The Great Transformation (book)
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The Great Transformation is a book by Karl Polanyi, an Austro-Hungarian 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 mankind's economic mentalities were changed. Prior to the great transformation, people based their economies on reciprocity and redistribution and were not rational utility maximizers. After the great transformation, people became more economically rational, behaving as neoclassical economic theory would predict. 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. It was only after the creation of new market institutions and industrialization that the myth of mankind's propensity to barter and trade became widespread in an effort to mold human nature to fit the new market based economic institutions.
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 pre-modern 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. Prior to the great transformation, markets had a very limited role in society and were confined almost entirely to long distance trade. 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."
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 due to 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. 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, Incan Empire, 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. 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”, however 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) “subordinate[s] the substance of society itself to the laws of the market.”
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; this 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.'"
Before market society
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.
- 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.
- 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.
- 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.
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 pre-modern society operating without a market has been scrutinized, with many finding Polanyi's argument wanting. 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.
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.
- Polanyi, K. (1944). The Great Transformation. Foreword by Robert M. MacIver. New York: Farrar & Rinehart.
- Polanyi, K. (1957). The Great Transformation. Foreword by Robert M. MacIver. Boston: Beacon Press. ISBN 9780807056790.
- Polanyi, K. (2001). The Great Transformation: The Political and Economic Origins of Our Time, 2nd ed. Foreword by Joseph E. Stiglitz; introduction by Fred Block. Boston: Beacon Press. ISBN 9780807056431.
- 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, The Great Transformation, 47
- Polanyi, The Great Transformation, 41
- Polanyi, The Great Transformation, 43
- Polanyi, The Great Transformation, 44
- Polanyi, The Great Transformation, 41
- Polanyi, The Great Transformation, 56
- Polanyi, The Great Transformation, 45
- Polanyi, The Great Transformation, 41
- Polanyi, The Great Transformation, 52-53
- Polanyi, The Great Transformation, 71 (see also the entirety of Chapter 6).
- Polanyi, The Great Transformation, 257
- Nowrasteh, Alex (2013-09-12). "Karl Polanyi's Battle with Economic History". Libertarianism.org. Retrieved 2014-02-12.
- Block, F., & Polanyi, K. (2003) Karl Polanyi and the Writing of "The Great Transformation". Theory and Society, 32, June, 3, 275-306.
- "The Great Transformation: The Political and Economic Origins of Our Time - Karl Polanyi - Google Books". Books.google.ca. Retrieved 2014-02-12.
- Excerpt from Chapter 4, Societies and Economic Systems, of The Great Transformation
- Review of The Great Transformation from Economic History Services
- The Karl Polanyi Archive - Concordia University, Montreal
- Markets and Other Allocation Systems in History: The Challenge of Karl Polanyi
- Karl Polanyi's Battle with Economic History