Legacies

Karl Polanyi’s Legacy

Keith Hart

Karl Polanyi (1886–1964) was a writer and teacher of Hungarian originwho lived in Central Europe and Britain before moving to the United Statesduring the Second World War.1 He was the author of a vivid and powerfulcritique of the liberal tendency to place the market at the centre of humannature and society, what we might call ‘market fundamentalism’. The GreatTransformation (1944) is above all a great read. In recommending it tostudents and acquaintances over the years, I have never yet had a dissatisfiedcustomer. Polanyi took an active interest in literature and the quality ofhis writing is a constant pleasure. Moreover, the book has a strong, evenshocking message: the game is up for capitalism and the story of how thiscame about is told with passionate clarity. It is not hard to see that sucha message would have resonance today, when the neoliberal experimentin subordinating society to the free movement of global capital is visiblyrunning up against its contradictions. But Polanyi speaks directly to thedissident in each of us at any time. Despite the pessimism of his prophecy,the reader usually comes away charged with hope for a better future.

Polanyi had some limited success in building a school of followers, mostnotably in economic anthropology. A Montreal institute named after himhas kept the interdisciplinary flame burning since then. His ideas have neverdropped out of sight in the last half-century, but attempts to place Polanyi ona par with Marx, Weber, Durkheim and Simmel have never really taken off.There are several reasons for this. As we will see, his depiction of capitalism

1. This note draws freely on my work with Chris Hann in editing a collection of criticalessays on Polanyi, Market and Society: The Great Transformation Today (Hann and Hart,forthcoming). I have also learned much from working with Jean-Louis Laville (2006, n.d.).An important new collection of essays on Polanyi appeared recently in French, Avec KarlPolanyi, contre la societe tout-marchand (MAUSS, 2007). Its publication coincided witha conference in Paris, Revisiter Polanyi. A conference to mark the 20th anniversary ofthe Polanyi Institute will be held in Montreal in December 2008. For personal materials,see McRobbie and Polanyi Levitt (2000). Stanfield (1986) explores key philosophical andeconomic aspects of Polanyi’s thought. Halperin (1984) emphasizes his debt to Marx, whileIsaac (2005) offers a balanced assessment of Polanyi’s oeuvre and its current standing. Fora recent collection on Polanyi’s relevance to the twenty-first century, see Bugra and Agartan(2007).

Development and Change 39(6): 1135–1143 (2008). C© Institute of Social Studies 2008. Publishedby Blackwell Publishing, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main St.,Malden, MA 02148, USA

1136 Keith Hart

as a self-regulating (and ultimately self-destructive) market missed someof the key features that were central to its resurrection after the war. Hisformal analysis and conceptual system were perhaps fuzzier than those ofthe founders of modern social theory. His book succeeds as a narrative morethan as a source for understanding and effective action. This may explainwhy he later abandoned his populist critique of mainstream capitalism inorder to become a guru in the academic study of non-industrial economicinstitutions.

Yet his reputation has been rising palpably in the last two decades. Thistrend may be inversely related to the fortunes of Marxism. Since the collapseof the Soviet Union, if not before, the main centres of critical social thoughthave been countries like France, Italy and Brazil. The Marxist tradition hasalways been strong there, but it is noticeable that whereas writers once rou-tinely peppered their texts with references to Marx, they are now more likelyto invoke Polanyi. This may be just because Marx is no longer fashionable,even on the left. Or it may mark a shift to an emphasis on institutional reform,as opposed to revolution. In any case, if the current world economic crisisdeepens and, as some think likely, comes to resemble the 1930s more thanany other decade, the legacies of Marx and Polanyi may undergo anothershift in their relative appeal to progressives.

What follows is in no sense an apologia for Polanyi’s point of view. As afan of his writing, I am quite ambivalent about his political and pedagogicalvalue. I believe he is important as a mirror for our own times, whether ornot we want to buy into his conceptual toolkit. He offers, especially in TheGreat Transformation, a distinctive, Euro-centric vision of world historywhose scope it would pay students of development to emulate in spirit, ifnot in the letter. At a time when intellectual work often seems parochial andnarrow, Polanyi still offers a salutary reminder that a wider vision is possibleand indeed necessary. In his masterwork, Polanyi argued that nineteenth-century industrial capitalism and its ideological representation in liberalpolitical economy marked a fundamental break with the human past whoseruinous consequence was the breakdown of world society in the first half ofthe twentieth century. His emphasis on ‘the self-regulating market’ did notallow him to foresee the revival of market economy after the war within aframework of social democracy.

