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216 of 229 people found the following review helpful
5.0 out of 5 stars A masterpiece of economic history that is as relevant as ever sixty years on
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 Some say that it is dated and it is true that many of the historical references are not the ones that would spring to mind today, but the critique of the myth of the self-regulating free market remains as relevant and to-the-point as ever.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...
Published on June 12, 2006 by Robert Moore

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34 of 40 people found the following review helpful
3.0 out of 5 stars Worthwhile read, but skepticism required
Too often these reviews of strongly political books tend to be a referendum on whether readers agree with the author (sometimes regardless of whether the reviewer has actually read the book in question). I'm a marginalist reader: I am much more interested in reading books that have new ideas or entertaining writing style than in reading books that make me think, "Yeah,...
Published on September 17, 2011 by E. Husman


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216 of 229 people found the following review helpful
5.0 out of 5 stars A masterpiece of economic history that is as relevant as ever sixty years on, June 12, 2006
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This review is from: The Great Transformation: The Political and Economic Origins of Our Time (Paperback)
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 Some say that it is dated and it is true that many of the historical references are not the ones that would spring to mind today, but the critique of the myth of the self-regulating free market remains as relevant and to-the-point as ever.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 naďve 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 naďve 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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78 of 81 people found the following review helpful
5.0 out of 5 stars Absolutely Brilliant, January 23, 2005
A Kid's Review
This review is from: The Great Transformation: The Political and Economic Origins of Our Time (Paperback)
Polanyi's The Great Transformation is truly a masterpiece of historical analysis and social theory. Polanyi deftly uses his extensive knowledge of economic history, anthropology, and political theory to demonstrate the failure of "market society" and the myopia of those who believe that the "free" market is the answer to all social ills. He's at his best when he combines his historical analysis of 18th and 19th century capitalism -- an experiment with a free market economy that resulted in the Great Depression and world war -- with anthropological data showing that there is no innate human propensity to engage in trade or accumulate wealth at the expense of others. Conservatives and libertarians hate this book because it thoroughly undermines their claims that markets are natural, spontaneous, and reflect the uncoerced interaction of free agents; the reviewer below who gave it 1 star is a case in point (he argues that "Polanyi fails to understand the essential nature of a free market, voluntary trade for mutual benefit," but the problem isn't that Polanyi doesn't understand such a concept but rather that he shows it isn't true). Other critics like to misrepresent Polanyi's arguments and paint him as a Marxist, a romantic, or an opponent of modernity; in reality, he was merely pointing out how devastating it is when every aspect of human life is left up to the market, with its cold logic of efficiency.

The Great Transformation is an exceptionally lucid and well-researched study that should be required reading for anyone interested in economics, social theory, political history, or international relations. Some reviewers have suggested that the book is outdated, but anyone interested in the current debates surrounding free trade, the IMF/World Bank, or Social Security privatization would be wise to pick up a copy of this fascinating book.
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22 of 24 people found the following review helpful
5.0 out of 5 stars a stark utopia indeed, September 30, 2008
This review is from: The Great Transformation: The Political and Economic Origins of Our Time (Paperback)
"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." (p. 3)

As one can see from possibly the most famous Polanyi quote, "The Great Transformation" is about the market and its consequences. This book is not an easy read; as Joseph Stiglitz acknowledges in his Foreword, it certainly has accessibility issues due to its language, certain details in its reasoning and the background knowledge it assumes on the part of the reader. However, I can only give this book five stars because of two great ideas it develops.

The first one is that the market economy is a fairly recent social construct. For most of human history, markets did not play a major role in economic organization; the "natural propensity to truck and barter" attributed to human beings by Adam Smith is actually apocryphal, as shown in Polanyi's discussion of early societies (p. 45). Polanyi describes in great detail the rise of the market society - the development of national markets, the slow move toward a free labor market and all the legislation that accompanied it. When seen in this perspective, the failure of shock therapy in Russia makes perfect sense: the market is in no way the natural state and it needs extensive institutional infrastructure to function properly (see "Globalization and its Discontents" by Joseph Stiglitz for more on this).

The second major idea here is the idea of double movement. It says that in society there are two main opposing forces working against each other. One is a market liberal force which pushes in the direction of the self-regulating market, the other is a reaction that develops due to the immense costs and pain imposed by the market. If the current financial crisis in the US leads to more regulation of finance, in Polanyian terms it will be a reaction to the unsustainable costs imposed by deregulation of finance. The interesting part about this idea of the double movement is that it essentially turns Hayekian spontaneous order on its head. For Hayek, the market society is a spontaneous outcome due to inherent human propensities while the state is a parasite that tries to suppress the expression of the human nature with interventionist meddling. For Polanyi, "Laissez-faire was planned; planning was not", i.e. the market society arose through deliberate state action, whereas the reaction in the opposite direction was spontaneous (p. 147).

