The Great Transformation Read online

  12. For an indication of his influence on environmental economics, see Herman E. Daly and John B. Cobb Jr., For the Common Good: Redirecting the Economy toward Community, the Environment, and a Sustainable Future (Boston: Beacon Press, 1989).

  13. Implicit in Polanyi’s argument is a more specific critique of the market as a self-regulating mechanism. In the case of manufactured commodities, a falling price for an abundant commodity restores equilibrium by both encouraging increased consumption and by discouraging new production. In the case of fictitious commodities, the effectiveness of the price mechanism is reduced because automatic increases or decreases in supply cannot be assumed.

  14. For many other commodities as well, government involvement is a precondition for market competition. See the aptly titled book by Steven Vogel, Freer Markets, More Rules: Regulatory Reform in Advanced Industrial Countries (Ithaca, N.Y.: Cornell University Press, 1996).

  15. Monetarists have tried repeatedly without success to establish a fixed rule for managing the growth of the money supply that would eliminate the discretion of central bankers. In the absence of such a formula, the next recourse is to obscure the political role of central bankers by attributing to them quasi-religious and oracular authority. See William Greider, Secrets of the Temple: How the Federal Reserve Runs the Country (New York: Simon & Schuster, 1987).

  16. This is Polanyi’s central point in his account of the New Poor Law in England; the creation of a labor market required a dramatic increase in the state’s repressive powers. On this point Polanyi’s interpretation has been supported by later scholars, especially Karel Williams, From Pauperism to Poverty (London: Routledge, 1981). On Speenhamland, a number of Polanyi’s arguments have been called into question. Two important but conflicting accounts of the Old Poor Law are provided in K. D. M. Snell, Annals of the Labouring Poor: Social Change and Agrarian England, 1660–1900 (Cambridge: Cambridge University Press, 1985); and George Boyer, An Economic History of the English Poor Law, 1750–1850 (Cambridge: Cambridge University Press, 1990).

  17. For explicitly Polanyian discussions of the transition in Eastern Europe and the former Soviet Union, see Maurice Glasman, Unnecessary Suffering: Managing Market Utopia (London: Verso, 1996); John Gray, False Dawn: The Delusions of Global Capitalism (London: Granta Books, 1998); and David Woodruff, Money Unmade: Barter and the Fate of Russian Capitalism (Ithaca, N.Y.: Cornell University Press, 1999).

  18. Polanyi writes in chapter 16: “Modern central banking, in effect, was essentially a device developed for the purpose of offering protection without which the market would have destroyed its own children, the business enterprises of all kinds.”

  19. Polanyi addresses fascism in “The Essence of Fascism” in J. Lewis, K. Polanyi, and D. K. Kitchin, eds., Christianity and the Social Revolution (London: Gollanz, 1935), pp. 359–94.

  20. Polanyi inspired a school of thought that flowered in the 1980s and 1990s that has analyzed the “varieties of capitalism,” showing the very significant differences in the ways that markets are embedded in the United States as compared with France, Germany, Japan, and other nations. See Rogers Hollingsworth and Robert Boyer, eds., Contemporary Capitalism: The Embeddedness of Institutions (Cambridge: Cambridge University Press, 1997); and Colin Crouch and Wolfgang Streeck, Political Economy of Modern Capitalism: Mapping Convergence and Diversity (Thousand Oaks, Calif.: Sage, 1997).

  21. The idea was first elaborated by Isaac Gervaise and David Hume in the eighteenth century. Frank Fetter, Development of British Monetary Orthodoxy, 1797–1875 (Cambridge: Harvard University Press, 1965), p. 4.

  22. The mechanism by which the gold would flow out is equally ingenious and requires no governmental action. Because people in the deficit nation are spending more abroad than they are taking in, their currency—being in greater supply—will fall in value relative to other currencies. When that value falls below a certain level called the gold point, it will be profitable for international bankers to trade that currency for gold and ship the gold abroad where it will bring a higher price. In this way gold will move from deficit countries to surplus countries.

