Karl Polanyi (1886—1964), whose concept of substantive economics did much toward integrating the study of economics with that of society more generally, was born in Vienna and grew up in Budapest. He studied law and philosophy in Budapest and later, for a short while, practiced at the bar. In 1908 he helped found the Galilei circle, a center of the intellectual ferment that provided Hungary with its liberal and socialist leadership during and after World War i and that was to remain effective as a spiritual influence for a long time. After military service, Polanyi moved to Vienna, where in 1920 he met his wife, Ilona Duczyńska, who had played a distinguished role in the Hungarian revolution of 1918. He became foreign editor of the Österreichische Volkswirt, then Austria’s leading economic publication, comparable in scope to the London Economist. Although he never belonged to any political party, he considered the socialist experiment that took place in Vienna between the two world wars to be “one of the high points of western civilization.” With the rise of fascism he lost his post and, foreseeing the European cataclysm, moved to England. There he earned his living lecturing for the Workers’ Educational Association as an extramural tutor for Oxford University; he traveled and held classes in the small towns of Sussex and Kent. In 1940 he was invited by the International Institute of Education to give lectures on the international situation in colleges throughout the United States.
Between 1940 and 1943 he held the post of resident scholar at Bennington College in Vermont, and there he wrote the first of his two principal books, The Great Transformation (1944). He went back to England but returned to the United States in 1947 to become visiting professor of economics at Columbia University, a post he held until his retirement in 1953. In the years that followed, he lived part of the time in New York and part of the time at his little house in Pickering, Ontario. He continued his research in collaboration with a group of younger scholars working in the fields of economics, anthropology, history, and sociology. Together they wrote a symposium volume, Trade and Market in the Early Empires (Polanyi et al. 1957).
Polanyi’s last years, when he was in his seventies, were extraordinarily productive. His work culminated in a study of the economic anthropology of the west African kingdom of Dahomey during the eighteenth century, posthumously published as Dahomey and the Slave Trade (1966). He also helped his wife and a number of Canadian poets with the preparation of an anthology of Hungarian writing covering the period 1930 to 1956 (see Duczyńska & Polanyi 1963). His major concern during his last years was the preservation of world peace. All his efforts were bent on founding an international journal for the comparative study of economics and politics that was to serve the cause of peace. Under the distinguished international sponsorship of Ragnar Frisch, P. C. Mahalanobis, Gunnar Myrdal, Joan Robinson, Hans Thirring, and others, Co-existence was founded. Polanyi lived to see the first issue through the press; he was buried on the day the first copies appeared.
Substantive and formal economies. The core of Polanyi’s scholarly work was the study of the place of the economy in society—the relationship between the arrangements for the production and acquisition of goods, on the one hand, and kinship, religion, and other forms of organization and culture on the other. Since the study of these relationships transcends modern economic theory, Polanyi suggested that it be designated substantive economics to distinguish it from formal economics. His point was that the word “economic” is used in two very different senses, which must be borne in mind to avoid perceiving all economies—primitive and archaic especially—simply as crude variants of modern industrial ones.
“Economic” in the substantive sense is used by Polanyi as a synonym for “material.” For example, when anthropologists talk about the economic aspects of primitive society, they simply mean the arrangements for acquiring, producing, or using material items or services for individual or community purposes. According to this meaning of the term, all societies, whatever their size, technology, or political structure, have an “economic” system—that is, structured arrangements for the provision of livelihood. In the formal sense, “economic” means to “economize” or to be “economical” —to choose among alternatives for the purpose of maximizing output, profit, or gain in exchange; or to minimize the cost of producing something, within the context of material “scarcity,” relative to what the economist calls the demand.
