The Great Transformation

“Civilizations, like life itself, spring from the interaction of a great number of independent factors which are not, as a rule, reducible to circumscribed institutions.” 

Polanyi equates civilizations with living beings, personifying the nature of civilizations so that they become a kind of breathing entity. He continues the metaphor by arguing that as a living being, civilizations emerge out of the interaction and the relationships between various things that are often unquantifiable in nature. He believes that civilizations cannot be reduced to a set of factors, as they are constantly changing and evolving as a result of the interactions between various things. Therefore, the potential of the self-regulating market to destroy civilizations represents a kind of attack on life itself. The dynamic nature of civilizations cannot be reduced to the set of quantifiable factors needed for the self-regulating market, thereby again assuring that the idea of the self-regulating market has no place within civilization except as an ideal. 

“Any move that might increase the presumptive enemy’s potential was vetoed by the governments. Superficially, it more than once appeared as if the conflict had been quashed, but the inside circles were aware that it had merely been shifted to points even more deeply hidden under the amicable surface.” 

Polanyi discusses France and Germany’s battle of empires after 1870. Although the Industrial Revolution witnessed a period of prolonged peace, these two powers were more or less at war with one another, although the war was not yet being waged upon these nations’ soils. The presentation of peace is then regarded as superficial, as all countries—that is, those with enough power—knew that the conflict which had previously been waged on foreign, colonized land was coming to a head. Although the international economic liberal system held onto the appearance of peace, Polanyi argues that this peace was not at all amicable, but rather fraught with tension. This point of view clarifies one of Polanyi’s main questions: the question of why 100 years of peace ended with one of the bloodiest wars mankind had ever seen. To answer, Polanyi argues that the 100 years of peace were not actually peaceful but rather demonstrated the ability of nations to adhere to the pretense of peace in order to maintain the global economy. One is then left to wonder if World War I would not have been as bloody if France and Germany—among other powers—had waged smaller conflicts and thereby dissolved some of the tension sooner. 

“The gold standard was the only remaining pillar of the traditional world economy; when it broke, the effect was bound to be instantaneous. To liberal economists the gold standard was a purely economic institution; they refused to even consider it as part of a social mechanism. Thus it happened that the democratic countries were the last to realize the true nature of the catastrophe and the slowest to counter the effects. Not even when the cataclysm was already upon them did their leaders see that behind the collapse of the international system there stood a long development within the most advanced countries which made that system anachronistic; in other words, the failure of the market economy itself still escaped them.” 

Polanyi presents the belief in the gold standard—one of the three tenets of economic liberalism—as something that is inherently rigid. Despite the dynamic nature of civilization, the gold standard itself—and, by extension, the self-regulating market—is not malleable. It is this inability to face civilization’s dynamism and the subsequent dynamism of the economy itself that leads to the downfall of the system. Essentially, the rigidity of belief then precipitates and even necessitates the collapse of that belief. Polanyi criticizes economic liberals for their blindness, believing that a large portion of the ills resultant from economic liberalism stemmed from the inability and unwillingness to admit that they were wrong. 

“England withstood without grave damage the calamity of the enclosures only because the Tudors and the early Stuarts used the power of the Crown to slow down the process of economic improvement until it became socially bearable—employing the power of the central government to relieve the victims of the transformation, and attempt to canalize the process of change so as to make its course less devastating [….]Their commitment was to the welfare of the commonality, glorified in the power and grandeur of the sovereign; yet the future belonged to constitutionalism and Parliament.” 

Here, Polanyi identifies some of the problems associated with the implementation and directionality of progress itself. It is not the idea of progress that Polanyi disagrees with; rather, it is the manifestation as well as the speed by which progress is allowed to overtake society. Polanyi is then not espousing a kind of Luddite point of view; he does not oppose progress but rather thinks that society needs to temper its rate in order to maintain a healthy equilibrium for all members of society. He argues that progress does not destroy society but the rapid implementation of progress can, which is something that Polanyi argues the government should work to prevent. Within this conception, the government’s main job is to provide for the safe-keeping of society. Polanyi gives the examples of the Tudor and Stuart monarchs, who were able to prevent progress from consuming society through the implementation of various protective measures. This represents an interesting, fairly socialist view of the role of all governments, including monarchies, in protecting their subjects against forces beyond individual control. 

