Karl Polanyi (1886–1964) was a writer and teacher of Hungarian origin who lived in Central Europe and Britain before moving to the United States during the Second World War.1 He was the author of a vivid and powerful critique of the liberal tendency to place the market at the centre of human nature and society, what we might call ‘market fundamentalism’. The Great Transformation (1944) is above all a great read. In recommending it to students and acquaintances over the years, I have never yet had a dissatisfied customer. Polanyi took an active interest in literature and the quality of his writing is a constant pleasure. Moreover, the book has a strong, even shocking message: the game is up for capitalism and the story of how this came about is told with passionate clarity. It is not hard to see that such a message would have resonance today, when the neoliberal experiment in subordinating society to the free movement of global capital is visibly running up against its contradictions. But Polanyi speaks directly to the dissident in each of us at any time. Despite the pessimism of his prophecy, the reader usually comes away charged with hope for a better future.

Polanyi had some limited success in building a school of followers, most notably in economic anthropology. A Montreal institute named after him has kept the interdisciplinary flame burning since then. His ideas have never dropped out of sight in the last half-century, but attempts to place Polanyi on a par with Marx, Weber, Durkheim and Simmel have never really taken off. There are several reasons for this. As we will see, his depiction of capitalism as a self-regulating (and ultimately self-destructive) market missed some of the key features that were central to its resurrection after the war. His formal analysis and conceptual system were perhaps fuzzier than those of the founders of modern social theory. His book succeeds as a narrative more than as a source for understanding and effective action. This may explain why he later abandoned his populist critique of mainstream capitalism in order to become a guru in the academic study of non-industrial economic institutions.

Yet his reputation has been rising palpably in the last two decades. This trend may be inversely related to the fortunes of Marxism. Since the collapse of the Soviet Union, if not before, the main centres of critical social thought have been countries like France, Italy and Brazil. The Marxist tradition has always been strong there, but it is noticeable that whereas writers once routinely peppered their texts with references to Marx, they are now more likely to invoke Polanyi. This may be just because Marx is no longer fashionable, even on the left. Or it may mark a shift to an emphasis on institutional reform, as opposed to revolution. In any case, if the current world economic crisis deepens and, as some think likely, comes to resemble the 1930s more than any other decade, the legacies of Marx and Polanyi may undergo another shift in their relative appeal to progressives.

What follows is in no sense an apologia for Polanyi's point of view. As a fan of his writing, I am quite ambivalent about his political and pedagogical value. I believe he is important as a mirror for our own times, whether or not we want to buy into his conceptual toolkit. He offers, especially in The Great Transformation, a distinctive, Euro-centric vision of world history whose scope it would pay students of development to emulate in spirit, if not in the letter. At a time when intellectual work often seems parochial and narrow, Polanyi still offers a salutary reminder that a wider vision is possible and indeed necessary. In his masterwork, Polanyi argued that nineteenth-century industrial capitalism and its ideological representation in liberal political economy marked a fundamental break with the human past whose ruinous consequence was the breakdown of world society in the first half of the twentieth century. His emphasis on ‘the self-regulating market’ did not allow him to foresee the revival of market economy after the war within a framework of social democracy.

After the war, Polanyi worked with colleagues in the United States to show the limitations of neoclassical economics as a universal theory of the human economy. He no longer attacked the economists frontally, apparently being content with an academic division of labour that granted them pre-eminence in industrial societies, leaving the rest as the province of anthropologists and historians. He developed an approach to ‘modes of integration’ of the economy in which the market (‘exchange’) took its place alongside other principles, reciprocity and redistribution. Polanyi's idea that the economy is normally ‘embedded’ in social institutions has become a cornerstone of economic sociology in recent decades (Beckert, 2009). He argued that the utopian project of ‘disembedding’ market economy from society led to a ‘double movement’ whereby various classes acted to protect society's interests against the market. His pluralist approach to economic institutions, based on rejection of fundamentalisms of both right and left, has attracted a growing band of followers among those who are now searching for ways to transcend the impasse that for three decades has been associated with neoliberal dominance of the world economy.

The Great Transformation: The Political and Economic Origins of Our Times (Polanyi, 1944) opens with a highly selective account of the making of world society in the nineteenth century, a society that Polanyi not unreasonably considered to be lying in ruins as he wrote. He identified four pillars of this civilization, all of which had collapsed in the course of what Winston Churchill called ‘the second Thirty Years War’ (1914–1945): the balance-of-power system that had brought a century of peace within Europe; the international gold standard; the self-regulating market; and the liberal state. He identified the peace interest with what he insisted on calling haute finance: ‘an institution sui generis, peculiar to the last third of the nineteenth and the first third of the twentieth century, [which] functioned as the main link between the political and economic organization of the world in this period’ (ibid.: 10).

