Book Review: Polanyi’s Great Transformation

Since this is a very long review – Short and sweet: Polanyi knows the answer. It doesn’t really matter much what the question is, as the answer he knows is the answer to everything. All the great erudition on display is just that – a display. He happens to know a great deal about English history over the 18th and 19th centuries, and a bit about an obscure set of pacific islanders, but by the end of the book, it’s obvious that this expertise is irrelevant to his thesis. He could start from basket weaving and wheat as a theme in Art Deco, and he’d end up at the same place: what the world needs now, what it has always needed, what History has been striving for, is Communism, sweet Communism.

In the Great Transformation, Polanyi describes the mechanism by which the commoditization of land, labor and currency and the implementation of the Gold Standard reveal the contradictory and self destructive nature of Capitalism and the impossibility of any free market being long maintained. He asserts that not only are free markets not natural in any sense, but they can only come into existence and continue by means of constant political and social intervention.

Using England’s industrialization as the case study, Polanyi argues that there’s nothing natural about free markets, that the very idea of free markets is a mythology used to justify the reduction of land, currency and people to commodities. A market in labor reduces people to mere human resources, something to be managed like any other resource and a cost to be controlled. Land will simply be consumed, not husbanded across generations. And currency, with which the book is mostly concerned, will be standardized across the world in order that international trade can take place. This standardization, under the rubric of the Gold Standard, is the engine driving political and social change, almost entirely for the worse.

The idea that people might take advantage of a market for labor by decommoditizing themselves – learning skills or moving someplace where their skills are in demand in order to better their prospects – is not considered. That people did not in fact stay illiterate laborers for very long once the market provided opportunities unavailable for rural laborers is not discussed. That the workers of the world today are vastly better off than the rural laborers prior to the industrial revolution is barely mentioned. Rather, Polanyi dwells on all the evil effects of the social displacement caused by industrialization and the political steps meant to mitigate them, and well as the steps taken to facilitate market creation and trade. He sees, not individual decisions both good and bad being made in an uncertain environment (i.e., the real world), but the forces of History working themselves out according to inevitable laws.

Similar filters are applied to the commoditization of land and currency. In 1944, when Polanyi published this tome, it was perhaps reasonable to believe that land was being recklessly consumed by industry – FDR did promise that the skies would soon again be ‘blackened by industry’ once the New Deal kicked in. (Of course, his cousin Teddy had begun the process of setting aside land from too much human use a generation earlier.) Subsequent small ‘h’ history has shown that free people with a little material security tend very much to want to keep the world tidy and clean – nobody wants to live in a dump. A continually better cared for world is not what theory predicts, even if it is what history seems to be showing.

Currency, by which Polanyi means international banking and the trade it facilitates, does tend strongly toward standardization, because international trade, like all trade, is built on trust. You pay me in standard Spanish pieces of eight or silver U.S. trade dollars, and I’m good, because everybody agrees on the value of such currency. We trust each other, at least that far. Once transactions become too large and too frequent for physical silver or gold to change hands, I need some other mechanism I can trust – the Bank of England, for example. Their notes are as good as gold! My trust is built on stability: the claim that our notes are worth X amount of gold or silver, which you can trade your note in for if you want, is good as long as you back it up. Floating fiat currencies require a level of trust that people who knew their history were not able to muster, in past eras.

This view, which is based on the logical and historical playing out of personal trust between trading partners and banks, is built on the observation that our world is uncertain and involves many discrete and often unpredictable human decisions. Polanyi wants vast forces to push History to an end already known, and so must reject what people actually do as a basis for reality.

For Karl Polanyi was essentially a Marxist, of the Fabian variety: thus, he doesn’t say he’s a Marxist. Nothing could be more Fabian than not identifying as a Fabian, a kafkatrap of their own making. But he quacks like a duck – specifically, he was expressly opposed to explanations of economics based on individual decisions, in favor of explanations based on irresistible historical forces. He was also married to Ilona Duczynska, a woman who worked in the propaganda department in the Hungarian Soviet Republic and was a delegate to the Second International Congress of Communist Parties. She got expelled from the Party, then rejoined, then got expelled again – not atypical in the era of Stalin. I’m imagining she was not the kind of woman to marry someone she didn’t see eye to eye with politically.

Polanyi begins with a long and interesting but curiously incomplete discussion of the trading practices of the Trobriand Islanders, a story that does not bear in any way on the other issues discussed, no matter how hard Polanyi tries to shoehorn it in. He’s fishing for a case to make a key point of his: that trade is more social than economic, and that economics only enters into it accidentally, as it were, and within the long dark shadow of culture.

This curious story highlights a critical flaw in the thinking of Polanyi and all Marxists: they see the world through the filter of Great Forces, of History unfolding itself. Since the only acceptable explanation for anything is some overriding historical development, any explanation that involves a bunch of factors playing out uncertainly is eliminated. The thought that economic considerations might be one of a number of factors driving decisions, and that individual people might give differing weights to economic versus other factors, and that outcomes might depend on that weighting and vary from case to case over time – simply impossible! History marches on, even when it looks more like an unpredictable dance, spinning this way and that.