Polanyi traces the changes in the international system to the market and covers the ideological developments behind the self-regulating market, but you will have to see for yourself. Once again, this book is a hard read, especially if you are just trying to educate yourself and do not have anyone to clarify the intricacies. However, the Foreword by Joseph Stiglitz and the Introduction by Fred Block are both quite helpful. "The Great Transformation" is rightly considered a heterodox classic and if you are interested in a different take on the market economy, do yourself a favor and pick this up!
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34 of 40 people found the following review helpful
3.0 out of 5 stars Worthwhile read, but skepticism required, September 17, 2011
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This review is from: The Great Transformation: The Political and Economic Origins of Our Time (Paperback)
Too often these reviews of strongly political books tend to be a referendum on whether readers agree with the author (sometimes regardless of whether the reviewer has actually read the book in question). I'm a marginalist reader: I am much more interested in reading books that have new ideas or entertaining writing style than in reading books that make me think, "Yeah, I've heard that and I agree with it." For this book, I'm torn between offering 4 stars for the essential truth and force of the argument and 2 stars for the errors and laziness, so I split the difference. I am open to reasonable arguments to bring it up to 4 stars. Let me start with what I think Polanyi got wrong:

With respect to the puzzle of 19th century peace that Polanyi set up at the beginning, he doesn't even mention the defining open to the century, chiefly that it started with twin revolutions followed by Napoleon's rampage through the capitals and treasuries of Europe, nor does he mention the distraction by its crumbling empire of the remaining power, Great Britain. Leaving out salient and potentially exculpatory points like this is characteristic of much of the book.

For example, in discussing the desirability of embeddedism and gift economy in primitive tribes, Polanyi also leaves out the problems of bare subsistence and cannibalism embedded in those same tribes. (Aside: Murray Rothbard's review of the book places so much emphasis on this unfortunate reference to primitivism that one might think from the review that this was a central theme; it is not, and Rothbard's review -- which he never published during his life -- is dismissable as caricature. Rothbard does make the valid point that Polanyi is comparing apples and oranges when he compares contemporary primitives to ancestors of the Western European civilization; it is possible that they did not progress precisely because of key differences.) Polanyi makes his claims about embeddedness as a means of denying Adam Smith's assertion that trade and barter are human nature. Given that chimpanzees are known to trade meat for sex, and that more sophisticated trading would naturally arise from trying to rise above subsistence, this just seems quixotic. Polanyi takes this denial further and implies that trade for gain was unknown before the 19th century. Having just finished Pacey's Technology in World Civilization: A Thousand-Year History and Wickham's The Inheritance of Rome: Illuminating the Dark Ages 400-1000, I find these assertions hard to believe; Polanyi could not have looked very hard for evidence of pre-industrial trade. As to whether the trade that existed was embedded or not, I think Brad Delong is correct to point out that there was never a time when it was wholly embedded nor is it wholly disembedded today.

Polanyi makes a point of denying that there was a concerted conspiracy of unionists, Marxists, etc., who sought to control markets through regulation (correctly, I believe). However, he assumes that the capitalists, landowners, and liberals were all in lockstep over the creation of the liberal society. He does this by using passive voice, such as "Laissez-faire was planned; planning was not." Planned ... by whom? The England of Speenhamland was still in the control of the landed aristocracy, less so by merchants, and much less so by the manufacturers who required the creation of the free labor market which the government created with the Enclosure Acts and Speenhamland. Belief that these classes all conspired together to drive cheap labor off the farm and into the factory towns (which didn't yet exist) requires its own conspiracy theory.

One of the more frustrating aspects of the book is the use of glittering generalities and unsupported assertions. Very few of Polanyi's statements are testable; his claim that Speenhamland drove productivity down is an exception, and it turns out to be wrong. The research of Blaug and Baugh (An Economic History of the English Poor Law, 1750-1850), as well as Clark's A Farewell to Alms: A Brief Economic History of the World (Princeton Economic History of the Western World), find that agrarian labor productivity in England rose during that period. I think it ultimately matters little to his overall program that Polanyi expends so much effort to argue from factually mistaken premises.

What does matter, to me, is his unfortunate tendency to overlook what appears to be a natural question to ask. Throughout the book, he argues that laissez-faire markets result in complete and utter disaster which had to then be corrected by means of state intervention. He frequently also argues, sometimes on the same page, that there was never really any such thing as laissez-faire because of the success of the aforementioned conspiracy of liberal planners in using the state to bring about the conditions for their markets. Why does he arbitrarily cut his analysis off *after* the intervention? The argument takes this form of non sequitur: "X caused Y which had to be addressed by Z; but X never really existed, it was only brought about by the previous use of Z. Therefore X is the root of all evil and Z is everywhere a blessing." You could just as easily turn his core argument on his head and argue that markets reacted to prevent state interventions from tearing apart the fabric of society. Had he pursued that question, he might have discovered the "Baptist-Bootlegger" connection that Gabriel Kolko documented in his books Railroads and Regulation: 1877-1916 and Triumph of Conservatism.

At the end of the book, after Polanyi repeatedly criticizes Bentham, it was shocking to see him use utilitarianism to justify redistribution (he argues that the reduction of freedom among the elite will be more than compensated by the increase in security and leisure utility among the non-elite); not that I think the trade-off would be unjust, but just that these are the same principles that underlie the entire program which offended him. Was he aware of the irony? He also expends a paragraph or two to wave off potential objections about the possibility of minority oppression that might arise in a totalitarian democratic society with a deontological appeal to ill-defined but inviolable rights. Utilitarianism and natural rights will save us from utilitarianism and natural rights? Unlikely.