“Division of labor, a phenomenon as old as society, springs from differenced inherent in the facts of sex, geography, and individual endowment; and the alleged propensity of man to barter, truck, and exchange is almost entirely apocryphal.”

Polanyi argues that the birth of society coexisted with the division of labor. As Polanyi has previously argued that the birth of civilizations is natural, it seems an easy implication that the division of labor also becomes something that is naturalized. Similarly, Polanyi describes the factors affecting division of labor—sex, geography, and ability—as things which might also provide for animals to evolve in various ways. In this way, Polanyi exclusively attributes the division of labor to the nature of humanity. However, Polanyi argues that the economic liberal’s belief that man has a natural inclination to barter is fictitious, although it is widely circulated as being true. In this way, Polanyi again sets the beliefs of economic liberals at odds with nature, asserting that their construction of economy is one made up entirely of human artifice.

“For just as reciprocity is aided by a symmetrical pattern of organization, as redistribution is made easier by some measure of centralization, and householding must be based on autarchy, so also the principle of barter depends for its effectiveness on the market pattern. But in the same manner in which either reciprocity, redistribution, or householding may occur in a society without being prevalent in it, the principle of barter also may take a subordinate place in a society in which other principles are in the ascendant.” 

In contrast to the economic liberal’s belief that bartering or exchanging is natural, Polanyi contemplates the prevalence of systems of reciprocity. He seems to argue that reciprocity, unlike bartering, is natural, as demonstrated by the prevalence of reciprocity within international civilizations and cultures. Therefore, the economic liberal’s belief that man is solely motivated by profit dissolves, as reciprocity, not bartering, becomes the natural order of society. Although various civilizations have various levels and organizations to this reciprocity, Polanyi maintains that they all share these systems in common, essentially asserting that the economic liberals have bastardized the idea of reciprocity by turning it into something that is artificial—profit—not something that occurs within the natural world. Although Polanyi admits that bartering does occur in many places wherein reciprocity also occurs, he asserts that bartering is usually subjugated to this notion of reciprocity. Therefore, economic liberals’ failure stems, in part, from preferring the subordinate economic form. 

“Just as the transition to a democratic system and representational politics involved a complete reversal of the trend of the age, the change from regulated to self-regulating markets at the end of the eighteenth century represented a complete transformation in the structure of society.” 

Here, Polanyi delves into the issues at hand, namely, those that comprise the great transformation itself. Polanyi demonstrates the parallel between the political and economic transformations—that is, the transition from mostly monarchy to forms of democracy is similar to that of the transition from governmentally-controlled markets to the idea of a self-regulating market. 

However, Polanyi is careful not to make too much of this comparison, as he merely demonstrates the often simultaneous shift in two aspects of society. He is in no way equating democracy to the self-regulating market, but rather constructs the shift in social structure as being similar in magnitude. Since these two aspects often worked at the same time, it is impossible to indicate which one effectively led to the great transformation. However, this bifurcation between economics and politics is exactly what Polanyi seeks to dispute; he believes that they are inextricably linked through society itself. In this way, Polanyi is not comparing two different transformations, but rather two aspects of society whose transitions led to the great transformation. 

“Labor, land, and money are obviously not commodities; the postulate that anything is bought and sold must have been produced for sale is emphatically untrue [….] according to the empirical definition of a commodity, they are not commodities. Labor is only another name for a human activity which goes with life itself […] not produced for sale but for entirely different reasons; […] land is only another name for nature, which is not produced by man; actual money, finally, is merely a token of purchasing power which, as a rule, is not produced at all but comes into being through the mechanism of banking or state finance.” 

