Notes on Karl Polanyi's, THE GREAT TRANSFORMATION, Boston, Beacon Press, 1944.

8.2.2011

In this influential book Polanyi argued that in all societies before our Western society emerged after the fifteenth century,

--       the economy was a minor component of society,

--       it operated according to the moral, customary and religious rules governing everything in society,

--       market forces were either not allowed to determine what happened or were subject to strict social control by the general social an moral laws,

--       gain and profit either were not involved or if they were they were not important.  What mattered was sufficiency, subsistence or producing for use, to meet needs,

--       by allowing the market to become separate and free from social control our society has made a serious mistake,  because in time the market destroys society and its environment.

In other words all economies previous to our own were different to ours.  Polanyi discusses in detail the historical changes in thinking and practices that attended the emergence of capitalism.  The central theme is the separation that took place between economy and society, whereby the economy came to be regarded as an arena in which most social rules no longer applied (such as care for others, don't take advantage of others, make sure no one gets more from an exchange than the other…and charging interest is immoral)…an arena in which the only consideration is maximising gain for the individual.

Polanyi argues that this transformation is socially catastrophic; it destroys society and the environment.  He argues that the enormous social turmoil of the late nineteenth century culminating in World Wars 1 and 2, were due to this transformation; i.e., that a society based on the idea of a self-regulating market inevitably leads to chaos.

Followers of Polanyi argue that our current problems are largely due to the themes he elaborated and that we must try to "re-embed" the economy in society; i.e., put it under social control again.  However since he wrote globalization and the neo-liberal ascendancy represent a vast acceleration of the phenomena Polanyi feared.

The following notes illustrate key themes from his book relevant to thinking critically about the economy.

The remarkable gulf between previous economies and ours.

"…previously to our time, no economy has ever existed that, even in principle, was controlled by markets."  43

"While history and anthropology know of various kinds of economies…they know of no economy prior to our own even approximately controlled and regulated by markets."  44

"The outstanding discovery of recent historical and anthropological research is that man's economy, as a rule, is submerged in his social relations.  He does not act so as to safeguard his individual interest in the possession of material goods; he acts to as to safeguard his society standing, his social claims, his social assets." 44

General social rules controlled all behaviour, including what people did in the economy.  "Custom, law, magic and religion cooperated in inducing the individual to comply with rules of behaviour, which, eventually ensured his functioning in the economic system.  55

"Never before our time were markets more than accessories of economic life." 68

Since the stone age there has been a market, but "…its role was no more than incidental to economic life."  43.

The point here is that many social, moral, traditional, religious etc. considerations determined what was to be done regarding production, consumption and  distribution…but in the present economy there is only one consideration, i.e., the maximization of profit for the individual.  Polanyi is arguing that we should "re-embed" the economy in society, i.e., again make sure that economic decisions are made by reference to all relevant social considerations.  In general, many factors should be given more weight than maximization of profit to individuals.

"…the social relationships integrated in the non-economic of society automatically  take care of the economic system…"  55 (The Livelihood of Man).

Margaret Mead describes the complex social rules governing the economy of the Arapesh; including, meat in the house can be eaten by that family if it has been given to them, but if they killed it they must give it to others…"…for to eat one's own kill, even though it might be only a small bird, is a crime to which only the morally … deficient would stoop."  87 (Dalton.)

 "Up to the end of the Middle ages markets played no important part in the economic system."  54

"…markets existed in the sense of places where people met and exchanged goods."  (Stanfield, 97.)

"Neither with the ancients, nor during the early middle ages were the goods of everyday life regularly bought and sold."  180

"…relations…between persons…in these societies are embedded in a broad

network of social and political commitments that do not allow the individual to

maximse his economic advantage…" xxxi (TLOM.)

In the Medieval Catholic world, view "…charity was an explicit social obligation" 68.   The Old Testament revealed "…abhorrence of profit or advantage, derived from any interaction between members of the tribe." 70 (TLOM.)

Polanyi stresses that even after the market became much more important, through the sixteenth century, there was still no concept of a self-regulating market.  That is, it was still taken for granted that the market must be carefully regulated and controlled by society.  The idea of a self-regulating market, i.e., one that didn't need social control, became central only in the 19^th century.