The international gold standard ‘was merely an attempt to extend the domestic market system to the international field; the balance-of-power system was a superstructure built on its foundation; and the gold standard's fall ‘was the proximate cause of the catastrophe’. The self-regulating market was ‘the fount and matrix of the system’; it had ‘produced unheard-of material welfare’ (ibid.: 3), but it was utopian in its pursuit of an autonomous circuit of commodities and money. The liberal state, in the name of market freedom, forced all other interests in society to submit to the freedom of capital, another word for money.

Polanyi did not claim that his was a work of history: ‘what we are searching for is not a convincing sequence of outstanding events, but an explanation of their trend in terms of human institutions' (ibid.: 4). His focus was on the industrial heartland of nineteenth-century civilization and on Britain in particular. Next to the rise of market fundamentalism, he played down the bureaucratic revolution of the late nineteenth century that allowed governments to promote mass production and consumption in alliance with corporations. There is little here about America and Russia, even though he acknowledged their rise as great powers in this period. The reader will find even less about how a racialized world society was built through colonial empire. Rather, Polanyi was concerned with the consequences of buying and selling the very essence of our humanity in nature and society, with what he called the ‘fictitious commodities’. Land, labour and money are essential to the industrial system; they must therefore be bought and sold, but they were definitely not produced for sale. Labour is human activity, that is part of life itself; land is another word for nature; and ‘actual money is merely a token of purchasing power which, as a rule, is not produced at all, but comes into being through the mechanism of banking or state finance’ (ibid.: 72). Here Polanyi comes close to suggesting that a free market in money entails buying and selling society itself.

Polanyi distinguished between ‘token’ and ‘commodity’ forms of money, labels that I borrowed for an analysis of the two sides of the coin as symbolic of the state/market pair (Hart, 1986). ‘Token money’ was designed to facilitate domestic trade, ‘commodity money’ foreign trade; but the two systems often came into conflict. Thus the gold standard sometimes exerted downward pressure on domestic prices, causing deflation that could only be alleviated by central banks expanding the money supply in various ways. The tension between the internal and external dimensions of economy often led to serious disorganization of business (ibid.: 193–4). Another way of putting this contradiction is to oppose the liberal definition of money as just a ‘medium of exchange’ to one of it as a ‘means of payment’. Money was thus ‘not a commodity, it was purchasing power; far from having utility itself, it was merely a counter embodying a quantified claim to things that could be purchased. Clearly, a society in which distribution depended on possession of such tokens of purchasing power was a construction entirely different from market economy’ (ibid.: 196).

The final collapse of the international gold standard was thus one consequence of the ruinous attempt to delink commodity and token forms of money. In a trenchant discussion of the economic crisis of the 1930s that has echoes of the world economy today, Polanyi highlighted the separation of the money system from trade. As restrictions on trade grew, money became more free:

Short-term money moved at an hour's notice from any point of the globe to another; the modalities of international payments between governments and between private corporations or individuals were uniformly regulated… . In contrast to men and goods, money was free from all hampering measures and continued to develop its capacity to transact business at any distance at any time. The more difficult it became to shift actual objects, the easier it became to transmit claims to them… . The rapidly growing elasticity and catholicity of the international monetary mechanism was compensating, in a way, for the ever-contracting channels of world trade… . Social dislocation was avoided with the help of credit movements; economic imbalance was righted by financial means (ibid.: 205–6).

But of course, in the end, political means of settling the imbalance outweighed market solutions and war was the result.

The Great Transformation was a work of prophecy and, broadly speaking, the prophecy failed. The 1940s indeed saw a world revolution; but its immediate outcome was not foreseen by Polanyi. An anti-colonial revolution against European empire went side by side with a revival of the world market under American hegemony, fuelled by an expansion of public services in all the leading industrial countries. Prophets don't just speak of the future; they reveal hidden truths about the world, often making them a source of revolutionary thought and the inspiration for social movements (Graeber, 2008). Since the last three decades have seen a replay of the ‘self-regulating market’ scenario and possibly the beginning of its demise, Polanyi's vision offers one perspective on the political and economic origins of our own times. His time as a prophet may yet be to come.

In 1957, with two colleagues (Conrad Arensberg and Harry Pearson) from a Ford Foundation interdisciplinary project designed to keep him employed after retirement, Polanyi produced a collection of essays, Trade and Market in the Early Empires: Economies in History and Theory. This included two chapters by Polanyi himself, especially one on ‘The Economy as Instituted Process' (Polanyi, 1957) that proved to be remarkably influential, at least within anthropology. There are two meanings of the word ‘economic’ that have been conflated: the formal and the substantive, a Kantian distinction that he drew from Menger (1871), although Max Weber (1978: 85–6) and many others also used it. The first refers to a means–end relationship, the mental process of economizing, whereas the second concerns the provisioning of material wants. Menger, one of the founders of the marginalist revolution, suggested in a posthumous edition of his work that economics might take either of two directions based on what are essentially different assumptions: one reflecting the necessity of economizing in response to insufficient means; the other, which he called ‘techno-economic’, responding to the exigencies of physical production without reference to the abundance or scarcity of the means available (Laville, n.d.). He considered both these approaches to the development of the human economy to be primary and fundamental. His successors in neo-classical economics, notably Friedrich Hayek, chose to privilege Menger's price theory and reduce his approach to a formal one alone, protected by the absence of an English translation of the posthumous edition.

