This is one of a series of posts that will ask what the most pertinent question raised by a prominent influencer of political economy might have been, and what the relevance of that question might be today. There is a list of all posts in the series at the end of each entry. The origin of this series is noted here.
After the first two posts in this series, the topics have been chosen by me, and this is one of those. This series has been produced using what I describe as directed AI searches to establish positions with which I agree, followed by final editing before publication.
Why have I included Karl Polanyi? That is because in his book 'The Great Transformation', he questioned the concept of supposedly self-regulating markets. In addition, he advanced the concept of Double Movement, which refers to the process of marketisation and the pushback against it.
Neither gets much mention on this blog, yet both his most significant book and the concept of double movement are key to a proper understanding of political economy and inform my own thinking on this issue, which is a point I should acknowledge. This post is a way of making amends and doing just that.
Karl Polanyi's The Great Transformation is one of the most important critiques ever written of market fundamentalism. That is not because it opposes markets, but because it demonstrates a deep understanding of them, their nature and the threats that they pose.
Polanyi showed that the idea of a self-regulating market is not a natural outcome of human exchange, but a political project imposed by states in the nineteenth century. In doing so, he demonstrated that whenever society is forced to subordinate itself to market logic, the result is social disintegration, political instability, and authoritarian reaction.
Polanyi's insight was not merely historical. It was diagnostic. He revealed a recurring pattern: market liberalisation produces suffering; society resists; elites respond either by re-embedding markets within social protection, or by turning to coercion. Democracy, he argued, only survives when the former path is chosen.
Hence, theKarl Polanyi Question: If attempts to create a self-regulating market repeatedly destroy social order, democracy and nature, why do we continue to treat market subordination as the price of modernity?
Markets are made, not found
Polanyi's first and most important claim is that markets are not natural phenomena. They do not arise spontaneously from human barter. They are created by law, enforced by states, and sustained by institutions. The so-called “free market” required massive state intervention: enclosure of common land, criminalisation of subsistence, dismantling of local protections, and the forced creation of wage labour.
The irony is profound. The market was never free. It was imposed, and imposed violently. The language of freedom masked a transfer of power from communities to capital. Polanyi understood that once this history is acknowledged, the moral authority of laissez-faire collapses.
The fiction of the self-regulating market
Polanyi argued that the self-regulating market is not just unrealistic but impossible. Markets cannot regulate themselves because they depend on social foundations they cannot themselves create, whether they be trust, stability, care, legitimacy, or ecological continuity.
Yet market liberalism demands exactly this impossibility. It insists that labour, land and money be treated as commodities despite the fact that none of them are produced for sale. Labour is a part of human life. Land is nature, and the world we live upon in all its complexity. Money is a social institution that is a public good. To subject them to market pricing alone is to invite catastrophe.
Polanyi called these fictitious commodities, and his warning was precise: societies that try to commodify them will destroy themselves.
The double movement
One of Polanyi's most powerful ideas is that of “double movement”. This suggests that as markets expand and social protections are stripped away, society pushes back. Workers organise. States intervene. Welfare systems emerge. Regulation returns. This is not a matter of ideology; it is about survival.
The tragedy, Polanyi observed, is that elites often resist this re-embedding. Instead of allowing social protection to stabilise capitalism, they seek to suppress resistance through repression, nationalism, or authoritarianism. Fascism, he argued, was not a rejection of markets but a reaction to the social chaos markets produced.
This insight is chillingly relevant today.
Democracy cannot survive market absolutism
Polanyi showed that democracy and market absolutism are incompatible. When markets are treated as supreme, democratic choices are overridden by “economic necessity”. Wages must fall. Services must be cut. Regulations must go. And, elections become theatre because the range of permissible policy is pre-determined by capital mobility and investor confidence.
This is how democracy hollows out. Citizens are told there is no alternative, not because other options do not exist, but because markets have been elevated above politics. Polanyi understood that when people lose democratic agency, they will seek it elsewhere, sometimes destructively.
Neoliberalism as a second great transformation
Polanyi wrote about the nineteenth and early twentieth centuries. But neoliberalism is a second great transformation, and another attempt to disembed markets from society. Austerity, deregulation, privatisation, labour precarity, financialisation, and the erosion of welfare states are not accidents. They are the deliberate revival of the self-regulating market ideal.
The consequences are exactly what Polanyi did or could have predicted:
- rising inequality
- social fragmentation
- political extremism
- ecological collapse
- democratic decay
That these outcomes surprise policymakers is evidence not of novelty, but of intellectual amnesia.