So what does he get right? First, I agree with the premise that existing capitalism is disruptive of social organization. Since I have access to plenty of much closer argued, much better documented stories of how this occurs (see Diana Davis' Resurrecting the Granary of Rome: Environmental History and French Colonial Expansion in North Africa (Ecology & History) for an example), I have little reason to doubt this aspect of Polanyi's narrative.

Second, many societies do indeed successfully use the government to redistribute. I wish Polanyi had been quicker to question the authoritarian basis for some of his examples, many of which come across as either a defense of noblesse oblige or apologies for Stalinism (with the benefit of hindsight, I think I could convince Polanyi that this was just another variant of fascism). But since Polanyi's day, we have the evidence, such as it is, that the social democracies in Europe are doing just fine.

To conclude, this book was interesting for the narrative with which Polanyi brings together the enclosure and fictitious commodity arguments, Poor Laws, the effect of the gold standard on domestic policy and international relations. In many ways, he has updated the German Historical School agenda to the 20th century. But I wished that he had asked just a few more questions instead of finding just enough to support his core argument.
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8 of 8 people found the following review helpful
5.0 out of 5 stars When and where economics went wrong, May 18, 2009
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This review is from: The Great Transformation: The Political and Economic Origins of Our Time (Paperback)
This is one of those books that can provide an epiphany to the reader -- but not very many American readers have even heard of it, unfortunately. That could be due to it's being a book primarily about English economic history, with assumptions that the reader is familiar to some extent with things like the Poor Laws and Tory socialism. But I wasn't, and was still able to glean some great insights from the work. That could be because Polanyi is not afraid of repetition. :-)

A key insight, and the one that could be summed up as the theme of the book, is Polanyi's realization that prior to about 1830, the market and the economy were considered part of society. That is, economic activity was something that people did along with everything else they did, like engage in social/familial relationships, religious rituals, etc. But with the 1830s came a paradigm shift: the advent of rational capitalism. Now, the market was considered an entity by itself, outside of society. This market entity was viewed as governed by universal laws. Like laws of physics, these market laws were independent of culture, independent of social group, independent of time period, and, in fact, independent of human behavior. While any observer of human nature would say that people often make decisions for emotional reasons -- and modern neurological research shows that virtually every decision we make is a combination of the rational and the emotional -- these market laws assumed only rational behavior on the part of economic actors.

Though Polanyi doesn't mention it, it's now easy to see how Alfred Marshall could get carried away with creating a mathematical foundation for microeconomics and how Leon Walras could, reportedly, say that if something couldn't be studied mathematically, it wasn't worth studying. There's no current way to model emotions with math, and so the Ricardian prototype of an emotion-less economics continues into the modern economics of today.

These universal market laws frees the market from any social constraints. A number of modern neo-classical economists assert that this makes economics purely amoral, i.e., without regard for any ethics. Therefore any attempts by the public, by politicians, or by workers to add ethics to the market is an interference with pure market workings, which, according to their interpretation of Adam Smith's "invisible hand", will produce optimal results if just left alone. But Smith never said that, and in fact rational capitalism, in elevating greed and selfishness to the status of goals -- see the Ayn Rand work "The Virtue Of Selfishness" -- is, IMO, not amoral at all, but rather is a morality of its own.

Anyway, back to Polanyi's insights. Another key one is the concept of a "double movement" in 19th century England. Each move to create a purer market created an ad-hoc counter move. E.g., Ricardian free trade was faced with opposition from workers losing their jobs and local firms losing business Americans can easily think of another example: where the employment of children (eventually) led to laws restricting that employment, simply because human beings have too much of a sympathetic nature to sit still for children losing limbs in the dangerous factories and mines of the time. Polanyi notes that capitalists often blame these anti-capitalist laws on planned activity by socialist anti-market groups, but he says they're actually the result of the recognition by the general public that they don't want to live under a pure market system.

Yet another good insight is Polanyi's recognition that market laws treat labor, land, and money as commodities. We can see that today, where neo-classical economists assert that the law of supply and demand should apply to workers as it applies to anything else in the economy. That is, if there's a surplus of workers in one area and a shortage in another, supply and demand dictates the flow of workers from the one area to the other. But a laid-off textile worker in South Carolina is not going to move to China for a job. That's my own example, but Polanyi offers his own from modern English history.

The book isn't perfect. Polanyi does have a tendency to generalize, a common failing among authors, IMO. E.g., in discussing the rise of fascism in the 1930s, he's on very shaky ground when he starts talking about the US or about Russian policy intentions during that period.

I gave The Great Transformation 5 stars because, even with its faults, the reader will be thinking about Polanyi's insights for some time to come. I am.
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12 of 14 people found the following review helpful
5.0 out of 5 stars Polanyi and US, July 1, 2012
This review is from: The Great Transformation: The Political and Economic Origins of Our Time (Paperback)
Karl Polanyi is a well-known figure in a relatively small circle of economic historians and sociologists, but he is not widely known to the general public in the United States. That is a great shame, because his epochal book, The Great Transformation, is a singular effort at systematic dismantling of an illusion that is still very widespread: the illusion that there ever could or should be a "free market".

His goal couldn't be clearer. He announces it on page one of The Great Transformation:

Our goal 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. Inevitably, society took measures to protect itself, but whatever measures it took impaired the self-regulation of the market, disorganized industrial life, and thus endangered society in yet another way. It was this dilemma which forced the development of the market system into a definite groove and finally disrupted the social organization based upon it.

