The Great Transformation (book)

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The Great Transformation is a book by Karl Polanyi, a Hungarian-American political economist. First published in 1944, 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 were changed. Prior to the great transformation, people based their economies on reciprocity and redistribution and were not rational utility maximizers.[1] After the great transformation, people became more economically rational, behaving as neoclassical economic theory would predict.[2] The creation of capitalist institutions not only changed laws but also fundamentally altered mankind's economic mentalities, such that 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 the creation of new market institutions and industrialization that the myth of humanity's propensity to barter and trade became widespread in an effort to mold human nature to fit the new market based economic institutions.[4]

General argument[edit]

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 inexorably linked in history. Essential to the change from a premodern economy to a market economy was the altering of human economic mentalities away from a non-utility maximizing mindset to one more recognizable to modern economists.[5] Prior to the great transformation, markets had a very limited role in society and were confined almost entirely to long distance trade.[6] 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."[7]

The great transformation was begun by the powerful modern state, which was needed to push changes in social structure and human nature that allowed for a competitive capitalist economy. For Polanyi, these changes implied the destruction of the basic social order that had reigned because of pre-modern human nature and that had existed throughout all earlier history. Central to the change was that factors of production like land and labor would now be sold on the market at market determined prices instead of allocated according to tradition, redistribution, or reciprocity.[8] 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.[9] 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" (fictitious because each possesses qualities that are not expressed in the formal rationality of the market), and including them "means to subordinate the substance of society itself to the laws of the market."[10]

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.'"[11]

Before the market society[edit]

Based on Bronislaw Malinowski's ethnological work on 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.

  1. 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.
  2. 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.
  3. Householding: economies where production is centered around 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.[citation needed]

Criticism[edit]

Polanyi's ideas have been criticized by economic historians, especially his claims that mankind's economic mentalities were less rational and utility maximizing in the pre-modern era. Virtually every example that Polanyi gives of a premodern society operating without a market has been scrutinized, with many finding Polanyi's argument wanting.[12] Nobel laureate Douglass North argued that Polanyi confused reciprocity and redistribution with side payments that would exist rationally as explained by the Coase theorem. North further argued that every society uses reciprocity, redistribution, and markets to allocate resources North called upon other economic historians to investigate Polanyi's claims that humans had different economic mentalities before the modern economy was created.

However, it must be noted that the above criticism of Polanyi’s work is based on an article written by Alex Norwasteh,[13] who writes for the Cato Institute, an American libertarian think tank. Thus his agenda of promoting the economic liberal utopia of which Polanyi warns us is no secret[editorializing]. Unfortunately, like all economic liberal ideologues, Nowrasteh’s argument has a number of limitations. For example his first argument with the aid of the work of Douglass North question Polanyi's discovery of "Homo Economicus" and claims that Polanyi refuted the existence of the market mentality throughout history. Polanyi does not refute this mentality, what Polanyi argues and proves very convincingly in all his works is that the economically rational profiteer was the minute exception rather than the norm before the great capitalist transformation of the 19th Century. For example, Nowrasteh provides the example of the profit-maximizing mentality of Genoese and Venetian merchants, which holds true. However, merchants represented a very small minority of a feudal population whose rural economic practices were based around redistribution, reciprocity, house-holding as well as exchange of equivalence in market places. This exchange was not driven by profit, but rather by seeking an equivalent price for the goods being exchanged via a process of haggling.[14] Societies in the past were not based on an institutionally separated supply-demand-price economic mechanism but were rather "embedded" in social relations of a non-economic sort. Moreover, contrary to what Douglass North claims, Polanyi does not selectively pick his history. Polanyi provides example of passed empires and communities in Africa, to the Trobriand Islanders of Papua New Guinea in the Pacific, the Inuit communities of Alaska as well as various civilizations of the Middle East.

The most concerning limitation to Norwasteh’s argument is that he falls victim to what Polanyi calls “Economic Solipsism”.[15] In his posthumous work The Livelihood of Man (edited by Harry Pearson), Polanyi warned future scholars that:

Such economic solipsism, as it might well be called, was indeed an outstanding feature of the market mentality. Economic action, it was deemed, was “natural” to men and was therefore, self-explanatory. Men would barter unless they were prohibited to do so, and markets would thus come into being unless something was done to prevent it. Trade would begin to flow, as if induced by the force of gravity, and would create pools of goods, organized in markets, unless governments conspired to stop the flow and drain the pool. As barter quickened, money would make its appearance and all things would be drawn into the whirl of exchanges, unless some archaic moralists raised an outcry against the lucre or unenlightened tyrants depreciated the currency.[16]

In essence when Nowrasteh refers to the existence of credit markets, insurance, international trade or the use of money in the economy, the market economy and its accompanying mentality is assumed to have existed. His reference to the Ancien Régime of France, Dahomey and Mesopotamia reveal this fallacy. More importantly, his argument in regards to Mesopotamia is supported by Morris Silver, who according to Mayhew et al.[17] is also a victim of this Solipsist thinking when he assumes that the organization of trade was administered by a supply-demand-price mechanism. Another example is how Silver[18] also assumes that self-interested behaviour can only exist in a self-regulating market system. These are but a few limitations to Nowrasteh's argument that unfortunately render it too weak to be a viable criticism of Polanyi's work.

