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The Great Transformation is a book by Karl Polanyi, a
Hungarian-American political economist. First published in 1944 by Farrar &
Rinehart, it deals with the social and political upheavals that took place in
England during the rise of the market economy. Polanyi contends that the modern
market economy and the modern nation-state should be understood not as discrete
elements but as the single human invention he calls the "Market
Society". A distinguishing characteristic of the "Market
Society" is that humanity's economic mentalities have been changed. Prior
to the great transformation, people based their economies on reciprocity and
redistribution across personal and communal relationships.[1] As a consequence
of industrialization and increasing state influence, competitive markets were
created that undermined these previous social tendencies, replacing them with
formal institutions that aimed to promote a self-regulating market economy.[2]
The expansion of capitalist institutions with an economically liberal mindset
not only changed laws but also fundamentally altered humankind's economic
relations; prior to the great transformation, markets played a very minor role
in human affairs and were not even capable of setting prices because of their
diminutive size.[3] It was only after industrialization and the onset of
greater state control over newly created market institutions that the myth of
human nature's propensity toward rational free trade became widespread.[4]
However, Polanyi asserts instead that "man's economy, as a rule, is
submerged in his social relationships," [5] and he therefore proposes an
alternative ethnographic economic approach called "substantivism", in
opposition to "formalism", both terms coined by Polanyi.
General argument Polanyi argued that the development of the modern state went
hand in hand with the development of modern market economies and that these two
changes were inextricably linked in history. Essential to the change from a
premodern economy to a market economy was the altering of human economic
mentalities away from their grounding in local social relationships and
institutions, and into transactions idealized as "rational" and set
apart from their previous social context.[6] Prior to the great transformation,
markets had a very limited role in society and were confined almost entirely to
long distance trade.[7] As Polanyi wrote, "the same bias which made Adam
Smith's generation view primeval man as bent on barter and truck induced their
successors to disavow all interest in early man, as he was now known not to
have indulged in those laudable passions."[8] The great transformation was
begun by the powerful modern state, which was needed to push changes in social
structure, and in what aspects of human nature were amplified and encouraged,
which allowed for a competitive capitalist economy to emerge. For Polanyi,
these changes implied the destruction of the basic social order that had
reigned throughout pre-modern history. Central to the change was that factors
of production, such as land and labor, would now be sold on the market at
market-determined prices instead of allocated according to tradition,
redistribution, or reciprocity.[9] He emphasized the greatness of the
transformation because it was both a change of human institutions and human
nature. His empirical case in large part relied upon analysis of the
Speenhamland laws, which he saw not only as the last attempt of the squirearchy
to preserve the traditional system of production and social order but also a
self-defensive measure on the part of society that mitigated the disruption of
the most violent period of economic change. Polanyi also remarks that the
pre-modern economies of China, the Incan Empire, the Indian Empires, Babylon,
Greece, and the various kingdoms of Africa operated on principles of
reciprocity and redistribution with a very limited role for markets, especially
in settling prices or allocating the factors of production.[10] The book also
presented his belief that market society is unsustainable because it is fatally
destructive to human nature and the natural contexts it inhabits. Polanyi
attempted to turn the tables on the orthodox liberal account of the rise of
capitalism by arguing that “laissez-faire was planned”, whereas
social protectionism was a spontaneous reaction to the social dislocation
imposed by an unrestrained free market. He argues that the construction of a
"self-regulating" market necessitates the separation of society into
economic and political realms. Polanyi does not deny that the self-regulating
market has brought "unheard of material wealth", but he suggests that
this is too narrow a focus. The market, once it considers land, labor and money
as fictitious commodities, and including them "means to subordinate the
substance of society itself to the laws of the market."[11] This, he
argues, results in massive social dislocation, and spontaneous moves by society
to protect itself. In effect, Polanyi argues that once the free market attempts
to separate itself from the fabric of society, social protectionism is
society's natural response, which he calls the "double movement."