So we have here, at the beginning of the The Great Transformation, the famous double movement. On the one hand, the idea of a self-contained market released forces that tore late feudal England apart and precipitated a necessary backlash. On the other, these necessary responses by society to protect itself from the predations of the market resulted in distortions that led to its collapse in the aftermath of the Great War.

Polanyi's book traces the history of the rise of industrial civilization in England from 1795 through the Great Depression. The book was written during World War II, but it remains as important as ever to us since the "Reagan / Thatcher Revolution" has resurrected the illusions of an earlier age of naive worship of the free market. Now that we are in the midst of our Great Recession, perhaps we are in a better position to appreciate his comprehensive critique of liberal economic theory, the theory of laisser-faire that arose in the nineteenth century with David Ricardo and subsequent thinkers. It would be fair to say that the entire "science" of economics is founded upon the illusions that Polanyi exposes, since his principal thesis is that economic life is not the base of human society but "embedded" in it.

Polanyi's critique is as applicable to the Marxist as the Liberal tradition to the extent that Marx took over from Ricardo the notion that economic life is primary to society and not the other way round, as Polanyi insisted. Polanyi's thesis is based not on a Keynesian or Marxist critique of capitalism, but on a more profoundly basic analysis of the very idea of a self-regulating market; the idea (illusion) developed by the founders of the Liberal school: Ricardo, Malthus, Burke, and Mill. One of its offshoots is the libertarian tradition, which in the United States is essentially coeval with the tradition of the Austrian school in economics.

We may date the start of the libertarian tradition to Austrian economic thinkers in the nineteenth century, but it has continued to have great influence in our time though the idolization of such writers as Ayn Rand and Friedrich A. Hayek by contemporary libertarians such as Ron Paul. Maggie Thatcher once pointed to a copy of Hayek's Constitution of Liberty and said "This is what we believe." And what they believe, the reality and desirability of a "free market", is the illusion that Polanyi was trying to dispel.

Polanyi's chief opponent in this contemporary tradition was Hayek's mentor Ludwig von Mises, with whom Polanyi exchanged a series of articles in the early 1920s in the prestigious German journal, Archiv für Sozialwissenschaft und Sozialpolitik on the subject of "socialist accounting." Von Mises insisted that without markets, there are no prices and without private property, nobody has any incentive to use capital goods efficiently. Von Mises' arguments were directed not just at Polanyi, but against Otto Neurath, who had proposed a centrally planned economy. Polanyi accepted von Mises's arguments against a planned economy, but did not accept the assumptions of both the Austrian version of the Liberal school and the Marxists that socialism must be exclusively centrally planned. In this emphasis Polanyi was harkening back to the guild socialism of Robert Owen in the nineteenth century. He didn't challenge the institution of wage labor, but the elements of capitalism that are so visible to us today: income inequality, insecurity of employment, and the tendency to periodic crises and unemployment. Polanyi's arguments in the "socialist accounting" debates with von Mises emphasized the protections that society needs against a pervasive market-based economy in which everything is for sale.

Just as in a profit economy one must separate the profitable parts of capital from the unprofitable ones, the socialist economy has to distinguish the sacrifices of labour and land, which are caused by "nature" from those that are due to society. (Translated from Polanyi's German by Peter Rosner in "Karl Polanyi on Socialist Accounting" in the compendium, The Life and Work of Karl Polanyi, edited by Kari Polanyi-Levitt.)

These arguments against von Mises were to be more fully developed in The Great Transformation twenty years later.

The Three Great Fictions

In the work for which he is best known, Polanyi identifies what he calls three great fictions upon which the illusion of the self-regulating market is based. These great fictions are that labor, land, and money are commodities. He says,

The crucial point is this: land, labor, and money are essential elements of industry; they also must be organized in markets; in fact, these markets form an absolutely vital part of the economic system. But labor, land, and money are obviously not commodities; the postulate that anything that is bought and sold must have been produced for sale is emphatically untrue in regard to them. In other words, according to the empirical definition of a commodity they are not commodities. Labor is only another name for a human activity which goes with life itself, which in its turn is not produced for sale but for entirely different reasons, nor can that activity be detached from the rest of life, be stored or mobilized; land is only another name for nature, which is not produced by man; actual money, finally, is merely a token of purchasing power, as a rule, is not produced at all, but comes into being through the mechanism of banking or state finance. None of them is produced for sale. The commodity description of labor, land, and money is entirely fictitious. (from The Great Transformation, Chapter Six, "The Self-regulating Market and the Fictitious Commodities")

This is a famous passage in The Great Transformation. What exactly does it mean? Who says that land, labor, and money are commodities, anyway? That is a question that is not so easy to answer. The word commodity apparently derives from the Latin verb commodo: 1) to make fit, adapt, accommodate; Pliny 2) to adapt oneself to suit another person, to please, oblige, serve. (Cassell's Latin Dictionary, 1959).