In the capitalist, market-integrated economy and in conventional economic theory, the two meanings of “economic” are fused, since in capitalism the market institutions serve both to provide the material means of existence and to enforce economizing activities on the participants: to earn their livelihood people must abide by the rules of the market. Economic theory reflects this separation of the economy from other social institutions by making market transactions almost its sole concern; it has thus become essentially a theory of valuations—of prices and their mutual interdependence. The market economy, however, is a very special case, historically and anthropologically. Preindustrial societies frequently have economies in which the structured mode of providing the means of existence does not consist of economizing institutions. Polanyi’s reason for differentiating the two meanings of “economic” was to avoid what he called the “economic prejudice”—that is, the perception of all economies (including the primitive and the archaic) as variants of modern industrial ones, and the translation of all economic institutions into market-economizing terms. He sought conceptual categories which would permit both the analysis of the relation of economic to social organization and the direct comparison of economies.
By confining itself to market phenomena, he felt, economic theory has become inadequate in two ways: it has removed from its ambit the social organization which links the economy to the cultural, psychological, and political structure of society; and by its exclusive concern with industrial capitalism, it has forced the analysis of other societies into a conceptual framework—in modern terminology one would say “model”—that does not fit them.
Modes of organizing economies. Polanyi’s analysis of the uses of money, the forms of external trade, and the role of markets in different economies illustrates how devices that are superficially similar, such as money and foreign trade, have different functions in market and nonmarket economies: the fact that both the Soviet and American economies make use of money, foreign trade, markets, and trade unions does not mean that either these institutions or their underlying organization are the same. This is also true of the structure and function of money, markets, and foreign trade in primitive and archaic economies.
The problem of the place of the economy in society is the main topic of Polanyi’s two principal books: The Great Transformation (1944), which deals primarily with contemporary society, and Trade and Market in the Early Empires (Polanyi et al. 1957), which deals chiefly with primitive and archaic societies and their remnants. In the latter book Polanyi created a conceptual framework for analyzing preindustrial societies in which markets had little significance.
In his view the market economy is only one of the three historical modes of organizing economies; the others are reciprocity and redistribution. Polanyi did not consider his types as evolutionary stages, although some did develop earlier than others. Nor are the types mutually exclusive: in any economy two, and sometimes three, of the types of transactions are usually present, although one type tends to be dominant. In politically centralized primitive societies, such as the Bantu, and in archaic societies—such as the Inca, the Nupe of Nigeria, eighteenth-century Dahomey, the indigenous kingdoms of east and south Africa, and the pre-Christian Middle East—redistribution was the dominant pattern of integration (or transactional mode), but gift giving and market transactions were frequently present. In some economies such as those of the Tiv and the Trobriand Islanders, where reciprocity was the dominant mode of transaction, petty markets were present as well.
Planning and freedom. Polanyi first encountered the problem of the relationship of the economy to society when studying the British industrial revolution; this revolution appeared to him not only to multiply man’s wealth but also to threaten the very fabric of society. Polanyi argued in The Great Transformation that a laissez-faire capitalistic market economy is not socially viable. The attempt to make the fear of hunger and the quest for profit the governing motives of the economy is socially divisive and humanly destructive. The European and American upheavals of the 1920s and 1930s—communism, fascism, and the New Deal—were emergency transformations of market societies which had become economically and socially intolerable.
Polanyi’s theoretical work never failed to be informed by his desire to solve what he considered the crucial problem of modern society: How can society regain control over the forces of the economy that were relegated to the autonomous market during the industrial revolution without abandoning freedom? Modern society, in his view, is to some extent compelled to compel, and he wished to distinguish the economic realms that require planning and control from the cultural spheres that require freedom. Polanyi thus held a modified socialist position, in antithesis to the economic determinism of both the orthodox left and the MisesHayek school, both of which are based on the same premise, although they prognosticate diametrically opposed outcomes.
Even the wide range of Polanyi’s writings hardly reflects the enormous breadth of his interests in the humanities, in arts and letters, and in the history of the day. It was his custom at the end of a day’s work to discuss political events with friends and collaborators, and it was in these informal conversations that the astounding analytical and, at times, prophetic power of his unorthodoxy revealed itself most fully.