Polanyi disassembles the liberal belief that labor, land, and money are commodities. He presents the fiction of the liberal myth that these natural aspects of society can be bought and sold—that is, that society can be subjugated to the market. Again, Polanyi believes that the market itself is manmade; therefore, any attempt to subject the laws of nature to human artifice—commodification—represents an ultimately futile gesture. Man cannot control labor or land any more than he can control the sea; he cannot bend nature to his will, no matter society’s progress. Polanyi specifically attacks the idea of labor as being subject to market forces, primarily because the idea of subjecting life itself to the instability of the market is not only inhumane but also foolish. As man has not constructed these naturally-occurring phenomenon, he has no authority over them, thereby eliminating his ability to render them commodities. 

“If Speenhamland had prevented the emergence of a working class, now the laboring poor were being formed into such a class by the pressure of an unfeeling mechanism. If under Speenhamland the people had been taken care of as none too precious beasts deserved to be, now they were expected to take care of themselves, with all the odds against them. If Speenhamland meant the snug misery of degradation, now the laboring man was homeless in society. If Speenhamland had overworked the values of neighborhood, family, and rural surroundings, now man was detached from home and kin, torn from his roots and all meaningful environment. If Speenhamland meant the rot of immobility, now the peril was death through exposure.” 

Polanyi illustrates the protectionism of Speenhamland Law by juxtaposing it against the unfeeling mechanism of the self-regulating government. However, unlike economic liberals, who believed that this represents progress, Polanyi uses this juxtaposition in order to bring to light the problems associated with the self-regulating market. Polanyi does not argue that Speenhamland was entirely effective—in fact, at multiple points, he argues that it also had negative consequences for laborers—but he does seek to demonstrate that completely eradicating any attempt at government intervention out of the futility of a singular law is misguided at best, and immoral at worst. 

Although Speenhamland was ineffective, Polanyi does believe that it came from an albeit patronizing form of compassion that the self-regulating market adamantly disavowed. In comparison, it seems as though those who drafted Speenhamland at least intended to take the wellbeing of society into account, whereas those proponents of the self-regulating market seemed content to let their fellow man starve. This juxtaposition also serves to negate the potential argument of progress; if anything, the self-regulating market represents a regressive step away from the progression towards a more humane society. Herein lies the core of Polanyi’s argument: that the transformation—great though it was—represented a regression away from the movement of society towards a more just and dignified positionality for all individuals. 

“Man was forced to resign himself to secular perdition: he was doomed either to stop the procreation of his race or to condemn himself willingly to liquidation through war and pestilence, hunger and vice. Poverty was nature surviving in society; that the limitedness of food and the unlimitedness of men had come to issue just when the promise of boundless increase of wealth burst in upon us made the irony only the more bitter.” 

Polanyi illustrates the catch-22 that man is stuck in, whereby he must choose the lesser of two evils: stop having children or die of horrible consequences of overpopulation. Polanyi presents the economic liberal belief that starvation was necessary and even natural, though the economic liberals acquired this belief from previous philosophers. Polanyi demonstrates the irony in this constructed belief, an irony that is still felt today: the rich get richer and the poor get poorer. Here, the idea that one can climb above one’s station does not exist or, at the very least, it is not equitable among all men. It almost appears as though economic liberals adopted a kind of fatalistic view of society, in that some members were destined to starve whereas others were destined for inconceivable riches. This belief in fate negates the idea that the market system could ever be an equitable one, bringing it even more securely into the realm of religion, wherein there are some who are saved and are then defined by those who are not saved. In essence, the wealth of the rich only seems to exist within a market society in comparison to the destitution of the poor: the rich must have the poor starve in order to understand how the system benefits them. They must use logical reasoning, not natural inclination, in order to deduce their social positionality. This then calls into question the liberal assertion that the self-regulating market is natural, as it is the rational artifice by which the wealthy maintain their social positionality. 

“As long as a man had a status to hold on to, a pattern set by his kin or fellows, he could fight for it, and regain his soul. But in the case of the laborer this could happen only in one way: by his constituting himself the member of a new class. Unless he was able to make a living by his own labor, he was not a worker but a pauper. To reduce him artificially to such a condition was the supreme abomination of Speenhamland. This act of unambiguous humanitarianism prevented laborers from developing into an economic class and thus deprived them of the only means of staving off the fate to which they were doomed in the economic mill.” 

