The Great Transformation

“Some books refuse to go away. They get shot out of the water but surface again and remain afloat,” Charles Kindleberger, the economic historian, wrote about Karl Polanyi’s The Great Transformation: The Political and Economic Origins of Our Time twenty-five years ago. The book had appeared thirty years earlier, and is still referenced in bibliographies of works published today. Barry Eichengreen’s Globalizing Capital, indispensable for studying recent financial crises, appears to have been strongly influenced by Polanyi’s ideas. What is it that sustains the relevance of this book?

Karl Polanyi, a Christian socialist, refugee from fascist persecution in the Vienna of 1934, wrote his book in the early 1940s, in the United Kingdom and the United States. It was a time when government intervention had by and large ended the Great Depression, when the political and social status of business had reached its nadir, and when war had been initiated by Germany and Japan, whose fascist or militarist rulers had been brought to power largely as a result of the preceding economic catastrophe.

Polanyi viewed these developments as denoting the end of an era that had begun late in the eighteenth century—an era marked by the triumph of the self-regulating market; its progressive constriction during the last quarter of the nineteenth century; and its demise during the first third of the twentieth. He argued that the social and economic conflicts of that era, and the depression and war that ended it, arose from the incompatibility of the self-regulating market with society’s effort to protect itself against the ravages that market inflicted upon labor and land. The self-regulating market—self-regulating in terms of the principles of economic theory as well as of governmental laissez-faire—reduced labor and land to commodities, salable by definition at whatever price they would fetch. It was oblivious to the web of culture and institutions that embedded them in society. The worker, subjected to the labor market, was now separated from his social integuments, his moral stature undermined. The market would annihilate the worker’s humanity unless resisted by state legislation or by trade unions and other forms of association.

Similarly, by commodifying land, subjecting its product to the dictates of free trade, much of Europe’s peasantry was in danger of being pauperized and uprooted. True, society’s self-protection here took reactionary forms, an alliance of peasants and “feudal” landlords, “playing with traditional sentiments in their fight for agrarian tariffs.“ Polanyi lightly passes over this fact, which, in Germany, turned out to have dire consequences for democracy. He simply writes, “Reaction was the beneficiary of the socially useful function which it happened to perform” by resisting the inroads of the world market upon domestic agriculture.

Money, instead of functioning merely as ...