Not until seventeenth century England does the contrary notion of a disembodied  economy  make its abrupt and fateful appearance."10

On the extremely important separation that took place between economy and society…  Previously economic behaviour was governed by general social rules, which controlled eating, laughing, playing going to church.  There was a morally acceptable way to greet another, or enter a building, or exchange products.  But later the way you could behave in the economic realm cam to be seen as quite different, e.g., you could drive a rival into bankruptcy, charge them a nasty and unwarranted price…

In our own time this has gone further; we now have a marketing society; the functioning, rules of society have become the rules previously only confined to the separate market.  That is, we go about most social relations and situations with a marketing mentality, buying and selling to maximize our gain.

At first the economy "…functioned as a by-product of kinship, political and religious obligation."  xii (Dalton.)

"Typically in primitive and early economies land and labour were allocated in accordance with kinship;, political or tribal rights or obligations, and not as commodities to be bought or sold." xiii (Dalton.)

Gain and fear of hunger only came in as economic motives with capitalism.

The destructive nature of the unregulated economy.

"…the self-adjusting market …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 wilderness."  3

"To allow the market mechanism to be the sole director of the fate of human beings and their natural environment…would result in the demolition of society."73

"Pure human greed, left to its own devices, would place no limit on competition…and the result would be a destruction of  both society and environment."  (p. 64 F.B. Lock andM. R. Somers,  "Beyond the Economic Fallacy; The holistic social Science of Kark Polanyi", in T. Scocpol, Ed., Vision and Method in Historical Sociology, Cambridge U. P.,1984.)

"…market economy remakes society, in the process destroying  solidarity and destabilising the substantive economy thereby ultimately threatening  social disintegration." 11   Polanyi evidently didn't realize that others had said this, including Walton Hamilton, Ruskin and Carlyle.

"…the market mechanism tends to destroy society."  120, M. Mendell and D. Salee, Eds., The Legacy of Karl Polanyi, St. Martins, New York, 1991, p.120

Polanyi details the misguided and tragic efforts made to protect against the onslaught or deal with the wreckage, notably the Speenhamland laws.  These were intended to provide relief for the poor, but had devastating effects on their morale and situation.   Yet these laws lasted 40 years and slowed the impact, until inevitably swept away in 1832 by the unstoppable demand for a market system and wages.

Obviously if a market is to determine everything then labour, land and money must become commodities for sale in the market.

Polanyi points out that in a "primitive" society no one is forced to work for wages.  For the African Kaffirs "…destitution is impossible.  Whosoever needs assistance receives it unquestioningly.  No Kwakiutl ever ran the least risk of going hungry."  163.  In almost all societies before the beginning of the sixteenth century there was freedom from want." p. 163.

"…the ideology of economic liberalism…had  become one of the main obstacles to the solution of the problems of our cvilzaation.'"57 BTEF

Polanyi points out that so destructive is the market that even the capitalist needs and gets protection from it!  He details the historical cases where the state has regulated the market heavily, to protect the business class against the dog-eat –dog destruction that a completely free market would quickly cause.  In the first  place the market came in only through a great deal of law passed by parliaments, e.g., enabling enclosures, factories, dreadful conditions and wages, and laws to enable orderly commerce,   Parliaments (obviously controlled by the bourgeoise; workers were consistently prevented from having the vote) passed the laws capitalism required. 

(Comment:  It is the same today; they insist on free markets when it suits them, e.g., on the freedom to invest anywhere with minimal interference, to pay low wages, to shift capital, to get at resources….but they are quick to call for state intervention when it suits them.  For instance all the systems and rules that enable globalization, such as privatization, free trade, World Bank Structural Adjustment Packages, and de-regulation of many activities, have resulted from States passing laws capital wants.)

Polany points out that even Adam Smith recognized the need for the market to be embedded in society, because he assumed that players in the market would operate with a moral sense and seek to gain the approval of others.  (This contradicts the notion of market of course.)  10

Durkheim saw the need for non-contractual factors to be present and respected or contracts would not hold. "…Polanyi saw that market transactions depend on collective goods such as trust and regulation that could not possibly be provided by market processes." 64 (BTEF.)

