In 1944 two books were published that would come to symbolise the clash of modern perspectives about capitalism. The first, still a bible of the right and reportedly Thatcher’s handbook, was Friedrich Hayek’s The Road to Serfdom. The second, just as influential, was Karl Polanyi’s The Great Transformation.

The Great Transformation describes the evolution of market society by examining the institutions that the market is built upon. For this reason, Polanyi is seen as the fountainhead of what is today called institutionalist political economy – which includes such contemporary luminaries as Joseph Stiglitz and H J Chang. While many earlier societies had markets at their margins, it was only with the emergence of capitalism that our society evolved into one in which markets become central for the production and distribution of most goods.

Since the time of Adam Smith, economic liberals have perceived the evolution of market society as something entirely natural. According to Polanyi, though, there is nothing natural about its emergence; it had to be planned – it had to be created.

A market society requires that the most basic constituent parts of society – labour, land, and money – come under the sway of the market. They have to be commodified. But labour and land are not naturally commodities – they do not exist, like widgets, for the purpose of sale. They can only ever be what Polanyi calls ‘fictitious commodities’. So the history of capitalism as Polanyi relates it is the history of the attempt to commodify these non‑commodities. He describes in rich detail the great transformation that was required to enact this commodification – the enclosures, the poor laws and their reform, the courts and the cops – and thereby construct the first market society.

As the market comes to dictate ever more aspects of life, nature as well as the lives of working people comes increasingly under the sway of market forces, which bring in their wake immense destruction and destitution. In a poignant denunciation of capitalism, Polanyi paints a bleak future for society under the market mechanism:





‘In disposing of a man’s labour power the system would, incidentally, dispose of the physical, psychological, and moral entity “man” attached to that tag … Nature would be reduced to its elements, neighbourhoods and landscapes defiled.’

Yet destruction is not the end of the story. As the creation of a ‘laissez-faire’ society destroys the old social systems, this brings with it a counter-movement of resistance. Resistance expresses itself in the struggles for regulation, rights and protection; hence the struggles over the right to unionise, the minimum wage, the ten-hour day, and so forth. Polanyi calls this movement to liberate the market from society, and the counter-movement to protect the people from its ravages, the ‘double movement’. In a fascinating historical exposition, The Great Transformation illustrates how the myriad interventions and regulations of the market were sometimes propelled by socialists and reformers – that is by ‘planners’ – but just as often by self-serving capitalists trying desperately to ensure the sustainability of the system they benefit from. In other words, the true history of capitalism is the opposite of what liberals believe: the ‘free market’ had to be created, whereas the planned regulations often were not. As Polanyi put it, ‘Laissez-faire was planned; planning was not.’

Six decades after the publication of The Great Transformation, Polanyi’s critique remains relevant. It is now a mainstream tenet that societies face a choice between the free market, or the market on one side and the state on the other, perhaps overlapping at some points but basically separate and distinct.

But Polanyi shows that this is a false dichotomy. There is no such thing as, nor has there ever been, nor could there ever be, a truly free market. Markets are always inherently embedded in the state and institutionalised in various political structures. The parameters of the market, the rules and regulations of the game, are set by law. The state defines what kind of buying and selling is permitted. It establishes minimum wages and fixes tax rates. It creates the paramount institution of modern capitalism – the corporation – and delineates its rights. Thus, the central point, as Polanyi teaches us, is that the fundamental question regarding the market is not ‘free market or intervention?’ but rather ‘intervention for whom and for what?’

The insight that there is no such thing as a free market leads to another: that the current arrangement of the market is in no way ‘natural’, it is political, and therefore subject to debate, reform or fundamental change. There is nothing natural about creating a market system that establishes a business form (the corporation) that is allowed to externalise its carbon emissions or prevent its workers from having a say in management. There is nothing natural about having a central bank obsessed with inflation while masses of people are unemployed. Once we recognise that markets are constructed, we also come to recognise that markets are ultimately only tools, and while in some cases they may make good servants, they always make terrible masters.

Ultimately, The Great Transformation leaves us with a fundamental dilemma: either the market will continue to dominate society, in which case it will surely destroy us, or society will come to dominate the market. Unfortunately Polanyi didn’t leave a clear picture of what exactly it might mean for society to dominate the market. Working this out remains our task.

Tom Malleson is a PhD candidate at the University of Toronto in Canada