Lecture 1

Polanyi’s Great Transformation

Emmanuel Teitelbaum


Polanyi’s Obejctives

  • Explain rise of fascism, political instability and war
  • Advance an argument about negative effects of economic liberalism
  • Provide an alternative vision of the economy’s place in society
  • Defend market regulation as not inherently “leftist”

The Self-Regulating Market

The “Invisible Hand”

  • 19th century economic liberalism
    • Ricardo/Smith
  • An economy directed by market prices and nothing but market prices
  • Polanyi calls it a “dangerous fantasy”
  • Tremendous amount of bureaucracy/governance required to maintain free markets

State of Nature I

  • For Smith, our nature is to “truck, barter and trade”
  • For Polanyi, we are communal by nature
  • Markets have always played some role in society but not the dominant role
  • Importance of ethnography
    • Evidence-based approach
    • Not just a rhetorical device

State of Nature II

  • Trobriand Islanders (Papua New Guinea)
  • People motivated by status more than money
    • Money is a means to and end
  • Money not that relevant for distribution
    • Reciprocity
    • Redistribution
    • Householding


  • What is your view of the state of nature?
  • Is it more similar to Karl Polanyi’s or Adam Smith’s?

The Birth of Liberalism

Where Did Liberalism Come From?

  • Does not date back to Smith or Ricardo
  • These thinkers were ahead of their time
  • Emerged out of class politics following industrial revolution

Elements of Liberalism

  • Unfettered labor market
    • Cheap labor for industry
  • Gold standard
    • Facilitated trade
    • Kept prices in check
  • Free trade
    • Industrialists/traders wanted to access raw materials
    • Facilitated by the gold standard

The Gold Standard (1879-1973)

  • Pegging the value of the dollar to gold
  • Problems
    • Deflationary: could not print money in excess of gold supply
    • Led to dramatic boom-bust cycles
  • Reforms
    • 1931: Roosevelt ends gold standard domestically
    • 1971: Nixon ends Bretton Woods

19th Century Panics


  • Polanyi argues that economic liberalism generates political instability
  • Looking at the graph, do you see the connection?
  • Can you also find evidence challenging Polanyi’s view?

The “Double Movement”

Small Groups

  • Review the concept of the double movement as it is presented in Chapter 11 of The Great Transformation
  • What does Polanyi mean by a “movement” and a “counter-movement”?
  • Who are the actors involved?
    • Who is affected by this “movement”
    • What does the “counter-movement” entail?

Description of Double Movement

  • Movement: expansion of liberalism and self-regulating markets
  • Counter-movement: reaction of society against dislocation caused by markets
  • New regulations
    • Purpose is to shelter land, labor and the money supply against “devastating effects” of policies used to sustain self-regulating markets
    • Importance of class dynamics: winners and losers

Who are the Opponents of Liberalism?

  • Not a unified, hegemonic left or an anti-liberal ideology
  • Responses are rather piecemeal
    • Regulation arises in many areas
    • Across many countries
    • In response to similar problems
  • Regulation is a result of liberalism’s failure, not its cause

Small Groups

  • Can Polanyi’s theory of the “double movement” be applied to contemporary politics?
  • Provide at least two concrete examples to support your view
    • Be sure to identify
      • The “movement”
      • The “countermovement”
      • The actors involved, e.g. winners and losers