On the other hand, the arguments of Polanyi on 'pre homo economicus' behaviour have been supported by anthropologists like Marshall Sahlins[19][20] and postdevelopment theorists like Arturo Escobar[21] and Ivan Illich.[22] Those scholars have further developed the thought of Polanyi and provided more evidence of the social nature of human behaviour in opposition to the paradigm of the innate economic rationality of the homo oeconomicus. Similar arguments have been defended by the Italian Economists Stefano Zamagni and Luigino Bruni in their analysis of the notion of Civil Economics.[23] Despite the criticisms from mainstream economists, Polanyi work remains a fundamental source for an anti-utilitarian critique of modern economics.

Contents[edit]

  • Part One The International System
    • Chapter 1. The Hundred Years' Peace
    • Chapter 2. Conservative Twenties, Revolutionary Thirties
  • Part Two Rise and Fall of Market Economy
  • I. Satanic Mill
    • Chapter 3. "Habitation versus Improvement"
    • Chapter 4. Societies and Economic Systems
    • Chapter 5. Evolution of the Market Pattern
    • Chapter 6. The Self-regulating Market and the Fictitious Commodities: Labor, Land, and Money
    • Chapter 7. Speenhamland, 1795
    • Chapter 8. Antecedents and Consequences
    • Chapter 9. Paupersim and Utopia
    • Chapter 10. Political Economy and the Discovery of Society
  • II. Self-Protection of Society
    • Chapter 11. Man, Nature, and Productive Organization
    • Chapter 12. Birth of the Liberal Creed
    • Chapter 13. Birth of the Liberal Creed (Continued): Class Interest and Social Change
    • Chapter 14. Market and Man
    • Chapter 15. Market and Nature
    • Chapter 16. Market and Productive Organization
    • Chapter 17. Self-Regulation Impaired
    • Chapter 18. Disruptive Strains
  • Part Three Transformation in Progress
    • Chapter 19. Popular Government and Market Economy
    • Chapter 20. History in the Gear of Social Change
    • Chapter 21. Freedom in a Complex Society

Editions[edit]

The book was originally published in the United States in 1944 and then in England in 1945 as The Origins of Our Time. It was reissued by Beacon Press as a paperback in 1957 and as a 2nd edition with a foreword by Nobel Prize-winning economist Joseph Stiglitz in 2001.[24]

Notes[edit]

  1. ^ Polanyi, The Great Transformation, 47
  2. ^ Polanyi, The Great Transformation, 41
  3. ^ Polanyi, The Great Transformation, 43
  4. ^ Polanyi, The Great Transformation, 44
  5. ^ Polanyi, The Great Transformation, 41
  6. ^ Polanyi, The Great Transformation, 56
  7. ^ Polanyi, The Great Transformation, 45
  8. ^ Polanyi, The Great Transformation, 41
  9. ^ Polanyi, The Great Transformation, 52-53
  10. ^ Polanyi, The Great Transformation, 71 (see also the entirety of Chapter 6).
  11. ^ Polanyi, The Great Transformation, 257
  12. ^ Nowrasteh, Alex (2013-09-12). "Karl Polanyi's Battle with Economic History". Libertarianism.org. Retrieved 2014-02-12. 
  13. ^ Nowrasteh, Alex (2013-09-12). "Karl Polanyi's Battle with Economic History". Libertarianism.org. Retrieved 2014-02-12. 
  14. ^ Polanyi, Karl (1977). Pearson, Harry, ed. The Livelihood of Man: Studies in Social Discontinuity. New York: Academic Press. 
  15. ^ Polanyi, 1977, p.14
  16. ^ Ibid, p.14-15
  17. ^ Mayhew, Anne; Neale, Walter; Tandy, David (1985). "Markets in the Ancient Near East: A Challenge to Silver's Argument and Use of Evidence". Journal of Economic History 45 (1): 129. 
  18. ^ Silver, Morris (1985). "Karl Polanyi and Markets in the Ancient Near East: The Challenge of the Evidence". The Journal of Economic History 43 (4): 796. 
  19. ^ Sahlins, Marchall (1992). "The economics of develop-man". RES 21. 
  20. ^ Sahlins, Marshall (1972). who wrote the book 'Stone Age Economics. Chicago: Aldine-Atherton. ISBN 0-202-01099-6. 
  21. ^ Escobar, Arturo (2012). Encountering Development: The Making and Unmaking of the Third World. Princeton: Princeton University Press. 
  22. ^ Illich, Ivan (2013). Beyond Economics and Ecology.The radical Thought of Ivan Illich. London: Marion Boyars Publishers. 
  23. ^ Bruni, Luigino; Zamagni, Stefano (2004). Economia Civile. Bologna: Il mulino. 
  24. ^ Block, F., & Polanyi, K. (2003) Karl Polanyi and the Writing of "The Great Transformation". Theory and Society, 32, June, 3, 275-306.
  25. ^ The Great Transformation: The Political and Economic Origins of Our Time - Karl Polanyi - Google Books. Books.google.ca. Retrieved 2014-02-12. 

References[edit]

  • 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.
  • Polanyi, K. (1977). The Livelihood of Man: Studies in Social Discontinuity. New York: Academic Press

External links[edit]