The Trobriand Islanders live on yams and fishing in a place with minimum shelter and clothing requirements and, being a fairly isolated set of island, virtually no external trade opportunities. Any halfway healthy person can raise enough yams and catch enough fish to survive, so there’s no real pressure to trade food or to optimize food production. Being people, the islanders fill their free time with crafts, political maneuvering, murder and small scale war. And sex.

What you end up with in the Trobriand Islands is a comparatively complex social structure, where the local village chieftain, in his petty glory, causes a yam house to be built, where his villagers are expected to deposit their yams, to be distributed as needed in the eyes of the chieftain. The tropical paradise version of Tammany Hall, in other words. It is said that the people breed rather indiscriminately, but I hear the wishful thinking of Margaret Mead being echoed here – I suspect they merely didn’t share their mating rituals with the white devils, and then had their culture disrupted, so that we will never know.

They are also extremely violent, villages waging war on villages and man on man. There’s an hilarious story about how when cricket was introduced by the British it took the place of war to some extent. The games were intense. The islanders have their own variations on the rules, with includes ritual taunts, dancing, and curses. The visiting team is expected to lose.
When the visiting team wins, it can expect its yam house to be burned, at the very least. The British, as was their practice, forbade the islanders from killing each other over a game, but that didn’t stop them from trying.

In this environment, a certain kind of trade developed: kula, or ritual trade involving certain craft objects that were passed along from village to village, making their way around the islands and back to where they started in about 20 years. The ritual trade of these objects, which have no real economic value, was meant to reinforce the peaceful relationships between the various villages and islands.

Polanyi ignores or barely mentions any of this. He focuses entirely on the non-economic nature of the kula trade, and insists this somehow proves that trade in general, a least until evil, evil Capitalism is introduced, is all about society. Or something. That the Trobriand Islanders do not have anything of economic value to trade is weirdly ignored in the analysis of their non-economic ‘trading.’ He needs to show that Capitalism – the huge, inevitable force – is the bad guy here and elsewhere in his tome. He has to disprove free markets, a conceptual impossibility for Marxists. There’s no such thing as people doing what people do – people do what people do as a result of History. If you assume this conclusion, all that’s left is explaining people away.

For Polanyi, there is no uncertain world full of unpredictable causes, such as we all experience every day. The initiate in the sacred rites knows that, despite what our lying eyes tell us and have always told us, there is only one cause, History. The future is known: in some manner open to theological debate, Communism wins, after which the state passes away and the Worker’s Paradise arrives. All that’s left is to explain (away) all appearances, trying to become the Galileo of History: sure, the world appears to be stationary, and Marx’s predictions have all proven false, but *really* the world is whipping through space at breakneck speeds AND just as soon as we take control of everything and kill all the bad people, everybody gets everything they want!

Living, breathing human beings who support free markets are under no compulsion to believe in the existence or desirability of absolute free markets that cause all that is good and holy. It is quite possible, and I think the most common position among those who think about such things, to see free markets as one aspect of freedom in general, within a moral world where one’s obligations in the marketplace are a small subset of all of one’s moral obligations. Of course other considerations can outweigh and contradict what some theoretical pure free market position might require. All sorts of social, ecological, political and personal reasons may trump pure economics – and routinely do. What of it? Such other considerations no more contradict the desirability of free markets than choosing chocolate disproves the desirability of vanilla, or any other flavor or dessert or no dessert at all.

Free markets are desirable because they are free. Freedom, properly understood, is not license, but liberty, always realized within a set of constraints. To a man with liberty, living in his particular time and place and culture, with his ennobling obligations to family, friends, neighbors and God, the freedom to do what he wants with the material things under his control is required, in the service of love and life. Free markets are a subordinate, relatively small yet essential part of a man’s ability to realize the meaning of his life with liberty.

On the other hand, the Marxist Capitalist straw man, whatever he thinks or says, really has all his actions driven by the boogieman Capitalism. No dead hand of the market is deader or more hands-on than History as imagined by Marxists. Calvinist double predestination, now with gulags!

Thus, Polanyi ignores and explains away any facts inconvenient to his theory. He insists, for example, that the Gold Standard exists for international trade. He wastes no ink on its history as a mechanism intended to defeat debasement of the currency and curtail government manipulation. In his rush to show how it was required for foreign trade, he ignores the persistent historical fact that for all great economies – the US, Great Britain, even Japan – the nation’s domestic economy long dwarfed it trade economy, such that a gold standard tied to international trade has been, historically, relatively unimportant.

He ends up claiming that the Gold Standard effectively imposed
representative government on any nation that joined in international trade. Read that again: the Gold Standard, a 2,000+ year old idea meant to keep governments from debasing their currencies, acts to cause nations to adopt representative government:

The realm of fixed foreign exchanges was coincident with civilization. As long as the gold standard and—what became almost its corollary—constitutional regimes were in operation, the balance of power was a vehicle of peace. The system worked through the instrumentality of those Great Powers, (see who is acting here? ed.) first and foremost Great Britain, who were the center of world finance, and pressed for the establishment of representative government in less-advanced countries. This was required as a check on the finances and currencies of debtor countries with the consequent need for controlled budgets, such as only responsible bodies can provide. Though, as a rule, such considerations were not consciously present in the minds of statesmen, this was the case only because the requirements of the gold standard ranked as axiomatic. The uniform world pattern of monetary and representative institutions was the result of the rigid economy of the period.