Ecology completes Polanyi's argument
Polanyi did not live to see climate breakdown, but his framework anticipates it. Treating nature as a commodity subject to market pricing alone guarantees ecological overshoot. Markets do not protect ecosystems. They exhaust them.
The climate crisis is therefore not a market failure. It is a market success; the logical outcome of subordinating planetary systems to price signals and profit incentives. Polanyi's insistence that land cannot be commodified without destruction now applies at the scale of the Earth itself.
What answering the Karl Polanyi Question would require
To take Polanyi seriously today would require reversing the second great transformation and re-embedding the economy within society and nature. That would involve:
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Reasserting democratic primacy, meaning markets must serve social goals, not dictate them.
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Decommodifying labour, requiring the restoration of security, dignity and bargaining power at work.
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Decommodifying land and nature, requiring that we treat ecological systems as limits, not inputs.
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Reclaiming public control over money and finance, meaning that we recognise money as a public utility, and not as a private weapon.
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Strengthening social protection, requiring the delivery of social security, health, housing and care as essential stabilising infrastructure within society.
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Rejecting the claim that “there is no alternative” by acknowledging that economic rules are always political choices.
These are not anti-market proposals. They are the necessary conditions for markets to exist without destroying the societies that host them.
Inference
The Karl Polanyi Question reveals the central delusion of modern political economy: that freedom lies in submitting society to markets. Polanyi showed that the opposite is true. When markets are allowed to dominate, freedom collapses into insecurity, democracy erodes, and authoritarianism beckons.
His lesson is neither nostalgic nor utopian. It is empirical and urgent, demanding that we recognise that markets must be embedded in society, or society will revolt against markets.
The question we face is not whether Polanyi was right. It is whether we are willing to learn from him, or whether we will repeat, yet again, the catastrophe he described.
Previous posts in this series
Previous posts in this series:
- The economic questions
- Economic questions: The Henry Ford Question
- Economic questions: The Mark Carney Question
- Economics questions: The Keynes question
- Economics questions: The Karl Marx question
- Economics questions: the Milton Friedman question
- Economic questions: The Hayek question
- Economic questions: The James Buchanan question
- Economic questions: The J K Galbraith question
- Economic questions: the Hyman Minsky question
- Economic questions: the Joseph Schumpeter question
- Economic questions: The E F Schumacher question
- Economics questions: the John Rawls question
- Economic questions: the Thomas Piketty question
- Economic questions: the Gary Becker question
- Economics questions: The Greg Mankiw question
- Economic questions: The Paul Krugman
- Economic question: the Tony Judt question
- Economic questions: The Nancy MacLean question
- Economic questions: The David Graeber question
- The economic questions: the Amartya Sen question
- Economic questions: the Jesus of Nazareth question
- Economic questions: the Adam Smith question
- Economic questions: (one of) the Steve Keen question(s)
- Economic questions: the Stephanie Kelton question
- Economic questions: the Thomas Paine question
- Economic questions: the John Christensen question
- Economic questions: the Eugene Fama question
- Economic questions: the Thomas Hobbes Question
- Economic questions: the James Tobin question
- Economic questions: the William Beveridge question
- Economic questions: the William Nordhaus question
- Economic questions: the Erwin Schrödinger question
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Here is my answer to the Polanyi question on the basis of ecological realism:
From Capitalization to Curatorization:
A Custodium Protocol for Ecologically Admissible Investment
Abstract
Modern economies govern the future through capitalization: expected cash flows are discounted into present asset values, and investment decisions are legitimized by risk-adjusted returns. This operator coordinates large-scale allocation, yet it systematically displaces ecological constraints and social reproduction into “externalities,” deferred liabilities, or unpriced risks. Under ecological realism—where economic activity is embedded in biophysical throughput and bounded by Earth-system stability—this displacement becomes self-undermining: financial claims on the future can expand while the enabling conditions of futurity erode. The result is not only mispricing but a structural category error: treating the future primarily as a stock of monetizable claims rather than as reproductive capacity.
This paper proposes a Custodium Protocol that reorders investment rationality. Projects are admissible only if they satisfy enforceable constraints across three coupled ledgers—financial, energy/material, and eco-reproduction—and pass three corresponding gates (Eco-Gate, Energy-Gate, Reproduction-Gate). Financial optimization becomes secondary: it applies only among options already proven compatible with the texture of life. The protocol further requires obligation-following (duties persist across ownership and exit), audit 2.0 (financial plus eco/reproduction verification), and automatic correction mechanisms when ledgers deteriorate. Conceptually, the shift is from buying the future to curating futurity: rights to benefit are reframed as authorizations conditioned by duties to maintain the enabling conditions of life.