  23. As Polanyi knew, in practice the operation of the gold standard diverged considerably from theory. See Barry Eichengreen, Globalizing Capital: A History of the International Monetary System (Princeton, N.J.: Princeton University Press, 1996).

  24. Peter Gourevitch, Politics in Hard Times: Comparative Responses to International Economic Crises (Ithaca, N.Y.: Cornell University Press, 1986), chap. 3; Christopher Chase-Dunn, Yukio Kawano, and Benjamin Brewer, “Trade Globalization since 1795: Waves of Integration in the World-System” American Sociological Review 65 (February 2000): 77–95.

  25. Polanyi’s argument is quite different from Lenin’s thesis that intensifying interimperialist conflicts are a product of the growth of finance capital in the final stage of capitalist development. Polanyi takes pains to argue that financial capitalists can be a major force for preventing war.

  26. Thomas Friedman, The Lexus and the Olive Tree (New York: Farrar, Strauss, 1999), p. 86.

  27. John Walton and David Seddon, Free Markets and Food Riots: The Politics of Global Adjustment (Cambridge, Mass.: Blackwell, 1994).

  28. For an argument that many recent examples of global turmoil can be traced to the international economic regime, see Michel Cossudovsky, The Globalisation of Poverty: Impacts of IMF and World Bank Reforms (Penang, Malaysia: Third World Network, 1997).

  29. “Obsolete Market Mentality” is the title that Polanyi gave to an important 1947 essay that is reprinted in Dalton, Primitive, Archaic, and Modern Economies.

  30. The New Deal actually did little to protect the environment. Nevertheless, when environmentalists later gained the political strength to win reforms, agencies such as the Environmental Protection Agency followed the New Deal’s regulatory model.

  31. For a recent effort to concretize this vision, see John Eatwell and Lance Taylor, Global Finance at Risk: The Case for International Regulation (New York: New Press, 2000).

  32. Polanyi believes that a complex society requires the state to exercise a monopoly on violence: “Power and compulsion are part of that reality [of human society]; an ideal that would ban them from society must be invalid.”

  33. See Peter Evans, “Fighting Marginalization with Transnational Networks: Counter-Hegemonic Globalization,” Contemporary Sociology 29 (January 2000): 230–41.

  34. For a North American perspective on these discussions and a useful guide to additional resources, see Sarah Anderson and John Cavanaugh, with Thea Lee, Field Guide to the Global Economy (New York: New Press, 2000).

  Note on the 2001 Edition

  In preparing this revision of Karl Polanyi’s The Great Transformation, several minor changes have been made to the 1957 edition of Polanyi’s text. First, the text incorporates small editing changes that Polanyi made after the first U.S. edition went to press; these changes had been introduced when the book was published by Gollancz in the United Kingdom in 1945. Second, the “additional note” on the Poor Law that appears at the end of the notes in the 1957 edition has been moved to the appropriate place in the Notes on Sources. Third, some proper names have been corrected and spelling and punctuation have been updated. Finally, the text has been repaginated, so there is no trace of pages 258A and 258B, which appeared in earlier U.S. editions.

  F.B.

  Author’s Acknowledgments

  This book was written in America during the Second World War. But it was begun and finished in England, where the author was Lecturer for the Extramural Delegacy of the University of Oxford and the corresponding institutions of the University of London. Its main thesis was developed during the academic year 1939–40 in conjunction with his work in Tutorial Classes, organized by the Workers’ Educational Association, at Morley College, London, at Canterbury, and at Bexhill.

