THE GREAT TRANSFORMATION

Karl Polanyi

Subtitle: the political and economic origins of our time, Beacon Press, Boston, 1944, 314 pgs., index, footnotes, paperback

Reviewer Comment
The book was very influential when published, then less so, but apparently has become more influential again. The author does provide much information about social conditions in the 19th century. But his language is so polemical that it detracts from the reliability of the message. He is so vehemently opposed to the 'industrial revolution' that one has to question his motives and positions. yet, so much of his historical descriptions and analysis is excellent that we have to separate it from this attack on the 'industrial revolution and romantic belief in the advantages of pre-capitalist society.

Introduction -

Part One - The International System

Chapter 1 - The Hundred Years' Peace

The author begins with a startling and arresting statement. "Nineteenth century civilization has collapsed. This book is concerned with the political and economic origins of this event, as well as with the great transformation which it ushered in".
He continues, "Nineteenth century civilization rested on four institutions. The first was the balance-of-power system which for a century prevented the occurrence of any long and devastating war between the Great Powers. The second was the international gold standard which symbolized a unique organization of world economy. The third was the self-regulating market which produced an unheard-of material welfare. The fourth was the liberal state".

The four pillars are well understood. But then he focuses on one. "Of these institutions the gold standard proved crucial: its fall was the proximate cause of the catastrophe. By the time it failed most of the other institutions had been sacrificed in a vain effort to save it".

It seems to me that the catastrophe was the destruction to all four pillars wrought by World War One. The gold standard collapsed After the war in part as a result, not cause, of the other three.

Then he immediately reverses his position. "But the fount and matrix of the system was the self-regulating market... The gold standard was merely an attempt to extend the domestic market system to the international field: the balance-of-power system was a superstructure erected upon and, partly, worked through the gold standard; the liberal state was itself a creation of the self-regulating market. The key to the institutional system of the nineteenth century lay in the laws governing market economy".

There we have the author's whole theory and the theme of the book - an attack on the free market system itself.

He continues "Our thesis is that the idea of a self-adjusting market implied a stark utopia. Such an institution could not exist for any length of time without annihilating the human and natural substance of society; it would have physically destroyed man and transformed his surroundings into a wilderness".

This is rather vivid rhetoric with powerful conclusions that immediately indicate that the thrust of the analysis will be polemical.

Further, he states his conclusion, "Such an explanation of one of the deepest crises in man's history must appear to simple", that he is about to explain his conclusions about what he already claims is 'one of the deepest crises in man's history'.

He continues to elaborate on his assessment of the 'catastrophe' and the causation in the market economy.

Lest we misunderstand his methods and motives he writes, "Ours is not a historical work: what we are searching for is not a convincing sequence of outstanding events, but an explanation of their trend in terms of human institutions".

With this statement he excuses himself from having to convince the reader with deep research and marshaling of historical facts. He continues with further explanation in which he claims that the collapses of the four pillars - which after all was the catastrophe of World War One, actually was predetermined by the "social and technological upheaval from which the idea of a self-regulating market sprang in Western Europe".

In other words, as we will learn, he is referring to the whole 'Industrial Revolution' and assumption of economic and political power by the bourgeois.
After this introduction, the author turns to his caustic and critical analysis of the development of European society during what he labels 'a hundred years' of peace', which nevertheless did see a number of limited wars.
He claims that the relative but remarkable success of the European powers in maintaining even this peace was the result of 'an acute peace interest". And, of course, "The bearers of the new 'peace interest' were, as usual, those who chiefly benefited by it, namely that cartel of dynasts and feudalists whose patrimonial positions were threatened by the revolutionary wave of patriotism that was sweeping the Continent".

No credit given here to the desire for peace by the expanding bourgeois commercial, industrial class and its increasingly powerful political power. But, further on in the narrative he cites the expansion of a new power center, high finance. This new social element comes in for much caustic assault. For example, "Haute finance was not designed as an instrument of peace; that function fell to it by accident, as historians would say, while the sociologist might prefer to call it the law of availability".The author continues for pages to describe a very sordid active role of international and domestic finance. It was ruthless in seeking its own profits, but had a functional determiniation to avert general wars. For instance, "Loans, and the renewal of loans, hinged upon credit, and credit upon good behavior".Trade also depended upon peace because of the international monetary system. However, finance capitalism was responsible for many colonial wars.
Dr. Polanyi sums up, "It must be clear by this time that the peace organization rested upon economic organization".

Yet, he notes, "the true nature of the highly artificial, economic organization on which peace rested becomes of utmost significance to the historian".

Chapter 2 - Conservative Twenties, Revolutionary Thirties

Dr. Polyani continues into the 20th century. "The breakdown of the international gold standard was the invisible link betwen the disintegration of world economy since the turn of the century and the transformation of the whole civilization in the thirties". And, "The true nature of the international system under which we were living was not realized until it failed".

