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[The following review was published today as part of the Eh.Net  
Project 2000: Significant Works in Twentieth-Century Economic  
History. RBE] 
 
Karl Polanyi, _The Great Transformation: The Political and  
Economic Origins of Our Time_. 1944. xiii + 305.   
 
Review Essay by Anne Mayhew, College of Arts and Sciences,  
University of Tennessee. <[log in to unmask]>   
 
 
Markets to Market to Protection: Karl Polanyi's _Great  
Transformation_   
 
Karl Polanyi, once a World War I officer in the Austro-Hungarian  
army, a lecturer at the People's University, and a member of the  
editorial staff of Vienna's leading financial newspaper, who had  
been forced first from his native Hungary and then from Vienna by  
the turmoil of revolutions and dictatorships, began _The Great  
Transformation_ as an exile in England at the end of the 1930s. He  
completed it in the U.S. during World War II. The task he set  
himself was to explain the political and economic origins of the  
collapse of nineteenth-century civilization, and the great  
transformation that Polanyi had lived through in the twentieth. As  
he saw it, four institutions were crucial to the economic and  
political order that had characterized the North Atlantic Community  
and its periphery in the nineteenth century: a balance of political  
power, the international gold standard, a self-regulating market  
system, and the liberal state. The SRM (self-regulating market)  
was "the fount and matrix of the system," the "innovation which  
gave rise to a specific civilization" (p. 3).   
 
_The Great Transformation_ is a history of the SRM: of its  
emergence from the fact that the Industrial Revolution of the late  
eighteenth and early nineteenth centuries took place within a  
thoroughly commercial though not yet thoroughly market-organized  
economy; its nurture through the efforts of the liberal economists  
and statesmen of England in the first decades of the nineteenth  
century; and finally its demise as a consequence of the "protective  
reaction" to counteract the consequences that the SRM spawned.  
Two crucial differences between Polanyi's analysis and that of  
most other historians of the economy and of the thought of the  
nineteenth century are so important to understanding his work that  
they must be made explicit even before their role in the larger  
argument is recounted. Polanyi differentiated between economic  
systems in which there were markets and the "starkly utopian"  
SRM of the nineteenth century. Markets are places or networks in  
which goods are bought and sold; they are human interactions  
organized by price, quality, and quantity of traded goods and  
services. The SRM was a society-wide system of markets in which  
all inputs into the substantive processes of production and  
distribution were for sale and in which output was distributed solely  
in exchange for earnings from sales of inputs. The second crucially  
distinct feature of Polanyi's analysis is his argument that the SRM  
could not survive -- not because of the distributional consequences  
that play the major role in Marx's explanation of the inevitable  
collapse of capitalism -- but because the starkly utopian nature of  
the SRM gave rise to a spontaneous counter movement, even  
among those enjoying increased material prosperity. Society is  
vital to humans as social animals, and the SRM was inconsistent  
with a sustainable society.   
 
Polanyi developed his argument from the work of many economic  
historians, historians of thought, anthropologists, and others. The  
Industrial Revolution of the late eighteenth and early nineteenth  
centuries was "an almost miraculous improvement in the tools of  
production," but was also an equally powerful revolution in  
economic organization that was in part a consequence of the  
introduction of the new machines into an already commercially  
organized economy, and in part a social experiment. Up to this  
point the economies of much of Western Europe, and certainly of  
most of Britain, had been quite thoroughly commercialized: cottage  
industries, paid agricultural labor, and thriving trade in towns meant  
that most people earned money and used that money to buy the  
material stuff of life. However, as Polanyi also noted, control and  
regulation of markets by governments and other organizations were  
also widespread and common. Markets were controlled; they did  
not control until the beginning of the nineteenth century.   
 
In laying out this argument, Polanyi recognized the need to deal  
directly with the proposition, itself a creation of late eighteenth and  
early nineteenth century British thought, that market organization  
of economic activity was the natural state of human affairs. Polanyi  
was (counter to what many of his later critics say) quite well aware  
that markets and careful calculation of prices by buyers and sellers  
alike had long been important parts of many human societies. By  
use of logic and of the historical record, Polanyi developed a  
schema of "forms of economic integration": that is, forms of  
organization for production and distribution, of which the familiar  
circular flow of an idealized capitalist economy (the SRM) is only  
one. Polanyi developed his schema for characterizing economies  
to show that economies could and had been organized in ways  
other than through an SRM. He argued that the organization of  
production and distribution in many societies had been  
accomplished through social relationships of kin or community  
obligations and counter obligations (reciprocity) and that other  
societies, on scales as small as a band of Kung bushmen or as  
large of Hammurabi's empire, or even as large as the planned  
economy of the Soviet Union, employed redistributive systems.   
 
