Karl Polanyi, The great transformation

Critical Essay #1: Karl Polanyi, The Great Transformation: The Political and Economic Origins of Our Time

Written during World War II, the seminal book by Karl Polanyi investigates the causes of the tremendous social, political and economic processes that shaped the world in the first half of the XX-th century: the rise of fascism in Germany and Italy, the Bolshevik Revolution in Russia, World War I, and the Great Depression in the thirties. Although these events seem unrelated and are dispersed spatially and temporally, Polanyi considers all of them to be the consequences of the collapse of an entire social system which he calls Nineteenth-century Civilization.

This Civilization, according to Polanyi, rested on four institutions: the balance-of-power system, the international gold standard, the self-regulating market, and the liberal state (3). Of these, the most important – the “fount and the matrix of the system” (3), but also “the congenital weakness” (258) was the self-regulating market. The distinctive characteristic of this civilization appears to be its accent on the preponderancy and predominance of market laws over all social systems and the ambition to construct the societal institutional structure according to these rules. The principal proponents of the idea of the “self-regulating market” are, among others, Adam Smith, David Ricardo and Thomas Malthus.

Polanyi opposes the main idea of the possibility of existence of the “self-regulating market” as a “stark utopia’ (3), and his entire argument is driven by the impulse to debunk this utopia.

His claims can be grouped in 3 clusters:

Sociological arguments. Against the pretention of ideologues of the self-regulating market that economy is and always was framing society, Polanyi advances the idea that the “man’s economy, as a rule, is submerged in his social relationships” (48), i.e., the economic process is itself  determined by conventions, rules and values originating in social life. Material goods and economic motivations are not absolute universal values, but  their signification and utility as means to protect social assets and to safeguard the social standing of an individual is created in the social context (48). This idea of embeddedness of economic relations in the socio-cultural practice of society, enforced by historical and anthropological research, allows Polanyi to suggest that economic activity can be, and actually is organized in different ways according to the needs of the social organism. The preponderance of economic motivation during the XIX-th century was an accident originated in the writings of a few philosophers, the actions of some politicians and rested on “a motive only rarely acknowledged as valid in the history of human societies, and certainly never before raised to the level of a justification of action and behavior in everyday life, namely, gain” (31).

By taking a functionalist stand, Polanyi refutes the pretentions of free market principles to dominate society; instead, the social organism develops a contrary tendency of institutional control of economy in order not to be, in its turn, annihilated by the actions of the self-regulating market. The main objection to economic determinism appears to be its restricted and relative role in society – the maximization of gains and profit is not the absolute value, but rather the self protection of society itself (136).

Anthropological arguments. The main targets of Polanyi’s attacks are the claims of Adam Smith to discover universal patterns of economic psychology, the propensity of man to barter, truck, exchange and the division of labor among all known societies, from the beginnings of human history, that lead, naturally, to an economic system regulated by market rules. These assertions are refuted as being apocryphal and being desirable projections on the past rather than actual descriptions of historical processes. Using the vast amount of anthropological literature (which, to be fair, was absent in Smith’s times), Polanyi argues that never, in the history of mankind, a society controlled and regulated by markets is to be found (46). Even present in all known societies, economic activities have always played a restraint role in the social organization while “gain and profit made on exchange never before played an important part in human economy” (45). Thus, the Economic Man, the cornerstone of liberal thinking, is merely a fiction, a case of judging social events from the economic viewpoint.

Political arguments. Far from being a natural consequence of development of human history, the laissez-faire principle is an accident, a strategy used by government in order to solve economic problems. All of its components: protective tariffs, export bounties, and indirect wage subsidies were created and enforced by the state (145). Hence, laissez-faire economy was the result of “deliberate state action, subsequent restrictions on laissez-faire started in a spontaneous way. Laissez-faire was planned; planning was not” (147).

Not only does the self-regulating market require a strong and efficient state to protect the rules, and to ensure that they are respected by all, but also, they need sometimes protectionist measures in order to resist or to annihilate competition from outside. Even the internal trade in Western Europe, one of the main drivers of free market, was actually created by the intervention of the state (66). Thus “even those who wished most ardently to free the state from all unnecessary duties, and whose whole philosophy demanded the restriction of state activities, could not but entrust the self-same state with the new powers, organs, and instruments required for the establishment of laissez-faire” (145).

Although brilliantly offensive, Polanyi is less successful on the defensive, i.e. to construct/provide viable political or social alternatives to free-market Utopia. A strong supporter of the intervention of the state in economic affairs, he fails to see and prevent the dangers of the opposite of free-market: totalitarian central planning, which, in his time, was already an obvious reality: especially in the Soviet Union.

Another main deficiency of his theoretical construction is that he commits the same error reproached to his opponents from the liberal side: in the way they misunderstood human history by reading it through economic lenses, Polanyi misunderstands economy by reading it through social, cultural and anthropological lenses. This leads him to neglect the main advantage of liberal thought and free-market ideology: the claimed economic efficiency of self-regulating market and its tremendous material achievements. Even after its historical, theological and ontological claims are demystified, the idea of a Self-Regulating Market can pretend to ensure the most efficient and rapid economic growth.

Although never explicitly stated but rather suggested, nostalgia for the mythical time before the Industrial Revolution underlines the theoretical and ethical conceptual stand of Polanyi. It can be seen in his rhetoric attacks on “the Satanic Mill” that ground men into masses (35) and also in his idealistic descriptions of “organic forms of existence” (171) replaced, after the Industrial Revolution, by a different type of organization, an atomistic and individualistic one. Sure, it will be an exaggeration to characterize this subtle nostalgia as a pastoral of “good old times when life was simpler”, but is can be read as an anti-technological manifesto.