Great Transformation, Freedom in a Complex Society, Ch.

“The system” worked… It’s always the system, man. The mean system imposed constitutional, representative government on nations in order to enable the Gold Standard. No raj or tribal chieftain or absolute monarch gave way to popular pressure as people – often, as a side effect of international trade – became aware on a practical basis of that whole of, for, and by the people concept. Nope, cruelly, it turns out, people adopted constitutional representative governments in order that the Gold Standard could prevail, even if they didn’t know that’s what they were doing.

Because constitutional regimes are sometimes a bad thing. Here, read it for yourself – once the Gold Standard is abandoned:

At the same time it will become possible to tolerate willingly that other nations shape their domestic institutions according to their inclinations, thus transcending the pernicious nineteenth-century dogma of the necessary uniformity of domestic regimes within the orbit of world economy. Out of the ruins of the Old World, cornerstones of the New can be seen to emerge: economic collaboration of governments and the liberty to organize national life at will. Under the constrictive system of free trade neither of these possibilities could have been conceived of, thus excluding a variety of methods of cooperation between nations. While under market economy and the gold standard the idea of federation was justly deemed a nightmare of centralization and uniformity, the end of market economy may well mean effective cooperation with domestic freedom.


Because representative governments are often imposed by and exist for the sake of the Gold Standard, they will run roughshod over the ‘inclinations’ of the nations that don’t have this form of government. Once the Gold Standard is abandoned, nations with non-constitutional, non-representative governments are to be allowed to follow these native inclinations. What could go wrong? Another tell: “nations” means who, exactly, if it’s not the people in them (non-representative, remember)? Here comes giant forces, capital ‘H’ History, again. The individual tyrants may think they’re securing their power when they, say, murder a couple tens of millions of Kulaks, but it’s really History unfolding itself through ‘national inclinations’. Eggs, omelette, etc.

Never are normal market mechanisms discussed when they contradict his claims. He will note, for example, when trade problems disrupt the supply of raw materials, then ignore how people will routinely and diligently work around them. He insists that trade is unnatural, at least in the free trade sense, but is rather something imposed with great political force. He never mentions the historical record of trading cultures – among ancient cultures, the Phoenicians and the Visigoths spring to mind – and trade routes – Silk Road, anyone? – that are ubiquitous wherever any degree of peace and freedom prevails and people have anything worth trading. He ridiculously omits this long and detailed bit of history, for the simple reason, a reason never spoken but consistently employed, that it contradicts his story.

I could go on, but I’m not going to live long enough to list all the specific criticisms and errors in this book. The main, inarguable criticism is this: what has happened over the 75 years since Polanyi published his book. At the end of World War II, many people and all Communists were predicting an great economic collapse, such as happened in the 1930s. They were predicting the inevitable rise of the Soviet Union and the organic spread of Socialism. Somehow, be it via Marxist revolution, Fabian subterfuge or Gramsciite sabotage (or, why pick one? All three!), the world would become increasingly Socialist.

What happened instead: Communism spread misery and death wherever it was imposed. The Soviet Union fell, China turned into some weird hybrid totalitarian state with a crony capitalist economy, and Vietnam, Cambodia, Cuba, Venezuela and so on are cautionary tales at best. Meanwhile, those wretched constitutional representative governments spread free markets and prosperity everywhere they were adopted. Now, both in percentage and absolute numbers, more people are better off than ever, living longer, healthier, more secure lives – in direct proportion to how much they do not adopt Marxism.

Thus, the forward and introduction to the 2001 edition I read, written by a couple of critical theorists, skips over all that, and focuses instead on the 1997 Asian Financial Crisis – because, amidst a sea of economic growth and prosperity that contradicts Polanyi at every turn, this crisis is a lonely island that confirms it! At least, briefly. Never mind that it was quickly over, and that the economies involved were within a few years back to their pre-panic levels. And that it happened within a context of 75 years of phenomenal world-wide growth in material well-being and liberty.

Don’t get me wrong – the Asian financial crisis was a bad thing, brought about at least as much by governmental and quasi governmental meddling in markets as anything inherent in markets themselves. People will be greedy, power hungry and stupid, regardless of the economics involved. It’s the grasping at straws aspect of it that stands out.

Reading about Polanyi reveals two things: he is all but utterly ignored by real economists, and completely beloved by critical theorists. It depends on whether or not you care if reality matches theory.

Author: Joseph Moore

Enough with the smarty-pants Dante quote. Just some opinionated blogger dude.

4 thoughts on “Book Review: Polanyi’s Great Transformation”

  1. Joseph,

    Marxists are so aggravating aren’t they? They just love to spend years in the archives concocting grand theories but never once do they bother to chat with workers at the pub.
    Marxists are such classists and I love mocking them


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