  The story of this book is a story of generous friendships. Very much is due to the author’s English friends, notably Irene Grant, w
ith whose group he was associated. Common studies linked him to Felix Schafer of Vienna, an economist, at present in Wellington, New Zealand. In America, John A. Kouwenhoven helped as a trusted friend with reading and editing; many of his suggestions have been incorporated in the text. Among other helpful friends were the author’s Bennington colleagues, Horst Mendershausen and Peter F. Drucker. The latter and his wife were a source of sustained encouragement, notwithstanding their wholehearted disagreement with the author’s conclusions; the former’s general sympathy added to the usefulness of his advice. The author also owes thanks for a careful reading to Hans Zeisel of Rutgers University. In America the book was seen through the press entirely by Kouwenhoven, with the help of Drucker and Mendershausen, for which act of friendship the author feels deeply grateful.

  To the Rockefeller Foundation he is indebted for a two-year Fellowship, 1941–43, which permitted him to complete the book at Bennington College, Vermont, following an invitation extended to him by Robert D. Leigh, then president of that college. Plans for the work were advanced by a series of public lectures and a seminar held during the academic year 1940–41. Research facilities were kindly granted by the Library of Congress in Washington, D.C., as well as by the Seligman Library of Columbia University, New York. To all of them his thanks are due.

  K.P.

  Shoreham, Sevenoaks, Kent.

  Part One

  The International

  System

  C H A P T E R O N E

  The Hundred Years’ Peace

  Nineteenth-century civilization has collapsed. This book is concerned with the political and economic origins of this event, as well as with the great transformation which it ushered in.

  Nineteenth-century civilization rested on four institutions. The first was the balance-of-power system which for a century prevented the occurrence of any long and devastating war between the Great Powers. The second was the international gold standard which symbolized a unique organization of world economy. The third was the self-regulating market which produced an unheard-of material welfare. The fourth was the liberal state. Classified in one way, two of these institutions were economic, two political. Classified in another way, two of them were national, two international. Between them they determined the characteristic outlines of the history of our civilization.

  Of these institutions the gold standard proved crucial; its fall was the proximate cause of the catastrophe. By the time it failed, most of the other institutions had been sacrificed in a vain effort to save it.

  But the fount and matrix of the system was the self-regulating market. It was this innovation which gave rise to a specific civilization. The gold standard was merely an attempt to extend the domestic market system to the international field; the balance-of-power system was a superstructure erected upon and, partly, worked through the gold standard; the liberal state was itself a creation of the self-regulating market. The key to the institutional system of the nineteenth century lay in the laws governing market economy.

  Our thesis is that the idea of a self-adjusting market implied a stark utopia. Such an institution 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 a wilderness. Inevitably, society took measures to protect itself, but whatever measures it took impaired the self-regulation of the market, disorganized industrial life, and thus endangered society in yet another way. It was this dilemma which forced the development of the market system into a definite groove and finally disrupted the social organization based upon it.

  Such an explanation of one of the deepest crises in man’s history must appear as all too simple. Nothing could seem more inept than the attempt to reduce a civilization, its substance and ethos, to a hard-and-fast number of institutions; to select one of them as fundamental and proceed to argue the inevitable self-destruction of civilization on account of some technical quality of its economic organization. Civilizations, like life itself, spring from the interaction of a great number of independent factors which are not, as a rule, reducible to circumscribed institutions. To trace the institutional mechanism of the downfall of a civilization may well appear as a hopeless endeavor.

  Yet it is this we are undertaking. In doing so, we are consciously adjusting our aim to the extreme singularity of the subject matter. For the civilization of the nineteenth century was unique precisely in that it centerd on a definite institutional mechanism.

  No explanation can satisfy which does not account for the suddenness of the cataclysm. As if the forces of change had been pent up for a century, a torrent of events is pouring down on mankind. A social transformation of planetary range is being topped by wars of an entirely new type in which a score of states have crashed, and the contours of new empires are emerging out of a sea of blood. But this fact of demoniac violence is merely superimposed on a swift, silent current of change which swallows up the past often without so much as a ripple on the surface! A reasoned analysis of the catastrophe must account both for the tempestuous action and the quiet dissolution.

