Capitalism Defined, Part V: Polanyi and the Fictions of Free-Market Societies

While Max Weber founded what one might call the sociological study of capitalism, the Hungarian economist Karl Polanyi was among the first scholars to identify capitalism as a fit subject for anthropological study. Following the lead of Jacob Malinowski (whose study of Trobriand Islanders in the 1920s became a classic) and sociologist Ferdinand Tonnies (who developed the gemeinschaft/gesellschaft dichotomy), Polanyi argued that Adam Smith’s economic man, who pursued only profits and personal comforts, was a myth. The primary function of most human economies, Polanyi observed, was to improve participants’ social status and augment their “social assets,” not their store of worldly goods. In pre-state societies like the Trobriand Islanders’, people’s primary economic goals were reciprocity – the symmetrical exchange of goods as gifts, usually in a social context attended by ritual (7-9) – and redistribution, whereby chiefs accumulated goods for the purpose of giving them to followers. The former ethic promoted social cohesion, while the latter produced political hierarchies by tying clients to their chiefly patrons. Neither ethic, though, was typical of capitalist societies; indeed, one later ethnohistorian, Daniel Richter, called redistribution a “kind of upside-down capitalism” because it involved negative accumulation (Ordeal of the Longhouse [Chapel Hill, 1992], p. 22).

More sophisticated state societies, like ancient Greece, medieval Europe, or eighteenth-century Dahomey, had more complicated economies, but they still weren’t capitalistic. Most produced for household or local consumption, and the trade in which they engaged – which, granted, might be very valuable (like the spice and slave trades) – usually consisted of luxury goods bought and sold by social outsiders or state employees. These societies did employ various kinds of money, like cowry shells or gold coins, in trade, but Polanyi argued that they used money as a “semantic system” to represent and discharge particular social obligations, like bride price or fines (190-194). Production, consumption, and trade thus remained thoroughly “embedded” (82) in political or social relationships, and philosophers from these societies, like Aristotle, defined the "good life" as a communal one, where people took pleasure not in material accumulation and consumption but in festivals, theater, political debate, and even battle.

The primary innovation of capitalism, Polanyi argued, was to yank economic inputs out of these social contexts by commodifying them (30-32). The merchants, industrialists, and liberal economists of the 18th and 19th century developed and codified a new set of economic "fiction[s]" (32), like wage labor and free trade, which subordinated previous social relationships to the new imperatives of commodity exchange. They then used the power of the state, first in Britain, later in other countries, to remove all impediments to the commodification and exchange of inputs. They passed enclosure laws, built poorhouses, removed tariffs, and instituted a global gold standard. They thereby created a so-called "self-regulating market," which capitalists and liberal economists believed was natural but was in fact highly artificial and socially destructive. Capitalism, Polanyi argued, created a global wave of ghastliness, knocking down laws, customs, and institutions that might have mitigated its ill effects. Nineteenth-century India saw the destruction of its textile industry and the spread of famine due to rising grain prices; Native North Americans lost their land and went into a steep demographic and cultural decline; and twentieth-century African migrant laborers escaped starvation only by losing their homes, families, and culture.

One might argue (as I would) that Polanyi's conclusions are a bit shrill, since he observed in his earlier work that the British developed mechanisms for defending their society against capitalism's evils: trade unions, a protectionist movement, and the creation of a welfare state after 1906. Presumably, other societies injured by capitalism's "self-regulating market" were able to develop their own countermeasures, like the legal defense associations that Plains Indians established to recover some of their lost lands. One might also argue that Polanyi was merely adding another layer of sophistication to Marx's early analysis of the cultural bankruptcy of capitalism. This is in some ways, however, beside the point. Polanyi's real strength lies in his analysis of pre-capitalist economies and his careful differentiation of societies with some of the features of capitalism (like trade and currency) from those that are genuinely capitalistic. In defining a thing, it is helpful to understand what that thing is not; in the case of capitalism, it is very helpful to know that the great majority of human societies have not organized their economies according to its rules.

Quotes from George Dalton, ed., Primitive, Archaic, and Modern Economies: Essays of Karl Polanyi (Boston, 1968). See also Karl Polanyi, The Great Transformation (Boston, 1944); idem, "Traders and Trade," in Jeremy Sabloff and C.C. Lamberg-Karlovsky, eds., Ancient Civilization and Trade (Albuquerque, 1975), 133-154.