Polanyi held that this reduction of the field of economic thought led to a complete rupture between the economy and life. Most pre-industrial societies are ruled by institutions that guarantee collective survival; but industrial societies have a delocalized economy, ‘the market’, in which individual decision-making rules. This proposal that anthropologists and historians should focus on non-capitalist economies, leaving modern capitalism to the economists, proved to be congenial at the time and led to what became known as ‘the formalist-substantivist debate’ (Leclair and Schneider, 1968), a replay of the ‘Battle over methods' (Methodenstreit) in the late-nineteenth century German-speaking world.

Karl Polanyi was a maverick public intellectual who spent more years working as a journalist than as a tenured academic. He was fundamentally an historian. He was more interested in substantive historical change than in speculating about an abstract, formal rationality. Polanyi never denied the utility of markets for the allocation of some goods and services. What he condemned was the elevation of the ‘self-regulating market’ to a position of dominance and the high price the British working classes paid for this. Laissez-faire liberalism was not the necessary, ‘natural’ concomitant of industrialism: the ‘self-regulating market’ is to some extent a misnomer, an illusion even, since this regime could only emerge and reproduce itself thanks to specific interventions by the state. At the same time, its dominance was challenged by countermovements within society, as the victims of the new liberalism sought to defend themselves against its consequences. The Chartists were the first mass movement through which workers sought to protect themselves from the new market mechanisms. The market thus remained thoroughly ‘embedded’ in two distinct senses: first, in its dependence on the state and second, like other forms of exchange, it was associated with a range of social institutions, including some explicitly formed to counter allegedly impersonal and ‘natural’ market forces. Polanyi sometimes played down these tendencies, characterizing laissez-faire liberalism as a society that was ‘disembedded’. This concept of market society is perhaps best viewed as overdrawn ideal type, the rhetorical encapsulation of a lifelong anti-capitalism. His real objection was to ‘market fundamentalism’.

Jens Beckert has recently shown how thoroughly Polanyi's ideas have entered economic sociology, a field that is booming at this time:

The renewed interest of sociology in investigating core institutions of modern capitalist economies, especially markets, might not be surprising. What is surprising, however, is that the essential concept applied in the new economic sociology is not derived from the classical sociologists Max Weber, Émile Durkheim, Georg Simmel or Karl Marx. Instead, the ‘founding manifesto’ of the new economic sociology, Mark Granovetter's (1985) seminal article ‘Economic Action and Social Structure — the problem of embeddedness' — centres around Karl Polanyi's concept. Ever since, this has been a focal point of the new economic sociology. Hardly any article associated with the new economic sociology fails to mention ‘embeddedness' as the core concept indicating a sociological approach to the economy. Few economic sociologists would disagree with the statement that ‘We are all Polanyians now’ (Beckert, forthcoming).

Beckert goes on to claim that the radical intent of Polanyi's original formulation has largely been lost in what is, after all, mainly a conservative American discipline. The idea has often been reduced to pointing out that social networks play a part in labour markets and business associations. But there remains a tension between claiming that the ‘free market’ is increasingly ‘disembedded’ from political oversight and acknowledging that it is in reality ‘embedded’ in political processes that are made largely invisible by liberal ideology. Thus the Marxist geographer, David Harvey (2005), labels the contrast between the postwar welfare-state consensus and the neoliberal period ‘embedded liberalism’ and ‘disembedded liberalism’ respectively, when some might think the former better described as ‘social democracy’ than as a species of liberalism. The ambiguities need to be hammered out. What is certain is that Polanyi has belatedly come to the fore in the social analysis of contemporary capitalism.

Since the 1980s both Keynesian and traditional socialist techniques of economic management have been discredited and swept aside. The neoliberal ideology that took their place far exceeds the original liberal prototype in the claims it makes for the virtues of the market. This is why so many scholars in different fields now find inspiration in Polanyi's work. For example, the political economist, Eric Helleiner (2000), has argued that the dramatic expansion of finance capital in recent decades is directly analogous to the historical phenomenon identified by Polanyi above, so that a Polanyian critique is timely. Analogous to Polanyi's ‘double movement’, the current globalization of market capitalism has been accompanied by a comparable tendency in social movements. Society is now protecting itself not through the formation of trades unions within nation-states but through transnational networks of activists protesting against the power of the G8 states. Polanyi would probably sympathize with all those currently seeking to develop new and more radical forms of democracy. These constellations of forces may mitigate the continuing damage inflicted by ‘the market’ on persons and the natural environment. Global markets and ‘global civil society’ implicate each other (Keane, 2003); our task is to understand more closely the changing institutional forms of this interdependence.

