Karl Polanyi:


"The Great Transformation" (1944)

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The "great transformation" is the advent of the market economy during the 19th century. Polanyi argues that until then, across ages and civilizations, people had produced not for profit but for feeding their family and markets were marginal affairs. Society was shaped by moral values, not by profit, and the economy was subordinate to society. The industrial revolution fundamentally altered the relationship between society and economy, by separating the two and by creating the market economy with its emphasis on production for profit. In theory the market economy relies on the principle of a self-regulating market, but Polanyi believes that such a market works to destroy the very fabric of society and therefore society inevitably produces forces that strive to regulate it.

Polanyi begins the book by explaining the apparent miracle of the "long peace": in about a century the European powers fought each other for only about 18 months. This unprecedented peace cannot explain by simply looking at political factors, but can be easily explained from the point of view of the market: war disrupts the market economy. Once the state depends on the market economy, the motivation to go to war is much reduced. Polanyi sees the manifestation of this force in the "high finance" that influenced decisions in each and every European power. High finance was not designed for peace, but, being to some extent indipendent of the nation state, ended up fostering a pragmatic form of peace. Industrial power, by contrast, was much more parochial and much closer to the state. International trade, precisely because it was "international", kept nations from fighting each other. (Finance was, of course, responsible for colonial wars, but not for wars between powers).

The great transformation changed human nature. Until the 19th century human nature valued social relations more than profit. In traditional societies gifts are more common than sales; they are supposed to be reciprocated. Small and large nations ran surpluses according to a principle of redistribution. The production of goods was motivated by use, not by sale. Profit was not a much major driver of human behavior. Trade was non-competitive, and deliberately so, in the protectionist towns of the feudal era. The state, once it became a real force and not just an aristocratic title, forced the mercantile revolution on the towns.

Polanyi views the machine as the triggering factor for the transformation that changed human nature. Machines were expensive and therefore justified only for the production of large amounts of goods. The emphasis then shifted towards commodities. Production depended on non-commodity factors such as labor and land, but these ended up being transformed into commodities of sort, bought and sold just like any other material resource. Once labor and land were turned into commodities, the individual's relationship with others and with the natural environment was altered forever. The reaction to this transformation was that society produced forces opposing the self-regulating market. Society acted to protect itself. Polanyi makes the point that free trade is actually not free at all, but owes its existence to repeated government intervention. On the other hand, the reaction against the excesses of the free market was spontaneous. Basically, the way he sees it is that free market was destroying society and society reacted and destroyed free market. He was in fact convinced that he lived in the age that had seen the end of free trade and the free market.

From this book i derived this:


A Timeline of the Working-class



Tudors and Stuarts (15th-16th centuries): paternalistic system of labor
16th century: Poverty becomes an issue
1563: Statute of Artificers:
Enforcement of labor
Seven-year apprenticeship

1601: Elizabethan Poor Law (The Poor Relief Act)
Poorhouses for the invalids and blind
Houses of Industry (workhouses) for poor people who can work
Houses of Correction for poor people who don't want to work
Apprenticeship for pauper children
Outdoor relief (money, food, clothing or goods in alternative to institutions)

1660: Thomas Lawson (Quaker) publishes "An Appeal to the Parliament concerning the Poor, that there may not be a Beggar in England" (1660)

1662: Act of Settlement and Removal: parish serfdom
A person belongs to a parish
Restriction in the movement of poor people from one parish to another
Poor people forced to work but prevented from looking for work outside their home parish

1688: Glorious Revolution

1696: John Bellers' utopian Colleges of Industry to provide full employment to the poor

1704: Daniel DeFoe proves that eliminating poverty would cause an economic catastrophe: without poverty people's productivity is lower and eventually this will cause famine, and giving poor people government jobs takes away cheap labor from private companies which in the long-term causes economic ruin

1763: End of the Seven Years War
Boom of trade (notably of exports)
But also boom of poverty
Fluctuations in trade cause unemployment in both rural countryside and industrial towns
Overpopulation causes unemployment
Industrial towns are a cultural wasteland
The industrial revolution creates extreme wealth but also extreme poverty

1795: Speenhamland Law
Abolition of parish serfdom
"Right to live": subsidies guarantee a minimum wage to the laborer, rural communities given some protection from the competition of industrial towns
Consequence: Increase in spare time
Consequence: Decline of labor productivity
Consequence: The poor have little motivation to get our of poverty
Consequence: Subsidies prevent the emergence of a working class movement
Consequence: No revolution in Britain

1786: Joseph Townsend's "A Dissertation on the Poor Laws" opposes public welfare assistance
1797: Arthur Young's Industry-Houses (exploitation of the labor of the assisted poor), 250 are built with 500,000 inmates
1798: Thomas Malthus' "An Essay on the Principle of Population" opposes public welfare assistance
1815: Mass unemployment at the end of the Napoleonic Wars
1813: Robert Owen's "villages of unity and cooperation" (modeled after Bellers)
1830: John Doherty founds the National Association for the Protection of Labour
1832: The Great Reform Bill grants voting rights to the middle class
1834: Poor Law Reform: the labor market is liberalized, outdoor relief is abolished
Consequences: Labor becomes a commodity with prices set by the market
Consequence: Competition spawns the emergence of a working class movement
1847: Britain enacts the "Ten Hours Bill", which Karl Marx hails as the first victory of socialism