The Methodology of Polanyi’s Great Transformation

Download full paper

This paper is closed for comments.


Polanyi’s book on The Great Transformation provides an analysis of the emergence and significance of capitalist economic structures which differs radically from those currently universally taught in economic textbooks. This analysis is based on a methodological approach which is also radically different from existing methodologies for doing economics, and more generally social science. This methodology is used by Polanyi without explicit articulation. Our goal in this article is to articulate the methodology used in this book to bring out the several dimensions on which it differs from current approaches to social science. Among the key differences, Polanyi provides substantial scope for human agency and capabilities to change the course of history. He also shows that the social, political and economic spheres of human existence are deeply interlinked and cannot be analyzed in isolation, as current approaches assume.

Posted for comments on 15 Oct 2015, 10:46 am.

Comments (2)

  • Anonymous says:

    This is a valuable contribution to the literature on Polanyi because there have been few efforts to focus on Polanyi’s methodology. The author has a solid grasp of the distinctive features of KP’s way of doing social science, and his judgments are consistently sound.

    I think the paper would be strengthened by a somewhat different structure that organized the discussion around three distinct aspects of Polanyi’s methodology. As it is, the paper is a bit choppy and some of the connections between points do not come across as clearly as they could.

    It seems to me that one section might be on how historical change occurs which would encompass the discussion of institutions and classes. The second would be on the role of theories, including false theories, in history. The final one would be on the impossibility of separating out the economic from the political from the ideological.

    There are two specific issues of interpretation that I think should be reconsidered. First, in the discussion of the 100 year’s peace from Waterloo to Sarajevo, the author does not put much emphasis on the role of haute finance which many people think is more important than feudals and dynasts who supported war in earlier centuries. Second, the author like many others argues that the great transformation of the title refers to the rise of market society, but in the text, there is the strong suggestion that the great transformation is actually the breakdown of 19th century civilization in the 1920s and 1930s.

    Finally, I think the author would benefit from reading the recent volume by Block and Somers, The Power of Market Fundamentalism.


  • Anne Mayhew says:

    Asad Zaman has set for himself the admirable but difficult job of articulating the methods used by Karl Polanyi in his well-known and well-regarded work, The Great Transformation (hereafter referred to as TGT). It is to his credit that he is partially successful in completing the task. Before I explain why I think that Zaman succeeds and why I think he does not, I need to spend a few paragraphs explaining why the task is important and why it is so difficult.

    The task of articulating Polanyi’s methods for gathering evidence and creating his argument in TGT is a difficult one for several reasons, the first of which is that Polanyi’s writing style is sometimes difficult. The late George Dalton, whose own work in economic anthropology, was heavily influenced by Polanyi described the prose style of TGT as that of “a stiletto set in the end of a battering ram.” The combination of close analysis and rhetorical power that this description suggests can be persuasive but requires close reading and considerable background knowledge for the structure of Polanyi’s argument to become clear. It is not, for most economists, an easy read.

    What makes discovery of his method even more difficult is that Polanyi did not have a traditional academic background. His background as a member of an intellectual Hungarian family, a journalist in Vienna, and then his involvement in worker education in England where he sought refuge in the 1930s, prepared him to make a political statement rather than one that would be more traditionally academic. (See Block and Somers 2014 for the best available treatment of Polanyi’s background and its influence on his work.)

    What Polanyi was quite clear about when he wrote TGT was the inadequacy of then current economic analysis to explain the events that had wracked Europe during his young and middle years. He did not find the Marxian analysis then common nor thethe narrowly economic analysis of most universities adequate to account for the social and political upheaval that had so altered his world. The amazing TGT was his effort to make sense of that upheaval but in TGT Polanyi did not offer a fully developed theoretical approach that could be used in a variety of contexts to arrive at a better understanding of economic systems and their evolution. Most of TGT was about a specific time and place.

    In Chapter 4 of TGT, Polanyi did lay out a classificatory scheme for the ways in which different societies provision themselves and throughout TGT he emphasizes the need to understand economies as systems of provisioning. It is surprising to me that Zaman does not give greater emphasis to this Chapter and the role that it plays in allowing Polanyi to argue that the self-regulating market mechanism of 19th century fancy and 20th and 21st century textbooks is a peculiar system indeed.

