The Great Transformation: The Political and Economic Origins of Our Time

Although this book was published in 1944, the same year as Hayek's THE ROAD TO SERFDOM, it remains as relevant as ever. Some say that it is dated and it is true that many of the historical references are not the ones that would spring to mind today, but the critique of the myth of the self-regulating free market remains as relevant and to-the-point as ever. One of the main targets of his book was the Vienna school of economics, the central figures of which were Ludwig von Mises and F. A. Hayek. What Polanyi does is help one to see how hopelessly naïve and ahistorical many of their central assumptions are. Though one might question some of the details of Polanyi's thesis, especially regarding the gold standard the causes of the two world wars, he makes two incredibly powerful arguments about the myth of the self-regulating market to which proponents of that theory have offered no convincing reply. More of this is a second.Polanyi's method is multi-disciplinary. He wants to show by a multitude of ways that the central historical contentions of those advocates of the self-regulating market are simply fasle. These people have argued, for instance, that by nature humans engage in market trade and that these markets by nature are self-regulating. If this were, as they insist, true, then wherever one would look in human history one would find markets that were by their nature self-regulating. Remember, Adam Smith's Austrian heirs were making arguments not just about what ought to be, but what naturally is in a state of nature. They are making claims about what is the case if government and others will just get out of the way of the workings of nature. So to this end Polanyi looks at the results of anthropological and historical studies to see what the evidence shows. Overwhelmingly, he finds no evidence that things have been in the course of human history as the self-regulators have claimed. In fact, Polanyi finds little or no evidence of the worldwide prevalence of markets at all. He finds little historical evidence for the kinds of claims about the state of nature that self-regulating free marketers posit. Instead, he finds a world of evidence that free markets were human artifacts, created and maintained entirely by government intervention. The chapters that detail Polanyi's argument can be a bit heavy going, but they are crucial to his overall argument.Polanyi makes two central claims about the myth of the self-regulating free market. The first is that in its essential nature it is utopian and nonhistorical. It is utopian in that it describes not the world as it ever has been or ever could be, but a fantasy that exists only in the minds of its adherents. It is a powerful myth because whenever one points to the failures and shortcomings of attempts to promote free market principles, its adherents reply by insisting that the market hasn't yet been made pure enough. If only we decrease government involvement, further reduce regulation, remove restrictions on the kinds of compacts companies can form with one another, further gut the power of trade unions, and so forth, we will see the birth of a glorious new economic world in which all will be right in the world and God will be on his throne. But as Polanyi argues, not only has such a creature as a self-regulating free market economy never existed, it never could. In fact, what has passed for self-regulating markets has in fact been the result of drastic and pervasive government intervention. Additional interventions take place to protect society as a whole from the damage that a self-regulating economy inflicts on the citizenry as a whole.The second major point that Polanyi makes is that of embeddedness: any economic system is embedded in society as a whole, with a host of moral, political, and religious values that are not primarily economic in nature. The self-regulating free marketers would somehow wish for an economic system that is distinct from and separated from those values; that is, an economic system that is not embedded. But such a thing, Polanyi argues, is impossible. This is another reason why belief in a self-regulating free market is a sheer fantasy: it is predicated on a host of impossible situations being possible. As the effects of a self-regulating free market occur, society intervenes to counteract the harmful effects of that economy. For instance, workers compensation is neither required nor desirable by pure free market principles. The same is true for unemployment insurance or anti-trust legislation. Or pollution standards. There is no question that keeping a plant from polluting is an interference with the market, but this is an example of noneconomic values trumping economic ones.The basic dilemma of free market capitalism has always been this: is an economic system that generates a great deal of wealth for a society as a whole but concentrates most of that wealth in the hands of a few people, leaving most with less than they would have in a different economic system, a good economic system? Most of us would say no. Even free marketers would have to concede this, which is why they have had to concoct articles of faith (though not of fact) such as the trickle down theory. "Trickle down" has been debunked repeatedly over the years, both in theory and reality, but perhaps never so eloquently as by Will Rogers. Some people, he said, thought gold water like water: put it at the top and it will trickle down to everyone below. But, he went on, gold wasn't like water at all; put it at the top and it just stays there. Polanyi's book gives meat to the question of whether one would prefer a society where a very large amount of profit were concentrated in the hands of a very small number of people (essentially the situation in the United States today) or a somewhat smaller overall amount distributed more equitably among al the people. Yes, the few who profited under the former would have less, but the vast majority would have more.I want to question one reviewer below who says that Polanyi doesn't understand the essential nature of the free market. I find that an amazing statement. The reason that the myth of the self-regulating free market has spread so easily and widely is that it is so incredibly easy to understand. What one can question is whether this easy-to-understand, perhaps simplistic, theory is right. We have no examples of self-regulating economies from history even though in the utopian fantasy one of the tenets is that it is the "natural" course of things. Of course Polanyi understands the theory he is criticizing. He just finds it naïve and silly. My only hope is that more people in the United States come to realize this. Ever since the election of Reagan in 1980, though in fact the tendency began under Jimmy Carter (most Americans don't seem to remember how conservative he was on economic matters, far more conservative than either Ford or Nixon), America has toyed with ideas promulgated by the free marketers. The result? Vast accumulation of wealth, especially in the financial markets despite the progressive decay in the industrial base, concentrated almost exclusively in the top 2% of the population. In fact, real wages for the vast majority of Americans has fallen since 1980, the percentage of the population to live below the poverty line has increased, and America has become the industrial nation with the greatest economic inequality.My own fantasy is that more people would read Polanyi and fewer Hayek. I can understand why they don't. Hayek is easy to read and understand and feeds the fantasy that one can pursue economic advantage with no thought of the damage it might do; the invisible hand will take care of everything. Polanyi is difficult and complex and subtle and pricks a hole in the fantasy. Polanyi reminds us that economics has to be tempered by our values as a whole, that we cannot be reduced to economic animals. My fantasy--or is it a hope?--is that we as a society will come to care more for the welfare of the majority more than the welfare of the few. I would love to see a world in which our highest values did not have a price put upon them.

