Great Transformation

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Classic, must read book for its critique of self-regulating markets.

Book. Karl Polanyi. The Great Transformation. (1944)


By Asad Zaman:

"Polanyi’s arguments are complex and remain unfamiliar to majority of economists. They run counter to received wisdom, and are directly opposed to what is taught about economics in leading universities. They are summarized in FIVE points listed below.

From the FIFTH point, it follows that acquiring and spreading a correct understanding of the limitations and failing of markets is essential to creating a better society, based on more humane values than those generated by market societies where everything is for sale.

Firstly, markets are not a natural feature of human society. Nearly all societies other than the modern one we live in used different, non-market mechanisms to distribute goods to members. Our society is unique in having made markets the central mechanism for the production and distribution of goods to its members. Secondly, market mechanisms conflict with other social mechanisms and are harmful to society. They emerged to central prominence in Europe after a protracted battle, which was won by markets over society due to certain historical circumstances peculiar to Europe. The rise of markets caused tremendous damage to society, which continues to this day. The replacement of key mechanisms, which govern social relations with those compatible with market mechanisms, was traumatic to human values. Land, labour and money are crucial to the efficient functioning of a market economy. Appropriating the functions of these alters and harms central social mechanisms governing human relations.

Thirdly, certain ideologies, which relate to land, labour and money, and the profit motive are required for efficient functioning of markets. In particular, both poverty, and a certain amount of callousness and indifference to poverty are required for efficient functioning of markets. Poverty is, in a sense to be clarified, a creation of the market economy. The sanctification of property rights is another essential feature of markets. Thus existence of a market economy necessitates the emergence of certain ideologies and mindsets which are harmful to, and in contradiction with, natural human tendencies.

Fourthly, markets have been fragile and crisis-prone and have lurched from disaster to disaster, as amply illustrated by the current and ongoing global financial crisis of 2008. Polanyi prognosticated in 1944 that the last and biggest of these crises in his time, World War II, had finally killed the market system and a new method for organizing economic affairs would emerge in its wake. In fact, the Keynesian ideas eliminated the worst excesses of market-based economies and dominated the scene for about thirty years following that war. However, the market system rose from the ashes and came to dominate the globe in an astonishing display of power. This story has been most effectively presented by Naomi Klein (2008).

Fifthly, market economies require imposition by violence – either natural or created. As noted by the earliest strategists, deception is a crucial element of warfare. One of the essential ingredients in the rise of markets has been a constant battle to misrepresent facts, so that stark failures of markets have been painted as remarkable successes. There are a number of strategies commonly used to portray an economic disaster as progress and development. Without this propaganda markets could not survive, as the forces of resistance to markets would be too strong." (


David Bollier:

"Yet that is precisely what I find so appealing about Polanyi and what makes him so relevant today: He understood that the modern market economy is a special, historically rooted form of social organization. It is not a natural, universal system for organizing societies, as its champions assert. It is, in fact, an historical aberration in the long sweep of human history – one that has produced many benefits, to be sure, but it has also introduced deep structural tensions that always threaten to overwhelm human societies.

Prior of the rise of “the market” as an ordering principle for society, politics, religion and social norms were the prevailing forces of governance. Land, labor and money itself were not regarded chiefly as commodities to be bought and sold. They were “embedded” in social relationships, and subject to the moral consideration, religious beliefs and community management.

When the Great Transformation occurred, Polanyi argued, markets became regarded as autonomous forces in their own right. The presumption was that “market forces” should organize all of society. We have been dealing with its consequences ever since.

The basic dilemma is that the free market cannot self-regulate itself. A laissez-faire economy is, in fact, planned. It necessarily needs government management and social control. In addition, because markets treat nature as essentially limitless and human beings as commodities, they are always pushing human societies and nature to the breaking point. Invariably, crises erupt that require societal interventions. The relentless imperatives of markets cannot prevail indefinitely against the irreducible needs of human beings and nature.

Polanyi is too rich a thinker to summarize fully here, but suffice it to say that he is worth reading for his critique of self-regulating markets, the “embeddedness” of markets in society, and the importance of the non-market gift economy based on social reciprocity and sharing. There are several nice introductions to Polanyi. One is an introduction to The Great Transformation written by Fred Block. Another is the Wikipedia entries for Polanyi and for The Great Transformation. You can also consult websitie for the Karl Polanyi Institute of Political Economy at Concordia University in Montreal.

A parting quotation by Polanyi helps explain why he has so much to say about the commons in a time of neoliberal enthusiasm and crisis: “The social history of our time is the result of a double movement: The one is the principle of economic liberalism, aiming at the establishment of a self-regulating market; the other is the principle of social protection aiming at the conservation of man and nature as well as productive organization.” " (