Karl Polanyi's "Great Transformation" and Development Politics

Essay, 2006

12 Pages, Grade: 1,3 (A- in the American system)




Economy and Society in Pre-capitalist and Capitalist Societies

The Creation of a Market Society and the Double Movement

Polanyi and Marxism

Polanyi, Development and Capitalist Society



Attempts to understand the transformation processes in the developing world have often led to a closer examination of Europe's and America's own history, as many theories of development suggest a specific interpretation of these histories: Modernization theorists, for example, see Europe's and America's history mainly as a straightforward progression towards welfare and democracy, eclipsing the aspects that do not fit into this picture, like the World Wars or the American Civil War. Therefore, although Karl Polanyi's "The Great Transformation" treats mainly historical events in Europe, it can at the same time be an important contribution to our understanding of the economic and social transformations in the developing world.

In this essay, I will first try to make clear, what assumptions underlie Polanyi's argument and what he means by the notion of "market society". I will proceed in three steps: first, I will explore the different roles that the economy, according to Polanyi, plays in capitalist and pre-capitalist societies; I will look then at the historical processes that led to the rise of a "market society". Finally, I will discuss the political reactions to these processes which can be characterized, in Polanyi's view, by a "double movement".

As Polanyi is one of the most important critics of economic liberalism, it is helpful to compare his account of the "Great Transformation" to a second, even more influential anti-liberal perspective, Marxism. Apart from some similarities, the fundamental difference seems to be that Polanyi does not give a positive account of modernization. This leads to the question, how Polanyi's theories can improve our understanding of development today. I will mainly argue that although Polanyi gives an impressive account of the limits of a market economy, his treatment of politics is much too loose to be convincing.

Economy and Society in Pre-capitalist and Capitalist Societies

During all his life, Polanyi was interested in anthropological and ethnological research on non-Western societies, for example in Malinowski's works on Western Melanesia.[1] These insights led Polanyi to one of the starting points of his analysis: namely, the idea that the role of the economy in pre-capitalist societies differed very much from that of capitalist societies.[2] One of the main differences lies in the function of markets: different sorts of trade and markets have existed long before capitalism, to be sure; in pre-capitalist societies, however, those markets were not regulated by a price determined exclusively by offer and demand, but by a complicated set of traditional rules[3], e.g. by the concept of the "just price" which was very common in medieval and early modern Europe.

The production and exchange of goods was never meant to be self-regulating, but was subjected to political and religious institutions which were parts of a "moral economy". Polanyi does not describe these institutions in detail, but he mentions several basic elements: goods were usually exchanged on the basis of reciprocity, i.e. not solely for the purpose to increase individual profit, and they were redistributed among the members of the community.[4] Household economies, which gave birth to the term "oekonomia", played a central role: goods were produced to satisfy the needs of a closed group, e.g. a village or a kinship community, not to achieve profits on a market. Every attempt to separate economic relations from this societal background, e.g. to use exchange exclusively as a means to personal enrichment, would lead to complete social exclusion, because the economic system was ultimately embedded in society: "The economic system is, in effect, a mere function of social organization."[5]

According to Polanyi, in modern capitalist societies this relation is turned upside down. Not only have economic relations become free from the influence of social regulation, they themselves constitute the order into which all other social relations are embedded.[6] This assumption is the foundation for Polanyi's understanding of 19th century European history which he sees as characterized by four institutions: the gold standard, a balance-of-power system, a liberal state and a self-regulating market. He shows that the concept of a self-regulating market system, guaranteed by the gold standard, permeated all other institutions and often determined government policies.[7] During the 1920s and 1930s, this system came into a severe crisis; desperate attempts undertaken by most governments to stick to the gold standard and to keep exchange rates stable failed, led to mass unemployment and finally undermined democracy in Europe.[8]

The comparison between the role of the economy in pre-capitalist and capitalist societies makes it possible for Polanyi to criticize one of the most important assumptions of classical political economy: the idea that markets are natural because they spring up from a "propensity to barter", as Adam Smith thought, or from a desire to increase personal welfare. Polanyi's historical analysis leads him to question ahistorical assumptions about the "nature of man" and the "homo oeconomicus" which have been the roots of liberal political philosophy.


[1] Comp. Polanyi's works on the economy in "primitive" societies: Polanyi, Karl: Primitive, Archaic, and Modern Economies, Garden City: Anchor Books 1968.

[2] Polanyi, Karl: The Great Transformation. The Political and Economic Origins of Our Time, Boston: Beacon Press 22001, pp. 45 pass.

[3] Ibid., pp. 65 pass.

[4] Ibid., pp. 49.

[5] Ibid., pp. 52.

[6] Ibid., pp. 60.

[7] Ibid., pp. 3 pass.

[8] Ibid., pp. 29.

Excerpt out of 12 pages


Karl Polanyi's "Great Transformation" and Development Politics
University of California, Berkeley  (Department of Political Science)
Course in development politics (Prof. Kiren Chaudhry)
1,3 (A- in the American system)
Catalog Number
ISBN (eBook)
ISBN (Book)
File size
478 KB
The essay gives a concise overview of Polanyi's central arguments, compares them to a Marxist approach and tries to evaluate Polanyi's importance for contemporary development thinking. Very good also for every general discussion about Polanyi.
Karl, Polanyi, Great, Transformation, Development, Entwicklungspolitik, Entwicklung, Dritte Welt, Kapitalismus, Entwicklungsländer, Modernisierungstheorie, Arbeitsmärkte, Lohnarbeit, Commodification, Eigentum, Eigentumsrechte, Speenhamland
Quote paper
Moritz Deutschmann (Author), 2006, Karl Polanyi's "Great Transformation" and Development Politics, Munich, GRIN Verlag, https://www.grin.com/document/63550


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