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Karl PolanyiThe Great Transformation
Nonfiction | Book | Adult | Published in 1944A modern alternative to SparkNotes and CliffsNotes, SuperSummary offers high-quality Study Guides with detailed chapter summaries and analysis of major themes, characters, and more.
Part 3Chapter Summaries & Analyses
Chapter 19 Summary: “Popular Government and Market Economy”
The international system failed in the 1920s, leading to the reappearance of forgotten issues of early capitalism, such as popular government:
The fascist attack on popular democracy merely revived the issue of political interventionism which haunted the history of market economy, since that issue was hardly more than another name for the separation of the economic from the political sphere (231).
Polanyi discusses the history of Speenhamland and the subsequent abolishment of the allowance system via the Poor Laws, which allowed for this separation through market liberalism. The Poor Laws also created a new social stratification between the physically-incapable paupers destined for the workhouse and the physically-able laborers who earned their wages, creating a new social category of the unemployed who should not feel relief. Any conception of relief for this demographic would indicate a violation of their rights. The separation of economics and politics spread from the academic sphere to the wholesale structure of society:“But the more the labor market contorted the lives of the workers, the more insistently they clamoured for the vote. The demand for popular government was the political source of the tension” (233).
This led to a rise in constitutionalism, which sought to protect industrial property from the people through the separation of powers. In America, the people had no power against the owners, despite universal suffrage while England did everything in its power to deny the working class the ability to vote. The possible consequences of inflationism also became an effective stance against democratic legislatures:“Social protection and interference with the currency were not merely analogous but often identical issues” (235). Polanyi discusses the instability of British currency in 1925 and its subsequent return to the gold standard, as well as the similar mechanism employed in many larger European countries to save the currency, such as the 1936 Blum experiment. The movements towards sound currency had negative effects on popular policies.
The New Deal required America to go off the gold standard, which allowed for currency issues to be based on bankers’ advice with little concept of social protection: “Only in the United States, with its independence from world trade and its excessively strong currency position, was the gold standard chiefly a matter of domestic politics” (238).
Market liberal utopianism recreated the strike—the workers’ only tool to protect themselves—as the disruption of useful and necessary work, leading to resentment towards workers fighting for their rights. Economic liberalism reframed its protection of the community as a detriment to the community.
In the 1920s, politics centered around the tension between interventionism and currency. Economic liberals wanted to eliminate interventionist policies and restore the alleged self-regulating market due to the increasing role that international credit was playing in the monetary system. Polanyi blames this increasing preeminence of international credit and the increasingly internationalized trade on the economic collapse of the 1930s. He believes that the subordination of social organization to the market also magnified the deleterious effects of the collapse:
The stubbornness with which economic liberals, for a critical decade, had, in the service of deflationary policies, supported authoritarian interventionism, merely resulted in a decisive weakening of the democratic forces which might otherwise have averted the fascist catastrophe (242).
Polanyi discusses the nature of socialism as one that rises above markets that self-regulate by subordinating such markets to democratic society. Polanyi addresses the near collapse of the market system and the establishment of Russia’s socialist economy as two changes that affected socialism’s positionality. Economics and politics merged in the 1920s as tensions increased between interventionists and market liberals, ultimately leading to the rise of fascism.
Chapter 20 Summary: “History in the Gear of Social Change”
Fascism responded to the needs of an objective situation—that of institutional deadlock resultant from liberal capitalism—despite the acknowledgement that it was not a beneficial solution:
The economic system which was in peril of disruption would thus be revitalized, while the people themselves were subjected to reeducation designed to denaturalize the individual and make him unable to function as the responsible unit of the body politic (245).
