[ xxii ]
Introduction
Polanyi's Argument: Structure and Theory
The Great Transformation is organized into three parts. Parts One
and Three focus on the immediate circumstances that produced the
First World War, the Great Depression, the rise of fascism in Conti-
nental Europe, the New Deal in the United States, and the first five-
year plan in the Soviet Union. In these introductory and concluding
chapters, Polanyi sets up a puzzle: Why did a prolonged period of rela-
tive peace and prosperity in Europe, lasting from 1815 to 1914, suddenly
give way to a world war followed by an economic collapse? Part Two—
the core of the book—provides Polanyi's solution to the puzzle. Going
back to the English Industrial Revolution, in the first years of the nine-
teenth century, Polanyi shows how English thinkers responded to the
disruptions of early industrialization by developing the theory of
market liberalism, with its core belief that human society should be
subordinated to self-regulating markets. As a result of England's lead-
ing role as "workshop of the world," he explains, these beliefs became
the organizing principle for the world economy. In the second half of
Part Two, chapters 11 through 18, Polanyi argues that market liberalism
produced an inevitable response—concerted efforts to protect society
from the market. These efforts meant that market liberalism could not
work as intended, and the institutions governing the global economy
created increasing tensions within and among nations. Polanyi traces
the collapse of peace that led to World War I and shows the collapse of
economic order that led to the Great Depression to be the direct con-
sequence of attempting to organize the global economy on the basis of
market liberalism. The second "great transformation"—the rise of
fascism—is a result of the first one—the rise of market liberalism.
In making his argument, Polanyi draws on his vast reading of his-
tory, anthropology, and social theory.
8
The Great Transformation has
important things to say on historical events from the fifteenth century
to World War II; it also makes original contributions on topics as di-
verse as the role of reciprocity and redistribution in premodern socie-
ties, the limitations of classical economic thought, and the dangers of
em Economics: Essays of Karl Polyani (1968; reprint, Boston: Beacon Press, 1971); and
Harry W. Pearson, ed., The Livelihood of Man (New York: Academic Press, 1977).
8. For an analysis of some of Polanyi's key sources, see Margaret Somers, "Karl Po-
lanyi's Intellectual Legacy," in Kari Polanyi Levitt, ed., Life and Work of Karl Polanyi
(Montreal: BlackRose Press, 1990), pp. 152-58.
Introduction [ xxiii ]
commodifying nature. Many contemporary social scientists—an-
thropologists, political scientists, sociologists, historians, and econo-
mists—have found theoretical inspiration from Polanyi's arguments.
Today a growing number of books and articles are framed around key
quotations from The Great Transformation.
Because of the very richness of this book, it is futile to try to sum-
marize it; the best that can be done here is to elaborate some of the
main strands of Polanyi's argument. But doing this first requires rec-
ognizing the originality of his theoretical position. Polanyi does not fit
easily into standard mappings of the political landscape; although he
agreed with much of Keynes's critique of market liberalism, he was
hardly a Keynesian. He identified throughout his life as a socialist, but
he had profound differences with economic determinism of all vari-
eties, including mainstream Marxism.
9
His very definition of capital-
ism and socialism diverges from customary understandings of those
concepts.
POLANYI'S CONCEPT OF EMBEDDEDNESS
The logical starting point for explaining Polanyi's thinking is his
concept of embeddedness. Perhaps his most famous contribution to
social thought, this concept has also been a source of enormous confu-
sion. Polanyi starts by emphasizing that the entire tradition of modern
economic thought, continuing up to the present moment, rests on the
concept of the economy as an interlocking system of markets that au-
tomatically adjusts supply and demand through the price mechanism.
Even when economists acknowledge that the market system some-
times need help from government to overcome market failure, they
still rely on this concept of the economy as an equilibrating system of
integrated markets. Polanyi's intent is to show how sharply this con-
cept differs from the reality of human societies throughout recorded
human history. Before the nineteenth century, he insists, the human
economy was always embedded in society.
The term "embeddedness" expresses the idea that the economy is
9. Polanyi's relationship to Marxism is one of the most complex and debated issues
in the literature. See Mendell and Polanyi Levitt, "Karl Polanyi—His Life and Times";
Fred Block and Margaret Somers, "Beyond the Economistic Fallacy: The Holistic So-
cial Science of Karl Polanyi," in Theda Skocpol, ed., Vision and Method in Historical So-
ciology (Cambridge: Cambridge University Press, 1984), pp. 47-84; Rhoda H. Haperin,
Cultural Economies: Past and Present (Austin: University of Texas Press, 1994).
[ xxiv ]
Introduction
not autonomous, as it must be in economic theory, but subordinated
to politics, religion, and social relations.
10
Polanyi's use of the term
suggests more than the now familiar idea that market transactions de-
pend on trust, mutual understanding, and legal enforcement of con-
tracts. He uses the concept to highlight how radical a break the classi-
cal economists, especially Malthus and Ricardo, made with previous
thinkers. Instead of the historically normal pattern of subordinating
the economy to society, their system of self-regulating markets re-
quired subordinating society to the logic of the market: He writes in
Part One: "Ultimately that is why the control of the economic system
by the market is of overwhelming consequence to the whole organiza-
tion of society: it means no less than the running of society as an ad-
junct to the market. Instead of economy being embedded in social re-
lations, social relations are embedded in the economic system." Yet
this and similar passages lend themselves to a misreading of Polanyi's
argument. Polanyi is often mistakenly understood to be saying that
with the rise of capitalism in the nineteenth century, the economy was
successfully disembedded from society and came to dominate it.
11
This misreading obscures the originality and theoretical richness
of Polanyi's argument. Polanyi does say that the classical economists
wanted to create a society in which the economy had been effectively
disembedded, and they encouraged politicians to pursue this objec-
tive. Yet he also insists that they did not and could not achieve this goal.
In fact, Polanyi repeatedly says that the goal of a disembedded, fully
self-regulating market economy is a Utopian project; it is something
that cannot exist. On the opening page of Part One, for example, he
writes: "Our thesis is that the idea of a self-adjusting market implied a
10. Polanyi's concept of embeddedness has been borrowed and elaborated on by
important contemporary scholars, including John Ruggie, "International Regimes,
Transactions, and Change: Embedded Liberalism in the Postwar Economic Order," In-
ternational Organization 36 (spring 1982): 379-415; Mark Granovetter, "Economic Ac-
tion and Social Structure: The Problem of Embeddedness," American Journal of Sociol-
ogy 91 (November 1985): 481-510; and Peter Evans, Embedded Autonomy: States and
Industrial Transformation (Princeton, N.J.: Princeton University Press, 1995). The pre-
cise inspiration for the coinage is not known, but it seems plausible that Polanyi drew
the metaphor from coal mining. In researching English economic history, he read ex-
tensively on the history and technologies of the English mining industry that faced the
task of extracting coal that was embedded in the rock walls of the mine.
11. No less a figure than the great French historian Fernand Braudel reads Polanyi
in this way. See Braudel, Civilization and Capitalism Fifteenth-Eighteenth Century, vol.
2, The Wheels of Commerce, trans. Sian Reynolds (Berkeley: University of California
Press, 1992), pp. 225-29.
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