1922 Sozialistische Rechnimgslegung. Archiv für Sozialwissenschaft und Sozialpolitik 49:377–420.
1937 Europe To-day. With an introduction by G. D. H. Cole London: Workers’ Educational Trade Union Committee.
1944 The Great Transformation. New York: Farrar → A paperback edition was published in 1957 by Beacon. Also published in 1945 by Gollancz as Origins of Our Time.
1947a The Citizen and Foreign Policy. London: Workers’ Educational Association.
1947b Our Obsolete Market Mentality. Commentary 3, February: 109–117.
1957a Marketless Trading in Hammurabi’s Time. Pages 12–26 in Karl Polanyi, Conrad M. Arensberg, and Harry W. Pearson (editors), Trade and Market in the Early Empires: Economies in History and Theory. Glencoe, Ill.: Free Press.
1957b Aristotle Discovers the Economy. Pages 64–94 in Karl Polanyi, Conrad M. Arensberg, and Harry W. Pearson (editors), Trade and Market in the Early Empires: Economies in History and Theory. Glencoe, Ill.: Free Press.
1957c The Economy as Instituted Process. Pages 243-270 in Karl Polanyi, Conrad M. Arensberg, and Harry W. Pearson (editors), Trade and Market in the Early Empires: Economies in History and Theory. Glencoe, Ill.: Free Press.
1957 Polanyi, Karl; Arensberg, Conrad M.; and Pear Son, Harry W. (editors) Trade and Market in the Early Empires: Economies in History and Theory. Glencoe, Ill.: Free Press.
1960 On the Comparative Treatment of Economic Institutions in Antiquity, With Illustrations From Athens, Mycenae and Alalakh. Pages 329–350 in Symposium on Urbanization and Cultural Development in the Ancient Near East, University of Chicago, 1958, City Invincible. Univ. of Chicago Press.
1963 Ports of Trade in Early Societies. Journal of Economic History 23:30–45.
1963 Duczyńska, Ilona; and Polanyi, Karl (editors) The Plough and the Pen: Writings From Hungary, 1930–1956. London: Owen; Toronto: McClelland & Stewart.
1964 Sortings and “Ounce Trade” in the West African Slave Trade. Journal of African History 5:381–393.
1966 Dahomey and the Slave Trade. Seattle: Univ. of Washington Press. → Published posthumously.
Bohannan, Paul; and Dalton, George 1965 Karl Polanyi. American Anthropologist New Series 67:1508–1511.
Levitt, Kari 1964 Karl Polanyi. Co-existence 1, no. 2:113–121.
Karl Polanyi (1886–1964) was born in Vienna on October 25 of Hungarian parents and became a leading economic historian of the twentieth century. His understanding of the Industrial Revolution as dependent on a disembedding of the economy from the broader culture offers an important perspective on globalization and suggestive insights relevant to relationships between science, technology, and ethics. After studies in Budapest, work as a lawyer, radical political activity, service in World War I where he was imprisoned on the Eastern front, and postwar convalescence and work as a journalist, he immigrated first to Great Britain (1933) and then to the United States and Canada (1940s), where he taught first at Bennington College and then at Columbia University. Because of past involvement with Marxist radicalism, his wife, Ilona Duczynska, was denied the right to live in the United States and Polanyi was forced to live in Canada and commute to New York. He died in Pickering, Ontario, on April 23. He was survived by his younger brother, the scientist and philosopher Michael Polanyi.
The Great Transformation
Polanyi's The Great Transformation (1944) has been recognized as a central contribution to economic sociology. The basic argument of this analysis of the Industrial Revolution is that capitalism is historically unique in its separation of economic relationships from other social interactions. All previous human economies were embedded in the sense of being integrated into familial, kinship, social, religious, and other interactions and obligations. The great transformation was not simply the development of new sources of power (steam), machines, and systems of production (division of labor), but the disembedding of production and market distribution from all other modes of interaction.
