Karl Polanyi

Karl Paul Polanyi (October 21, 1886 – April 23, 1964) was a Hungarian intellectual known for his opposition to traditional economic thought and his influential book The Great Transformation.

Biography

In Continental Europe

Karl Polanyi, brother of chemist and philosopher Michael Polanyi, was born in Vienna, Austria in 1886. The son of a prominent member of a Hungarian bourgeoisie, Polanyi was well educated despite the ups and downs of his father's fortune, and he immersed himself in Budapest's active intellectual and artistic scene.

Polanyi founded the radical and influential Galilei Circle while at the University of Budapest. During this time, he was actively engaged with other notable thinkers, such as Georg Lukács, Oscar Jászi, and Karl Mannheim. Polanyi earned his Ph.D. in Philosophy in 1908, and graduated in Law in 1912. In 1914, he helped found the Hungarian Radical Party and served as its secretary.

Polanyi was a cavalry officer in the Austro-Hungarian army in World War I, but was discharged after an injury. After the war, he returned to Budapest where he became politically active once again. Polanyi supported the Republican government of Mihály Károlyi and its Social Democratic regime. When Béla Kun toppled the Karolyi government, Polanyi was forced to flee to Vienna. There he worked as a journalist writing economic and political commentary for (among others) the prestiguous Der Oesterreichische Volkswirt. It was at this time that he first began criticizing the Austrian school of economists, who he felt created abstract models which lost sight of the concrete reality of economic processes. Polanyi himself was attracted to Fabianism and the works of G.D.H. Cole. It was also during this period that Polanyi grew interested in Christian Socialism.

In England and the United States

Polyani fled Austria in 1933 as the short-lived Austrian Republic began to collapse and the fascist influence began to grow. He moved to London, where he earned a living working as a journalist and tutor. Polanyi also conducted the bulk of his research for what would later become The Great Transformation. He would not start writing this work until 1940, however, when he moved to New York City to take up a position at Bennington College. It was published in 1944 to great acclaim. In it, Polanyi described the inclosure process in England and the creation of the contemporary economic system at the beginning of the nineteenth century.

After the war, Polanyi received a teaching position at Columbia University. However, his wife's background as a former communist made gaining an entrance visa in the United States impossible. As a result they moved to Canada, and Polanyi commuted to New York City.

In the early 1950s, Polanyi received a large grant from the Ford Foundation to study the economic systems of ancient empires. Having described the emergence of the modern economic system, Polanyi now sought to understand how "the economy" emerged as a distinct sphere in the distant past. His seminar in Columbia drew several famous scholars and influenced a generation of teachers, eventuating in the 1957 volume Trade and Market in the Early Empires. Polanyi continued to write in his later years and established a new journal entitled Coexistence. He died in 1964 in Pickering, Ontario, Canada.

Work

The Great Transformation

The Great Transformation (1957) is Polanyi's major work in which he maintained that exchange, along with redistribution and reciprocity, has always existed, albeit embedded in different socio-institutional forms. Nevertheless, during the nineteenth century, first in England and then in Western Europe and North America, as land, labor, and money gradually became commodities, the price mechanism and the profit motive, rather than the deliberation and negotiation of diverse social interests and concerns, became the structuring principle of the society.

The market society, for Polanyi, was not only undesirable but also socially and ecologically unsustainable. He believed that society would develop spontaneous responses to protect itself against the advent of the logic of markets. Succinctly put, "the economic system is, in effect, a mere function of social organization." (Polanyi 1944, p. 48).

While Polanyi made a case that the market has not, and does not, work, he does not attack the concept directly.

As he is suggesting a vision of the liberal economy as self-regulating, Adam Smith suggested a need for government in education, infrastructure, and the public good and Milton Friedman advocateed a measure of government control over the monetary supply.

Polanyi’s argument against the market comes from the history of humanity thus far—that human beings never lived in a pure market economy until recently. Polanyi looked at societies from Polynesian tribal societies to Egypt and Rome and found not one use of a self-regulating market economy. Relationships were characterized by "reciprocity and redistribution" as well as "symmetry and centricity" (Polanyi 1944, p.49).