In much of Western Europe a combination of redistributive and  
reciprocative systems dominated through the end of the feudal and  
manorial era, and came to be increasingly supplemented and then  
replaced by market trading, the control and encouragement of  
which was a major focus of medieval municipal and mercantilist  
national governments. (In _The Great Transformation_ Polanyi also  
described "householding" as a form of integration, but in later work  
reclassified it as "redistribution writ small.")   
 
Then, toward the end of the eighteenth century, and with full force  
in the first half of the nineteenth century, two things happened. The  
rapidly expanding factory system altered the relationship between  
commerce and industry. Production now involved large-scale  
investment of funds with fixed obligations to pay for those funds.  
Producers were less and less willing to have either the supply of  
inputs or the vents for output controlled by governments. The  
second and closely related change was the development of  
economic liberalism as a body of thought that provided justification  
of a new set of public policies that facilitated transformation of land,  
labor, and capital into the "fictitious commodities" of a self- 
regulating system. Land (nature), labor (people), and capital (power  
of the purse) were not in fact produced for sale. Nor did the  
available quantity of land, labor, and capital disappear  
inconsequentially when relationships of supply and demand  
produced low input prices. This issue was, of course, particularly  
acute in the case of labor and led to the dismal conclusions of  
classical economics. Polanyi describes how, in spite of the threat  
to social order, the philosophy that came to be called "laissez  
faire" was "[b]orn as a mere penchant for non-bureaucratic  
methods . . . [and] evolved into a veritable faith in man's secular  
salvation through a self-regulating market" (p. 135). Polanyi  
describes this evolution of British thought from the humanistic  
approach of Adam Smith, who wrote in a time of "peaceful  
progress," through Malthus's acceptance of poverty as part of the  
natural order, and on to the triumphant liberalism of the more  
prosperous 1830s. What is important is that a set of  
recommendations about public policy was transformed into  
widespread acceptance as the laws of a natural order.   
 
Polanyi called the continuing tension and conflict between the  
efforts to establish, maintain, and spread the SRM and the efforts  
to protect people and society from the consequences of the  
working of the SRM "the double movement." On one side was a  
concerted philosophical and legislative program to establish the  
SRM from the enclosures of the 1790s through the Poor Law  
Reform of 1834 to the Ricardian Bank Charter Act of 1844 and  
therepeal of the Corn Laws in 1846. The other side was a widely  
varying, unorganized set of movements, legislative reforms, and  
administrative actions to limit the effects of self-regulation, from the  
Chartists through early legislation to limit the hours and places of  
work of women and children, through the growth of labor unions,  
and through the emergence of the Bank of England as lender of  
last resort, to reimposition of tariffs on foodstuffs, and to the first  
legislation presaging the welfare state. As the SRM was impaired  
in operation, justifications for international economic cooperation  
and the liberal state weakened.   
 
Polanyi's story of the tensions in and collapse of the self-regulating  
economies that developed in the first half of the nineteenth century  
differs sharply from the story that Marx anticipated and from the  
story that Marxian economists have told. Though Polanyi argues  
that perception and response to the damages of the SRM varied by  
class, and therefore "the outcome was decisively influenced by the  
character of the class interests involved," (p. 161) it was not unfair  
distribution of total output via exploitation that caused the tensions  
and ultimate collapse of the SRM system. The working class did  
not rise up to overthrow the system. Rather, land owners and  
bankers as well as merchants, whose interests were often  
threatened by fluctuations in trade, joined workers in seeking  
protection. As they got protection, the SRM was "impaired,"  
eventually the point of collapse. Increasing protection so impaired  
the SRM that it could no longer coordinate the world's economy  
when World War I destroyed Europe's balance of power. The  
struggle to restore the nineteenth century system by reestablishing  
the gold standard destroyed the international financial system.   
 
