The Great Transformation (book)

The Great Transformation is a book by Karl Polanyi, a Hungarian-American political economist. First published in 1944 by Farrar & Rinehart, it deals with the social and political upheavals that took place in England during the rise of the market economy. Polanyi contends that the modern market economy and the modern nation-state should be understood not as discrete elements but as the single human invention he calls the "Market Society".

A distinguishing characteristic of the "Market Society" is that humanity's economic mentalities were changed. Prior to the great transformation, people based their economies on reciprocity and redistribution and were not rational utility maximizers. After the great transformation, people became more economically rational, behaving as neoclassical economic theory would predict. The creation of capitalist institutions not only changed laws but also fundamentally altered humankind's economic mentalities, such that prior to the great transformation, markets played a very minor role in human affairs and were not even capable of setting prices because of their diminutive size. It was only after the creation of new market institutions and industrialization that the myth of humanity's propensity to barter and trade became widespread in an effort to mold human nature to fit the new market based economic institutions. Polanyi thus proposes an alternative ethnographic approach called "substantivism", in opposition to "formalism", both terms coined by Polanyi.

Polanyi argued that the development of the modern state went hand in hand with the development of modern market economies and that these two changes were inextricably linked in history. Essential to the change from a premodern economy to a market economy was the altering of human economic mentalities away from a non-utility maximizing mindset to one more recognizable to modern economists. Prior to the great transformation, markets had a very limited role in society and were confined almost entirely to long distance trade. As Polanyi wrote, "the same bias which made Adam Smith's generation view primeval man as bent on barter and truck induced their successors to disavow all interest in early man, as he was now known not to have indulged in those laudable passions."

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