Karl Polanyi was born in 1886 in Vienna
and he passed away in 1964 he's not an
economist in the traditional sense but
his book the great transformation has
had a lot of influence on economic
thinking
Palani was himself a mix of a
philosopher a historian and economic
historian and an anthropologist what he
did in this book great transformation is
provide a general framework for thinking
about the decline of classical liberal
thought and the decline of lays a fair
capitalism from the 19th century
Pallonji starts the book with a very
dramatic sentence 19th century
civilization has collapsed by 19th
century civilization he was referring to
Europe and he had in mind for particular
components the balance of power system
between competing nation-states the gold
standard the idea of self-regulating
markets and the notion of the liberal
Nightwatchman state which protected
property rights but otherwise would let
a kind of capitalism or in its course
this book was published in 1944 so
perhaps it's not surprising that it's so
pessimistic about the course of European
history but Palani saw pretty clearly
that some previous world order really
had passed on and probably was not going
to return anytime soon what were four
Palani of the culprits well the great
transformation is a very complex book it
hasn't a lot of history and also a lot
about foreign policy but let's consider
just three of polonius culprits the
first is risk the notion that in a
self-regulating market economy
individuals are exposed to too much risk
on their wages on their capital returns
on their rents on their business
prospects Palani saw a self-regulating
market as bringing too much risk upon
most individuals in a society the second
culprit can be seen as deflation Palani
understood that the gold standard knit
together most of Europe in a network of
self-regulating trade relations and a
self-regulating monetary order it
prevented rampant inflation but at the
same time under the gold standard there
were periodic financial crises credit
would collapse money supplies would fall
economic activity would slow and there
would be deflationary pressures on
economies these deflationary pressures
were also a source of risk and
furthermore they tended to make politics
and the deflationary economies more
brutal or more oppressive or more
liberal the third culprit which Palani
wrote about among others is this idea
that a self-regulating market
annihilates its underlying social
context part of polanyi's other works
were written from an anthropological
point of view and he claimed that the
market was a relatively recent human
invention and that before markets were
so prominent in human affairs that
social orders had their own regulating
principles which were quite distinct
from those of market economies by no
means do all historians and
anthropologists agree with this point of
view but to return to polanyi's
perspective he saw this underlying
social context as important as helping
to give rise to a market order to a
liberal trading order but that the
market itself would become so rampant
and so commodify and so commercialized
human activity that eventually the
self-regulating market would do away or
weaken this underlying social context
and thus there would be a kind of
cultural contradiction to capitalism and
an economic contradiction to lazy fare
capitalism arising from excess risk
deflationary pressures and thus
annihilation of the underlying social
context it's a very complex nuanced
historical argument but those are just
some of its main features Palani was
mostly a diagnostician and he was not in
this book concerned with producing
proposals for concrete reform he simply
wanted to understand why European
history had taken the course that it had
and he saw the sage of lazy fair
capitalism as very much over
Palani has proved an extremely
influential thinker perhaps his book the
great transformation can be compared to
a book by Friedrich a Hayek Road to
Serfdom published around the same time
individuals from conservative and
libertarian points of view have looked
to high ex-work as a kind of patron
saint a kind of explanation for what
went wrong and individuals from
left-wing progressive or social
democratic point of views have read
polanyi's work
the same lines as the kind of overall
treatise or tract on where we came from
a key question looking forward which of
course is still debated is what about
our New World Order have we overcome the
mechanisms of instability identified by
Palani by having these social democratic
welfare states or have we just in some
way rebuilt the old world the old world
order on somewhat new principles but
perhaps a new world order also has some
cultural and economic
self-contradictions and that may
disappear as well this debate continues
to go on but one thing seems pretty sure
polanyi's influences risen and the great
transformation for all of its
controversy is still a book which people
read