Here, Polanyi indicates a common idea that seems to be prevalent throughout market society: that people must always choose between the lesser of two evils. Invariably, the choice that seemed better directly prior to the establishment of market society—during Speenhamland in England, for example—ends up costing them the most after the establishment of the market system. However, it is important to note that this difficult choice is relegated specifically to the laboring class: the wealthy do not seem to be affected by the same kind of catch-22 ideology. In this way, it seems as though Polanyi implies the systemic injustice at the root of market society, which seems to damn the laborers no matter what they choose. 

“From this novel point of view, a free society could be regarded as consisting of two races: property-owners and laborers. The number of the latter was limited by the amount of food; as long as property was safe, hunger would drive them to work. No magistrate was necessary, for hunger was a better disciplinarian than the magistrate.” 

According to Townsend, property owners are similar to dogs, whereas laborers resemble goats in this bestial analogy. Laborers then become a theoretical food supply for the property owners, intimating that the property owners are inherently stronger than the laborers. In this way, the market system—at least from Townsend’s point of view—constructs two different social classes under natural pretense; Townsend implies that market liberalism is therefore natural, and that starvation provides an adequate means by which to ensure competition. However, if one looks at the analogy itself, it would seem to imply that the market system has created these two distinct classes of individuals based upon its own rules, not those inherent within nature. The market has decided which people are dogs and which are goats as a means to rationalize and even to some extent moralize its own existence. Instead, Polanyi points to the actual suffering endured by those who must go hungry as being inherently unjust in comparison to those who never have to fear for hunger. Townsend’s analogy then betrays the same inhumanity that Polanyi accuses the market system of as being inherent within its very artificial nature.

“A principle quite unfavorable to individual and general happiness was wreaking havoc with his social environment, his neighborhood, his standing in the community, his craft; in a word, with those relationships to nature and man in which his economic existence was formerly embedded. The Industrial Revolution was causing a social dislocation of stupendous proportions, and the problem of poverty was merely the economic aspect of this event.” 

Polanyi describes the effects that the embedded nature of man’s economic status has within his place in society. Here, he argues that one cannot extricate economics from society, as both relate to social positionality and inform others as to the nature of an individual’s relationships. Similarly, the reader sees the negative impact that the emergence of the market society as well as the Industrial Revolution has upon the individual: he is subject to social dislocation, untethered from his fellow man as a result of the destruction of social ties wrought by market society. In this way, man floats alone within society, as he no longer represents a part of it; rather, he is ultimately by himself, according to the laws of the market. In this way, the market seeks to dissolve the natural social ties, breaking the very fabric of society, which Polanyi argues is utterly natural. The market system therefore represents the destruction of society, a transformation that was only great in its devastation.  

“This [countermovement] was more than the usual defensive behavior of a society faced with change; it was a reaction against a dislocation which attacked the fabric of society, and which would have destroyed the very organization of production that the market had called into being.” 

As a result of the great transformation, social protectionism arose against the globally expanding market. Polanyi explicitly states that the self-regulating market is, therefore, self-destructive by its very nature, as it necessitates its own destruction even from its very birth. In this way, the self-regulating market comes to resemble a kind of black hole that annihilates everything it touches while working towards its own annihilation. Polanyi presents the self-regulating market as an inherently negative concept, as most societies agree that destruction, by definition, has a negative connotation. In this way, any market liberal assertion that the self-regulating market represents either progress or morality would be antithetical to its very nature, rendering this path of argument as entirely fictitious and based upon a kind of utopian market system that has no basis in reality. 

“This peculiar localization of influence and power caused no trouble as long as the market system continued to function without great stress and strain; but when, for inherent reasons, this was no longer the case, and tensions between the social classes developed, society itself was endangered by the fact that the contending parties were making government and business, state and industry, respectively, their strongholds. Two vital functions of society—the political and the economic—were being used and abused as weapons in a struggle for sectional interests. It was out of such a perilous deadlock that in the twentieth century the fascist crisis sprang.” 