Dictatorships in some places and more benign management  
elsewhere emerged in nationally varying responses to the collapse  
of the SRM system. Polanyi was optimistic but uncertain about  
what the longer term results of the reaction to the nineteenth  
century utopian experiment in economic organization would be,  
and if he were alive today his answer might remain uncertain for, to  
a remarkable extent, the conflicting sides of Polanyi's double  
movement still dominate debates in public policy. As neo-liberalism  
founded on faith in secular salvation through the natural emergence  
of a self-regulating market system has spread in Central and  
Eastern Europe and in Asia, Africa, and Latin America, so too have  
calls for protection of man, nature, and national interests. The  
framework that Polanyi provided for understanding the collapse of  
nineteenth century civilization and the rise of the troubled twentieth  
remains powerful.   
 
Having said this, however, it must also be said that _The Great  
Transformation_ contains some major errors of omission and  
interpretation. Most striking to me, as an economic historian of the  
United States, is his cavalier and quite wrong assertion that a  
double movement did not develop in the U.S. until after 1890  
because, until then, "free land," a ready supply of cheap labor, and  
a lack of commitment to keeping foreign exchanges stable meant  
that a fully self-regulating market did not exist and no protection  
was needed. This is plainly wrong. In addition, some students of  
England in the late eighteenth and early nineteenth century quarrel  
with his interpretation of the Speenhamland system of subsidies in  
aid of wages.   
 
However, the strongest and most long lasting criticism of _The  
Great Transformation_ has been directed at the passages where he  
argues that reciprocative and redistributive forms of integration have  
been much more common in human history than self-regulating  
market systems. These criticisms invariably focus, however, not on  
the forms of integration themselves but on the mistaken proposition  
that Polanyi assumed the forms to be founded on different human  
motives: the SRM on self-interest and rational calculation and  
reciprocative systems on kindness and generosity. (Far less has  
been said about motives associated with redistribution, probably  
because emphasis has been on the contrast between greed and  
kindness, and on the proposition that "you cannot change human  
nature," with the associated proposition that the nineteenth century  
British economy was truly natural.) The original attack of this kind  
came, not from economists or economic historians, but from  
anthropologists whose disciplinary literature Polanyi had used in  
making his assertion. Beginning in the early 1960s,  
anthropologists, for reasons having to do with changing political  
structures in the worlds that they studied and because of the  
evolution of thought in their discipline, began to insist that the  
primitive and peasant peoples whom they studied were as rational  
as any westerners.   
 
These anthropologists -- known as formalists in the debates that  
ensued -- found in Polanyi, and in the work of some of his followers  
such as George Dalton, a convenient target. They accused Polanyi  
and his followers of romanticism about other peoples. Description  
of behavior in reciprocative systems was fodder: "The premium set  
on generosity is so great when measured in terms of social  
prestige as to make any other behavior than that of utter self- 
forgetfulness _simply not pay_" (italics added, p. 46). To  
anthropologists, who ignored the crass and rational self-interest  
implied by the phrase that I have italicized, this smacked of saying  
that non-modern, non-western people were "different" and not self- 
interested and rational. They disagreed and by extension  
dismissed the rest of Polanyi's argument about reciprocity and the  
SRM.   
 
Very similar arguments have been mounted by some economists.  
The passage most often quoted in ridicule of Polanyi's argument is  
this: "previously to our time no economy has ever existed that,  
even in principle, was controlled by markets . . . gain and profit  
made on exchange never before [the nineteenth century] played an  
important part in human economy" (p. 43). Deirdre McCloskey,  
both in print and in a heated exchange on the FEMECON list  
serve, faults Polanyi in a way that illustrates precisely the difficulty  
that many readers, anthropologists and economists alike, have had  
with the book. McCloskey says that Polanyi asked the right  
question, but gives the wrong answer in saying that markets played  
no _important_ role in earlier human societies. As proof McCloskey  
cites evidence that, the further away from their source of obsidian  
the Mayan blade makers were, the less was the ratio of blade  
weight to cutting length. To McCloskey this indicates that "By  
taking more care with more costly obsidian the blade makers were  
earning better profits; as they did by taking less care with less  
costly obsidian" (1997, p. 484). Ergo, Polanyi is wrong,  
presumably about the existence of other forms of integration and  
their importance. To be more careful with harder to get valuables is  
certainly rational, but it is not evidence of how blade makers were  
provisioned with material means for their sustenance or joys.   
 