Keywords: capitalization; discounted cash flow; ecological realism; planetary boundaries; social reproduction; triple-ledger; custodium; curatorization; investment admissibility; ecological democracy.
(The paper is under rewiev process)
Have you read my work on sustainable cost accounting?
“Have you read my work on sustainable cost accounting?”
Oh yes where you render 99.9999% of British companies bankrupt overnight. Maybe you should show that to Zach, he can add it to the list of nonsense ideas that are completely unworkable and will make him a laughing stock with the wider electorate.
And if they are bankrupt – as they may well be if we want life on earth, what would you choose? To stick you head in the sand and kiss your grandchildren’s well-being goodbye, or do something? Please tell us, and explain your choice.
I have.
Here is link to academy.edu. You can find the draft of the paper:
https://www.academia.edu/145606875/From_Capitalization_to_Curatorization_A_Custodium_Protocol_for_Ecologically_Admissible_Investment
Thank you
“The market was never free. It was imposed, and imposed violently.”
Yet another example of Orwellian Newspeak the market for many was not “freedom” but “unfreedom”!
This chimes with the work of Charles Tilly as well as Polanyi:-
https://drive.google.com/file/d/1mUdisni1J9dGtVA2thBRVHJDb30ciLSx/view
Thanks.
This ppst brings together so many issues that have been floating around in isolation in my head and puts them on a sound footing. Thank you.
I am not someone who would naturally search the shelves to find people like Polanyi to read: You are one of very few sources that I go to to try to solidify my thoughts precisely beacause you have done that and made sense of it!
Thanks
What Jed said.
Seems like you’ve switched into a much higher gear imho.
Thanks
I have always felt that market fundamentalism is absurd…. but interesting to read your precis of a more thoughtful academic approach by someone I had not heard of. Thanks.
One market that does work well is the Government Bond market where it is largely self regulated….. bad actors get ostracised and this prevents bad behaviour getting embedded. Consequently, lots of financial folk (foolishly) extrapolate to all areas of life with terrible results.
The key features of government bond makets is symmetry of power between all the players….. except for one – the government itself…. and it has all the power but acts benignly towards other participants. So, I am not sure we can say they really are self-regulated at all.
So how come there are bond vigilantes then, Clive?
And, of coruse, they are nit self-regulated at all, as you say.
They are also subject to gross misinformation as to their purpose. So are they really a fair marlet at alL?
“works well” is meant in a narrow sense that it delivers efficient/transparent pricing/transactions between players of equal power.
My point (perhaps not well made) was that this narrow success is then extrapolated to other markets like health, education, labour with terrible consequences.
Bond vigilantes? They don’t really exist. Vigilante-ism implies coordinated action with the intention to change government policy. In 40 years I have never seen this coordinated action…. but I have seen many like minded traders and investors trying to get out of the market in the face of policy they don’t like. This is not vigilante-ism.….. and we both know this is easily countered by robust Cental Bank action.
Thanks
You provided the reply I rather hoped for.
It seems to me that Polanyi, Hayek and Rawls were talking about the same thing but didn’t agree on terminology. What Hayek calls justice is the same thing Rawls called social justice. And I get the impression that what Polanyi is talking about is rather similar. Justice is not when society serves the economy. With all the talk of black holes and growth it very much feels like we are been told to do our duty. To fulfil someone else’s purpose. The freedom to find and define our own purpose is fading away. I think as a collective we know the answer. We can’t implement it because our society is too much ordered around individuality. Democratic decline has already removed oppositions that otherwise would be available to us. Some other less perfect solution will have to do. No point in asking a baby to run a marathon. Baby steps will do.
The common ground between Hayek, Rawls and Polanyi is not that they agreed on social justice – they very clearly did not – but that they were all grappling with the same underlying question:
How can a complex modern society coordinate individual freedom without collapsing into coercion, chaos or domination?
They start from that shared anxiety and then diverge sharply.
Hayek feared intentional social justice because he believed no authority could know enough to design fair outcomes without destroying liberty. For him, justice meant adherence to general rules and the protection of individual choice within markets. The market, though impersonal, was the least coercive coordinator available.
Rawls accepted the same complexity but drew the opposite conclusion. Because markets generate arbitrary outcomes, he argued that justice must be built into the background institutions that shape those outcomes. Freedom without fair starting conditions was, for Rawls, morally empty.
Polanyi agreed with Rawls on the necessity of social protection, but approached it historically rather than normatively. He showed that markets were never spontaneous or natural and that attempts to disembed them from society provoked social collapse and authoritarian backlash. Social justice, for Polanyi, was not a moral preference but a functional necessity for social survival.