A self-regulating market, Polanyi wrote, turns human beings and the natural environment into commodities, a situation that ensures the destruction of both society and the natural environment. The free market's assumption that nature and human beings are objects whose worth is determined by the market allows each to be exploited for profit until exhaustion or collapse. A society that no longer recognizes that nature and human life have a sacred dimension, an intrinsic value beyond monetary value, commits collective suicide. Such societies cannibalize themselves until they die. This is what we are undergoing.

Chris Hedges, Zero Point Of Systemic Collapse, Adbusters,  19 March, 2010.

Polanyi rejects the common assumption (also made  by Marx0 that theemergence of the market system was an advance, another step from the primitive economies to the modern world and its economy.  He saw it as a mistake, a  move away from the right arrangement, whereby the economy was under social control.

The distinction between use and gain. 

This is crucial in thinking about economics.  In all previous economies production was undertaken to meet needs, i.e., for use.  Food and goods were not produced to sell to make money, to accumulate wealth. (A very few merchants began to do this, but were more or less despised, and a little trade with the out-group took place, involving rules that did not apply to economic activity within the tribe.)

It is difficult for us now to grasp the significance of the coming of gain as a motive in society.  Polanyi says, "Nineteenth century civilization…chose to base itself on a motive…never before raised to the level of a justification of action and behaviour in everyday life, namely gain."

"…gain and profit made on exchange never before played an important part in human economy."   43

"Gain…never acts as a stimulus to work under the original native conditions." (From Malinowski) 66.

Aristotle got it right…the economic motive should be to gain social status and good will.  "For Aristotle natural exchange is exchange that is oriented towards provisioning of the parties involved."  In the other kind of exchange "…there is no finite limit to the accumulation of wealth…  10  Aristotle didn't think scarcity was an important issue, and should not be the basis for thinking about economics.

In a market economy, "…for the motive of subsistence that of gain just be substituted."  41 Subsistence is not about accumulation, i.e., about getting more than you had.  The market requires that man and nature become commodities, free from any but monetary value.

Economics is not an important problem in a tribe.  The group guarantees that all material needs will be met.  However social life is supremely important; all must respect the codes and do the things required.  This secures all, and gives status and respect.  This situation drives out self-interest.  The priority is on generosity; doing things for others, fulfilling obligations.  Goods are given, and received.  There is mutual obligation.  There is no notion of gain or wealth.

In Melanesian society there is "…the absence of the motive of gain, the absence of the principle of labouring for remuneration, the absence of the principle of least effort, and especially the absence of any separate and distinct institution based on economic motives."  47

Merchants worked for gain.  They were itinerant and could not be "paid" by social status in the towns and villages they passed through.  It made sense that they would trade for money.  They were not respected.

Aristotle saw the major distinction, between production for use and production for gain..  Production for a market involves gain…selling for money, and in order to accumulate money.  Money making goes with the market  "…gain was a motive peculiar to production for the market."  54.  Production should be for use, i.e., to meet needs, not for gain.  When gain becomes the goal, there are no limits.

"Broadly the proposition holds that all economic systems known to us up to the end of feudalism in Western Europe were organized either on the principles of reciprocity or redistribution, or householding or some combination of the three."  55   Among the motives, "…gain was not important."

"The characteristic feature of primitive economies is the absence of any desire to make profits from production or exchange."  Thurnwald, Economics in Primitive Communities, 1932, p. xiii

"Gain…never acts as an impulse to work under the original native conditions."  Malinowski,  Argonaughts of the Western Pacific, 1930, p.  156.

"Nowhere in uninfluenced primitive society do we find labour associated with the idea of payment.", Lowie, Skocal Organisation, Encyclopeda of the Social Sciences, XIV, p. 14  The Middle Age minstrels "…accepted payment, and were consequently despised."  Lowie, op cit.

"To restrict labour to the unavoidable minimum is not natural' to man." 270.