    Polanyi’s methods and his conclusions did not fit within either the Marxist or the Marshallian traditions that dominated Anglo-American economic thought in the middle of the 20th century, but his work was compatible with that of the American Institutionalists who played a major role in U.S. economic thought in the interwar period. That Columbia University invited Polanyi to become a Visiting Professor and teach their General Economic History course that was part of their graduate program is testament to the similarity of Polanyi’s approach to that of the Institutional economists who had played such an important role at Columbia during the interwar years. (For more on this see Rutherford, 2011). That he remained in association with Columbia after retirement as co-director of a Ford Foundation financed Interdisciplinary Project, is evidence of continued interest among colleagues and students at Columbia in sorting out the implications of TGT for further study of economic change and institutional evolution. It was after the publication of TGT, while he was at Columbia University (1947-1953) that he and his colleagues who produced the work published under the title Trade and Markets in the Early Empires, worked out more explicitly some of the theoretical implications of the analysis of TGT.

    My point, a point that is also made by Block and Somers, is that TGT was written before and not after Polanyi had the opportunity or the context in which to set forth the methodological underpinnings or consequences of TGT. Because his masterpiece was written at the beginning of his academic career, the task of articulating the methods used in its writing is made more difficult and especially so as Zaman limits his analysis to his chosen topic, Polanyi’s method in TGT.

    Finally, the difficulty of this chosen task is enhanced by the considerable remove of Polanyi’s approach from that of most work undertaken by economists today. In a sense, of course, Polanyi was not a “real” economist. He knew much but did not hold what would today be considered proper economic credentials and he made no effort whatsoever to provide the kind of “literature review” that is today considered a necessary part of academic projects. This means that the analyst must bring considerable knowledge to a reading of TGT and it also means that the analyst is always in danger of providing a context that Polanyi did not intend. As I shall explain more fully below, Zaman succeeds admirably in bringing knowledge to his reading of Polanyi’s masterpiece but in one case also falls into the trap of providing an relying on deduction rather than evidence.

    Having outlined the difficulties of the project that Zaman has undertaken, I turn now to the importance of his task. It is one thing to admire TGT for its trenchant analysis of the sources of the social, economic, and political turmoil of the interwar years. It is quite another to understand how similar studies of our own time should be undertaken. Indeed, I would suggest that one major cause of the failure of the kind of Institutional/Evolutionary/Historical tradition that led to Polanyi’s warm welcome at Columbia is precisely the failure of that tradition to make clear what is required to be a Polanyian (or a Veblenian or a follower of W.C. Mitchell) in doing economic analysis.

    To the extent that Zaman can lay bare the elements of Polanyi’s approach so that those same elements can be used in analysis of other times and places, he will have made a major contribution to strength of an important part of the heterodox tradition in economics.

    Suffice it say that I think Zaman’s project is a very important one and one fraught with difficulty. I turn not to what I think he gets right and what he gets wrong or somewhat wrong. Because the key elements of Zaman’s outline of Polanyi’s method are scattered throughout the paper, the organization of which is not entirely clear to me, I am going to organize my remarks around these key elements rather than attempting a section by section critique.

    Two key elements of Zaman’s paper seem to me to be keys to understanding TGT as well. The first is the role that groups of individuals play in shaping institutional (meaning politico/socio/economic) change. The second is that individuals acting together use “theories” to guide understanding of the changes in which they are involved and to articulate both possible and desirable outcomes. Taken together, the process of reorganizing political, social, and economic institutions, and the justifications used to effect that change is what Polanyi means when he says that “society” protects itself. Society becomes a reality for Polanyi because individuals band together to accomplish goals and because those goals emerge from the institutional nexus that organizes and gives meaning to human actions and interactions. The evolution of socioeconomic and political systems is an interactive process in which individuals are shaped and shape.

    Zaman does a good job when he writes that “Polanyi does not treat institutions as the final cause…” Zaman recognizes that institutions play a central role for Polanyi in explaining history, but are themselves creations of the human processes that we call history. Zaman finds an answer to the puzzle of how institutions shape history but are also a consequence of history by use of the concept of “collective human will.” This leads to his conclusion that Polanyi’s work rests on what Zaman calls “methodological communitarianism,” an approach that is the antithesis of the methodological individualism that is the approach of much modern economic theorizing.