After the war, Polanyi worked with colleagues in the United States to showthe limitations of neoclassical economics as a universal theory of the humaneconomy. He no longer attacked the economists frontally, apparently beingcontent with an academic division of labour that granted them pre-eminencein industrial societies, leaving the rest as the province of anthropologistsand historians. He developed an approach to ‘modes of integration’ of theeconomy in which the market (‘exchange’) took its place alongside otherprinciples, reciprocity and redistribution. Polanyi’s idea that the economyis normally ‘embedded’ in social institutions has become a cornerstoneof economic sociology in recent decades (Beckert, 2009). He argued that

Legacies: Karl Polanyi 1137

the utopian project of ‘disembedding’ market economy from society ledto a ‘double movement’ whereby various classes acted to protect society’sinterests against the market. His pluralist approach to economic institutions,based on rejection of fundamentalisms of both right and left, has attracteda growing band of followers among those who are now searching for waysto transcend the impasse that for three decades has been associated withneoliberal dominance of the world economy.

The Great Transformation: The Political and Economic Origins of OurTimes (Polanyi, 1944) opens with a highly selective account of the makingof world society in the nineteenth century, a society that Polanyi not un-reasonably considered to be lying in ruins as he wrote. He identified fourpillars of this civilization, all of which had collapsed in the course of whatWinston Churchill called ‘the second Thirty Years War’ (1914–1945): thebalance-of-power system that had brought a century of peace within Europe;the international gold standard; the self-regulating market; and the liberalstate. He identified the peace interest with what he insisted on calling hautefinance: ‘an institution sui generis, peculiar to the last third of the nineteenthand the first third of the twentieth century, [which] functioned as the mainlink between the political and economic organization of the world in thisperiod’ (ibid.: 10).

The international gold standard ‘was merely an attempt to extend the do-mestic market system to the international field; the balance-of-power systemwas a superstructure built on its foundation; and the gold standard’s fall‘was the proximate cause of the catastrophe’. The self-regulating marketwas ‘the fount and matrix of the system’; it had ‘produced unheard-of ma-terial welfare’ (ibid.: 3), but it was utopian in its pursuit of an autonomouscircuit of commodities and money. The liberal state, in the name of marketfreedom, forced all other interests in society to submit to the freedom ofcapital, another word for money.

Polanyi did not claim that his was a work of history: ‘what we are searchingfor is not a convincing sequence of outstanding events, but an explanationof their trend in terms of human institutions’ (ibid.: 4). His focus was onthe industrial heartland of nineteenth-century civilization and on Britain inparticular. Next to the rise of market fundamentalism, he played down the bu-reaucratic revolution of the late nineteenth century that allowed governmentsto promote mass production and consumption in alliance with corporations.There is little here about America and Russia, even though he acknowledgedtheir rise as great powers in this period. The reader will find even less abouthow a racialized world society was built through colonial empire. Rather,Polanyi was concerned with the consequences of buying and selling the veryessence of our humanity in nature and society, with what he called the ‘fic-titious commodities’. Land, labour and money are essential to the industrialsystem; they must therefore be bought and sold, but they were definitely notproduced for sale. Labour is human activity, that is part of life itself; land isanother word for nature; and ‘actual money is merely a token of purchasing

1138 Keith Hart

power which, as a rule, is not produced at all, but comes into being throughthe mechanism of banking or state finance’ (ibid.: 72). Here Polanyi comesclose to suggesting that a free market in money entails buying and sellingsociety itself.