This quotation again demonstrates the utopianism inherent within market liberalism, in that the market itself can only function properly under ideal conditions. However, whenever the market system comes under any form of stress or strain, the market system can no longer hold social classes in place as tensions arise between them. Polanyi implies that tensions between different classes of people arise naturally—conflict is apparent within much of nature, after all—and so to suggest that the market system can only function under a stress-free environment would be to suggest that it has no function in the real world, as tensions are a fact of life itself, thereby rendering the market system a futile economic methodology. The market therefore adheres entirely to its utopian existence; that is, the market can exist nowhere within nature. Polanyi then draws a parallel between the futility of the market system and the rise of fascism in order to argue that it was this adherence to the utopia of the market economy that allowed for fascism to come to power.

 “Just as, contrary to expectation, the invention of labor-saving machinery had not diminished but actually increased the uses of human labor, the introduction of free markets, far from doing away with the need for control, regulation, and intervention, enormously increased their range.” 

Polanyi presents a comparison between Luddite fears and the assertions of market liberals. The Luddites were a group in the early 1800s that believed the influx of new machinery would steal their jobs and leave them paupers. They became infamous for destroying machinery and vehemently opposed increased industrialization and new technology. In contrast, market liberals railed against the trend of protectionism common throughout society regarding the economy, believing in the utopian preeminence of the market and its ability to self-regulate. However, Polanyi draws a comparison between these two groups, whose vastly-different beliefs merged in the same kind of fanaticism they viewed as a threat. The Luddites viewed technology as a threat whereas market liberals viewed government, and specifically government interference, as a threat. The zealotry of these two ideologies also serves to show the intertwined nature of politics and economy, as the Luddites believed that the economy would impress upon politics, whereas market liberals worried that politics would press upon the economy. However, both groups failed to see the inextricability of these two social aspects. Polanyi also demonstrates the ultimate paradox of the market economy—which liberals assured required no regulation—in that it actually increased the need for government intervention to maintain its very existence, thereby denying its ability to be self-regulating. 

“The root of all evil, the liberal insists, was precisely this interference with the freedom of employment, trade and currencies practiced by the various schools of social, national, and monopolistic protectionism since the third quarter of the nineteenth century; but for the unholy alliance of trade unions and labor parties with monopolistic manufacturers and agrarian interests, which in their shortsighted greed joined forces to frustrate economic liberty, the world would be enjoying today the fruits of an almost automatic system of creating material welfare.” 

Market liberals condemned government intervention as the root of all evil, believing the market to be a moral force in and of itself. Modern liberals believe that it is precisely government intervention that denies people access to the endless wealth possible by the market, thereby continuing the utopian belief in the market’s infallibility. However, this belief fails to account for the reality of the market system, which necessitates that some people must starve in order to induce competition. In this way, the liberal belief that the general public would be able to access this wealth rings false, as it would be only a select few who could access this mythical wealth of the self-regulating market. After all, trade unions and labor parties were not being greedy, which, coincidentally, exists as a byproduct of the self-interest ideology inherent within the market system. Rather, they were fighting for freedom from starvation. At its core, this fight represents not an economic battle, but a social one, reiterating Polanyi’s belief that the economy should be subjugated to the wishes of society.

“It is the absence of the threat of individual starvation which makes primitive society, in a sense, more humane than market economy, and at the same time less economic. Ironically, the white man’s initial contribution to the black man’s world mainly consisted in introducing him to the uses of the scourge of hunger. Thus the colonists may decide to cut the breadfruit trees down in order to create an artificial food scarcity or may impose a hut tax on the native to force him to barter away his labor.” 

Polanyi refutes market liberals’ assertions of the morality of the market system as the market system necessitates the starvation of a section of society—be it local, national, or global society. Polanyi argues, then, that primitive society is inherently more humane than market society as it precludes its populace from starvation out of sheer necessity. As such, primitive society prefers society over the economy in order to ensure its continued existence. Polanyi also introduces the problematic character of the native as being both primitive and more humane, thereby possibly implying that civilization, or at the very least economics, is therefore less humane. However, this implication of the native as primitive is problematic in that it is inherently reductionist in nature. Essentially, Polanyi is equating black men with being primitive, indicating a level of racism that, while unsurprising considering the social context within which this book is written, is still problematic and inherently prejudiced nonetheless. 