After more discussion of the gold standard and its collapse he writes this excellent comment. "To liberal economists the gold standard was a purely economic institution; they refused even to consider it as a part of a social mechanism".

This is the result of the broader committment of economists to the notion that they are studying something that is divorced from society and politics.
"But then he continues, "the failure of the market economy itself still escaped them". (the political leaders and economists). "The dissolution of the system of world economy which had been in progress since 1900 was responsible for the political tension that exploded in 1914; the outcome of the War and the Treaties had eased that tension superficially by eliminating German competition while aggrivating the causes of tension and thereby vastly increasing the political and economic impediments to peace".

He continues, "The root cause of the crisis, we submit, was the threatening collapse of the international economic system". And Post World War one Europe actually no longer had a functioning system.

He turns again to finance. "Currency had become the pivot of national politics. Under a modern money economy nobody could fail to experience daily the shrinking or expanding of the financial yardstick; populations became currency conscious; the effect of inflation on real income was discouned in advance by the masses; men and women everywhere appeared to regard stable money as the supreme need of human society".

He goes on to describe the uninamity of the long list of economists and politicians of all political persuasions in the 'religion' of the gold standard. But they all failed. Hecorretly describes the problem for the American FED when it wanted to support the British use of gold by keeping interest rates low, but for sustaining the American domestic economy they needed for interest rates to be high. With the collapse of the gold standard revolution came. "The liberal state was in many countries replaced by totalitarian dictatorships, and the central institution of the century - production hased on free markets - was superseded by new forms of economy". Much more description of post World War One Europe follows.

And then he writes, "This leads up to our thesis which still remains to be proven; that the origins of the cataclysm lay in the utopian endeavor of economic liberalism to set up a self-regulating market system". He claims that all aspects of European society in the 19th century were results of this utopian falicy.

We need to quote his explanation fully as his attack on the free market and industrial revoltion itself occupies the remainder of the book.
"The assertion appears extreme, if not shocking in its crass materialism. But the pecularity of the civilozation the collapse of which we have witnessed was precisely that it rested on economic foundations. Other societies and other civilizations, too, were limited by the conditions of their existence - this is a common trait of all hman life and indeed, of all life, whether religious or nonreligious, materialist or spiritualist. All types of societies are limited by economic factors. Ninteenth century civilization alone was economic in a different and distinctive sense, for it chose to base itself on a motive only rarely acknowledged as valid in the history of human societies, and certainly never everday life, namely, gain. The self-regulating market system was uniquely derived from this principle. The mechanism which the motive of gain set in motion was comparable in effectiveness only to the most violent outburst of religious fervor in history".

He continues his diatribe, but we get the picture.

"For the origins of the cataclysm we must turn to the rise and fall of market economy".

Had he lived longer, the author, undobutedly would have been dismayed to find that the market economy has NOT fallen.

He next focuses on England. "Market society was born in England - yet it was on the Continent that its weaknesses engendered the most tragic complications. In order to comprehend German fascism, we must revert to Ricardian England. The nineteenth century, as cannot be overemphaized, was England's century. The Industrial Revolution was an English event. Market economy, free trade, and the gold standard were English inventions. These institutions broke down in the twenties everywhere ... whatever the scenery and the temperature of the final episodes, the long-run factors which wrecked that civilization should be studied in the birthplace of the industrial Revolution, England".

So in the next section we will learn the author's romantic view of medieval society and totally negative view of 19th century England. In passing we should note that the market society was not born in England, although the author is right that the subsequent Industrial Revolution began in England.

Part Two - Rise and Fall of Market Economy

I - Satanic Mill

Chapter 3 - "Habitation versus Improvement"

Chapter 4 - Societies and Economic Systems

Chapter 5 - Evolution of Market Pattern

Chapter 6 -The Self-regulating Market and the Fictitious Commodities: Labor, Land, and Money

Chapter 7 -Speenhamland, 1795

Chapter 8 - Antecedents and Consequences

Chapter 9 - Pauperism and Utopia

Chapter 10 - Political Economy and the Discovery of Society

II - Self-Protection of Society

Chapter 11 - Man, Nature, and Productive Organization

Chapter 12 - Birth of the Liberal Creed

Chapter 13 - Birth of the Liberal Creed (Continued): Class Interest and Social Change

Chapter 14 - Market and Man

Chapter 15 - Market and Nature

Chapter 16 - Market and Productive Organization

Chapter 17 - Self-Regulation Impaired

Chapter 18 - Disruptive Strains

Part Three - Transformation in Progress

Chapter 19 - Popular Government and Market Economy

Chapter 20 - History in the Gear of Social Change

Chapter 21 - Freedom in a Complex Society

Notes on Sources

Some references