Polanyi distinguished between ‘token’ and ‘commodity’ forms of money,labels that I borrowed for an analysis of the two sides of the coin as sym-bolic of the state/market pair (Hart, 1986). ‘Token money’ was designedto facilitate domestic trade, ‘commodity money’ foreign trade; but the twosystems often came into conflict. Thus the gold standard sometimes exerteddownward pressure on domestic prices, causing deflation that could only bealleviated by central banks expanding the money supply in various ways.The tension between the internal and external dimensions of economy oftenled to serious disorganization of business (ibid.: 193–4). Another way ofputting this contradiction is to oppose the liberal definition of money as justa ‘medium of exchange’ to one of it as a ‘means of payment’. Money wasthus ‘not a commodity, it was purchasing power; far from having utilityitself, it was merely a counter embodying a quantified claim to things thatcould be purchased. Clearly, a society in which distribution depended onpossession of such tokens of purchasing power was a construction entirelydifferent from market economy’ (ibid.: 196).

The final collapse of the international gold standard was thus one con-sequence of the ruinous attempt to delink commodity and token forms ofmoney. In a trenchant discussion of the economic crisis of the 1930s that hasechoes of the world economy today, Polanyi highlighted the separation ofthe money system from trade. As restrictions on trade grew, money becamemore free:

Short-term money moved at an hour’s notice from any point of the globe to another; themodalities of international payments between governments and between private corporationsor individuals were uniformly regulated. . . . In contrast to men and goods, money was freefrom all hampering measures and continued to develop its capacity to transact business atany distance at any time. The more difficult it became to shift actual objects, the easierit became to transmit claims to them. . . . The rapidly growing elasticity and catholicity ofthe international monetary mechanism was compensating, in a way, for the ever-contractingchannels of world trade. . . . Social dislocation was avoided with the help of credit movements;economic imbalance was righted by financial means (ibid.: 205–6).

But of course, in the end, political means of settling the imbalance out-weighed market solutions and war was the result.

The Great Transformation was a work of prophecy and, broadly speaking,the prophecy failed. The 1940s indeed saw a world revolution; but its im-mediate outcome was not foreseen by Polanyi. An anti-colonial revolutionagainst European empire went side by side with a revival of the world marketunder American hegemony, fuelled by an expansion of public services inall the leading industrial countries. Prophets don’t just speak of the future;they reveal hidden truths about the world, often making them a source of

Legacies: Karl Polanyi 1139

revolutionary thought and the inspiration for social movements (Graeber,2008). Since the last three decades have seen a replay of the ‘self-regulatingmarket’ scenario and possibly the beginning of its demise, Polanyi’s visionoffers one perspective on the political and economic origins of our owntimes. His time as a prophet may yet be to come.

In 1957, with two colleagues (Conrad Arensberg and Harry Pearson) froma Ford Foundation interdisciplinary project designed to keep him employedafter retirement, Polanyi produced a collection of essays, Trade and Marketin the Early Empires: Economies in History and Theory. This included twochapters by Polanyi himself, especially one on ‘The Economy as InstitutedProcess’ (Polanyi, 1957) that proved to be remarkably influential, at leastwithin anthropology. There are two meanings of the word ‘economic’ thathave been conflated: the formal and the substantive, a Kantian distinction thathe drew from Menger (1871), although Max Weber (1978: 85–6) and manyothers also used it. The first refers to a means–end relationship, the mentalprocess of economizing, whereas the second concerns the provisioning ofmaterial wants. Menger, one of the founders of the marginalist revolution,suggested in a posthumous edition of his work that economics might takeeither of two directions based on what are essentially different assumptions:one reflecting the necessity of economizing in response to insufficient means;the other, which he called ‘techno-economic’, responding to the exigenciesof physical production without reference to the abundance or scarcity of themeans available (Laville, n.d.). He considered both these approaches to thedevelopment of the human economy to be primary and fundamental. Hissuccessors in neo-classical economics, notably Friedrich Hayek, chose toprivilege Menger’s price theory and reduce his approach to a formal onealone, protected by the absence of an English translation of the posthumousedition.

Polanyi held that this reduction of the field of economic thought led to acomplete rupture between the economy and life. Most pre-industrial societiesare ruled by institutions that guarantee collective survival; but industrialsocieties have a delocalized economy, ‘the market’, in which individualdecision-making rules. This proposal that anthropologists and historiansshould focus on non-capitalist economies, leaving modern capitalism to theeconomists, proved to be congenial at the time and led to what becameknown as ‘the formalist-substantivist debate’ (Leclair and Schneider, 1968),a replay of the ‘Battle over methods’ (Methodenstreit) in the late-nineteenthcentury German-speaking world.