So they are “the same” in the sense that they are all addressing the tension between freedom, order and coordination in mass societies. They differ in what they fear most: Hayek feared planned justice; Rawls feared unstructured markets; Polanyi feared market absolutism.
Seen this way, today’s crisis looks less like a theoretical dispute and more like Polanyi’s vindication: when society is ordered around markets rather than markets around society, people are told to accept insecurity as duty. Your instinct about fading purpose is exactly what that produces.
And yes, if collective capacity has been eroded, then rebuilding it will not come through grand designs alone. It will come through incremental steps that restore trust, shared direction and the legitimacy of acting together. Baby steps, but in the right direction.
Constantly telling people there’s a black hole to be fixed when it’s completely untrue is the equivalent of constantly shaking a fist in someone’s face. It’s provoking fear. Labour needs to be assigned to oblivion so bad is its moral corruption!
So, as to interpret this then:
1. Increased marketisation wrenches the real social economy out of society with economic opportunity for capital elites rules over commonly agreed necessity – for example Luis Vuitton bags become rather ‘important’.
2. The double movement – although a ‘push-back’, is actually just some form of marketisation legitimisation, it does not really pull the economy back to a commonly agreed social function but imposes a form of weak system of control which in reality is based on the notion of marketised ‘self regulation’ in favour of markets – for example using arm’s length ‘agencies’ like the Financial Conduct Authority, Homes England (affordable housing) and OFWAT rather than direct management of these functions by government.
These two points then infer why the more privatized, marketized economy does not really work – because the double movement is rather superficial and weak. What is best as you state at the end – and I do not doubt it – is the state maintaining a more direct role and balancing the economy to achieve win/wins for labour and capital because what we actually have is a system of bias.
I still find it amazing, that for all the words of Jesus, those of the ancient Chinese rulers writing in the Guanzi, the experiences of debt jubilees in the near East all before Jesus, and according to the late David Graeber in societies before those that understood human society’s propensity to become unequal – that after all this – we have not been able to eradicate pleonexia from human society. Staggering.
You challenged me with this one, PSR.
I really do not think Polanyi was advocating a gentler or better-regulated neoliberalism. He was arguing that the marketisation of society itself is a dangerous historical aberration, and that attempts to “regulate” it while preserving its primacy are inherently unstable.
Your two points capture that well.
First, marketisation disembeds the economy from society. Value ceases to be defined by collectively agreed need and instead becomes whatever can command purchasing power. That is how socially trivial or even destructive activities acquire priority simply because they are profitable. The Louis Vuitton bag example is exactly right: its “importance” is not social, ecological or moral, it is purely a function of surplus wealth seeking expression. That is pleonexia institutionalised.
Second, the double movement is often misunderstood. Polanyi did not describe it as a restoration of social control, but as a defensive reaction to market damage. And crucially, as you say, in modern capitalism that reaction is usually captured by the logic of the market itself. The fact is that “arm’s-length” regulators, quasi-markets, pricing rules, and so-called “independent” agencies do not re-embed the economy in society. They legitimise market dominance while softening its worst excesses just enough to keep it politically survivable.
So yes: what we get is not genuine social control but managed marketisation, biased systematically in favour of capital. Labour, care, environment and community are all treated as residual claimants.
That is why the system does not work well, even on its own terms. The double movement in these cases is too weak, too compromised, and too ideologically constrained to correct the underlying imbalance.
Polanyi’s implicit conclusion, which many readers shy away from, is that the state must play a direct, purposive role, not as a referee of markets but as an organiser of economic life around social need. Not central planning in the caricatured sense, but democratic priority-setting and active coordination.
Your final reflection is the deepest one. The persistence of pleonexia is not a moral failure of individuals alone; it is a design failure of institutions. Societies have long known that unchecked accumulation corrodes social order. What is staggering is not that greed exists, but that we keep building systems that reward it and then act surprised by the results.
That is precisely the lesson Polanyi was trying to teach.
Thank you for this Richard. I have been waiting for your take on Polanyi. Having been introduced to MMT, and its political implications through this blog, I found the Great Transformation so insightful and relevant in identifying and naming the political aspects of free market ideology over such a long period of history. We have been lied to for a long time by the advocates of unrestrained greed.
It’s a long and detailed read, but the message is compelling and comprehensive; I hope readers of this blog find his work as intellectually (and indeed emotionally) satisfying as I do. Your precis above is very useful in condensing his central ideas.
Thanks, Helen