Aristotle doesn't talk about commodities. He talks about necessaries (''''''''') of life, "for no man can live well, or indeed live at all, unless he is provided with necessaries." (Politics, 253b25). Adam Smith starts out the introduction to The Wealth of Nations in the same way: "The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniences of life which it annually consumes, and which consist either in the immediate produce of that labour, or in what is purchased with that produce from other nations." Smith's first mention of the word commodity is in Chapter IV, "Of the Origin and Use of Money", where he says, "One man, we shall suppose, has more of a certain commodity than he himself has occasion for, while another has less."

Ricardo likewise starts out The Principles of Political Economy and Taxation in Chapter 1 with the words, "The value of a commodity, or the quantity of any other commodity for which it will exchange, depends on the relative quantity of labour which is necessary for its production, and not the greater or less compensation which is paid for that labor." He goes on to say "Possessing utility, commodities derive their exchangeable value from two sources: from their scarcity, and from the quantity of labour required to obtain them."

The first chapter of Marx's Capital, Volume I, is entitled "Commodities". He quotes himself from the Critique of Political Economy, to the effect that "The wealth of those societies in which the capitalist mode of production prevails, presents itself as "an immense accumulation of commodities", its unit being a single commodity. Our investigation must therefore begin with the analysis of commodities." And what are commodities, according to Marx? He says "A commodity is, in the first place, an object outside us, a thing that by its properties satisfies human wants of some sort or another."

But it is not just the classical economists who treat commodities as objects. Marshall, who is one of the founders of the marginal utility school of economics, doesn't bother to define the word. His first mention of the word in his Principles of Economics is in the Preface to the Eighth Edition, where he says "Thus we begin by isolating the primary relations of supply, demand and price in regard to a particular commodity. " Other references in the Principles are similar. Marshall also uses the term "goods" to represent the objects of production: "In the absence of any short term in common use to represent all desirable things, or things that satisfy human wants, we may use the term Goods for that purpose." It is important to note that Marshall considers economics from a broader social perspective than many of his peers. He says that "Economics is a study of men as they live and move and think in the ordinary business of life." In this sense, Marshall's attitude is more in tune with that of Polanyi, than Ricardo or Marx.

To finish off this search for use of the word commodity in the literature of economics we turn to contemporary textbook, Microeconomics, by Paul Krugman and Robin Wells, where the word commodity is not used until page 331 and then as follows: "Contrast this with the case of a standardized product, which is a product that consumers regard as the same good even when it comes from different producers, sometimes known as a commodity."

So the word commodity is understood by all of these authors as an object, produced in the course of productive society. Ricardo in his Principles doesn't bother to define the word, but assumes that the reader knows what he is referring to. It is implied that this is an object, which has obtained value. But Ricardo also says elsewhere that "the natural price of all commodities, excepting raw produce and labour (my emphasis), has a tendency to fall in the progress of wealth and population." (Quoted in Blaug, Ricardian Economics, Chapter 2). Here we have an indication of Polanyi's concern: that to the extent that economics isolates on the elements of human life that are for sale, human beings are reduced to an object, a commodity. Again, his emphasis is that these elements are not primary, but secondary elements of the life of men and women in society.

Polanyi provides in Chapters 4 and 5 of The Great Transformation an analysis from the anthropological literature (primarily by Malinowski and Thurnwald) in which he debunks the preoccupation of most economic writers since Adam Smith to focus primarily (if not exclusively) on Economic Man operating in a market. His discussion of the cultures described by the anthropologists is meant to point to "pre-market" worlds of gift exchange and to deny the assumption of the post-Smith economists that markets are "natural". He quotes Thurnwald's "colorless" passage, "Markets are not found everywhere; their absence, while indicating a certain isolation and a tendency to seclusion, is not associated with any particular development any more than can be inferred from their presence."

This emphasis on the artificiality of market exchange was to be the primary target of a libertarian critic, Murray Rothbard, who dismissed The Great Transformation (in Down With Primitivism: A Thorough Critique of Polanyi) as "a farrago of confusions, absurdities, fallacies, and distorted attacks on the free market." While Rothbard makes these declarations categorically, he gives no indication of having read more than the first few chapters of the book presumably under review, which he declares infected with "Modern Rousseauism." Rothbard evidently didn't get to the last chapter of The Great Transformation, as he says, "Polanyi somehow overlooks probably the single most important aspect of this system: freedom. " Nothing could be further from the truth (see below). This sneering and embarrassingly undocumented critique is presented on the website of the Ludwig Von Mises Institute (...) with the note "This critique was written as a private memo to the Volker Fund in June 1961. It has never been published." The Institute would have been kinder to the memory of Rothbard if they had left it unpublished.

The Free Market was Planned

While laissez-faire economy was the product of deliberate state action, subsequent restrictions on laissez-faire started in a spontaneous way. Laissez-faire was planned; planning was not. (p. 147)

The core of The Great Transformation lies in Part II, "The Rise and Fall of Market Economy", which provides a history of the industrial revolution in England starting from its prehistory in the Tudor period to the Speenhamland Poor Laws of 1795 and their abolition in 1934, which unleashed economic growth of the age of the "satanic mills" eventually leading to the Great War and Great Depression.