The Great Transformation: The Political and Economic Origins of Our Time. Karl Polanyi. 1944.In 1944, the opposing monumental classics, The Road to Serfdom by Friedrich Hayek and The Great Transformation by Karl Polanyi, were published. From the right, Hayek argued that market liberalism led to prosperity, political liberty, and prevention of authoritarian governance. From the left, Polanyi argued that the rise of market liberalism during the industrial revolution led to intolerable hardship, inevitable unsustainable countermeasures, and finally collapse into fascism, the Great Depression, and World Wars I and II.Since their publication during World War II, these markedly opposed ideas have now been tested by seventy years of history. For the first thirty years after the war, policies reflecting Polanyi’s ideas led to a mixed economy of government policies and regulated markets in the US, northern Europe, and elsewhere that produced robustly increased prosperity broadly shared at all income levels. For the next forty years, ascendency of Hayek’s ideas led to reduction of the role of government with attendant economic instability, rising inequality (with all economic gains going to the rich in the US), and coercive imposition of market liberalism by authoritarian governments with disastrous results throughout Latin America and the former Soviet Union. Given the adverse consequences of resurgent market liberalism, the rebuttal of its ideas in The Great Transformation is as important today as ever.In The Great Transformation, Polanyi maintains that before the industrial revolution, markets did not play an important role in human society—they were embedded in society rather than the other way around. Goods and services were generally distributed without the motive for profit by the non-market mechanisms of reciprocity according to social relations, centralized storage with redistribution, and production for one’s own use known as householding. When present, the role of markets was peripheral and subordinate to politics, religion, and social relations.The industrial revolution brought about an almost miraculous improvement in the tools of production accompanied by catastrophic dislocations of the lives of the common people, of which poverty was merely the economic aspect. During this time, English thinkers created the theory of market liberalism, which radically reversed the previous subordination of markets to society by removing the role for government so that society was instead subordinated to self-regulating markets (without government interference).This change required that human labor, nature, and money be turned into commodities that could be bought and sold without regard to human and social considerations. Efficient functioning of markets also required callous indifference to the social dislocation, poverty, and damage to nature that resulted and even to hunger as a motivating factor for the working class. This change from regulated to self-regulating markets that organized the whole of society on the principle of gain and profit marked a great transformation of the nature of society by the removal of democratic control of markets.The goals of this transformation were unrealistically utopian and could never be achieved without annihilating the human and natural substance of society. Even during its installation, laissez-faire proved to be a myth. Government action was mandatory to adjust the supply of money and credit, to enforce provisions for labor and land, and to prevent political disruption. Even with this level of government activity, market liberalism still imposed unsustainable hardships on ordinary people from speculative excess, growing inequality, competition from imports, depressions, unemployment, poverty, and reduced entitlement to assistance.By the late 1800s, these impossible pressures of the self-regulating market necessarily led to a countermovement in industrialized nations to protect their societies from the market. This countermovement included protectionism for national markets and competition for colonies to take resources from other societies. In exotic and colonial regions with the absence of protective measures unspeakable suffering resulted. Thus Polanyi characterizes market societies as having two opposing movements, referred to as a “double movement.” These two contradictory movements resulted in simultaneous struggles to expand the scope of the market because of the opportunities for some and to limit the scope of the market because of the adverse consequences for many.These internal contradictions led to disruptive stresses and strains that were unsustainable for market societies. In the domestic economy, class conflict resulted from issues like the choice between inflation for stability of workers incomes and employment and deflation for stability of currency for investors. Market liberals from Spencer to Mises held that popular democracy was a danger to capitalism and that workers should not have the right to vote. In the international economy, relentless shocks imposed by the gold standard forced nations to consolidate around heightened national and imperial boundaries. In international politics, intensified political, military, and economic rivalries finally culminated in World War I.By this time, the class struggle over market liberalism was at an impasse. For a critical decade, economic liberals supported authoritarian intervention in service of their deflationary policy to protect currency exchange and investment. This merely weakened the democratic forces that might otherwise have averted the fascist catastrophe. During the Great Depression, the gold standard finally collapsed, foreign debts were repudiated, capital markets and world trade dwindled away, and the global political and economic system disintegrated. In a second great transformation of society that followed, the replacements of market society by fascism, socialism, and the New Deal were similar only in discarding laissez-faire principles. The conflict between the market and the elementary requirements of an organized social life had ultimately destroyed society. World Wars I and II merely hastened its destruction.In 1944, Polanyi appears to have regarded the utopia of market liberalism as utterly discredited. He expressed the hope that the passing of market economy could become the beginning of an era of unprecedented freedom. He noted that freedom as the absence of power and compulsion as claimed by market liberals is not possible in a complex society. The function of power is to ensure the measure of conformity which is needed for the survival of the group: its ultimate source is opinion.Regulation both extends and restricts freedom; only the balance of freedoms lost and won is significant. The comfortable classes enjoy the freedom provided by leisure in security. They resent the suggestion to spread out income, leisure, and security to extend to others the freedom they enjoy. Obviously, those who lack security cannot enjoy the same freedom as the comfortable classes. Those who want more freedom for all need not fear that either power or planning will undermine their freedom. Regulation and control in a complex society strive to give us all the security we need to achieve freedom not only for the few, but for all.