One key feature of the disembedding process was turning land, labor, and capital into what Polayni calls fictitious commodities. In reality neither land (nature) nor labor (people)—and only to a limited extent capital (whether liquid or fixed)—can ever have their price freely determined by market relations in the same way as industrial products. The self-regulating market as conceived by neoclassical economics nevertheless requires such an assumption. What Polanyi's analysis seeks to demonstrate is the fictitious character of these assumptions, both in relation to previous historical practices and as revealed in the failures of market economy in the early twentieth century.
For Polayni the great transformation of his concern was actually two quite different historical events: the collapse of nineteenth century civilization associated with World War I and the creation of the self-regulating market economy through the collaboration of industrialists, neoclassical economists, and liberal politicians. In the first sense his diagnosis of the great transformation was precisely the opposite of that of his contemporary Friedrich von Hayek in The Road to Serfdom (1944). For von Hayek the collapse that terminated the nineteenth century was caused by a failure to extend the market system to its logical conclusion and more fully remove state regulation of the economy. For Polanyi the reactions of communism, fascism, and Keynesian economics were legitimate efforts to reaffirm the proper subordination of industrialist economics to society and culture.
Polanyi's argument has been subject to criticisms by both anthropologists and economists, each raising essentially the same question: Does Polanyi not romanticize premodern economic orders? Is there really any alternative to the market economy, which is a natural historical development? Following The Great Transformation Polanyi undertook extensive studies of premodern economic practices in order to further substantiate his claims about the historical uniqueness of neoeconomic assumptions. One of the more influential results of this research was the collaborative publication of Trade and Market in the Early Empires: Economies in History and Theory (1957).
Application and Assessment
From Polayni's perspective the market economy is a historical anomaly. Although forms of trade and exchange can be found in all human societies, economic exchange had never previously been so independent of all other relations. The pattern found in modern economies is, of course, also that exhibited in analogous ways in science and technology: the development of autonomous communities of practitioners operating according to sets of rules that apply only to quite limited aspects of human behavior (as in the practice of the scientific method). Under such conditions rationalist ethics is forced to play a more important role in criticizing and moderating disembedded behaviors (economic, scientific, and technological) than ever before—while at the same time disembedding creates conditions that make ethics ever more ineffectual. Ethics is thus forced to adapt policy as its handmaid in order to overcome its own impotence.
But is it not the case that Polanyi was fundamentally mistaken, if not about the past then about the collapse of the free market system that supported the civilization of the long nineteenth century? As his daughter Kari Polanyi Levitt admits, "Polanyi was certainly premature in dismissing 'market economy' and 'market society' from the stage of history" (McRobbie and Polanyi Levitt 2000, p. 10). From the end of the Cold War and into the beginning of the twenty-first century, neoliberalism reemerged with the forces of globalization stronger than ever before. But this world was also one in which, as Polanyi Levitt notes, "disasters of famines, wars, new diseases and environmental degradation threaten the destruction of the social, cultural and ecological fabric which sustains life on earth." Under such conditions, is it not possible that Polanyi's "analysis of the dangers inherent in the elevation of 'the economic instance' over all other aspects of human endeavor" deserves continuing consideration? (McRobbie and Polanyi Levitt 2000, p. 10).
McRobbie, Kenneth, and Kari Polanyi Levitt, eds. (2000). Karl Polanyi in Vienna: The Contemporary Significance of "The Great Transformation." Montreal: Black Rose Books. Thirty papers from a conference in Vienna on the fiftieth anniversary of the publication of The Great Transformation.
Polanyi, Karl. (1944). The Great Transformation. New York: Rinehart. Reprint, Boston: Beacon Press, 1957. Second edition, Boston: Beacon Press, 2001.
Polanyi, Karl. (1968). Primitive, Archaic, and Modern Economies: Essays of Karl Polanyi, ed. George Dalton. Garden City, NY: Doubleday Anchor.
Polanyi, Karl; Conrad M. Arensberg; and Harry W. Pearson, eds. (1957). Trade and Market in the Early Empires: Economies in History and Theory. Glencoe, IL: Free Press.
Stanfield, J. Ron. (1986). The Economic Thought of Karl Polanyi: Lives and Livelihood. New York: St. Martin's Press. The last chapter connects Polanyi's economic history to an assessment of industrial technology and the alternative technology response present in E. F. Schumacher, Wendell Berry, and others.
