The Great Transformation

Block speaks to the continuing importance of Polanyi’s work: “it is indispensable for understanding the dilemmas facing global society at the beginning of the twenty-first century” (xviii). Block talks about how market liberalism has dominated global politics since the 1980s. The Cold War obscured Polanyi’s critiques, but its end has allowed Polanyi’s work to resurface in importance with globalization at the forefront of the debate. Block believes that this book offers current economists a better understanding of market capitalism and its consequences.

Polanyi was born into a socially-engaged and intellectual family. As a student after World War I, Polanyi encountered economists—like Mises and Hayek—who tried to reconcile market liberalism with the current historical context of post-WWI Europe, which was becoming increasingly socialist. Hayek became the voice of neoliberalism, eventually inspiring the economic policies of Margaret Thatcher and Ronald Reagan, but Polanyi critiqued Mises’ arguments from the start. Polanyi’s socialist leanings eventually led to him emigrating from Vienna to England after Hitler rose to power in 1933. After researching English social and economic history, Polanyi used this to critique Mises and Hayek’s views in theory, which ultimately coalesced into The Great Transformation. Polanyi wrote the book during a fellowship at a college in Vermont. As a result of his multiple emigrations, Polanyi felt like a citizen of the world and believed that the negative consequences of nationalism had been bolstered by global economics. After WWII, Polanyi taught at Columbia University and published several influential papers.

Block talks about the structure of Polanyi’s book, citing Part 2 as the work’s core. In this section, Polanyi demonstrates that market liberalism was created in response to industrial disruptions, an idea which spread rapidly as industrialization became globalized. Institutions then formed to protect society from the market, ultimately leading to the rise of fascism. Block refers to the vast resources from which Polanyi drew his critique, including historical and anthropological records as well as social theory. As such, this book can be viewed not only for its economic merit but also for its social critique as well. Block believes that Polanyi’s political ideology is hard to ascertain, as he differed in opinion from even those philosophers he claimed to draw from, such as Keynes and Marx.

Polanyi writes that “[m]odern economic thought […] rests on the concept of the economy as an interlocking system of markets that automatically adjusts supply and demand through the price mechanism” (xxiii). However, Polanyi argues that this differs from the history of necessary government intervention. The market relies on a variety of social interactions, including politics. Malthus and Ricardo wanted to subordinate society to the market, which Polanyi believes is incorrect as this goal is not achievable; the self-regulating market cannot exist.

Block writes that “Polanyi argues that creating a fully self-regulating market economy requires that human beings and the natural environment be turned into pure commodities, which assure the destruction of both society and the natural environment” (xxv). People naturally resist this, leading to tension as the market struggles to gain autonomy. Polanyi believes that real commodities have to be saleable market items, whereas fictitious commodities are things like land, labor, and money. These fictitious commodities behave differently from real commodities, which modern economists do not take into account. On one level, Polanyi believes it’s immoral to treat human beings and nature as commodities because this violates their sanctity; on another level, the state is responsible for mitigating inflation/deflation, unemployment, and food production, therefore controlling integral aspects of the allegedly self-regulating market: money, labor, and land. The less control the state has over the economy, the more the individual suffers.

Attempts to disembed the market economy will fail; however, liberal economists contend that these failures result from a lack of political will, as can be seen in defenders of “shock therapy” to bolster the Soviet Union’s economy, who believe that this methodology failed because politicians crumbled under pressure. Block writes:

Because efforts to disembed the economy from society inevitably encounter resistance, Polanyi argues that market societies are constituted by two opposing movements—the laissez-faire movement to expand the scope of the market, and the protective countermovement that emerges to resist the disembedding of the economy (xxviii).

All groups—even capitalists—work to ensure the stabilization of the economy. Polanyi believes that the planning associated with stabilizing the economy was itself not planned, criticizing economists who think it was a government conspiracy. Polanyi believes that government intervention was inevitable to prevent social collapse. Block demonstrates how Polanyi’s argument differs from both Marxism and market liberalism, as both ideologies argue that the two exist as the only possible ideologies. Polanyi argues that the self-regulating market cannot be obtained and that all economies operate on a sliding scale of socialism.

Polanyi believes in part that fascism rose as a result of the gold standard. Market liberals believed that the gold standard would allow for global market self-regulation:

The globe would be unified into a single market place without the need for some kind of world government or global financial authority; sovereignty would remain divided among many nation-states whose self-interest would lead them to adopt the gold standard rules voluntarily (xxxi).

Polanyi argues that the gold standard did not achieve its purpose of integrating the global marketplace and reducing government intervention; rather, its adoption in the 1870s led to intensified concepts of nationalism, eventually resulting in two world wars. The imposition of the gold standard led to people bearing the brunt of economic costs, creating unemployment and other negative economic impacts. Governments rushed to protect their interests with tariffs in order to stabilize economies. Similarly, the American, European, and Japanese practice of colonialism was at odds with the logic of free trade and “intensified the political, military, and economic rivalry between England and Germany that culminated in the First World War” (xxxii). Polanyi believed imperialism arose as a result of the gold standard, as nations perceived external exploitation of other peoples to be the way in which they could stabilize their own economies. However, even after World War I, nations rushed to restore the gold standard, paving the way for the Great Depression and the fascism of World War II.

Neoliberals still advocate for self-regulating markets despite their historical consequences, making Polanyi’s arguments relevant for modern society. Although the current global financial system differs from the gold standard, the belief behind the absolute morality of the pursuit of economic self-interest remains the same. Many neoliberals work to limit government involvement, advocating for the “Golden Straightjacket.” However, Polanyi’s argument shows that this ideology remains a fantasy, as economies need institutions to regulate them and prevent against crises. Similarly, the demands that a free market places upon the individual are untenable and will ultimately result in the people mobilizing to protect themselves, as can be witnessed in the widespread protests resisting globalization’s economic disruptions. Social instability then inevitably leads to conflict, as seen in the civil wars and famine in parts of Africa and the increase in militant movements worldwide: “If Polanyi is right, these signs of disorder are harbingers of even more dangerous circumstances in the future” (xxxv).

Ever the optimist, Polanyi believed that by subordinating economies to democratic politics, one could break the cycle of international conflict. He believed FDR’s New Deal represented a model for this possibility, as the social initiatives provided a framework to protect individuals against economic instability. Block writes that “[a]t the global level, Polanyi anticipated an international economic order with high levels of international trade and cooperation” (xxxvi), laying out the principles of what this would look like. He primarily focused on ways in which societies could protect the individual through global regulatory structures, asserting that the expansion of government intervention was necessary in order to accomplish this unsurpassed level of individual freedom. However, Polanyi’s vision was only continuously implemented in smaller countries, such as those in Scandinavia, whereas the larger countries abandoned his beliefs for neoliberalism, leading to modern protests, with “[g]roups around the world [beginning] an intense global dialogue over the reconstruction of the global financial order” (xxxviii). Block believes that this movement faces significant challenges that will only worsen as the movement gains power; however, Block believes that this kind of open critique is in and of itself important and groundbreaking: “This transnational movement is an indication of the continuing vitality and practicality of Polanyi’s vision” (xxxviii).