The prehistory of the period starts with the enclosures. Here Polanyi emphasizes the role of government in "altering the rate of change, speeding it up or slowing it down as the case may be . . ." He emphasizes the role of the Tudor and Stuart monarchies in slowing down the process of conversion of arable land to pasture for sheep grazing, which was required to supply the woolen industry which cleared the way for the cotton industry, the "vehicle of the Industrial Revolution." He recognizes this as a trend of economic progress, but one which would have had much more ruinous social consequences but for the brakes put to it by the Crown in the Tudor and Stuart era. He insists that the reality of economic progress be seen in the context of the ruinous disruption of community that it ushered in. And this ruinous impact was not necessarily the result of mechanization, but rather the form of productive organization within which it occurred. It was the result of the "idea of the self-regulating market system."

He sees the Speenhamland Poor Law reform in a similar light to the Tudor reaction to enclosures: as slowing the process of social change brought on by the machine age and permitting a more gradual reaction to it. The Speenhamland Law of 1795 is given a separate chapter in Part II. He gives the story of the justices meeting in the Pelican Inn in Speenhamland, near Newbury in Berkshire on May 6, 1795. The decision by the justices in Berkshire coincided with the loosening of the Act of Settlement from 1662, which had established the rules of parish serfdom. With relaxation of these rules, a national labor force could have been established to provide the hands needed to work the mills of the cities. The Speenhamland Law, although a local ruling, became implemented throughout the countryside. It established a subsidy in addition to wages to provide for a minimum living standard, indexed to the price of bread. This "outside relief" was a new feature in England. Under the Elizabethan Law the poor could get no relief unless they could get no work, and in this case were confined to workhouses. Polanyi points out that the effect of the new law cut both ways for the worker. While it ameliorated the harshness of life under the Elizabethan Law it had the effect of reducing the common wage to that of the pauper, since employers knew that however little they paid, the subsidy from the parish brought the wage up to a minimum level. Little by little, the people of the countryside were pauperized.

Mark Blaug's comment on this from his paper, "The Myth of the Old Poor Law and the Making of the New" (1964) is pertinent:

No matter which authority we consult on the English Poor Laws in the nineteenth century the same conclusions emerge: the Old Poor Law (the Speenhamland Law) demoralized the working class, promoted population growth, lowered wages, reduced rents, destroyed yeomanry, and compounded the burden on ratepayers; the more the Old Poor Law relieved poverty, the more it encouraged the poverty which it relieved; the problem of devising an efficient public relief system was finally solved with the passage of the "harsh but salutary" Poor Law Amendment Act of 1834. So unanimous are both the indictment and the verdict of historians on this question that we may forego the pleasure of citing "chapter and verse.

In spite of this universality of opinion that the Speenhamland Law resulted in depression of wages, Blaug goes on to point out that average wages throughout England and Wales from the period from 1795 through 1833 (the year before the Poor Law Reform) actually increased by at least 25% and only after that dropped precipitously by 1850 back to near to the levels that had been seen in the beginning of the period. Blaug writes, "We can hardly resist the conclusion that the parish officers only had recourse to the policy of subsidizing wages wherever the attraction of urban industry made itself felt too weakly, leaving a pool of surplus manpower and substandard wages." He also says, "Nor is the alleged decline in the efficiency of agricultural workers under the influence of the Old Poor Law discernible in statistics on production" and " . . . hardly any of the dire effects ascribed to the Old Poor Law stand up in the light of available empirical knowledge." Blaug concludes, "The Old Poor Law, with its use of outdoor relief to assist the under-paid and to relieve the unemployed was, in essence, a device for dealing with the problem of surplus labor in the lagging rural sector of a rapidly expanding but still underdeveloped economy." So, according to Blaug, even Polanyi was taken in by the Liberal gospel that the Speenhamland Law was a bane to the average worker.

Polanyi makes the point that, even in a period with vigorous long-term growth, an industrial economy such as the capitalistic system with which we are familiar suffers periodic bouts of depression in which a substantial portion of the work force is driven into unemployment. We know from analysis of recent downturns in the "business cycle" that the return of employment after a downturn is never as fast as the acceleration in output that follows during the upturn and usually not up to the level of previous employment. This is explained by neoliberal economists as "productivity growth". But the benefits of this increase in "productivity" invariably return to the few and not to the many. The result is long-term impoverishment for the majority of the population and gradual growth in societal inequality, all other things being equal. This has certainly been the experience of the United States in the last 30 years with the gradual dismantling of the regulatory structure implemented during the New Deal. Under these circumstances an increase in the need for income supplement to larger and larger numbers of the society should be seen not as an indication of the sloth induced in the "lower classes" by government welfare measures, but as a necessary measure by society to respond to the failure of the market system.

The quote with which this section began summarizes Polanyi's rebuttal to the liberal argument that the protections that occurred in England in the 1870s and 1880s were part of an anti-liberal conspiracy and that, but for this conspiracy, the self-regulated market would have worked just fine. His arguments are convincing to this reader: 1) There was wide diversity in the protections. They didn't come from one source and were implemented in many ways as illustrated below. 2) The change from liberal to "collectivist" often occurred very quickly. 3) Similar reforms were implemented in many countries by governments of different persuasions; socialist, liberal, and conservative. 4) Many of the activists in anti-liberal legislation, like Lloyd George and Teddy Roosevelt, were liberals themselves. Taken together these arguments make Polanyi's conclusion convincing: "Thus nothing could be more decisive than the evidence of history as to which of the two contending interpretations of the double movement was correct: that of the economic liberal who maintained that his policy never had a chance, but was strangled by shortsighted trade unionists, Marxist intellectuals, greedy manufacturers, and reactionary landlords; or that of his critics, who can point to the universal "collectivist" reaction against the expansion of the market economy in the second half of the nineteenth century as conclusive proof of the peril to society inherent in the utopian principle of a self-regulating market." I vote for the critics, including Polanyi.

