Karl Polanyis Great Error

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Karl Polanyis Battle with

Economic History
Alex Nowrasteh
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Karl Polanyis Great Error
past Karl Polanyi.
Johan Norberg
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(http://www.libertarianism.org/publications/essays/howMatt Bruenig responded (http://www.demos.org/blog/9/13/13/lets-try-polanyi-
islibertarianism)
laissez-faire-made-swedenrich)
point-one-more-time) to my post (http://www.libertarianism.org/blog/karl-
Is There a Purpose to
History?
wrong. Bruenig responded that he only supports Polanyis broad theory of history,
Jason Kuznicki, Aaron Ross Powell,
ideas.
polanyis-battle-economic-history) about how the great weight of historical evidence indicates that Karl Polanyis theory of mankinds great transformation is
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the so-called double movement, and that he divorces it from the rest of Polanyis
thoughts-
and Trevor Burrus
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(http://www.libertarianism.org/media/free
thoughts-podcast/is-there-
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Bruenig claims that Polanyis theory of history is:

1. At time one, economic liberalism (i.e. libertarianism) does not exist.
2. At time two, liberal economic institutions are introduced.
3. At time three, there is a social movement against these institutions in order to counteract
their horrible social consequences.
(/columnists)
That is simply not Polanyis model of historical change. I will go through the three
steps above and fill in what Bruenig left out, explaining why my original post
(http://www.libertarianism.org/blog/karl-polanyis-battle-economic-history)
About
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strikes at the heart of Polanyis ideas.

Step One
Polanyi does not just claim that economic liberalism did not exist. He claimed markets played such a minor role in human society prior to recent reforms in the United Kingdom that they did not produce prices (56). Polanyi wrote that individual
acts of truck, barter, and exchange are only exceptionally practiced in primitive
societies (274) and really only for foreign trade not trade between individuals
but trade between collectivities (277). Polanyi claimed that the great transformation created the propensity for men to truck, barter, and trade, and to employ
the modern economic mentalities that I described at length
(http://www.libertarianism.org/blog/karl-polanyis-battle-economic-history).
But Polanyi goes even further: not only did economic liberalism not exist, modern
economic mentalities did not exist. Polanyis point in chapters 3 and 4 of The Great
Transformation is that free-markets and mans modern economic mentalities are
recent symbiotic creations that require each other to exist. Its not simply that
free-markets were created de novo, its that mankinds economic mentalities were
created along with them. Thats why Polanyi spent his career writing books
(http://www.amazon.com/Dahomey-Slave-Trade-AnalysisArchaic/dp/0404629008/ref=sr_1_1?ie=UTF8&qid=1379527834&sr=81&keywords=Polanyi+dahomey) and (http://www.amazon.com/gp/product/0807047937/ref=s9_simh_gw_p14_d1_i1?pf_rd_m=ATVPDKIKX0DER&pf_rd_s=center-2&pf_rd_r=05XK8JBW2CK6B3V7B2SA&pf_rd_t=101&pf_rd_p=1389517282&pf_rd_i=507846) articles (http://www.amazon.com/Trade-Market-Early-Emp
ires-Economies/dp/B000V6E68K/ref=sr_1_1?s=books&ie=UTF8&qid=13795279
27&sr=1-1&keywords=Trade+and+Market+in+the+Early+Empires%3A+Eco
http://www.libertarianism.org/blog/karl-polanyis-great-error
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Karl Polanyis Great Error | Libertarianism.org
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nomies+in+History+and+Theory) detailing how people in pre-modern civilizaLIBERTARIANISM.org (/)
tions had different economic mentalities, and hence institutions, than modern
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man does.
Polanyi thought that for free-markets and industrialization to succeed (he mostly
used the terms interchangeably), all factors [of production] must be on sale [u]
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nless this condition is fulfilled, production with the help of specialized machines is
too risky to be undertaken (41). Polanyi continued that treating factors of produc-
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tion as commodities to be bought and sold was a condition that would not naturally be given; [it] would have to be created. That they would be created gradually
in no way affects the startling nature of the changes involved. The transformation
implies a change in the motive of action on the part of the members of society: for the motive of subsistence that of gain must be substituted [emphasis added]. All transactions

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are turned into money transactions (41). That is Polanyis great transformation.
Johan Norberg
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The historical evidence (http://www.libertarianism.org/blog/karl-polanyis-b
(http://www.libertarianism.org/publications/essays/how-
islibertarianism)
attle-economic-history) overwhelmingly contradicts Polanyis idea that economic
mentalities transformed, greatly or otherwise. To recap, people in pre-modern