His best-known publication is The Great Transformation (1944)–which has a Foreword by Robert M. MacIver –inwhich he seeks to document the causes of the two world wars, the depression of the 1930s, and the basis of the ‘new order’ of the mid-twentieth century. His was a stringent study of the consequences of the emergence of the ‘world market’ and the manner in which society can protect itself against its consequences. He warned against promoting the economy to the point at which power becomes highly concentrated, economic decision-making escapes human control, and human dignity and freedom are threatened. This economism could destroy society by undermining social cohesion; it requires that the economy be embedded within relations of social control similar to those found in traditional societies.
His other major publications, notably the co-authored Trade and Markets in the Early Empires (1957) and the posthumously published The Livelihood of Man (1977), develop Polanyi's so-called substantivist critique of liberalism, challenging the idea that freedom and justice are inextricably tied to the free market, and documenting the various ways in which economic processes in any society are necessarily shaped by its cultural, political, and social institutions.
Polanyi was a genuinely interdisciplinary scholar: an entry on him is also likely to be found in dictionaries of economics, history, anthropology, and political science. Most recently, his work has become part of the debate around the possibility for a ‘Third Way’ in the transition from communism to the market. Untrammelled market economics, as exported by most Western advisers, are seen by some East European social scientists and policy-makers as likely to create the kinds of problems associated with the self-regulating market that Polanyi documents across a range of historical examples. The opposition between the ‘logic of the economy’ and the ‘logic of society’ are particularly acutely felt by these post-communist societies as they leave their protective states and face the uncertainties of a rapid transition to the market.
Karl Polanyi (1886-1964) was a Hungarian economic historian. His view of laissez-faire capitalism as a fleeting episode in history and of a new world economy as having evolved from it led to better understanding of nonmarket economies.
Born in Vienna on Oct. 25, 1886, Karl Polanyi was the son of a prosperous entrepreneur. The family fortune suffered reverses, however, and while attending the University of Budapest, he had to serve as a tutor to support his family. His problems were intensified by radical political activities which led to his banishment. He completed his education and received his degree in law at Kolozsvár in July 1909 and was called to the bar in 1912.
Polanyi was general secretary of the Radical Citizens party of Hungary for a short time and served in the army during World War I. The close of the war found him gravely ill, and he was taken to Vienna to convalesce. There he met and, in 1923, married Ilona Duczynska. From 1924 to 1933 he wrote on world affairs for two periodicals. With the rise of fascism, Polanyi emigrated to England. He lectured and conducted tutorial classes for the Workers Educational Association and the extramural programs of Oxford University and the University of London (1937-1940). He also made tours in the United States, lecturing on international affairs. He was resident scholar at Bennington College, Vt. (1940-1943), and during this period wrote The Great Transformation (1944).
Polanyi was a visiting professor at Columbia University (1947-1958). Even after his retirement, his productive work continued. Out of the Interdisciplinary Project on Economic Aspects of Institutional Growth, which was the joint responsibility of Polanyi and Conrad M. Arensberg, came Trade and Market in the Early Empires, a book that greatly influenced the course of economic anthropology as well as economic history. Polanyi founded the journal Co-Existence as a means of stimulating objective and scientific discussion of the problems of peaceful coexistence. The first issue was published shortly after his death on April 23, 1964.
Perhaps the central motif of Polanyi's thought is that although 19th-century laissez-faire capitalism was a brief and unique episode in man's history, orthodox economics proceeds upon the assumption that the relation between the economy and society that prevailed in that period still prevails. Existing categories and modes of analysis being inappropriate, he set out to develop new and broader ones. His work along these lines has been of lasting value, particularly to the understanding of nonmarket economies.
No complete biography or bibliography of Polanyi's work has been published. An analysis of Polanyi's economics is in the introduction to George Dalton, ed., Primitive, Archaic and Modern Economies: Essays of Karl Polanyi (1968). □