The Free Market Could not be Free

A key contention of The Great Transformation is that the reaction of society to protect itself from the predations of the newly created nineteenth century market economy was wholly justified and necessary. It is probably sufficient to make Polanyi's point to list the interventions against which Herbert Spencer complained in 1884 (in The Man versus the State), charging liberals with having deserted their principles for the sake of "restrictive legislation." These protections we now take for granted and would consider their removal a horror:

The authority to provide "analysts of food and drink to be paid out of local rates"
An act providing for "inspection of gas works"
An extension of the Mines Act "making it penal to employ boys under twelve not attending schools and unable to read and write"
In 1861, the power to "poor law guardians to enforce vaccination"
Local boards authorized "to fix rates of hire for means of conveyance"
Certain locally formed bodies "had given them powers of taxing the locality for rural drainage and irrigation works, and for supplying water to cattle"
In 1862 and act making illegal "a coal mine with a single shaft"
An act giving the Council of Medical Education exclusive right "to furnish a Pharmacopoeia, the price of which is to be fixed by the Treasury"
"Extension of compulsory vaccination to Scotland and Ireland."
An act appointing inspectors for the "wholesomeness, or unwholesomeness of food"
A Chimney-Sweepers Act, to prevent the torture and eventual death of children set to sweep too narrow slots
A Contagious Diseases Act
A Public Libraries Act, giving local powers "by which a majority can tax a minority for their books.

Spencer calls these "measures of coercive rule" (The Man versus the State, page 15). Liberals like Spencer in the nineteenth century railed against these measures by the public authorities as "irrefutable evidence of an anti-liberal conspiracy." We hear echo of this conspiracy theory in the ranting of libertarians like Ron Paul in our own time. The libertarian drum beat has been continuous since Spencer's time. For Polanyi, however, these acts by the public authorities in the nineteenth century are prima facie evidence of the need of society for protection against the market forces that had been created. The fact that none of these acts strikes most of us today as anything but the "price of civilization" is for this reader sufficient evidence that Polanyi was right about this and Spencer and current day libertarians profoundly wrong.

The Gold Standard

Polanyi saw the international gold standard as the third among illusions holding up the Liberal mindset. His chief complaint is a profound one: reliance on an invariable standard tied to reserves of gold means that the general standard of living in an individual nation must automatically adjust to its balance of payments, which can vary for many reasons and vary quite precipitously, leaving a country with a 20 to 50 percent drop in its standard of living within a very short time. This "cross of gold" is a burden that in the history of the international gold standard has been one that no country could bear for very long. The modern gold standard began in England in 1821 and held sway through the nineteenth century. It was abandoned with the Great War, revived again in the twenties, and then abandoned again after the 1929 crash. The post-Bretton Woods peg of the US dollar to gold was attempted again, only to disappear again when the French sent a warship to the US to redeem their dollars, leading Nixon to exit from the gold peg of the Bretton Woods system, to which we have not returned.

Robert Owen

If there is a hero in The Great Transformation, it is Robert Owen. As a late nineteenth century industrialist, Owen saw the true nature of the Industrial Revolution with clarity which Townsend, Ricardo, Malthus, Bentham, and Burke lacked. Polanyi quotes Owen as follows: "The general diffusion of manufactures throughout a country generates a new character in its inhabitants; and as this character is formed upon a principle quite unfavourable to individual or general happiness, it will produce the most lamentable and permanent evils, unless its tendency be counteracted by legislative interference and direction." It was not just mechanization of production, but its organization into a system based on gain and profit which destroyed the traditional character of human society.

As an atheist, Owen also saw the danger in Christianity's focus on "individualization," as Polanyi says, "fixing the responsibility for character on the individual himself, thus denying, to Owen's mind, the reality of society and its all-powerful formative influence on character." Owen saw the tendency towards narcissism that is so prevalent in the libertarian outlook today: "Should any of the causes of evil be irremovable by the new powers which men are about to acquire," Owen wrote, "they will know that they are necessary and unavoidable evils; and childish unavailing complaints will cease to be made." We know now that the childish complaints continue in the ranting of Ron Paul and similar ideologues in America today. Polanyi says of Owen, "His socialism, one might say, was based on a reform of human consciousness through the recognition of the reality of society." The same, of course, could be said of Polanyi.

Freedom in a Complex Society

The last chapter of The Great Transformation addresses the crucial question of how to maintain freedom in an industrialized society. Here Polanyi picks up his discussion about fascism versus socialism that started in the socialist accounting debates with von Mises and continued in Polanyi's earlier work, "On Fascism?." The fundamental problem with which Polanyi is grappling here is the question of the conflict between power and freedom. Power is required to control and protect society from the predations of the market. How to do that without destroying freedom? The argument is straightforward in that it has been prepared all along, but it is liable to misunderstanding as it hinges on recognition of a contradiction: the illusion that freedom is solely defined as a free market. The Liberal (libertarian) concept of freedom ignores the reality of society. Because of this it had no adequate answer to fascism when it arose out of the ashes of the Great War and Great Depression which demonstrated the failure of the Liberal project. Since liberals ignore the reality of society and the power that it necessitates, they were helpless to defend themselves against the fascist argument in Europe in the thirties.