What is more surprising is that The Great Transformation should also have included a discussion of primitive economics containing suggestions for new lines of research which were still able to stimulate anthropologists many years later. Polanyi’s stress on the integration of primitive society, and disregard of the existence of competition and conflict seems more closely related to the tradition of those such as Max Weber and Werner Sombart.

In fact, the strength of his approach was its methodological originality and wide range of comparisons in a period when anthropology, and to some extent sociology, were dominated by a concern with fieldwork. The establishment of both subjects in the universities had narrowed the cultural background of their recruits, who no longer had prior training in handling historical material which had formed the foundation for the comparative studies of scholars like Weber and Mauss.

Polanyi asserted that the definition of land, labor, and money as commodities was merely created by the market to permit its very own existence. Polanyi noted that since land cannot be created, that labor is a power inherent in persons, and money is merely a token of exchange, the treatment of those resources as commodities is not only fictional, but also destructive (Polanyi 1944, pp. 72-73).

He argued that in earlier times, instead of the profit motive, social needs dictated exchange in reciprocal form. Tribal societies used chieftains as redistributors and collectors of wealth, empires used vast bureaucracies to concentrate and allocate their wealth. Social obligation was the glue cementing people together in society, not the interconnected web of the market. From there he developed the main theme of The Great Transformation, the need for a planned socialist economy and the rejection of the argument that only a free market system could preserve liberal values.

An economic definition of exploitation would be "permanent inadequacy of ratios of exchange," which Polanyi himself doubted could exist for all time (Polanyi 1944 p. 159). Rather, he implied that "cultural degeneration" is a more useful indication of injustice. This view has some inherent problems, however. Degeneration could include, as Polanyi hinted, the elimination of basic social institutions.

Critiques of the Polanyi’s Great Transformation

Time and again, themes of society "protecting" itself from liberalism appear in Polanyi’s work. Yet never does Polanyi consider that the common folk, the workers - who he assumes to be the losers under liberalism and consummate anti-liberals - may have embraced some of the principles of liberalism.

Polanyi neglects to see the social change brought about by liberalism that was unable to manifest itself completely in the governance of society. Perhaps the principles of redistribution and reciprocity which supposedly ruled society from primitive man on up no longer held sway. Liberal progress and equality under freedom are concepts dismissed by Polanyi. The elimination of privilege - no protection for industry, worker, or nobleman - and ending of the attempt by one faction in society to gain riches off the other, a goal of liberalism, goes against Polanyi’s thinking.

Polanyi wants to expand upon the modern love of democracy. Polanyi uses democracy in a way making it and the market mutual antitheses, and vilifies liberals with democracy.

"….There was not a militant liberal, who did not express his conviction that popular democracy was a danger to capitalism….” (ibid. p. 226).

The use of the term "militant" puts liberals in the same arena as communists and fascists, who truly were militant in their pursuit of power. Liberal ideas of nonviolence and of the corruptibility of power are not in this description. Popular democracy, in its true form, is a danger to what most people hold dear.

Polanyi does not go behind the projected image of the Soviet Union to probe for truth. This may be because he sympathizes with it as an alternative to capitalism. Some wonderful miss-pronouncements are made, however. He claims that "…..the first Russian Revolution [of 1918] achieved the destruction of absolutism, feudal land tenure, and racial oppression….", presumably fulfilling in Russia the principles of 1789.

Yet the reasons the Russian people followed Lenin were in his promises of peace, land and bread. The first revolution put in place an absolutism, though benevolent for a time, that went berserk. The Bolsheviks replaced feudal land tenure with the state owning the land, and racial oppression followed this tyranny.

Polanyi plays his part in passing along the "Big Lie," despite numerous journalistic stories and examples of communist repression in the 1930’s and onwards, a period Polanyi was experiencing.