    Zaman explains how Polanyi’s methodological communitarianism differs from Marx’s analysis by saying that Marx’s understanding of class struggle as the fundamental driving principle of history is a subset of Polanyi’s analysis of change as the reaction of “society as a whole” in response to external causes. He illustrates Polanyi’s argument by writing that the new importance of international trade in the late 19th century had created “new classes and new class interests,” in this case those who supported the gold standard as essential to flourishing international trade. He also uses the 100 years’ peace to illustrate the importance of coalitions that cut across class boundaries, where class is understood as the classes of Marx and the other classical economists.

    Zaman could offer a stronger illustration of Polanyi’s use of methodological communitarianism by explicit use of Polanyi’s critique of the economistic bias that underpins both the classical and neoclassical analyses of economic conflict and change. As Block and Somers put it:

    [Polanyi] . . . rejects the view that individuals are motivated solely by self-interest . . . [and] considers no mistake to be greater than to define classes as aggregates of economic interests. On the contrary, classes are social constructions; they represent collective responses to changes in the organization of society. In particularly, Polanyi insists that reducing the working class to its economic situation and interests distorts the entire history of its political development (p. 62).

    Zaman’s emphasis is on some of the magnets that drew new coalitions together during the 19th century and this is good, but it might help the reader new to TGT to understand Polanyi’s direct rejection of narrowly defined economic interests as the only thing that brings groups together.

    It follows from Zaman’s well done identification of the key elements of Polanyi’s method that what are often thought of as separate analytical domains must be combined because of the interrelatedness of social, political, and economic factors in the evolution of economic systems. Polanyi’s method is of necessity interdisciplinary and this Zaman understands and emphasizes. What Zaman perhaps does not recognize so well is that the theories that individuals and their groups use to understand changes that buffet their social systems are not “wrong” as Zaman emphasizes, if wrong is understood to contrast with “right.”

    In TGT, Polanyi, with his battering ram prose often seems to think of economic thought in Manichean terms and so it is no wonder that Zaman falls into this trap. It is a more accurate reflection of Polanyi’s method, however, to recognize that the policy makers and thinkers who were wrestling with poverty in the early 19th century were engaged in the universal human practice of abduction. Zaman begins the section on “Theories and Learning from Historical Experience” with, what is, in effect a statement of Charles Sanders Peirce’s explanation of the role that abduction, as opposed to induction and deduction, play in providing the causal relationship between actions and observations. Zaman quotes from both Kant and Hume to good effect on this point, but use of Peirce, and perhaps of Daniel Bromley (2006, Chap. 6) would enable Zaman to do two things: state his proposition about the learning process and, at the same time, avoid the trap that returns to plague the paper, the trap of finding the theories of which Polanyi was critical “wrong” or “false,” with the implication of a “right” theory that existed if it had only been discovered.

    Let me say again that Polanyi certainly judged some of the explanations offered by policy makers and economists to have been “wrong” but in a work on the methods used by Polanyi it is important to introduce a more nuanced approach. A Manichean classification of theories does a disservice both to the richness of Polanyi’s method study and to his conclusions in TGT and to Zaman’s own analysis. What makes Polanyi’s argument in TGT so compelling is that he shows how intelligent reasoning, reasoning not based simply on self-or class-interest can lead to conclusions and policies that did not lead to the utopia that was the intended product.

    By emphasizing the “wrongness” and, by implication, the “rightness” of theories, even in spite of his own disclaimer that “the point here is not to discuss right and wrong,” (section 7), Zaman misses the opportunity to make explicit the change-inducing, or, as I would prefer saying, the evolutionary, nature of economies. Efforts to reform a system, as in the abolition of the Speenhamland system of aid-in-wages, in combination with other changes already underway created a socially unsustainable system in which labor, which is to say people, came to be treated as commodities produced for sale. But, British society would not have that and a process for reforms to the reforms continued.

    What Zaman should emphasize at this point in his argument is that Polanyi is saying more than that explanations of ongoing events may become clearer with hindsight. The value of hindsight is not Polanyi’s point; what Polanyi is arguing is that efforts to correct what is perceived to be wrong with a system (in this case Speenhamland as a cause of pauperism) set off further changes that lead to the double movement of the late 19th and 20 centuries. Fundamental to Polanyi’s analysis was an understanding of socioeconomic and political change as evolutionary.

