Methodology of Polanyi’s Great Transformation

Polanyi’s book is widely recognized as among the most deeply original and seminal analyses of the origins and effects of capitalism. In a previous post,  I provided a brief summary of the main arguments of Polanyi.  Polanyi does not explicitly discuss methodology, but his analysis is based on a methodology radically different from any currently in use in social sciences. This methodology could provide the basis for an entirely new approach to the subject matter. In my paper entitled The Methodology of Polanyi’s Great Transformation, I have articulated central elements of this methodology by showing how Polanyi uses them in his book. I provide a brief summary of the main ideas of the paper here.

Firstly note the Polanyi operates at a meta-theoretical level. The work analyzes emergence of theories as attempts to understand historical experience. This immediately leads to a historical context sensitive analysis, as opposed to current a-historical methods dominant in economics. In what is an extremely interesting twist, Polanyi argues that theories formulated by contemporaries to understand their experience are often wrong. Nonetheless, these theories are used to understand and shape responses to historical circumstances. This mechanism provides substantial room for human agency in influencing history. The key elements of Polanyi’s methodology, extracted from how he has utilized them in his book, are listed as follows:

1: Institutional Perspective: The book argues that institutions are the embodiments of human purpose. Thus they translate objectives into practice. Without institutions, intentions remain without effective incarnation. Contrary to current empirical perspectives, Polanyi puts central emphasis on the unobservable intentions, but also shows that institutions shape and limit the impact of these intentions on history.

2. Methodological Communitarianism:  this word has been coined by me to reflect Polanyi’s views which are a sharp anti-thesis of the methodological individualism that underlies modern economics. Polanyi argues that individual behaviour is strongly shaped by his community, and cannot be understood without reference to social norms prevalent in his community. In addition, he argues that social change is, almost by definition, a reconfiguration of constellations of communities and communal interests, and cannot be analyzed at an individual level.

3. Going Beyond Class Struggle:  Polanyi argues that typically no one class has sufficient power to enforce its will upon others. Thus success in class struggle depends on the ability of a class to act upon broader interests, to win sufficient allies to prevail. He gives several examples of classes acting against narrow class interests and in harmony with broader interests. This means that one must go beyond class struggle to understand the currents of history.

4. Interlinkage of Political, Social, and Economic Spheres. A key contribution of Polanyi is that these three spheres of human existence are deeply interlinked and cannot be analyzed in isolation, as current approaches to social sciences assume. For instance, he argues that surpluses created by industrial revolution strengthened market norms. Emerging market structures impacted on social structures, and social norms of paternalism and responsibility were replaced by market norms of individualism and hedonism. Similarly, the gold standard enabled trade and economic integration, leading to preservation of peace among European powers. Breakdown of the gold standard led to world war, as the economic benefits of peace disappeared.  Inter-linked analysis of the political, social and economic spheres lends depth and coherence to Polanyi’s analysis.

5. False Theories Shape History: A key insight of Polanyi is that contemporary analysts often make mistakes at guessing causes of emergent phenomena. These mistaken analyses are used to fashion a response to the phenomena and these mistaken responses shape history. A central example in Polanyi’s book is the Speenhamland episode, where laws to guarantee a minimal living to labourers backfired for a complex set of reasons. Classical economists were led to believe that there were iron laws which required poverty to exist, so that labor markets could function. This mistaken analysis continues to guide our approaches to poverty and the labor market, inflicting misery on masses.

6. Dynamics of Social Change: Polanyi argues that social change arises in response to some external stimulus, like invention of machines of mass production. The surplus generated provides power to merchant classes, upsets social structures, and provokes responses from parties hurt by the change. To understand the dynamics one must simultaneously analyze the actions of an emergent class trying to build power, as well as the counter-response of opposing classes – a double movement, in Polanyi’s terminology.

A detailed discussion and explanation of all of the points listed above is given in my paper entitled: The Methodology of Polanyi’s Great Transformation. The methodology of Polanyi is radically different from any currently in use in the social sciences. It offers us solutions to the impasse we currently face, where dominant theories have clearly failed us, and no clear single coherent alternative has emerged. Polanyi’s analysis of social change also offers clues as to how to go about solving the enormous problems currently facing mankind. It is definitely worth a deep study.

A 70m Video-Lecture on the Methodology of Polanyi’s Great Transformation is linked below:




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