His blind acceptance of Soviet principles may be because that society embodies what he is striving for, a rejection of the supremacy of the market. Yet, what does his work rest on? He provides no numbers to back up his arguments, as statistics showing the dislocation of the market exist only for a few examples and not others. His assertions as to the nature of man, while well-referenced, are second-hand characterizations of society. Indeed a possible changing nature of humanity would complicate the argument, perhaps opening up the debate that just because man acted a certain way at a certain time, does not mean he must do so now.

However, the passage most often quoted in refutes of Polanyi's arguments is this:

"……previously to our time no economy has ever existed that, even in principle, was controlled by markets . . . gain and profit made on exchange never before [the nineteenth century] played an important part in human economy……." (ibid. p. 43).

McCloskey says that Polanyi asked the right question, but gives the wrong answer in saying that markets played no important role in earlier human societies. As proof McCloskey cites evidence that, the further away from their source of obsidian the Mayan blade makers were, the less was the ratio of blade weight to cutting length.

To McCloskey this indicates that "…..By taking more care with more costly obsidian the blade makers were earning better profits; as they did by taking less care with less costly obsidian….." ( McCloskey 1997, p. 484). This might mean that Polanyi had been wrong, presumably about the existence of other forms of integration and their importance.

Legacy

Polanyi is remembered today as the originator of a substantivist approach to economics, which emphasized the way economies are embedded in society and culture. This worked against mainstream economics, but became popular in anthropology and political science.

In the years after publication of The Great Transformation, Polanyi and a number of colleagues and students expanded his analysis of the forms of economic integration, and produced the collection of essays published as Trade and Market in the Early Empires (1957).

Both books present Polanyi's understanding of what made the economies of the nineteenth and of the twentieth centuries so different, and with such far-reaching consequences. Polanyi created a way of thinking about economies and societies that has had substantial impact on economic history, anthropology, and the study of the ancient Mediterranean.

The Great Transformation remains important as a highly original contribution to the understanding of the Western past; it has been and is important in methodological debates in the social sciences. Beyond that, as the double movement continues, the book is likely to remain one of the best guides available to what brought us to where we are.

References

ISBN links support NWE through referral fees

• McCloskey, D. N.. "Polanyi was Right, and Wrong." Eastern Economic Journal, 23 (Fall), 1997, pp.483- 487.
• Polanyi, K., The Great Transformation: The Political and Economic Origins of Our Time, Beacon Press by arrangement with Rinehart & Company, Inc., Boston 1944, 1957
• Polanyi, K, C. M. Arensberg and Harry W. Pearson., Trade and Market in the Early Empires: Economies in History and Theory, The Free Press, Glencoe, Illinois, 1957

[This edited volume includes "Aristotle discovers the economy" and "Economy as an instituted process."] Primitive, archaic and modern economies: Essays of Karl Polanyi,” edited by George Dalton. Garden City, NY: Anchor Books, 1968.

• Polanyi, K. and A. Rotstein, Dahomey and the Slave Trade: An Analysis of an Archaic Economy, in collaboration with G.Dalton , Seattle, Wash., 1966
• Polanyi, K., Tribal and Peasant Economies: Readings in Economic Anthropology, ed. George Dalton, New York, 1967
• Polanyi, K., Essays - Primitive, Archaic and Modern Economies: Essays of Karl Polanyi, ed. George Dalton, Garden City, N.Y., 1968
• Polanyi-Levitt, K. and M. Mendell, "The Origins of Market Fetishism." Monthly Review 41, No. 2, June 1989, pp. 11-32
• Stanfield, J. R., The economic thought of Karl Polanyi: Lives and livelihood, St. Martin's Press, New York 1986

External links

• About Karl Polanyi - From the Karl Polanyi Institute website.
• An Austrian School rebuttal of The Great Transformation - From the Ludwig von Mises Institute.
• Karl Polanyi, The Great Transformation: The Political and Economic Origins of Our Time (1944) Review Essay by Anne Mayhew, College of Arts and Sciences, University of Tennessee
• [1] - Markets And Society - a CBC Ideas podcast dedicated to Polanyi

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