The equality in exchange was referred to by Polanyi as "equivalences".  63  (The Livelihood of Man, K. Polany, 1977.)  So there was no scope for exploitation, for unequal eschange, i.e., for gaining from an exchange.  "Babylonian and Sumerian tablets set out the amounts of barley due to persons of varyng ages and the feed of domestic animals." 66

"…the just price was an equivalancy, the actual amount of which was determined either by municipal authority or by the actions of the guildsmen…" 72.

Equivalences "…made gainless transactions possible."  74 TLOM

In ancient civilisations "Exchange behaviour was made legitimate by establishing the equivalence of that which was to be exchanged."  61

"…gain and profit made on exchange never before played an important part in human economy.'   43

"The Old Testament… is replete with remonstrations to share with the poor and to treat others in the group as one would have them treat oneself."

"From the early Assyrian trade colonies…down to…some 2500 years later; indeed up to the time of Thomas Aquinas…the just price remained the only rate at which transactions were deemed legitimate."  74 TLOM.)

Gift, reciprocity and redistribution.

In previous societies the economic problem is solved by reciprocity and redistribution.  People gave things to each other, or to the centre (king, priests, city authorities) from where it is allocated.  Giving generously is a virtue.  There is no concept of haggling, or of profit.  There is no need for incentive in the form of pay or profit for the individual to work or produce.  The necessary motivation comes from the social situation.

"Most, if not all economic acts are found to belong to some chain of reciprocal gifts and counter-gifts, which in the long run balance, benefiting both sides equally."  Malinowski, B., Crime and Custom in Savage Society, 1926, 40-41.

The economy in tribal society was organized according to the principles of reciprocity and redistribution.  The central motive was "…maintenance of the social order; continuation and strengthening of ties of kin ship, friendship, cooperation, chieftainship…" .D R. Fusfeld, "The market in history", Monthly Review, May, 1993, p. 2.

Ethnographers agree re "primitive" society…"…absence of motive of gain…", the absence of the principle of labouring for remuneration, the absence of the principle of least effort, and especially the absence of any specific and distinct  institution based on economic motives." 66

Usury, interest.

(See also Notes on Tawneys' Religion and the Rise of Capitalism.)

Note the significance of these attitudes to gain and equivalence in transaction for "usury"…arrangements whereby one party gets more than the other.

"…to lend at interest to a need man is to violate reciprocity and to be uncharitable….To gain unduely from an exchange is to fail to reciprocate value for value."  68

"For centuries usury (the old word for capitalism) was regarded with abhorrence, as a practice e inherently evil.  It was condemned scripturally…because it was regarded as a device for acquiring the fruits of others labours while giving nothing in return."

In previous economies there had been "…strict prohibition on any advantage derived from loaning."  69 TLOM

A number of Simpler Way themes are evident in Owen's thinking, and practices. He set up cooperatives in which poor people could produce to meet some of their own basic needs, controlling the economy.  He set up cooperative stores, and even developed a community currency to keep track of transactions.  Owen rejected the idea that gain and profit were satisfactory organizing factors in society.  He saw that there were many things other than wages that were important. (His workers received low wages, but had good conditions and high morale.  He kept workers on in his factories when there was no work.  Worker productivity was high.  Above all he saw that there are far more important factors than gain, wealth or the economy.

The significance of the concept of society; Robert Owen..

Throughout the book Polanyi stresses the concept of society and its significance.  He says Owen was the first to grasp this.  (Owen "discovered" society. p. 128.) 

Polanyi's book provides a detailed historical analysis mostly of England from Medieval times to the twentieth century, focusing on the enormous social disruption and change associated with the emergence of capitalism.   ("…a social dislocation of stupendous proportions."  p. 129.)   For instance the enclosure movement shredded rural life.  Large numbers were driven from the land and villages.  Later the industrial revolution drove them into appalling city slums.  Later the industrial revolution had similar catastrophic effects.  Many authorities and social theorists worried about what was happening and what to do, especially as the masses of extremely poor people posed a threat of revolution, but they were quite confused and didn't understand what was happening.  They did not realize that the Medieval social order was being replaced by the market and capitalism, nor did they realize the astronomical difference.  Tipping peasants off lands to produce more wool, and manufacturing in factories, involved selling larger volumes in a market, monetary transactions, capital, credit, prices, wages and pressure to treat labour as a commodity for hire.  These were largely unknown or of trivial significance in traditional society, and they were dynamite to it; they destroyed society, the community, rural life, the village, collective security, traditions, social connections and memories and relationships, the obligations of land owners and social authorities (squires, the church) to the peasant, etc.  For instance parishes had been obliged to care for those who could not find work.  This could not continue if factories were to be able to get willing workers, nor as the numbers impoverished rose.  Thus the poor came to be regarded as being at fault, lazy and requiring punishment not assistance… 

