Despite two very serious flaws, The Great Transformation by Karl Polanyi is a major, important, path-breaking and near-classic work of economics.

First Polanyi proves that capitalism is just historical contingency; something that probably desperately needed to be said back then, since even the biggest critic of capitalism thought it was necessary. More to that point, Polanyi destroys all notion that there is anything “natural” about capitalism and free markets; that is to say he removes any doubt that individual business and contracts were the natural state of man – as alleged by many classical economists – and that only government had been holding us back.

The second virtue is that he is equally ruthless towards Marxism, finding in it similar flaws of reductionism and blind faith. Such a middle position was sorely needed in the 1940s and is still needed today.

As I said, there are two huge flaws though.

• The less obvious but more concerning issue is his tendency to reduce and simplify just like those he criticizes. He uses metaphysical “principles” to explain what is going on in society. Now, I don’t know if society can be “guided” at all, but if it can be, it’s hardly guided by two competing “principles.” For another example, he uses “self-regulated market” so loosely, he even refers to partially regulated markets as “self-regulated.”
• The more obvious but somewhat less serious problem is his prophecy: he is dead wrong about the fate of capitalism. Now we can excuse this for a couple of reasons.
  1. First, because so many people – including historians – do this on a regular basis.
  2. Second, because his era – and a few decades afterwards – would have strongly suggested that he was right.

But I still think we should be critical: historians – nor anyone else wishing to be taken seriously – should never engage in prophecy.

But on the whole this is a valuable read, especially for anyone who is still a believer in the myth that capitalism is necessary / natural / unqualified progress or that it lacks a religious foundation.

8/10