Karl Polanyi was a maverick public intellectual who spent more yearsworking as a journalist than as a tenured academic. He was fundamentallyan historian. He was more interested in substantive historical change thanin speculating about an abstract, formal rationality. Polanyi never deniedthe utility of markets for the allocation of some goods and services. Whathe condemned was the elevation of the ‘self-regulating market’ to a posi-tion of dominance and the high price the British working classes paid for

1140 Keith Hart

this. Laissez-faire liberalism was not the necessary, ‘natural’ concomitantof industrialism: the ‘self-regulating market’ is to some extent a misnomer,an illusion even, since this regime could only emerge and reproduce itselfthanks to specific interventions by the state. At the same time, its dominancewas challenged by countermovements within society, as the victims of thenew liberalism sought to defend themselves against its consequences. TheChartists were the first mass movement through which workers sought toprotect themselves from the new market mechanisms. The market thus re-mained thoroughly ‘embedded’ in two distinct senses: first, in its dependenceon the state and second, like other forms of exchange, it was associated witha range of social institutions, including some explicitly formed to counterallegedly impersonal and ‘natural’ market forces. Polanyi sometimes playeddown these tendencies, characterizing laissez-faire liberalism as a societythat was ‘disembedded’. This concept of market society is perhaps bestviewed as overdrawn ideal type, the rhetorical encapsulation of a lifelonganti-capitalism. His real objection was to ‘market fundamentalism’.

Jens Beckert has recently shown how thoroughly Polanyi’s ideas haveentered economic sociology, a field that is booming at this time:

The renewed interest of sociology in investigating core institutions of modern capitalisteconomies, especially markets, might not be surprising. What is surprising, however, isthat the essential concept applied in the new economic sociology is not derived from theclassical sociologists Max Weber, Emile Durkheim, Georg Simmel or Karl Marx. Instead,the ‘founding manifesto’ of the new economic sociology, Mark Granovetter’s (1985) seminalarticle ‘Economic Action and Social Structure — the problem of embeddedness’ — centresaround Karl Polanyi’s concept. Ever since, this has been a focal point of the new economicsociology. Hardly any article associated with the new economic sociology fails to mention‘embeddedness’ as the core concept indicating a sociological approach to the economy. Feweconomic sociologists would disagree with the statement that ‘We are all Polanyians now’(Beckert, forthcoming).

Beckert goes on to claim that the radical intent of Polanyi’s original for-mulation has largely been lost in what is, after all, mainly a conservativeAmerican discipline. The idea has often been reduced to pointing out thatsocial networks play a part in labour markets and business associations. Butthere remains a tension between claiming that the ‘free market’ is increas-ingly ‘disembedded’ from political oversight and acknowledging that it is inreality ‘embedded’ in political processes that are made largely invisible byliberal ideology. Thus the Marxist geographer, David Harvey (2005), labelsthe contrast between the postwar welfare-state consensus and the neoliberalperiod ‘embedded liberalism’ and ‘disembedded liberalism’ respectively,when some might think the former better described as ‘social democracy’than as a species of liberalism. The ambiguities need to be hammered out.What is certain is that Polanyi has belatedly come to the fore in the socialanalysis of contemporary capitalism.

Since the 1980s both Keynesian and traditional socialist techniques of eco-nomic management have been discredited and swept aside. The neoliberal

Legacies: Karl Polanyi 1141

ideology that took their place far exceeds the original liberal prototype inthe claims it makes for the virtues of the market. This is why so manyscholars in different fields now find inspiration in Polanyi’s work. For ex-ample, the political economist, Eric Helleiner (2000), has argued that thedramatic expansion of finance capital in recent decades is directly analogousto the historical phenomenon identified by Polanyi above, so that a Polanyiancritique is timely. Analogous to Polanyi’s ‘double movement’, the currentglobalization of market capitalism has been accompanied by a comparabletendency in social movements. Society is now protecting itself not throughthe formation of trades unions within nation-states but through transnationalnetworks of activists protesting against the power of the G8 states. Polanyiwould probably sympathize with all those currently seeking to develop newand more radical forms of democracy. These constellations of forces maymitigate the continuing damage inflicted by ‘the market’ on persons andthe natural environment. Global markets and ‘global civil society’ impli-cate each other (Keane, 2003); our task is to understand more closely thechanging institutional forms of this interdependence.

