In the introductory note to the book Trade and Market, Polanyi invites the readers to re-examine the notion of the “economy” since many people think that the only way of organizing the livelihoods of men is the market economy. In his own words:
‘What is to be done, though, when it appears that some economies have operated on altogether different principles, showing a widespread use of money, and far-flung trading activities, yet no evidence of markets or gain made on buying or selling? It is then that we must re-examine our notions of the economy.’ (Polanyi et al, 1957: xvii).
In order to develop an alternative notion of the “economy”, Polanyi proposed a new theoretical approach to explain the place and role of human beings in social and economic systems. He addressed that men value those material goods that serve the end to promote protection and social standing. As a result, in his approach, social matters turn out to be anthropological ones and the role of history is highly relevant. As Polanyi wrote:
“But a purposeful use of the past may help us to meet our present over concern with economic matters and to achieve a level of human integration, that comprises the economy, without being absorbed in it” (Polanyi et al., 1957: xviii).
Indeed, while considering different historical references, Polanyi provided a guide to examine the non-market economies and claimed that empirical observations reveal economic life in archaic and primitive economies to be entirely different from that assumed by formal economic analysis (Polanyi et al, 1975: 243-44). Against the methodological approach to economics based on assumptions, premisses and deductive reasoning, Polanyi proposed the method of economic anthropology that depends upon principles of economic behavior that are induced from empirical observation.
From the empirical evidence of economic life in ancient times and primitive economies, Polanyi explained the concepts of reciprocity and redistribution. The reciprocity principle implied that there was an unspoken agreement in society and on its behalf people produced goods and services that could be redistributed according to their needs among all who contributed according to their abilities to the common welfare. Their motivation to produce and share was not the economic motive, but the fear of losing the social status and prestige.
Although Polanyi addressed that ancient and primitive economies had market places, they were not market economies. In this scenario, daily local markets were merely exchange places operating within the broad system of reciprocity. Local craft and provision markets were isolated by the local authorities from the long distance ones (ports of trade) that only sold items which could not be provided within the local system of reciprocity (Polanyi et al., 1957).
In the nineteenth century, however, Polanyi noted that the emergence of a market economy pushed to the side the old economic and social systems based on reciprocity and redistribution. Since then, the new market economy has been characterized as an economic system controlled by prices that determine what, how and how much is produced and how is distributed. As Polanyi explained, the decisions about production and distribution are guided by the economic motive and they do not aim at achieving common welfare. Indeed, as he highlighted in The Great Transformation, the process of social change created by the market economy might lead to the emergence of poverty on a large scale.
Karl Polanyi described the desolation, dehumanization and degradation of human lives as necessary steps for the emergence and expansion of the labor market in a market economy:
“Before the process had advanced very far, the laboring people had been crowded together in new places of desolation, the so-called industrial towns of England; the country folk had been dehumanized into slum dwellers; the family was on the road to perdition; and large parts of the country were rapidly disappearing under the slack and scrap heaps vomited forth from the “satanic mills.” Writers of all views and parties, conservatives and liberals, capitalists and socialists invariably referred to social conditions under the Industrial Revolution as a veritable abyss of human degradation” (Polanyi, 1944: 41).
Polanyi’s analysis also enhanced a critique of some well-known economists and public men such as Townsend, Malthus, Ricardo, Bentham and Burke who considered that the provision of extensive relief to the poor by the government (such as the Poor Laws in England) would negatively affect the rate of economic growth.
Polanyi decisively condemned the hunger of workers as the only way to increase the levels of production in a market economy. In fact, Polanyi addressed that the “iron” laws governing a competitive market economy are not human laws. It is worth recalling his own words:
“The true significance of the tormenting problem of poverty now stood revealed: economic society was subjected to laws which were not human laws.” (Polanyi, 1944: 131).
POLANYI, K. (1944) The Great Transformation: The Political and Economic Origins of Our Time, New York: Rinehart.
POLANYI, K. (1977) The Livelihood of Man, New York: Academic Press
POLANYI, K., ARENSBERG,. H. and PEARSON, H. W. (eds.) (1957) Trade and Market in the Early Empires: Economies in History and Theory, Glencoe, Illinois: The Free Press.
POLANYI-LEVITT, K. (ed.) (1990) The Life and Work of Karl Polanyi, Montreal: Black Rose Books.