Polanyi did not see economics as a subject closed off from other fields of
enquiry, indeed he saw economic and social problems as inherently linked. He
ended his work with a prediction of a socialist society, noting, "after a
century of blind 'improvement', man is restoring his 'habitation.'"[12]
Before the market society Based on Bronislaw Malinowski's ethnological work on
the Kula ring exchange in the Trobriand Islands, Polanyi makes the distinction
between markets as an auxiliary tool for ease of exchange of goods and market
societies. Market societies are those where markets are the paramount
institution for the exchange of goods through price mechanisms. Polanyi argues
that there are three general types of economic systems that existed before the
rise of a society based on a free market economy: redistributive, reciprocity
and householding. Redistributive: trade and production is focused to a central
entity such as a tribal leader or feudal lord and then redistributed to members
of their society. Reciprocity: exchange of goods is based on reciprocal
exchanges between social entities. On a macro level, this would include the
production of goods to gift to other groups. Householding: economies where
production is centered on individual households. Family units produce food,
textile goods, and tools for their own use and consumption. These three forms
were not mutually exclusive, nor were they mutually exclusive of markets for
the exchange of goods. The main distinction is that these three forms of
economic organization were based around the social aspects of the society they
operated in and were explicitly tied to those social relationships. Polanyi
argued that these economic forms depended on the social principles of
centricity, symmetry, and autarky (self-sufficiency). Markets existed as an
auxiliary avenue for the exchange of goods that were otherwise not
obtainable.[page needed]
Support The sociologists Fred L. Block and Margaret Somers argue that Polanyi's
analysis could help explain why the resurgence of free market ideas has
resulted in "such manifest failures as persistent unemployment, widening
inequality, and the severe financial crises that have stressed Western
economies over the past forty years." They suggest that "the ideology
that free markets can replace government is just as utopian and dangerous"
as the idea that Communism will result in the withering away of the state.[13]
In Towards an Anthropological Theory of Value: The False Coin of Our Own
Dreams, anthropologist David Graeber offers compliments to Polanyi's text and
theories. Graeber attacks formalists and substantivists alike, "those who
start by looking at society as a whole are left, like the Substantivists,
trying to explain how people are motivated to reproduce society; those who
start by looking at individual desires, like the formalists, unable to explain
why people chose to maximize some things and not others (or otherwise to
account for questions of meaning)."[14] While appreciative of Polanyi's
attack on formalism, Graeber attempts to move beyond ethnography and towards
understanding how individuals find meaning in their actions, synthesizing
insights of Marcel Mauss, Karl Marx, and others. In parallel with Polanyi's
account of markets being made internal to society as a result of state
intervention, Graeber argues the transition to credit-based markets from
societies with separated "spheres of exchange" in gift giving was
likely the accidental byproduct of state or temple bureaucracy (temple in the
case of Sumer).[15] Graeber also notes that the criminalization of debt
supplemented the enclosure movements in the destruction of English communities,
since credit between community members had originally reinforced communal ties
prior to state intervention: The criminalization of debt, then, was the
criminalization of the very basis of human society. It cannot be overemphasized
that in a small community, everyone normally was both lender and borrower. One
can only imagine the tensions and temptations that must have existed in a
community—and communities, much though they are based on love, in fact,
because they are based on love, will always also be full of hatred, rivalry and
passion—when it became clear that with sufficiently clever scheming,
manipulation, and perhaps a bit of strategic bribery, they could arrange to
have almost anyone they hated imprisoned or even hanged.[16] Economist Joseph
Stiglitz favors Polanyi's account of market liberalization, arguing that the
failures of "Shock Therapy" in Russia and the failures of IMF reform
packages echo Polanyi's arguments. Stiglitz also summarizes the difficulties of
"market liberalization" in that it requires unrealistic
"flexibility" amongst the poor.[17
Criticism Rutger Bregman, writing for Jacobin, criticized Polanyi's account of
the Speenhamland system as reliant on several myths (increased poverty,
increased population growth and increased unrest, as well as "'the
pauperization of the masses,' who 'almost lost their human shape';"
"basic income did not introduce a floor, he contended, but a
ceiling") and the flawed Royal Commission into the Operation of the Poor
Laws 1832.[18] Both Bregman and Corey Robin credited Polanyi's view with
Richard Nixon moving away from a proposed basic income system because Polanyi
was heavily quoted in a report by Nixon's aide, Martin Anderson and then
ultimately provided arguments for various reductions in the welfare state
introduced by Ronald Reagan, Bill Clinton and George W. Bush.[18][19] Economic
historians (e.g. Douglass North) have criticized Polanyi's account of the
origins of capitalism.[20] Polanyi's account of reciprocity and redistributive
systems is inherently changeless and thus cannot explain the emergence of the
more specific form of modern capitalism in the 19th century.[21]
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References Books Block, F., & Somers, M. R. (2014). The Power of
Market Fundamentalism: Karl Polanyi's Critique. Harvard University Press. ISBN
0674050711 Polanyi, K. (1977). The Livelihood of Man: Studies in Social
Discontinuity. New York: Academic Press David Graeber, Toward an
Anthropological Theory of Value; The False Coin of Our Own Dreams, Palgrave,
New York, 2001 David Graeber, Debt: The First 5000 Years (Brooklyn, NY:
Melville House Publishing, 2011. Pp. 534. ISBN 9781933633862 Hbk. £55/US
$32) Articles Block, F., & Polanyi, K. (2003). Karl Polanyi and the Writing
of "The Great Transformation". Theory and Society, 32, June, 3,
275-306. Clough, S. B., & Polanyi, K. (1944). Review of The Great
Transformation. The Journal of Modern History, 16, December, 4, 313-314. Review
of The Great Transformation from Economic History Services Markets and Other
Allocation Systems in History: The Challenge of Karl Polanyi Karl Polanyi's
Battle with Economic History. Libertarianism.org The free market is an
impossible utopia (18 July 2014), The Washington Post Something That Changed My
Perspective: Karl Polanyi’s The Great Transformation (2 January 2015),
Naked Capitalism
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