The Great Transformation

Although Polanyi blames the market for its inhumanity in allowing starvation, his most focused critique throughout the book remains directed at market or economic liberals. Market liberals believe “that both national societies and the global economy can and should be organized through self-regulating markets” (xviii). They argue for economic liberalism to be the working mechanism by which all of society operates, essentially subjugating society to the instability of the market. According to market liberals, industry should be based on the institution of a self-regulating market. Paradoxically, this institution itself acts as an intervention—i.e., it is not natural—and therefore cannot be identified with Adam Smith’s laissez-faire economics, although most market liberals adamantly profess the preeminence of a laissez-faire system. Polanyi repeatedly speaks to the hypocrisy evident within the market liberal creed, which decries government intervention except when it allows for the market system to function.

As a doctrine, economic liberalism arose in the 1820s under three tenets: 1) the labor market, 2) the gold standard, and 3) free trade. However, economic liberals turned into what Polanyi terms fanatics as the creed became increasingly militant in the 1830s. Economic liberals constructed the belief in the market as a moral force, whereby economic liberalism went from being a mere academic interest to a kind of militant religion of the middle class via the 1832 Poor Law Amendment Bill, which created so-called freedom of labor. As market liberals gained traction, they were able to increasingly urge governments to intervene, in order to maintain their utopian self-regulating market. However, Polanyi argues that these interventions and the refusal of market liberals to see the negative ramifications of the market system eventually paved the way for the rise of fascism in the 20th century. Current market-liberalism policies still exist especially within conservative America, which espouses the morality of market systems, such as Ronald Reagan’s trickle-down economics. 

One of the founders of utopian socialism and the cooperative movement, Owen worked to improve factory workers’ conditions in his textile mills and created experimental socialist communities to provide workers with living conditions that were worthy. He was an adamant critic of economic liberalism and espoused the evils of the market system that resulted from its commodification of man and Nature: “Owen justly pronounced that unless legislative interference and direction counteracted these devastating forced, great and permanent evils would follow” (135). As such, Owen represents a kind of polar opposite to the theories of the economic liberals: he believed that government intervention was necessary in order to prevent the destruction of society by market forces. Polanyi credits Owen with the discovery of society, as his socialism “was based on a reform of human consciousness to be reached through the recognition of the reality of society” (133). Owens cautioned against the inevitable evils of leaving manufacturers to progress on their own, such as the decrease in individual and social happiness, advising these be rectified through legislation because poverty was a social and not an economic problem.

These beliefs were the cornerstone of the Owenite movement, which aimed at bypassing capitalism through solving the problem of the machine via a union—the idea of man as a whole—that sacrificed neither individual freedom nor social solidarity. Polanyi argues that Owenism’s failure was the single greatest defeat of spiritual forces in industrial England. Owenism refused to accept the separation between politics and economics, negating the idea of gain and profit as society’s organizing force. Instead, Owen believed that the nascence of the machine required a new society, as industry represented a part of society. Owen’s factory in New Lanark succeeded, despite lower wages, because it allowed for shorter hours and greater quality of life. He criticized More’s Christian belief that the more readily the poor accepted their wretched conditions, the more easily they would be saved, and market society could function smoothly.

Bentham was an English philosopher and social reformer who is conceived of as the founder of modern utilitarianism. He created the idea of the Panopticon, a jail that would allow continual observance of all inmates and therefore necessitate their best behavior. He also considered instituting this for workers, as he planned to use first convicts then paupers to run his brother’s new machinery via the panopticon’s constant observation of exploitative labor. Bentham’s Panopticon sponsored a variety of proposals, many of which necessitated legislative support.

As a social theorist, Bentham classified the poor, grouping them into categories of unemployment. According to Polanyi, Bentham falsely believed that Speenhamland Law would force laborer wages up and vehemently opposed it. Instead, Bentham argued that no punishment besides hunger, which was natural, was necessary to maintain balance, and that poverty was the price to be paid for surplus and prosperity: “It was precisely on this point that Bentham, the rationalist, agreed with Burke, the traditionalist [….] If hunger would do the job, no other penalty was needed” (122).

Owen opposed Bentham, who was his teacher, as Owen believed that the idea of starvation was inhumane. Bentham believed that humans only possessed one of the three things needed for economic success—inclination—while the state possessed the necessary knowledge and power which could be achieve by replacing parliamentary with administrative action. In this way, Bentham and Owen were similar, as they both believed that intervention was necessary for social progression, rejecting the preeminence of economics over politics. Bentham believed that the Industrial Revolution’s great gift was social rather than technical innovation, as the discovery of economics transformed society by establishing the market system, whereas the machinery was developed by uneducated artisans. Bentham alleged his own discovery of a new social science based on utility concerning morals and legislation.