This in an outstanding work on economics and is a must read for anyone interested in how we got to where we are economically speaking. It is written with verve and although a tour de force, is a fairly challenging read. The book delivers incisive commentary on the impact of economic practice on human life, an aspect frequently overlooked in most economic writing and, as it was written many decades ago, may be considered prophetic.

I bought this as a gift and the recipient was very pleased with it.

A key book in understanding the move to a market based political system.

In my opinion, this book is the most important book of the 20th century. With historical, empirical and anthropological diligence, Polanyi shows that the "market" is not something which arises naturally or spontaneously but has been created by heavy and brutal as well as planned interventions of the state. On the other hand, social countermovements happened spontaneously to safe nature, men and the economy from the brutal force of free markets. Polanyis conclusions are based on profund historical and empirical analysis.With Polanyis insight it is unbelievable what happened since the 1980s in a (Neo)liberal backlash, completely ignoring the implications of the book with respect to nature, men and our society. We now have the empirical evidence, that Polanyi was true and that (1) markets have to embedded into the economy and (2) the economy has to be embedded into society and not the other way around. I would highly recommend this book to everyone, it is more important than ever.

"The Great Transformation" by Karl Polanyi is a classic economic exposé. It was written during WWII and first published shortly thereafter. It doesn't contain or mention postwar economic refinements. It does explore the economic attitudes that accompanied the Industrial Revolution. Polanyi's incisive analysis is no less relevant today than it was 70 years ago.# In short, Polanyi debunks the free-market economy. He debunks economists who call for less government interference. Whenever markets have been deregulated, bad things have happened. Financial players if left unopposed have boosted prices to fantastic levels that bear no resemblance to reality. Employers if left unopposed have dehumanized workers till they've become mere commodities or zombie machines. Landowners if left unopposed have turned thriving ecological systems into wastelands that are the remains of short-term profits.# From the 17th-century till WWII, Polanyi gives concrete examples where governments have been forced to intervene in the market economy to prevent social catastrophes. The old saw that "supply and demand will prove beneficial for everyone" is debunked six ways to Sunday.# The major problem for economic theorists is that they assume human industry is somehow divorced from Nature. They take no account of the capital losses to The Commons when metal ingots are extracted from the earth. New reserves of gold, copper or oil are recorded as gifts from on high. Economic ledgers make no allowance for the "consumed" oil as if it will always be there in limitless supply.# Without a social conscience, business reverts to a destructive plague that helps no one but the elite at the top of the rock pile. Polanyi documents the countless results of deregulation from 1795 to 1940. In every case, unfettered markets dehumanized the bulk of citizens. Unfettered markets bankrupted traditional family farms. They lowered wages, created greater unemployment, promoted unhealthy lifestyles, destroyed priceless artifacts and assigned nonsensical values to everyday staples.# At present, we live on the fragile surface of a bubble which has been stretched out of all proportion.# Over 90% of the money that is recognized in international trade is monopoly money i.e. M2, M3, M4, etc. You or I cannot spend monopoly money. We only see the currencies issued by banks i.e. M1. Our money (M1) is taxed to the hilt since it represents transactions in the REAL economy. The elite industrialists, investment bankers and absentee landlords deal with monopoly money. Only THEY can turn monopoly money into currencies that will buy stuff in the real world. Worse, monopoly money is rarely if ever taxed. 99% of us work to support governments that give the elites a free ride.# One day the bubble of interdependent debt will burst. Most of us will become destitute, but the elite will retain their assets because monopoly money won't be touched. It's fantasy money afterall. Only everyday currencies will disappear or become worthless as toilet paper.# I recommend Karl Polanyi's "The Great Transformation" and please take his advice to heart before robots, controlled by the elite, herd all of us into concentration camps.