Karl Polanyi was born 1886 in Vienna into a Jewish family and grew up in Budapest.

As one commentator (Block 2001: xix) noted, the family was “remarkable for its social engagement and intellectual achievements”. He studied philosophy and law at the universities of Budapest and Kolozsvar in Hungary.

After the war he supported the Republican government in Hungary, but when this was overthrown and transformed into a Soviet republic in 1919 (which lasted only four months) he fled to Vienna. There he worked from 1924 until 1933 as a journalist, mainly for Der Osterreichische Volkswirt (The Austrian Economist), a renowned economic and financial weekly. In his publications during that period he dealt with a whole host of economic problems, inter alia he participated in the socialist accountancy debates with Ludwig von Mises. In 1925 he married Ilona Duczynska, a sympathizer of the Communist Party.

The rise of fascist trends in Austria long before its Anschluss to Germany in 1938 caused Polanyi to emigrate in 1933. He moved to London where he made a living from the little money he earned as journalist and lecturer for the Workers’ Educational Association. During that time he began his research for The Great Transformation (TGT) and accepted invitations for lectures in the United States. However, the writing of his magnum opus had to wait until he moved in 1940 to Vermont, USA, where he got a position at Bennington College.

From 1947 to 1953 Polanyi held a teaching position at Columbia University in New York City. Polanyi had to commute; owing to his wife’s former communist affiliation, a US visa for her was withheld and they had to settle in Canada, where Polanyi died in 1964.

Polanyi’s intellectual development took place in the bracing climate of the final stage of the Austro-Hungarian Empire with its cornucopia of new approaches in science and the arts. As far as economics was concerned, marginalists (and representatives of the Austrian School), advocates of the Historical School and Marxists struggled in his formative years for supremacy in the German-speaking countries. Polanyi was well aware of the alternatives, but no clear-cut adherent of any of them - in fact, he criticized strongly some aspects of them - but each exerted some influence on him. He received additional stimuli, inter alia, from G.D.H. Cole’s Guild Socialism, from the sociologist Ferdinand Tonnies with his distinction between community (Gemeinschaft) and society (Gesellschaft) and, in subsequent years, from his studies of history, social theory and anthropology. In TGT he made use of all these strands.

The Great Transformation, Polanyi’s magnum opus, was published in 1944 - the same year as Hayek’s The Road to Serfdom appeared, which in several respects heralds the opposite standpoint. Its subtitle is The Political and Economic Origins of Our Time and provides the clue to TGTs intention: to demonstrate why after World War I a great transformation took place that destroyed the order which had ruled before and had lasted for a century (1815-1914). Decisive for the understanding of this transformation is, in his eyes, to realize the peculiarity of the order in the nineteenth century.

According to Polanyi it rested on four pillars: an international balance of power system which, by and large, took care of peace; the gold standard; the liberal state and the self-regulating market. Most important, and at the same time “a stark utopia”, is the last mentioned: “Such an institution could not exist for any length of time without annihilating the human and natural substance of society” (Polanyi 2001: 3). In contrast to societal organizations, which are characterized by reciprocity and redistribution, a market system tends to subordinate society to the logic of the market and to turn human beings and the natural environment into commodities - fictitious commodities in Polanyi’s words.

The utopian character of a self-regulating market system results from the fact that society sooner or later will revolt against it: Because the devastating consequences of a subordination to the imperatives of a market system are not accepted, counter­movements emerge. The development of a market system is therefore characterized by a “double movement”. This term was coined by Polanyi and explained as follows: “the market system expanded continuously but this movement was met by a countermove­ment checking the expansion in definite directions. Vital though such a countermove­ment was for the protection of society, it was incompatible with the self-regulation of the market, and thus with the market system itself” (2001: 130). The tension between the two will either destroy the system completely, as the Soviet Union or Nazi Germany demon­strated, where freedom was abolished and the market substituted by central planning or subjected to political purposes; or a considerable realignment in the relationship between economy and society will take place, as was the case with the New Deal, the establish­ment of welfare states and the adoption of Keynesian full-employment policies. Most likely, Polanyi would not have been surprised that adherents of a self-regulating market would do their best to turn back these changes. However, it is highly probable that he would have been very astonished about their success in re-establishing something like a self-regulating market system in the last decades of twentieth century.

The economic historian Gregory Clark has remarked: “The Great Transformation has attained the status of a classic in branches of sociology, political science, and anthro­pology.... Yet in economics the work is unknown - or, when discussed, derided” (Clark 2008).

Peter Kalmbach

See also:

Development economics (III); Institutional economics (III); Karl Heinrich Marx (I); Non-Marxian socialist ideas in Britain and the United States (II); Non-Marxist socialist ideas in Germany and Austria (II); Joseph Alois Schumpeter (I).