(http://www.libertarianism.org/blog/karl-polanyis-battle-economic-history)
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times had modern economic mentalities, owned private property, traded locally
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and internationally, sold their labor, used money, and changed their behaviors
based on price changes that occurred in markets. That means Polanyis great trans-
thoughts-
and Trevor Burrus
formation did not occur. Peoples economic mentalities did not adjust.
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As Polanyi wrote in Chapter 4, Adam Smith contributed to creating the notion that
mankind had a propensity to barter, truck, and exchange one thing for another
yield[ed] the concept of the Economic Man. In retrospect it can be said that no
Columnists
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misreading of the past ever proved more prophetic of the future. For while up to
Adam Smiths time that propensity had hardly shown up on a considerable scale in
the life of any observed community (52). Polanyi continued by writing that, [b]ut
the same bias which made Adam Smiths generation view primeval man as bent on
barter and truck induced their successors to disavow all interest in early man, as he
About
was now known not to have indulged in those laudable passions (45).
(/about)
For Polanyi, widespread markets and liberal economic institutions are inseparable.
Liberal economic institutions certainly help markets grow larger and more efficient but they and the prices determined by people trading in markets have been a
huge part of human economic activity for all of recorded historyallocating resources locally and internationally. The liberalism of economic institutions has
waxed and waned over the millennia, becoming most liberal in the last few centuries, but markets and the economic mentalities that make them possible have always been present. Polanyis first step as its properly stated, is just wrong.
Step Two
The second step is similarly incomplete because Bruenig does not include the great
transformation of economic mentalities that was vital to the introduction of liberal
economic institutions, according to Polanyi.
Step Three
As Polanyi makes clear in the final chapter of The Great Transformation, the reaction to liberal economic institutions arises because markets are unnatural and
mankinds modern economic mentalities are a bad fit. Heres an extended quote
from Polanyi:
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After a century of blind improvement man is restoring his habitation. If

industrialism is not to extinguish the race, it must be subordinated to the
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requirements of human nature. The true criticism of market society is not

that it was based on economicsin a sense, every and any society must be
based on itbut that its economy was based on self-interest. Such an
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organization of economic life is entirely unnatural, in the strictly

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empirical sense of exceptional. Nineteenth century thinkers assumed that
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in his economic activity man strove for profit, that his materialistic
propensities would induce him to choose the lesser instead of the greater
effort and to expect payment for his labor; in short, that in his economic
activity he would tend to abide by what they described as economic
rationality, and that all contrary behavior was the result of outside
interference. It followed that markets were natural institutions, that they

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would spontaneously arise if only men were let alone. Thus, nothing could
Johan Norberg
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be more normal than an economic system consisting of markets and
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under the sole control of market prices, and a human society based on
such markets appeared, therefore, as the goal of all progress. Whatever the
desirability of such a society on moral grounds, its practicabilitythis was
axiomaticwas grounded in the immutable characteristics of the race.
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History?
Actually, we now know, the behavior of man both in his primitive state
thoughts-
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and right through the course of history has been almost the opposite from
that implied in this view The tendency to barter, on which Adam Smith
so confidently relied for his picture of primitive man, is not a common
tendency of the human being in his economic activities, but a most
infrequent one (249-250).
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Polanyis point was that our rational economic mentalities were a recent and unnatural addition. When that critical idea is added, Polanyis correctly stated theory
just doesnt hold up to historical scrutiny.
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Concluding Point
If Polanyis theory was the bland theory of historical institutional development described by Bruenig, there would be no point in writing a long rebuttal. It would just
be another in a long line of non-scientific theories of history. But there was no
great transformation of economic mentalities as Polanyi claimed. People in premodern societies operated under the same modern economic mentalities as those
of us in modern societies. Polanyis historical theory is contradicted by a long history of large markets with unregulated prices in everything from land to agricultural goods to slaves. Human economic mentalities were not changed during the nineteenth century in Britain as Polanyi claimedmeaning that his theory of the great
transformation is simply wrong.
Bruenig can hate history all he wants, and he can believe that philosophy is so
much better when it comes to arguing with libertarians. That does not excuse,
however, misusing discredited and wildly inaccurate economic history to try to
prove a point that does not follow if the history is inaccurate. You cannot go from
steps two and three without step one, and step one is false.
Yet Bruenig doesnt care if step one is false. Although he doesnt read Polayni as
saying anything so expansive as that, Bruenig explicitly says that it doesnt matter
if he did because: I dont care if Polanyi said that. Ive shown that Polanyi did, in
fact, say something as expansive as that, and I expect Bruenig to counter with
the escape hatch he provided himselfnot caring.
Thats fine if you dont care what Polanyi said, Im not a fan of Polanyi either. But if
thats the case, then stop using Polanyi. You can be interested in the relationships
between social development, economics, and history without using Polanyi. You
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can believe that libertarian policies create social backlash without using Polanyi.
What is shocking is that Bruenig acts as if I am the one who brought up Polanyi.
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But I wouldnt do that because Polanyi is wrong.

Perhaps we can agree to discard him together.
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Time. First Beacon Paperback edition published in 1957.
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Johan Norberg
text=@AlexNowrasteh)
islibertarianism)
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Polanyi, Karl. The Great Transformation: The Political and Economic Origins of Our

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History?
Share:
http://www.libertarianism.org/blog/karl
thoughts-
and Trevor Burrus
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About the Author

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Alex Nowrasteh (http://www.libertarianism.org/people/alex-nowrasteh)

Alex Nowrasteh is the immigration policy analyst at the Cato Institutes Center for Global Liberty and
Prosperity.
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Karl Polanyis Great Error | Libertarianism.

SEPTEMBER 23, 2013

Karl Polanyis Battle with

by Alex Nowrasteh (/people/alex-nowrasteh)

Arguments about the role of markets in history need to move

How Laissez-Faire Made