Fascism affected both victors and losers of the Great Warthat were culturally and materially diverse and therefore cannot be attributed to local causes but to the previous global hegemony of market liberalism. Fascism was not a movement as its strength lay in the influence of a few sheltered from the risks of revolution, and not mass followings. Fascism showed many symptoms—including irrational, racialized philosophies and criticism of the party system—as it spread but never approached a full revolution against constituted authority but rather existed as an instantaneous emotional reaction in industrial communities which alternately burst forth into violence only to succumb again to latency. Fascism worked to overthrow democracy and constitutional liberties in the same way revolutions seek to overthrow strongholds of reaction:“Fascism, like socialism, was rooted in a market society that refused to function. Hence, it was worldwide, catholic in scope” (248).
In Europe during the 1920s, counterrevolution and nationalist revisionism played a role in the rise of fascism. Counterrevolutions were the backlash against the violent disturbance of the political state. Although conservatives often banded together with fascists against socialism, fascism was as much a reaction against conservatism as anything else. The permanent disarmament of defeated countries eliminated the balance of power that had allowed for international law and order through peace. The League of Nations was ultimately ineffective in comprising a balance of power and therefore maintaining peace. However, fascism also used pacifism and isolationism to achieve its goals of transcending the political and economic framework to become a social move, disregarding local issues. Conservatives were able to deal with domestic counterrevolutions but could not deal with the national-international problems. Fascism seized power because it solved unsolved national issues.
However, the primary determining factor of fascism’s role in a country in the 1920s was the condition of the market system, as demonstrated by fascism’s overwhelming surge into power following the 1929 market collapse. From 1917-1924, small bands of fascists from different social strata roamed throughout Europe, eventually disintegrating in 1924, with the restoration of capitalism. But after 1929, the market system’s deadlock became apparent and fascism emerged as the solution to the problem of industrial society. Wall Street hit a slump and Britain and the US decided to go off the gold standard, leading Japan, Germany, and Italy to rebel against the status quo as the international political and economic systems disintegrated conjointly. Two-party systems were given up in favor of one-party governments, seen in the rise of fascism, socialism, and the New Deal, which all disregarded laissez-faire principles.
Fascist countries, like Germany, made use of the disintegration of the balance-of-power system and traditional world economy in order to further their own interests while anti-fascist countries, like Britain, found themselves handicapped by their adherence to these systems, like stable exchanges and sound currency:
England’s military unpreparedness was mainly the result of her adherence to gold standard economics […whereas] the destruction of liberal capitalism, of the gold standard, and of absolute sovereignties was the incidental result of [Germany’s] marauding raids (254).
Germany’s power came from the ability to unite countries against Bolshevism. Although Russia did not want to become a socialist country, socialism nevertheless won out with the second Revolution: “The absence of the nineteenth-century balance of power system, as well as the inability of the world market to absorb Russia’s agricultural produce, forced her reluctantly into the paths of self-sufficiency” (256). The market system was responsible, then, not only for the rise of fascism but also for the rise of socialism.
Chapter 21 Summary: “Freedom in a Complex Society”
Polanyi writes that“[i]f industrialism is not to extinguish the race, it must be subordinated to the requirements of man’s nature” (257). An economy based on self-interest is unnatural, despite what 19th-century economists believed. The tendency to barter is not common throughout all of humanity, and is, instead, infrequent. The emergence of national markets was not due to economic freedom from government interference but rather from direct and often violent government intervention. 19th-century civilization was weak because it was a market society, regardless of its industrial nature. The shift to a new economic system calls into question whether freedom will be lost in the potential void of the future, but Polanyi asserts that much of the suffering is in the past.
Polanyi states that “[w]ithin the nations we are witnessing a development under which the economic system ceases to lay down the law to society and the primacy of society over that system is secured” (259), which may happen in a variety of governmental forms. To free labor from the market is as radical a transformation as the commodification of labor was, while the removal of land from the market necessitates its incorporation into definite institutions, redefining the nature of property. Money has been removed from the market and now acts under government control. The disavowal of these commodity fictions and the disintegration of the market economy are giving rise to new societies, within which markets still exist. Economics constricted 19th-century society. Anarchistic society and allegedly-justified intervention in other countries’ affairs, two aspects of international life, stemmed from the period’s rigid economy; sovereignty did not exist in relation to international economics, except by those countries powerful enough to possess their own monetary system: “This system was hampering both on account of its elaborateness and its universality” (261). The new system will enable closer international relationships, but countries will be loath to allow other governments to interfere.
