequences.
(32:23) INVESTMENTS and SAVINGS + FIRST AGEING lead to DEFLATION
and SLUMP
By their joint effect they lead to deflation and slump.
There three business units at work. Savings equal spending, repayments and
renewals are equal. In the bank are three containers for the three units.
Now suppose an increase in the employable population.
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A new enterprise is started, room is made in the bank and a new container is
inserted. From this container the new investment is maid, expenditure growths
and income increase in consequence
As a result there is a growth of savings through which most of the invested money
goes back into the bank.
When the investment is completed, the new unit receives its business capital. It
opens up by paying wages and other outgoings. This means for more money being
in circulation.
But as operation starts, ageing sets in and repayments are made accordingly. This
is followed by repayments and excess savings remove excess profits. After this the
excess savings disappear.
The excess deposits rose by draining the container. But the container can not
remain empty. As aging goes on it will be refilled with repayments.
This money must be taken at the expense of normal circulation. The reduction of
circulation wipes out profits in certain cases altogether. This leads to shutting
down of one business unit. In the Homes people becomes unemployed.
This is the slump.
(35:10) A more violent fluctuation
When the business unit makes his first renewals, this may change the tide of
business. Probably the first renewals of the first business unit lead to reflation,
recovery, boom.
(35:22) First renewals lead to REFLATION, RECOVERY, BOOM
The first renewal paid through the Machine Works cause an increase in general
circulation. There is a rise in profits. This leads to the idle unit being reopened.
This is followed by reemployment of idle workers.
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Meanwhile the employable population has grown again. And this, together with the
improvement in profits, will stimulate new enterprises
In the back a new unit has been enhanced and, as this is started, we see the now
the familiar symptom of monetary expansion. This as usual is followed by
increased savings.
This unit gets its capital and starts paying repayments and wages. More people is
employed. But there are still workers available, so further investment will be
undertaken.
Another unit starts working, and full employment is reached. Hence new
investment has come to an end.
Therefore in the boom now in progress there are present the causes of decline 37:39
Contracting forces, repayments and excess savings left over from the investment
campaign dominate further events. They soon wipe out windfall profits. With these
profit excess savings vanish.
But new containers in the bank need to filled from the renewals flow. To do this
circulation has to be reduced below the level of profitability.
So comes deflation and unemployment once more. The system has reverted to
another slump again.
CLOSIN G (38:36 – 39:59)
Such are the ideas concerning the failures of our economic system, which guided
economist and statesmen in their struggle against these barriers
(38:45) Currency restrictions, immigration laws, tariff barriers
Barriers that can overcome only by ASSURED EMPLOYMENT
(38:55) THE END
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