Jean-Louis Laville (2006, n.d.) leads a recent revival of Polanyi's influence in France, linking his legacy explicitly to that of Marcel Mauss, whose socialist politics (Mauss, 1997) have always been given greater prominence there than in Anglophone countries. Laville argues that both authors based their economic analysis on a critique of the reductionist assumption that explains economic action solely as the expression of material self-interest. They held that economic behaviour could be an expression of a sense of belonging or of interest and disinterest combined, such interest being wider in scope than merely material. Both insisted that economic reality is always plural and that this is masked by the liberal model of economy — utilitarianism. We now know that identification of society with the market, on the grounds of a concern for individual freedom, generates huge inequalities; but the submission of the economy to political will on the pretext of equality also leads to the suppression of freedom. These two twentieth-century solutions to the problem of ‘the human economy’ have called democracy itself into question, either by subordinating political power to that of money or by taking the form of totalitarian systems. If we reject both of these options, it then becomes a question of developing institutions capable of guaranteeing a plural economy within a democratic framework. Polanyi and Mauss agreed on this point: we must rely on practical experience for information and analysis, in other words start from real economic movements, not from an abstract programme of social reform. Their shared conception of social change ‘is by no means committed to revolutionary or radical alternatives, to brutal choices between two contradictory forms of society, [but] is and will be made by a process of building new groups and institutions alongside and on top of the old ones' (Mauss, 1950: 265, my translation). By outlining the theoretical foundations of a plural approach to the economy rather than making an appeal to a radical alternative, Polanyi opened up the entire field of human possibilities, most of which already exist in our societies. Our task is to make new institutional combinations out of them and with a new emphasis.

So what are the lessons to be drawn from comparing our present situation with the one Polanyi depicted before? He explained the world crisis of the mid twentieth century as the outcome of a previous round of what we would call ‘globalization’. There are substantial parallels between the last three decades and a similar period before 1914. In both cases, market forces were unleashed within national societies, leading to rapid capital accumulation and an intensification of economic inequality. Finance capital led the internationalization of economic relations and people migrated in large numbers all over the world. Money seemed to be the dominant social force in human affairs; and this could be attributed to its greater freedom of movement as the boundaries of society were extended outwards, then by colonial empire, now by the digital revolution and transnational corporations. The main difference is that the late nineteenth century saw the centralization of politics and production in a bureaucratic revolution, while a century later these same bureaucracies were being dismantled by neoliberal globalization. Moreover, the immediate winner of ‘the second thirty years war’ (1914–1945) was a strengthened national capitalism whose synthesis of state and market was hardly anticipated by Polanyi.

It is odd that Polanyi appears sometimes to reduce the structures of national capitalism to an apolitical ‘self-regulating market’. For his analysis of money, markets and the liberal state was intensely political, as was his preference for social planning over the market. His war-time polemic, reproducing something of his opponents' abstractions, was more a critique of liberal economics than a realistic account of actually existing capitalism. This would explain the lingering confusion over whether he thought a ‘disembedded’ market was possible or just a figment of liberal ideology. Similarly, one could argue either that neoliberalism did effectively disembed the market economy or that its claim to have done so was a mystification of the fact that markets were still embedded in largely invisible political processes. In either case, the postwar turn to ‘embedded liberalism’ (Harvey, 2005) is only weakly illuminated by The Great Transformation. Whether Karl Polanyi will be relegated to a footnote in the history of development theory or becomes established as a canonical figure remains to be seen.

  • 1

    This note draws freely on my work with Chris Hann in editing a collection of critical essays on Polanyi, Market and Society: The Great Transformation Today (Hann and Hart, forthcoming). I have also learned much from working with Jean-Louis Laville (2006, n.d.). An important new collection of essays on Polanyi appeared recently in French, Avec Karl Polanyi, contre la société tout-marchand (MAUSS, 2007). Its publication coincided with a conference in Paris, Revisiter Polanyi. A conference to mark the 20th anniversary of the Polanyi Institute will be held in Montreal in December 2008. For personal materials, see McRobbie and Polanyi Levitt (2000). Stanfield (1986) explores key philosophical and economic aspects of Polanyi's thought. Halperin (1984) emphasizes his debt to Marx, while Isaac (2005) offers a balanced assessment of Polanyi's oeuvre and its current standing. For a recent collection on Polanyi's relevance to the twenty-first century, see Bugra and Agartan (2007).


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