The Great Transformation: The Political and Economic Origins of Our Time
by Karl Polanyi
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Book Summary Information
Author: Karl PolanyiEdition: Paperback
Audio: English (Unknown); English (Original Language); English (Published)
Published: 2001-03-28
ISBN: 080705643X
Number of pages: 360
Publisher: Beacon Press
Book Reviews of The Great Transformation: The Political and Economic Origins of Our Time
Book Review: A masterpiece of economic history that is as relevant as ever sixty years on
Summary: 5 Stars
Although this book was published in 1944, the same year as Hayek's THE ROAD TO SERFDOM, it remains as relevant as ever. Some say that it is dated and it is true that many of the historical references are not the ones that would spring to mind today, but the critique of the myth of the self-regulating free market remains as relevant and to-the-point as ever. One of the main targets of his book was the Vienna school of economics, the central figures of which were Ludwig von Mises and F. A. Hayek. What Polanyi does is help one to see how hopelessly naïve and ahistorical many of their central assumptions are. Though one might question some of the details of Polanyi's thesis, especially regarding the gold standard the causes of the two world wars, he makes two incredibly powerful arguments about the myth of the self-regulating market to which proponents of that theory have offered no convincing reply. More of this is a second.
Polanyi's method is multi-disciplinary. He wants to show by a multitude of ways that the central historical contentions of those advocates of the self-regulating market are simply fasle. These people have argued, for instance, that by nature humans engage in market trade and that these markets by nature are self-regulating. If this were, as they insist, true, then wherever one would look in human history one would find markets that were by their nature self-regulating. Remember, Adam Smith's Austrian heirs were making arguments not just about what ought to be, but what naturally is in a state of nature. They are making claims about what is the case if government and others will just get out of the way of the workings of nature. So to this end Polanyi looks at the results of anthropological and historical studies to see what the evidence shows. Overwhelmingly, he finds no evidence that things have been in the course of human history as the self-regulators have claimed. In fact, Polanyi finds little or no evidence of the worldwide prevalence of markets at all. He finds little historical evidence for the kinds of claims about the state of nature that self-regulating free marketers posit. Instead, he finds a world of evidence that free markets were human artifacts, created and maintained entirely by government intervention. The chapters that detail Polanyi's argument can be a bit heavy going, but they are crucial to his overall argument.
Polanyi makes two central claims about the myth of the self-regulating free market. The first is that in its essential nature it is utopian and nonhistorical. It is utopian in that it describes not the world as it ever has been or ever could be, but a fantasy that exists only in the minds of its adherents. It is a powerful myth because whenever one points to the failures and shortcomings of attempts to promote free market principles, its adherents reply by insisting that the market hasn't yet been made pure enough. If only we decrease government involvement, further reduce regulation, remove restrictions on the kinds of compacts companies can form with one another, further gut the power of trade unions, and so forth, we will see the birth of a glorious new economic world in which all will be right in the world and God will be on his throne. But as Polanyi argues, not only has such a creature as a self-regulating free market economy never existed, it never could. In fact, what has passed for self-regulating markets has in fact been the result of drastic and pervasive government intervention. Additional interventions take place to protect society as a whole from the damage that a self-regulating economy inflicts on the citizenry as a whole.
The second major point that Polanyi makes is that of embeddedness: any economic system is embedded in society as a whole, with a host of moral, political, and religious values that are not primarily economic in nature. The self-regulating free marketers would somehow wish for an economic system that is distinct from and separated from those values; that is, an economic system that is not embedded. But such a thing, Polanyi argues, is impossible. This is another reason why belief in a self-regulating free market is a sheer fantasy: it is predicated on a host of impossible situations being possible. As the effects of a self-regulating free market occur, society intervenes to counteract the harmful effects of that economy. For instance, workers compensation is neither required nor desirable by pure free market principles. The same is true for unemployment insurance or anti-trust legislation. Or pollution standards. There is no question that keeping a plant from polluting is an interference with the market, but this is an example of noneconomic values trumping economic ones.
The basic dilemma of free market capitalism has always been this: is an economic system that generates a great deal of wealth for a society as a whole but concentrates most of that wealth in the hands of a few people, leaving most with less than they would have in a different economic system, a good economic system? Most of us would say no. Even free marketers would have to concede this, which is why they have had to concoct articles of faith (though not of fact) such as the trickle down theory. "Trickle down" has been debunked repeatedly over the years, both in theory and reality, but perhaps never so eloquently as by Will Rogers. Some people, he said, thought gold water like water: put it at the top and it will trickle down to everyone below. But, he went on, gold wasn't like water at all; put it at the top and it just stays there. Polanyi's book gives meat to the question of whether one would prefer a society where a very large amount of profit were concentrated in the hands of a very small number of people (essentially the situation in the United States today) or a somewhat smaller overall amount distributed more equitably among al the people. Yes, the few who profited under the former would have less, but the vast majority would have more.
I want to question one reviewer below who says that Polanyi doesn't understand the essential nature of the free market. I find that an amazing statement. The reason that the myth of the self-regulating free market has spread so easily and widely is that it is so incredibly easy to understand. What one can question is whether this easy-to-understand, perhaps simplistic, theory is right. We have no examples of self-regulating economies from history even though in the utopian fantasy one of the tenets is that it is the "natural" course of things. Of course Polanyi understands the theory he is criticizing. He just finds it naïve and silly. My only hope is that more people in the United States come to realize this. Ever since the election of Reagan in 1980, though in fact the tendency began under Jimmy Carter (most Americans don't seem to remember how conservative he was on economic matters, far more conservative than either Ford or Nixon), America has toyed with ideas promulgated by the free marketers. The result? Vast accumulation of wealth, especially in the financial markets despite the progressive decay in the industrial base, concentrated almost exclusively in the top 2% of the population. In fact, real wages for the vast majority of Americans has fallen since 1980, the percentage of the population to live below the poverty line has increased, and America has become the industrial nation with the greatest economic inequality.
My own fantasy is that more people would read Polanyi and fewer Hayek. I can understand why they don't. Hayek is easy to read and understand and feeds the fantasy that one can pursue economic advantage with no thought of the damage it might do; the invisible hand will take care of everything. Polanyi is difficult and complex and subtle and pricks a hole in the fantasy. Polanyi reminds us that economics has to be tempered by our values as a whole, that we cannot be reduced to economic animals. My fantasy--or is it a hope?--is that we as a society will come to care more for the welfare of the majority more than the welfare of the few. I would love to see a world in which our highest values did not have a price put upon them.
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