Polanyi's "The Great Transformation"

Economist Greg Clark and sociologist Fred Block, both of UC Davis, illustrate some of the tensions among the social sciences as they discuss the work of Karl Polanyi and the desirability of a free market system. First, Greg Clark with a review of Polanyi's The Great Transformation: 

Reconsiderations: 'The Great Transformation' by Karl Polanyi: Review of: The Great Transformation, by Gregory Clark, NY Sun: Karl Polanyi's The Great Transformation (1944), published in the same year as Friedrich Hayek's The Road to Serfdom, is as sacred a text to the opponents of free-market capitalism as Hayek's is to the Chicago School.

To his devotees, Polanyi showed the free market to be the enemy of humanity... It was an alien form of social organization, ... created in 18th-century England only by state action propelled by ideologues. By displacing the natural social state — an idyllic system of mutual obligations that bound and protected individuals — the free market brought inequality, war, oppression, and social turmoil to just and peaceful societies.

The Great Transformation has attained the status of a classic in branches of sociology, political science, and anthropology. Stacks of it await undergraduate initiates each year in college bookstores. ... Yet in economics the work is unknown — or, when discussed, derided. Thus the cruel irony of the term "social sciences." ...

The book begins portentously, "Nineteenth-century civilization has collapsed." ... Polanyi believed ... the imposition of the free market ... produced the collapse... Hitler, Mussolini, and Stalin, Polanyi suggested, were the monster children of the free market.

History has not been kind to these prognostications. Free-market capitalism is a resilient and stable system in much of the world... It is conquering vast new domains in places such as China, Eastern Europe, and India. International trade barriers have been substantially reduced. The gold standard is gone, ... replaced by floating exchange rates, set by market forces. ...

Further, while free market capitalism has its troubles, radical alternatives no longer beckon. ... Measured by the success of markets, 19th-century civilization seems to be enjoying a renaissance.

The great puzzle of Polanyi's book is thus its enduring allure, given the disconnect between his predictions and modern realities. The fans of Polanyi seem to be responding to his general belief that ... free market economies are a shocking recent departure from a socially harmonious past. His great criticism is that by breaking the social connections between individuals, by reducing everyone to an isolated atom, markets create inequalities that previously did not exist.

But Polanyi was no better a historian than a prognosticator. Indeed, the more we learn of history, the more evident it is that the free market was ... one of mankind's oldest social institutions. Medieval England, for example, had elaborate free markets in goods, labor, capital, and land. Forget groaning serfs, over-weaning lords, the lash of the whip; think private property, wage labor, market incentives, and social mobility. By 1200, a large class of landless laborers worked for cash, bought their food in markets, and rented their dwellings. The free market indeed has some claim to be the natural habitat of modern people, not a perverse and unnatural innovation. (We have evidence for extensive markets long before the time of Christ: in the Roman Empire, in ancient Greece, and in ancient Babylon.)

The ... greatest beneficiaries of the Industrial Revolution were the unskilled; this truly great transformation reduced the terrible inequalities that existed since at least the Middle Ages. ... It is probably true, as Polanyi asserts, that hunter-gatherer and shifting cultivation societies were more egalitarian than later market societies. But he hopelessly romanticizes that world: The Great Transformation makes pre-market societies seem like a band of idyllic Christian brothers endlessly extending the helping hand, to background choruses of "Kumbaya."

More dispassionate analysis by anthropologists writing since 1944 has shown that such communities were generally violent and sexist, with significant status differences, often including systems of slavery. Tight community bonds did not prevent assaults, murder, and sexual violence from being commonplace. ... This is no pre-market Garden of Eden.

Polanyi's popularity thus represents the triumph of yearning and romanticism over science in disciplines like sociology. The Great Transformation ultimately offers more insight into the nature of the professoriat than it does to societies they study. As entertainment, while it has its moments of elegance, it lacks the perverse majesty and literary sparkle of other critiques of market society, such as Marx's Kapital. Nor does it have the whacked-out crazy energy of Naomi Klein's recent Shock Doctrine. But still those stacks of books await the undergraduates, proving that the free market in goods works better than that in ideas.

And here is Fred Block's response:

No Such Thing as a Free Market, by Fred Block, Longview Institute: It is hardly surprising that the neo-conservative New York Sun chose to publish a reconsideration of Karl Polanyi's, The Great Transformation, written by Greg Clark... Polanyi was one of the last century's most articulate critics of "free market" ideology--an ideology that is on the defensive today... Following the old maxim that the best defense is a good offense, Clark’s strategy is to change the subject by attacking critics of the free market as wooly headed, naïve, and in energetic denial of “historical reality.”...

Clark’s denunciation is a way to get at his real targets­-those lesser social sciences such as sociology, political science, and anthropology--that have found Polanyi’s work to be extraordinarily useful in analyzing the last three decades of destructive market fundamentalism. He writes:

The Great Transformation has attained the status of a classic in branches of sociology, political science, and anthropology. Stacks of it await undergraduate initiates each year in college bookstores. Citations to the work continue to accumulate in scholarly articles. Yet in economics the work is unknown or, when discussed, derided.

This last assertion will come as a surprise to Joseph Stiglitz, the 2001 Nobel prize winning economist, who wrote a foreword to the most recent edition of the book. Rather than deriding the book, Stiglitz insists that “Economic science and economic history have come to recognize the validity of Polanyi’s key contentions." (p. xiii) [Full disclosure: I wrote the introduction for the edition that includes Stiglitz' foreword.]

But Clark's piece also fails to grasp one of Polanyi's most important distinctions. According to Clark: "Indeed, the more we learn of history, the more evident it is that the free market was not an 18th century innovation, but one of mankind's oldest social institutions." Clark's insertion of the four letter word "free" into that sentence is the issue. In fact, Polanyi spent years documenting that markets are indeed one of humankind's oldest institutions, but markets thrived historically because they were controlled by social institutions such as kinship, religion, and politics. What was novel at the beginning of the 19th century was the invention of the "free market"--the idea popularized by Malthus and Ricardo that human society should be organized around an integrated system of self regulating markets ... free of any kind of social control. ...

History in fact has shown us again and again that market-based societies only work because markets are embedded within legal and political rules that prevent opportunistic and predatory behaviors... According to the Polanyian view,... the last two hundred years has involved systematically increasing the state's economic role in order to make markets work. ...

But Clark ... insists that:

"Free-market capitalism is a resilient and stable system in much of the world--particularly in English-speaking countries. It is the policy of world bodies such as the International Monetary Fund and the World Bank. It is conquering vast new domains in places such as China, Eastern Europe, and India."

In short, Clark's definition of "free-market capitalism" is so broad and undifferentiated that it includes China under the dictatorship of the Communist Party. Whether he wants the role or not, Clark effectively becomes an apologist for the most reactionary global interest groups that routinely use the ideology of the free market to resist and oppose necessary regulatory measures. Both hedge fund managers and big oil companies insist that any increase in government regulation violates the logic of "free-market capitalism".... It is puzzling-- at this late date--that Clark can not understand that the mindless celebration of the free market comes with huge costs in economic dislocation and environmental degradation.