18 April 2011

Great Transformation: Phase II

I have finally overcome my inherent thrift and bought Karl Polanyi's Great Transformation, allowing me the leisure time to consider his arguments at length during train journeys, rather than in haste before his book had to be returned to the British Library stacks in Wetherby. What I found surprised and impressed me immensely.

At the level of chat, Polanyi is discussed, dismissed even, as an 'economic historian'. This is a familiar glitch in discussion of economics, where considering long-term trends is thought to undermine the quality of your contribution. After all, it might risk allowing in the possibility that there have been alternatives to the market, even that these have dominated human history and achieved high levels of well-being.

The popular view of Polanyi is of a social historian who offered an understanding of non-market provisioning systems. The motivation for his book, however, is clearly that of political economy. He begins with two chapters on the gold standard and its role in maintaining peace in Europe in the 19th century. Far from peasant economies and mutual aid, this is a story of political intrigue and the power of global finance.

Polanyi describes four institutions that held 19th-century Europe together: the balance-of-power system, the gold standard, the self-regulating market and the liberal state. He is in no doubt about which mattered most: 'Of these institutions the gold standard proved crucial; its fall as the proximate cause of the catastrophe. By the time it failed, most of the other institutions had been sacrificed in a vain effort to save it.'

While history never repeats itself, this quotation made me ask myself which of the institutions and values we hold most dear we are willing to sacrifice to support the existing reserve currency system, and particularly the power of the dollar and the euro. The political pressure required to service the needs of finance today are ripping apart the social fabric, leading to the rise of nationalism and racism, the destruction of social services, and the waste of our skilled young people to unemployment.

Perhaps even more familiar is Polanyi's judgement on the impact on equality of the currency wars of the 1930s: 'Internally and externally alike, dwindling currenices spelled disruption. Nations found themselves separated from their neighbours, as by a chasm, while ta the same time the various strata of the population were affected in entirely different and often opposite ways. The intellectual middle class was literally pauperized; financial sharks heaped up revolting fortunes. A factor of incalculable integrating and disintegrating force had entered the scene.'

It is said that Karl Polanyi is an influence on Maurice Glasman, theorist of the self-parodying ideas of Blue Labour. In such quarters Polanyi's book appears to be used unopened, as an iconic support for mutual aid and communitarianism. But if Glasman and ilk have the influence they claim on Ed Miliband, Polanyi may soon be a name worth dropping.


  1. a very topical post given the stress in currencies currently.

    I think Polanyi maybe didn't go far enough. The Gold Standard was eventually sacrificed to save the ultimate institution of power, the private banking elite.

    i would be wary of a return to the Gold Standard. I do believe that when the impossible math of global debt markets works its way into sovereign defaults and currency collapse that it will be touted as a solution once again (most forcibly by the World Bank/IMF/US Fed etc).

  2. Thanks for another great post.
    As you explain it's an interesting book to get your hands at the moment, with 'Blue Labour's' supposed association with the work and it's historical relevance with the decline of the current financial system.

    Polanyi's approach reminds me a more modern work by Giovanni Arrighi 'Chaos and Governance in the Modern World System'. Here he compares transitions across the last three world hegemonies. He concluded that the decline of the last hegemony, the US, is unique in that they have lost economic dominance but maintain dominant in the military sphere.

  3. I've just watched a turgid newsnight discussion with Daniel Finkelstein and someone from the Independent, ostensibly with opposing views of tax reform, both fetishising about growth and totally oblivious to your statement (with which I agree) "The political pressure required to service the needs of finance today are ripping apart the social fabric". Followed this link from your "Greek Chorus" piece on EnergyBulletin and delighted to find some information about Polanyi's book which I would like to have time and (perhaps) ability to read and understand.