  Ours is not a historical work; what we are searching for is not a convincing sequence of outstanding events, but an explanation of their trend in terms of human institutions. We shall feel free to dwell on scenes of the past with the sole object of throwing light on matters of the present; we shall make detailed analyses of critical periods and almost completely disregard the connecting stretches of time; we shall encroach upon the field of several disciplines in the pursuit of a single aim.

  First we shall deal with the collapse of the international system. We shall try to show that the balance-of-power system could not ensure peace once the world economy on which it rested had failed. This accounts for the abruptness with which the break occurred, the inconceivable rapidity of the dissolution.

  But if the breakdown of our civilization was timed by the failure of world economy, it was certainly not caused by it. Its origins lay more than a hundred years back in that social and technological upheaval from which the idea of a self-regulating market system sprang in Western Europe. The end of this venture has come in our time; it closes a distinct stage in the history of industrial civilization.

  In the final part of the book we shall deal with the mechanism which governed social and national change in our time. We shall also deal with the human situation. Broadly, we believe that the present condition of man is to be defined in terms of the institutional origins of the crisis.

  The nineteenth century produced a phenomenon unheard of in the annals of Western civilization, namely, a hundred years’ peace—1815–1914. Apart from the Crimean War—a more or less colonial event—England, France, Prussia, Austria, Italy, and Russia were engaged in war among each other for altogether only eighteen months. A computation of comparable figures for the two preceding centuries gives an average of sixty to seventy years of major wars in each. But even the fiercest of nineteenth-century conflagrations, the Franco-Prussian War of 1870–71, ended after less than a year’s duration with the defeated nation being able to pay over an unheard-of sum as an indemnity without any disturbance of the currencies concerned.

  This triumph of a pragmatic pacifism was certainly not the result of an absence of grave causes for conflict. Almost continuous shifts in the internal and external conditions of powerful nations and great empires accompanied this irenic pageant. During the first part of the century civil wars, revolutionary and antirevolutionary interventions, were the order of the day. In Spain a hundred thousand troops under the Duc d’Angoulême stormed Cadiz; in Hungary the Magyar revolution threatened to defeat the emperor himself in pitched battle and was ultimately suppressed only by a Russian army fighting on Hungarian soil. Armed interventions in the Germanies, in Belgium, Poland, Switzerland, Denmark, and Venice marked the omnipresence of the Holy Alliance. During the second half of the century the dynamics of progress were released; the Ottoman, Egyptian, and the Sheriffian empires broke up or
were dismembered; China was forced by invading armies to open her door to the foreigner, and in one gigantic haul the continent of Africa was partitioned. Simultaneously, two Powers rose to world importance: the United States and Russia. National unity was achieved by Germany and Italy; Belgium, Greece, Romania, Bulgaria, Serbia, and Hungary assumed, or reassumed, their places as sovereign states on the map of Europe. An almost incessant series of open wars accompanied the march of industrial civilization into the domains of outworn cultures or primitive peoples. Russia’s military conquests in Central Asia, England’s numberless Indian and African wars, France’s exploits in Egypt, Algiers, Tunis, Syria, Madagascar, Indo-China, and Siam raised issues between the Powers which, as a rule, only force can arbitrate. Yet every single one of these conflicts was localized, and numerous other occasions for violent change were either met by joint action or smothered into compromise by the Great Powers. Regardless of how the methods altered, the result was the same. While in the first part of the century constitutionalism was banned and the Holy Alliance suppressed freedom in the name of peace, during the other half—and again in the name of peace—constitutions were foisted upon turbulent despots by business-minded bankers. Thus under varying forms and ever-shifting ideologies—sometimes in the name of progress and liberty, sometimes by the authority of the throne and the altar, sometimes by grace of the stock exchange and the checkbook, sometimes by corruption and bribery, sometimes by moral argument and enlightened appeal, sometimes by the broadside and the bayonet—one and the same result was attained: peace was preserved.