It is one thing to note that people for whom shipment of obsidian  
was difficult treated it with care; another to assume that they used  
it to produce goods that they sold for profit. Polanyi is in fact  
careful to note that the range of human motives varies little across  
systems, with the specific form of action that any motive such as  
self-interest, generosity, anger, or jealousy may take dependent  
upon the system. The economic system does not, however,  
depend upon the presence, or absence of the preponderance of  
any one motive. That this is perhaps the most difficult point that  
Polanyi makes is itself testament to the success of those who  
created the justifications for the nineteenth century   
 
In the years after publication of _The Great Transformation_ Polanyi  
and a number of colleagues and students expanded analysis of the  
forms of economic integration and produced the collection of  
essays published as _Trade and Markets in Ancient Empires_.  
Both books present Polanyi's understanding of what made the  
economies of the nineteenth and of the twentieth centuries so  
different, and with such far-reaching consequences, Polanyi  
created a way of thinking about economies and societies that has  
had substantial impact on economic history, anthropology, and the  
study of the ancient Mediterranean. _The Great Transformation_  
remains important as a highly original contribution to the  
understanding of the Western past; it has been and is important in  
methodological debates in the social sciences. Beyond that, as  
the double movement continues, the book is likely to remain one of  
the best guides available to what brought us to where we are.   
 
 
Annotated References: 
 
Polanyi, Karl. 1944, 1957. _The Great Transformation: The Political  
and Economic Origins of Our Time_. Boston: Beacon Press by  
arrangement with Rinehart & Company, Inc. (The Beacon Press  
version remains in print and is the version for which page numbers  
are given in this essay. The book has been translated into and  
published in Hungarian, Chinese, Japanese, French, German,  
Portuguese, and Spanish).   
 
Dalton, George. 1961. "Economic Theory and Primitive Society,"  
_American Anthropologist_ 63 (Feb.): 1-25. [One of the articles  
that sparked the formalist-substantivist dispute in economic  
anthropology.]   
 
Drucker, Peter. 1979. _Adventures of a Bystander_. New York:  
Harper & Row. [This book contains an account of the remarkable  
Polanyi family by a friend who knew them in Vienna.]   
 
Duncan, Colin A.M. and David W. Tandy. 1994. _From Political  
Economy to Anthropology: Situating Economic Life in Past  
Societies_. Montreal and New York: Black Rose Books. [Selection  
of papers from annual Polanyi Institute Conference.]   
 
Finley, Moses I. 1978. _The World of Odysseus_ . New York:  
Viking Press. [Classic application of Polanyi to the ancient world.]   
 
Halperin, Rhoda. 1988. _Economies Across Cultures: Towards a  
Comparative Science of the Economy_. New York: St. Martin's  
Press.   
 
Mayhew, Anne. 1972. "A Reappraisal of the Causes of Farm  
Protest in the U.S., 1870-1900." _Journal of Economic History_ 32  
(June): 464-475. [Though not acknowledged as such, this was an  
application of Polanyi's ideas to the U.S. economy.]   
 
Mayhew, Anne. 1980. "Atomistic and Cultural Analyses in  
Economic Anthropology: An Old Argument Repeated," in John  
Adams, editor, _Institutional Economics: Contributions to the  
Development of Holistic Economics_ . Boston: Martinus Nijhoff.   
 
McCloskey, Deirdre N. 1997. "Polanyi was Right, and Wrong."  
_Eastern Economic Journal_ 23 (Fall): 483- 487.   
 
North, Douglass C. 1977. "Markets and Other Allocation Systems  
in History: The Challenge of Karl Polanyi." _Journal of European  
Economic History_ 6 (Winter): 703-716.   
 
Polanyi, Karl, Conrad M. Arensberg, and Harry W. Pearson. 1957.  
_Trade and Market in the Early Empires: Economies in History and  
Theory_. Glencoe, Illinois: The Free Press.   
 
Sievers, Allen M. 1974. _The Mystical World of Indonesia: Culture  
and Economic Development in Conflict_. Baltimore: Johns Hopkins  
University Press. [Polanyi applied to development issues.]   
 
Schaniel, William C. and Walter C. Neale. 2000. "Karl Polanyi's  
Forms of Integration as Ways of Mapping." _Journal of Economic  
Issues_ 34 (March): 89-104.   
 
Tandy, David W. 1997. _Traders and Warriors: The Power of the  
Market in Early Greece_. Berkeley: University of California Press.  
[Recent application of Polanyi to the ancient world.]   
 
 
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