Authorities and thinkers at the time were not conscious of these social structures and relations and their crucial function in ensuring the quality of life, e.g., the security that community gives, the self-respect workers get from contributing to village life, the maintenance of housing and leisure activities, etc. etc., They did not see the way that these social relations were impacted and swept away by the emerging procedures, especially by allowing the market to become a separate thing, running by its own new laws, and free to determine the fate of people and society.  The point here is that Owen did have some idea of all this and it was only in the nineteenth century that people realized society has to be appreciated, recognized as complex and crucial, and protected from the ravages of the market.

Owen saw that the new system would cause chaos unless heavily regulated.  Polanyi says he was remarkable in seeing that the market would destroy society. p. 128.  Polanyi also refers to the four massive famines in colonial India, caused by the destruction of the village community and its safety networks brought about by British colonialism.  There would be great trouble if there was "…the organization of the whole society on the principle of gain and profit…the destruction of the traditional character  of settled population and their transmutation into a new type of person, migratory, nomadic, lacking in self-respect and discipline  -- crude, callous beings of whom both labourer and capitalist were an example." p. 128.

Consider the wisdom of tribal societies.

These themes show the economic wisdom of "primitive" and peasant societies.  The Western attitude is that these are backward and need to adopt market ways. 

In these societies production was for use, not gain.  There was no selling in order to accumulate wealth.

Tribal people work hard and conscientiously, without the motivation either of gain or fear of deprivation.  For instance Melanesians take great pride in their gardens and capacity to provide.  This is a major source of social respect and status.

"…work is never limited to the unavoidable minimum but exceeds the absolutely necessary amount  Thurnwald, Economics…, p. 209.

"The usual incentives to labour are not gain but reciprocity, competition, joy of work and social approbation."  212(?)

 "Work for its own sake is a constant characteristic of Moari industry."  (Firth, "Some Features of Primitive Industry.")

"Perfection in gardening is the general index to the social value of a person", Malinowski, Coral Gardens and their Magic, Vol I, 1935, p. 124.  "The Andaman Islanders regard laziness as an antisocial behaviour", Radcliffe-Brown, The Andman Islanders,

"Much time and labour is given up to aesthetic purposes, to making the gardens tidy, clean, cleared of all debris; to building fine, solid fences, to providing specially strong and big yam poles.  All these things are, to some extent, required for the growth of the plant; but there can be no doubt that the natives push their conscientiousness far beyond the limit of the purely necessary."   Malinowsky, B., Argonaughts of the Western Pacific, p. 59.

Sahlins discusses the "material plenty".  The work day would be 3 – 5 hours per adult worker.  Perhaps one-third of adults do not work.   Work is not very arduous, and is not regarded as unpleasant. p. 68

            Thus Adam Smith was wrong!

Adam Smith is famous for stating as his basic assumption that humans have a natural powerful tendency to "truck, barter and exchange", that is, to behave according to market principles.  Conventional economic theory is built on this assumption…but as Polanyi shows, it is wrong.

"Barter is originally completely unknown.  Far from being possessed with a craving for barter primitive man has an aversion to it."  Quoted by Polanyi in Buecher, p. 274.

Smith would have known little about the working of non-Western economies, certainly nothing that the twentieth century anthropologists like Malinowski reported from their observations of "primitive" societies.  He could only have drawn on his observations of his own market-dominated society.

So why does anybody take any notice of him?  Because he said, legitimized, gave authority to, the ideas the dominant class favoured…as is always the case with dominant ideologies.  The rich and powerful attend to, repeat, publish, endorse as true, those ideas that suit their interests.  So millions of students of economics are routinely taught that humans are marketers and that a market economy is the normal, the best way to go about economics, and they never encounter any other perspective.

