The Great Transformation

Polanyi discusses the economic and political origins of the collapse of 19th century civilization, which he believes rested on four institutions: 1) the balance of power system, 2) the international gold standard, 3) the self-regulating market, and 4) the liberal state. The gold standard’s failure—which arose as a result of the self-regulating market—predicated civilization’s collapse, as the other institutions had already been sacrificed in an attempt to salvage it.

This collapse was a series of cycles in which society tried to save itself but ended up endangering itself in other ways. Polanyi admits that his analysis may seem overly simplistic, as civilization exists as a kind of living being, yet this example of civilization is unique in that it was defined by these four institutions. He speaks to the apparent suddenness of the catastrophe that has befallen mankind, which has actually been building for a while: “A reasoned analysis of the catastrophe must account both for the tempestuous action and the quiet dissolution” (4). He believes that his work is not historical but rather seeks to illuminate the present by analyzing the past. Polanyi argues that the world economy failed, leading to the failure of the balance-of-power system to ensure peace; however, it was the idea of the self-regulating market—and the social and technological upheaval that arose as a result—that led to civilization’s breakdown.