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The great transformation book
The Great Transformation is a book by Karl Polanyi, a Hungarian-American political economist. First published in 1944 by Farrar & Rinehart, 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".
Contents
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. 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 humankind'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 humanity's propensity to barter and trade became widespread in an effort to mold human nature to fit the new market based economic institutions. Polanyi thus proposes an alternative ethnographic approach called "substantivism", in opposition to "formalism", both terms coined by Polanyi.
General argument
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 inextricably 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. 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 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. 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. 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."
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.'"
Before the market society
Based on Bronislaw Malinowski's ethnological work on the Kula ring exchange in 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 on 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 do 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.
Support
The sociologists Fred L. Block and Margaret Somers argue that Karl Polanyi's analysis could help explain why the resurgence of free market ideas have resulted in "such manifest failures as persistent unemployment, widening inequality, and the severe financial crises that have stressed Western economies over the past forty years." They suggest that "the ideology that free markets can replace government is just as utopian and dangerous" as the idea that Communism will result in the withering away of the state.
In Towards an Anthropological Theory of Value: The False Coin of Our Own Dreams, anthropologist David Graeber offers compliments to Polanyi's text and theories. Graeber attacks formalists and substantivists alike, "those who start by looking at society as a whole are left, like the Substantivists, trying to explain how people are motivated to reproduce society; those who start by looking at individual desires, like the formalists, unable to explain why people chose to maximize some things and not others (or otherwise to account for questions of meaning)." While appreciative of Polanyi's attack on Formalism, Graeber attempts to move beyond ethnography and towards understanding how individuals find meaning in their actions, synthesizing insights of Marcel Mauss, Karl Marx, and others.
In parallel with Karl Polanyi's account of markets being made internal to society as a result of state intervention, Graeber argues the transition to credit-based markets from societies with separated "spheres of exchange" in gift giving was likely the accidental byproduct of state or temple bureaucracy (temple in the case of Sumer). Graeber also notes that the criminalization of debt supplemented the enclosure movements in the destruction of English communities, since credit between community members had originally reinforced communal ties prior to state intervention:
The criminalization of debt, then, was the criminalization of the very basis of human society. It cannot be overemphasized that in a small community, everyone normally was both lender and borrower. One can only imagine the tensions and temptations that must have existed in a community—and communities, much though they are based on love, in fact, because they are based on love, will always also be full of hatred, rivalry and passion—when it became clear that with sufficiently clever scheming, manipulation, and perhaps a bit of strategic bribery, they could arrange to have almost anyone they hated imprisoned or even hanged.Economist Joseph Stiglitz favors Polanyi's account of market liberalization, arguing that the failures of "Shock Therapy" in Russia and the failures of IMF reform packages echo Polanyi's arguments. Stiglitz also summarizes the difficulties of "market liberalization" in that it requires unrealistic "flexibility" amongst the poor.
Contents
Editions
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.