            But society tries to protect itself.

Polanyi argued that there is a strong tendency for society to eventually respond defensively against the impact, to come up with counter measures.  This is typically an uncoordinated, spontaneous and unrecognized general response, from many areas as distinct from authorities or the state.

            Trade, within and without the group.

Trade did not develop within communities; it arose from interactions between them.  When local markets emerged, they had no tendency to grow.  Specific quantities of one item were exchanged for specific quantities of another… ("equivalencies…") as distinct from being sold in an attempt to get as much value as possible.  Even in Medieval times trade between settlements was carried on by collectives, not individuals. 277

"The aim of the local market was to supply the provisions necessary for daily life to the population settled in the districts."  It was not that a merchant class emerged from within the agricultural population, i.e., as a development from local markets.  Merchants began to operate between towns, mainly dealing with luxuries.  Town markets dealt with necessities, produced locally, and simply enabled their exchange and distribution. 275

Differences with Marx.

To Polanyi capitalism is not a superior state…it is a mistake. Marx thought there

has been progress from ancient through feudal to capitalist and then socialist

society.  According to Polanyi "Capitalism is a pathological case."  P. 133

Class conflict is not very important in Polanyi's analysis.

The self-protecting response of society does not come from class interests … it comes from society as a whole, in a sometimes unconscious way, from many sectors as they struggle against the damage.

Some Marxists criticize Polanyi for thinking that production is not as important as distribution, i.e., as the effects of the market are.  Both see a fatal contradiction built into capitalism, and see its socially destructive nature.

Marx saw the economy as determining the rest of society.  Polanyi prioritises the social in his analysis, but this does not mean he would disagree with Marx re the cause of social destruction being due to the emergence of capitalism.  Marx focuses on the economy, whereas Polanyi is saying that the economy is relatively unimportant; what matters is society, it is primarily about relationships, codes, traditions, morality, reciprocity, gift, loyalty, debt, gratitude, redistribution…not primarily about trading.  Marx is not primarily interested in sociology; he is mainly concerned with the ownership of the means of production and what happens when capitalists own it.

Marx could be criticized for having as narrow a conception of the economy as the modern economists, i.e., as being only to do with monetary transactions.  Polanyi stresses the many social factors which influence and are affected by economic activity, including social relations, traditions, morality and religion. 

Marx regarded subsistence economies as primitive, and seemed uninterested in the many social, moral etc. factors which Polanyi rightly says should be taken into account in economic decisions. 

The general "socialist" vision is that the market needs to be controlled, but this is to be done by the state.  To Polanyi, in a satisfactory society it would be done spontaneously by society.  (However he was in favour of strong state regulation to remedy the situation in the mid- twentieth century.)

Are Polanyi's points re social effects covered well-enough by Marx's discussion of "alienation"?   He did discuss the socially destructive effects of capitalism.

Polanyi is criticised for not emphasizing class sufficiently.  His historical analyses do give much attention to the way the dominant classes got their way and forced the rest into appalling conditions, but he seems not to dwell on this, or call for class revolt etc.,…whereas Marx treated this issue as central in his account.

Polanyi seems to have favoured state action to control the economy. Dale makes the point re Polanyi's sympathy for Rooseveldt's New Deal, the UK Atlee government, Keynes, and the "welfare" state.  Dale notes the inadequacy of this position; e.g., the post 1970 neo-liberal resurgence/triumph has eliminated those initiatives.

Important; Polanyi was not opposed to the market.  He thought markets would be valuable.  From The Simpler Way perspective, the market should eventually be phased out (See The Case Against The Market.)  The market is by definition about selfishness and gain, and it cannot avoid functioning in the interests of the rich, it cannot attend to the needs of society or the environment, and most importantly, it involves nasty values (taking advantaged of another's misfortune, charging asmuch as possible, ruining competitors, getting as rich as possible…).

For the purposes of understanding what's wrong with capitalism, the two analyses seem to be largely complementary; it would seem that they can be combined to form a valuable account.

Dalton, G., (Ed.), Primitive, Archaic andModern Economies; Essays of Karl Polanyi, Anchor. 1968.