Polanyi discusses the institutional and the moral/religious problems with freedom. Institutions must balance increased against diminished freedoms, and higher classes will generally rail against any reduction in freedom. Polanyi considers how the liberal economy’s separation of politics and economics produced freedom at the cost of justice and security, but believes that freedom and peace should be institutionalized: “Every move toward integration in society should thus be accompanied by an increase in freedom; moves toward planning should comprise the strengthening of the rights of an individual in society” (264).
Polanyi believes that this will prevent the bureaucratic abuse of power by creating unbreakable rules to create spheres of arbitrary freedom; however, institutions are necessary to make human rights effective, as bills of rights are futile at enforcement. Polanyi maintains that any industrial society can afford to be free and can increase freedom in more ways than ever before, and for all people. However, Polanyi believes that morality creates an obstacle to society’s path towards justice and freedom. The liberal idea of freedom merely consists of free enterprise, making the problem of freedom through regulation apparent. Polanyi argues that the liberal construction of freedom is too utopian, as power and economic values represent a paradigm of social reality, whereas socialism and fascism accept this, although socialism allows freedom, while fascism does not. Polanyi discusses the advent of knowledge concerning the nature of society as espoused by Owen: “The discovery of society is thus either the end or the rebirth of freedom” (268). However, freedom means a certain amount of certainty in a complex society.
Part 3 Analysis
The final section of the book focuses on the separation between economy and politics that was necessitated by market liberalism and allowed for the rise of fascism. Polanyi blames both Speenhamland’s failure and the subsequent market liberal enactment of the Poor Laws for this separation. Throughout these chapters, Polanyi traces how the doctrine of economic liberalism led to the establishment of fascism in order to rectify some of the instability caused by the market economy. Although Polanyi has alluded to these concepts in previous chapters and sections, this incisive criticism of the market economy as creating an environment that can birth fascism comes to the forefront in these last three chapters; any previous mentions of such criticism are often tangential in nature. In these chapters, Polanyi places the responsibility for fascism squarely upon the shoulders of economic liberalism, subsequently delineating some of the results of the rise of fascism as well as the similarities between socialism and fascism.
However, the vast majority of focus is spent on the discussion of fascism, as it was most prevalent within Polanyi’s focus at the time when he was writing, considering his book was published in 1944. To Polanyi, fascism would have demonstrated a much greater threat than socialism, although readers perhaps might not understand this, as many incorrectly equate socialism to communism. Further, many modern readers might still tremble in fear at the idea of a communist threat and fail to see the potential for fascism as a true problem. Polanyi, on the other hand, believes that socialism represents the best progress in regard to the dissolution of the market economy, as the only other solution appears to be fascism.
This section also discusses the nature of freedom, specifically as it relates to the dissolution of the market economy. In order to consider this, Polanyi traces back the idea of freedom and human rights, examining whether the market economy provides such options. He concludes that the market economy does not, as it recreates the notion of humanity to conclude that not all people are worthy of relief. This essentially conflates the economy with morality, and this conflation itself becomes a kind of heartbeat of market liberalism, which argues that starvation, not the protection against starvation, constitutes a human right. Polanyi then demonstrates how this notion ties into—and often fights against—universal suffrage, which in turn led to further separation between economy and politics, as industrial property had to be protected from the people. Polanyi repeatedly shows the deleterious effects of the absolute supremacy of market liberalism, in that it prefers economy over the rights of the people. Essentially, Polanyi’s last section traces the transition from an economic religion—market liberalism—to a political religion—fascism and then attempts to discern where humanity is to go from there, concluding the book with a discussion of freedom as it relates to government.