Jean-Louis Laville (2006, n.d.) leads a recent revival of Polanyi’s influ-ence in France, linking his legacy explicitly to that of Marcel Mauss, whosesocialist politics (Mauss, 1997) have always been given greater prominencethere than in Anglophone countries. Laville argues that both authors basedtheir economic analysis on a critique of the reductionist assumption thatexplains economic action solely as the expression of material self-interest.They held that economic behaviour could be an expression of a sense ofbelonging or of interest and disinterest combined, such interest being widerin scope than merely material. Both insisted that economic reality is alwaysplural and that this is masked by the liberal model of economy — utilitari-anism. We now know that identification of society with the market, on thegrounds of a concern for individual freedom, generates huge inequalities;but the submission of the economy to political will on the pretext of equalityalso leads to the suppression of freedom. These two twentieth-century solu-tions to the problem of ‘the human economy’ have called democracy itselfinto question, either by subordinating political power to that of money or bytaking the form of totalitarian systems. If we reject both of these options,it then becomes a question of developing institutions capable of guarantee-ing a plural economy within a democratic framework. Polanyi and Maussagreed on this point: we must rely on practical experience for informationand analysis, in other words start from real economic movements, not froman abstract programme of social reform. Their shared conception of socialchange ‘is by no means committed to revolutionary or radical alternatives,to brutal choices between two contradictory forms of society, [but] is andwill be made by a process of building new groups and institutions alongsideand on top of the old ones’ (Mauss, 1950: 265, my translation). By outliningthe theoretical foundations of a plural approach to the economy rather thanmaking an appeal to a radical alternative, Polanyi opened up the entire field

1142 Keith Hart

of human possibilities, most of which already exist in our societies. Ourtask is to make new institutional combinations out of them and with a newemphasis.

So what are the lessons to be drawn from comparing our present situationwith the one Polanyi depicted before? He explained the world crisis ofthe mid twentieth century as the outcome of a previous round of whatwe would call ‘globalization’. There are substantial parallels between thelast three decades and a similar period before 1914. In both cases, marketforces were unleashed within national societies, leading to rapid capitalaccumulation and an intensification of economic inequality. Finance capitalled the internationalization of economic relations and people migrated inlarge numbers all over the world. Money seemed to be the dominant socialforce in human affairs; and this could be attributed to its greater freedomof movement as the boundaries of society were extended outwards, then bycolonial empire, now by the digital revolution and transnational corporations.The main difference is that the late nineteenth century saw the centralizationof politics and production in a bureaucratic revolution, while a century laterthese same bureaucracies were being dismantled by neoliberal globalization.Moreover, the immediate winner of ‘the second thirty years war’ (1914–1945) was a strengthened national capitalism whose synthesis of state andmarket was hardly anticipated by Polanyi.

It is odd that Polanyi appears sometimes to reduce the structures of na-tional capitalism to an apolitical ‘self-regulating market’. For his analysisof money, markets and the liberal state was intensely political, as was hispreference for social planning over the market. His war-time polemic, re-producing something of his opponents’ abstractions, was more a critiqueof liberal economics than a realistic account of actually existing capital-ism. This would explain the lingering confusion over whether he thoughta ‘disembedded’ market was possible or just a figment of liberal ideology.Similarly, one could argue either that neoliberalism did effectively disembedthe market economy or that its claim to have done so was a mystification ofthe fact that markets were still embedded in largely invisible political pro-cesses. In either case, the postwar turn to ‘embedded liberalism’ (Harvey,2005) is only weakly illuminated by The Great Transformation. WhetherKarl Polanyi will be relegated to a footnote in the history of developmenttheory or becomes established as a canonical figure remains to be seen.

REFERENCES

Beckert, Jens (forthcoming) ‘The Great Transformation of Embeddedness: Karl Polanyi and theNew Economic Sociology,’ in C. Hann and K. Hart (eds) Market and Society: The GreatTransformation Today. Cambridge: Cambridge University Press.

Bugra, Ayse and Kaan Agartan (eds) (2007) Reading Karl Polanyi for the Twenty-first Century:Market Economy as a Political Project. New York: Palgrave MacMillan.