“The dangers to man and nature cannot be neatly separated. The reactions of the working class and the peasantry to market economy both led to protectionism, the former mainly in the form of social legislation and factory laws, the latter in agrarian tariffs and land laws. Yet […] in an emergency, the farmers and peasants of Europe defended the market system, which working-class policies endangered. While the crisis of the inherently unstable system was brought on by both wings of the protectionist movement, the social strata connected with the land were inclined to compromise with the market system, while the broad class of labor did not shrink from breaking its rules and challenging it outright.” 

Polanyi indicates the embeddedness of man within nature, as man exists as a part of nature much in the same way that the economy exists as a part of society as a whole. Therefore, any action that endangers man by definition also endangers nature, and government intervention, in theory, would also serve the interests of nature by protecting man. However, Polanyi also argues that man might not always act within his best self-interest, as evidenced within the defense of the market system by the very same farmers and peasants who it endangered. In this way, Polanyi renders man culpable for the tension and instability inherent within the market system, again reflecting the inherent dynamism associated with nature. 

“Since society was made to conform to the needs of the market mechanism, imperfections in the functioning of that mechanism created the cumulative strains in the body social.” 

Polanyi discusses the negative effects associated with society’s subjugation to the market. Because the market exists as a utopian ideal, it is not made to withstand the natural stresses and instability of reality. As such, any stresses in unquantifiable factors then put stress upon the market mechanism itself, which is rigid and does not mirror the dynamism of society. As a result of this stress, the market system is unable to function properly, which then has deleterious effects upon society as a result. Polanyi illustrates the cyclical futility of the market mechanism by which its paradox requires society to be subjugated to it yet is unable to cope with the various aspects of society. Of course, this eventually leads to the dissolution of the market mechanism. If society is truly subjugated to the market mechanism, this will consequentially lead to the dissolution of society as well. 

“For international purposes, the currency was the nation; and no nation could for any lengths of time exist outside the international scheme

In subjugating society to the market, the nation becomes synonymous with currency; essentially, the market system only allows society to be organized based on economic terms, classes, and so forth. Polanyi also demonstrates the embeddedness of economics and politics in regard to economic liberalism via his consideration of the nation as embodied by the nation’s currency. Although economic liberals argue that economics and politics should be separated, Polanyi criticizes this argument, suggesting that any attempts to separate these two aspects of society is futile. They inform each other, although one usually takes precedence over the other. 

“When in the 1920s the international system failed, the almost forgotten issues of early capitalism reappeared. First and foremost among them stood that of popular government. The fascist attack on popular democracy merely revived the issue of political interventionism which haunted the history of market economy, since that issue was hardly more than another name for the separation of the economic from the political sphere.” 

Polanyi argues that the laborers’ desire for universal suffrage resulted from the social tension produced by contortions of the labor market. Here, we clearly see the embedded nature of the economy within the political sphere, as economic policy drives political desires. This is not to say that the economy, as liberals assert, subjugates society; rather, actions within the economy resonate throughout society at-large. In this way, economy represents a crucial aspect of society; however, it cannot be separated from other aspects of society, as demonstrated by the interplay between politics and economics represented within this quotation. 

“Fascism, like socialism, was rooted in a market society that refused to function. Hence, it was worldwide, catholic in scope, universal in application; the issues transcended the economic sphere and begot a general transformation of a distinctively social kind. It radiated into almost every field of human activity whether political or economic, cultural, philosophic, artistic or religious.” 

Polanyi illustrates the similarities extant within both socialism and fascism, which arose as a result of the futility of the market system. Essentially, because the market ceased to function, either socialism or fascism replaced the market system, depending upon the country. In this way, both socialism and fascism can be seen as universal, in that they both provide options to fill the void left by capitalism. Due to the embedded nature of economics within society, this transformation from a market system to either fascist or socialist systems then had vast and various social effects, which Polanyi creates as a subsequent kind of transformation, one that focused on wholesale society instead of focusing its attention on the economic sphere of society. Polanyi then further delineates how all of the aspects of society are interrelated by showing that the rise of fascism affected every aspect of the civilization. Implicitly, he blames the market system for the rise of fascism, as well as all its subsequent social effects.