In this chapter Polanyi tries to imagine a world in which freedom is established by agreement within the very real structure of power within society. Is that so impossible to conceive? Not for Polanyi: "The passing of market-economy can become the beginning of an era of unprecedented freedom. Juridical and actual freedom can be made wider and more general than ever before; regulation and control can achieve freedom not only for the few, but for all. Freedom not as an appurtenance of privilege, tainted at the source, but as a prescriptive right extending far beyond the narrow confines of the political sphere into the intimate organization of society itself. Thus will old freedoms and civic rights be added to the fund of new freedoms generated by leisure and security that industrial society offers to all. Such a society can afford to be both just and free." May it come to pass!

The book ends with consideration of another triplicate: knowledge of the reality of death, of freedom, and of society. All of the world's religions address the first element of the triplicate, each in their own way. Polanyi points out that true acknowledgement of this reality requires resignation, resignation that none of us will live forever on this planet. The various religions provide convenient illusions to forestall this reality. The second is Christianity's contribution to Western man: the discovery of the uniqueness of the individual, as embodied in Jesus of Nazareth. The third revelation is provided by living in industrial society. Here the prophet is Robert Owen. Polanyi ends The Great Transformation with the following: "As long as he ("Man") is true to his task of creating more abundant freedom for all, he need not fear that either power or planning will turn against him and destroy the freedom he is building by their instrumentality. This is the meaning of freedom in a complex society; it gives us all the certainty that we need."
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6 of 7 people found the following review helpful
5.0 out of 5 stars Masterpiece, October 20, 2009
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This review is from: The Great Transformation: The Political and Economic Origins of Our Time (Paperback)
This is undoubtedly Polanyi's finest work, and an example of the highest quality of scholarship available. This analysis of the historically-situated and politically constructed "the socially embedded market" is simultaneously lucid and profound; clear and complex; detailed and sweeping. It provides one with a wonderful model for an interdiscipinary approach to the investigation of social phenomena - it is employs political, economic and sociological concepts within a genuinely historical framework to reveal truths about our modern industrial society that no single discipline could fathom. It is, in short, a masterpiece.

Of particular interest today is his references to the notion of "fictitious commodities" - entities, esp. the natural environment and human beings, which are not produced for sale in a market place, but come to be treated as if they were, leading to them being treated in ways destructively contrary to their natures.
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8 of 10 people found the following review helpful
4.0 out of 5 stars Complementary readings to Polanyi's classic book, June 22, 2009
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This review is from: The Great Transformation: The Political and Economic Origins of Our Time (Paperback)
There are already many good reviews to this book, so I will only suggest reading the following books in addition to Polanyi's work: 1) "Power and Plenty: Trade, War, and the World Economy in the Second Millennium" by Ronald Findlay and Kevin H. O'Rourke; 2) 2.1. and 2.2: "The world economy. A millennial perspective" (2001) plus "The world economy: Historical Statistics" (2003) by Angus Maddison; 3) "The passions and the interests" by Albert Hirschman; 4) "The mind and the market: capitalism in Western thought" by Jerry Muller; and 5) "The Churching Of America, 1776-2005: Winners And Losers In Our Religious Economy" by Roger Finke and Rodney Stark.
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12 of 16 people found the following review helpful
1.0 out of 5 stars The Kindle version is junk once again., September 28, 2013
This is NOT a reflection of the content of this book. I can't wait to read it .. but in print where design is still important.

It seems no effort is made to produce the Kindle epub version. Just throw in text and let the typography fall were it may. The chapter titles are in a smaller font than the text, etc. etc. etc. I will not pay for this lazy effort. With the amount of ebooks Amazon sells it seems they could set some kind of typographical standard. But now I realize that they do just that, its the standard of the lowest common denominator. They can try to blame the publisher, but publishers will do what they require, thus the buck is right back in their pocket.

Amazon, please promote good typography and formatting in your ebooks. Otherwise people might think your priority is to parasitize the public.
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1 of 1 people found the following review helpful
5.0 out of 5 stars Must read for contemporary (and all) times., September 5, 2013
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This review is from: The Great Transformation: The Political and Economic Origins of Our Time (Paperback)
This is a great book. I wonder why we were not taught this in the freshman year, or at least as a counterpoint to Econ101. It opens up the perspective to seeing culture, economics, politics, and technology in an integrated way with an emphasis on social choesion as a unifying fabric for humanity and, looking for the right rate of economic reform. Much of what we do as "development" can in fact be harmful in the long (also short) run if we are not sensitive to the premises Polanyi is alerting us to. This is not counterpoint or counterfactual thesis per se. I am a strong proponent of the market system and also realize that this system is subsumed and must be complementary to the larger, complex social system where things are interconnected. An effective policy can only result from the collective consideration of these together. Polanyi's writing style is clear, direct, and simple and, unlike deeply nomenclature-intense economics write-ups, this book is rather an easy read. When we prescribe/teach The Industrial Revolution as an essential or secondary reading, The Great Transformation should also be a companion reading.
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