Legacies: Karl Polanyi 1143

Graeber, David (2008) ‘The Sadness of Post-workerism’, The Commoner Spring/Summer, No.13. http://www.commoner.org.uk/?p=33 (accessed 18 September 2008).

Granovetter, Mark (1985) ‘Economic Action and Social Structure: The Problem of Embedded-ness’, American Journal of Sociology 91(3): 481–510.

Halperin, Rhoda (1984) ‘Polanyi, Marx, and the Institutional Paradigm in Economic Anthropol-ogy’, Research in Economic Anthropology 6: 245–72.

Hann, Chris and Keith Hart (eds) (forthcoming) Market and Society: The Great TransformationToday. Cambridge: Cambridge University Press.

Hart, Keith (1986) ‘Heads or Tails? Two Sides of the Coin’, Man (N. S.) 21(4): 637–56.Harvey, David (2005) A Brief History of Neoliberalism. Oxford: Oxford University Press.Helleiner, Eric (2000) ‘Globalization and haute finance — deja vu?’, in K. McRobbie and K.

Polanyi Levitt (eds) Karl Polanyi in Vienna, pp. 12–31. New York: Black Rose Books.Isaac, Barry (2005) ‘Karl Polanyi’, in James G. Carrier (ed.) Handbook of Economic Anthropol-

ogy, pp. 14–25. Cheltenham: Edward Elgar.Keane, John (2003) Global Civil Society? Cambridge: Cambridge University Press.Laville, Jean-Louis (2006) ‘Economie plurielle’, in J.-L. Laville and A. D. Cattani (eds) Dictio-

nnaire de l’autre economie, pp. 250–8. Paris: Gallimard.Laville, Jean-Louis (2008) ‘Towards a Theory of Plural Economy: In the Footsteps of Mauss and

Polanyi’. Presented at conference, ‘Rethinking Economic Anthropology: A Human-centredApproach’, London (January).

Leclair, Edward and Harold Schneider (eds) (1968) Economic Anthropology: Readings in Theoryand Analysis. New York: Holt, Rinehart and Winston.

McRobbie, Kenneth and Kari Polanyi Levitt (eds) (2000) Karl Polanyi in Vienna: The Contem-porary Significance of ‘The Great Transformation’. Montreal: Black Rose Books.

Mauss, Marcel (1950) ‘Essai sur le don’, in C. Levi-Strauss (ed.) Sociologie et anthropologie,pp. 143–279. Paris: Presses Universitaires de France.

Mauss, Marcel (1997) Ecrits politiques (Marcel Fournier, editor). Paris: Fayard.MAUSS (2007) ‘Avec Karl Polanyi, contre la societe tout-marchand’, Revue du MAUSS

Semestrielle, No. 29 (whole issue). Premier Semestre. Paris: La Decouverte.Menger, Carl (1981) [1871]. Principles of Economics [Grundsatze der Volkwirtschaftslehre,

posthumous edition, Vienna, 1923]. Translated by James Dingwall and Bert F. Hoselitz.New York: New York University Press.

Polanyi, Karl (1944) The Great Transformation: The Political and Economic Origins of OurTimes. Boston, MA: Beacon Press.

Polanyi, Karl (1957) ‘The Economy as Instituted Process. Karl Polanyi’, in C. Arensberg andH. Pearson (eds) Trade and Market in the Early Empires: Economies in History and Theory,pp. 243–70. New York: Free Press.

Polanyi, Karl (1977) The Livelihood of Man (Harry W. Pearson, editor). New York: AcademicPress.

Stanfield, John (1986) The Economic Thought of Karl Polanyi. London: MacMillan.Weber, Max (1978) Economy and Society Vol. 1 (Gunther Roth and Claus Wittich, editors).

Berkeley: University of California Press.

Keith Hart is Honorary Research Professor in the School of DevelopmentStudies, University of Kwazulu Natal and Professor of Anthropology Emer-itus, Goldsmiths, University of London. He is the author of The PoliticalEconomy of West African Agriculture (1982), The Memory Bank: Money inan Unequal World (2000), The Hit Man’s Dilemma: Or Business Personaland Impersonal (2005) and co-editor of Market and Society: The GreatTransformation Today (2009). Email: johnkeithhart@gmail.com. Website:www.thememorybank.co.uk.