Polanyi argued that the development of the modern state went hand in hand with the development of modern market economies and that these two changes were inextricably linked in history. Essential to the change from a premodern economy to a market economy was the altering of human economic mentalities away from their grounding in local social relationships and institutions, and into transactions idealized as "rational" and set apart from their previous social context.[1] Prior to the Market Society, markets had a very limited role in society and were confined almost entirely to long-distance trade.[9] As Polanyi wrote, "the same bias which made Adam Smith's generation view primeval man as bent on barter and truck induced their successors to disavow all interest in early man, as he was now known not to have indulged in those laudable passions."[10]
The modern market economy was forced by the powerful modern state, which was needed to push changes in social structure, and in what aspects of human nature were amplified and encouraged, which allowed for a competitive capitalist economy to emerge. For Polanyi, these changes implied the destruction of the basic social order that had reigned throughout pre-modern history. Central to the change was that factors of production, such as land and labor, would now be sold on the market at market-determined prices instead of allocated according to tradition, redistribution, or reciprocity.[11] This was both a change of human institutions and human nature.
His empirical case in large part relied upon analysis of the Speenhamland laws, which he saw not only as the last attempt of the squirearchy to preserve the traditional system of production and social order but also a self-defensive measure on the part of society that mitigated the disruption of the most violent period of economic change. Polanyi also remarks that the pre-modern economies of China, the Incan Empire, the Indian Empires, Babylon, Greece, and the various kingdoms of Africa operated on principles of reciprocity and redistribution with a very limited role for markets, especially in settling prices or allocating the factors of production.[12] The book also presented his belief that market society is unsustainable because it is fatally destructive to human nature and the natural contexts it inhabits.
Polanyi attempted to turn the tables on the orthodox liberal account of the rise of capitalism by arguing that “laissez-faire was planned”, whereas social protectionism was a spontaneous reaction to the social dislocation imposed by an unrestrained free market. He argues that the construction of a "self-regulating" market necessitates the separation of society into economic and political realms. Polanyi does not deny that the self-regulating market has brought "unheard of material wealth", but he suggests that this is too narrow a focus. The market, once it considers land, labor and money as fictitious commodities, and including them "means to subordinate the substance of society itself to the laws of the market."[13]
This, he argues, results in massive social dislocation, and spontaneous moves by society to protect itself. In effect, Polanyi argues that once the free market attempts to separate itself from the fabric of society, social protectionism is society's natural response, which he calls the "double movement." Polanyi did not see economics as a subject closed off from other fields of enquiry, indeed he saw economic and social problems as inherently linked. He ended his work with a prediction of a socialist society, noting, "after a century of blind 'improvement', man is restoring his 'habitation.'"[14]
Gold standard
Polanyi offers a prominent argument in the field of political economy for Britain's decision to depart from the gold standard.[15] He argues that Britain went off the gold standard due to both deteriorating international economic conditions and pressures from labor, which had grown stronger over time. Labor opposed the gold standard because maintaining it meant that the British government had to implement austerity.[15] James Ashley Morrison found many later explanations for the collapse of the gold standard very much resemble the Polanyian argument, which he summarized as follows:
Developments in the global economy, particularly after World War I, made maintaining the gold standard increasingly painful. Diminished international cooperation combined with Britain’s relative economic decline to exacerbate its difficulties. At the same time, a newly empowered working class harnessed evolving “social purpose” to resist the austerity necessary to defend gold