    In Section 7, Zaman notes that the foundations of classical and neo-classical economics were laid during the period of confusion about Speenhamland. This impairs these forms of analysis today but what is even more damaging is the lack of evolutionary understanding. (For more on this see Morgan, 2016).
    Emphasis on the evolutionary dynamic would be of great importance for Zaman’s paper because it illustrates why it is so important to the kind of detailed analysis of the context from which analyses and policy prescriptions emerge. Block and Somers, in their fine and recent treatment of TGT, conclude that what makes the book so distinctive is Polanyi’s recognition of the ongoing importance of political power, where political power is understood as the legitimate exercise of collective human will. In his good paper, Zaman also recognizes this point and his recognition would be given greater prominence were he to place greater emphasis on the evolutionary dynamic which is always there precisely because of political power.

    The Great Transformation is a book that is about a particular place, the North Atlantic trading community and specifically the English component of that community, in a particular time, the early 19th century to the middle of the 20th century. It is not a discourse on social science method. That said, Zaman does a good job of identifying some of the key elements: Polanyi’s recognition that the individual should not be the focus of attention, the emphasis on the interrelatedness of what we otherwise identify as social, economic, and political, and the role that the understanding of context plays in the formation of policies to deal with new situations. In only one instance does Zaman fall into the trap of straying from Polanyi’s highly contextual analysis and into the more familiar world of the economist where deductive logic substitutes for time and place specific knowledge.

    This lapse occurs in Section 8 where he introduces the concept of a “surplus” to explain the growth of trade. The idea that individuals or groups or nations trade when they have a surplus is an old one in classical and neoclassical analysis but has little support in the historical and anthropological literature upon which Polanyi based his arguments. As Karl Polanyi’s student, Harry Pearson, wrote in the essay “The Economy Has No Surplus: Critique of A Theory of Development (Polanyi, Arensberg, and Pearson (1957) there is a commonly used notion of a “surplus” that arises “in the evolution of complex social and economic institutions” which then brings on further evolution, “just as an insufficiency of means is said to force the utilitarian management of resources” (p. 321). “Surplus” and “insufficiency” can only be given meaning within a specific social context except in the most extreme and very rare human cases (Mayhew, 2002) for what is sufficient for different groups of people is socially determined.

    Actually, Zaman does not need the concept of surplus, for the first paragraph in section 8 should simply be deleted. That point that Zaman wants to make in the second paragraph of this section is that Polanyi argued that the Industrial Revolution ushered in an era of materialism and the belief that all problems could be solved with more goods. The story of the growth of international trade, powered by improved navigation, the subsequent European discovery of lands new to them, and etc. is well known. But it is not a story where the growth of trade waited the development of a “surplus.”

    This one lapse from Polanyi’s method of relying on the historical and anthropological record rather than the more familiar method of economists which is to deduce from assumed conditions, can be easily deleted form Zaman’s paper but in a way its irrelevance serves to emphasize the importance of his topic. How did Polanyi write a book as powerful as TGT? He spent a lot of time trying to understand the context from which our modern economic, social, and political conflicts arose and a lot of time trying to understand how groups that made that context created the conditions that gave rise to the world of the 20th and 21st centuries. As Zaman recognizes fully, there is no quick or easy way to apply the methods of TGT. But, as he also understand, they are methods worth using.

    Block, Fred and Somers, Margaret R. (2014). The Power of Market Fundamentalism. Cambridge, Massachusetts: Harvard University Press.
    Bromley, Daniel W. (2006). Sufficient Reason: Volitional Pragmatism and the Meaning of Economic Institutions. Princeton, N.J.: Princeton University Press.
    Mayhew, Anne. (2002). “All Consumption is Conspicuous,” in Fullbrook, Edward (ed.) Intersubjectivity in Economics. London and New York: Routledge.
    Morgan, Jamie. (ed.) (2016). What Is Neoclassical Economics? Debating the origins, meaning and significance. London and New York: Routledge.
    Polanyi, Karl; Arensberg, Conrad M., and Pearson, Harry W. (1957). Trade & Market in the Early Empires. Chicago: Henry Regnery Company.
    Polanyi, Karl. (1957). The Great Transformation: the Political and Economic Origins of Our Time. Boston: Beacon Press.
    Rutherford, Malcolm. (2011). The Institutionalist Movement in American Economics, 1918-194: Science and Social Control. New York: Cambridge University Press.