The Life Cycle of Karl Polanyi

‘My life was a “world”-life – I lived the life of the human world […]. The opposition which my world of thought has called forth at last is a good sign. I should have loved to last and be in at the fight, but man is a mortal thing.’⁷ Polanyi wrote these words to a friend of his youth in 1958. His life was really marked by vicissitudes and upheavals of world history between the end of the nineteenth century and the first six decades of the twentieth. The richness of insights in his work reflects his life path, which brought him from Hungary, where he grew up, to Vienna, London, the United States, back to England, again to the United States and finally to Canada. For the greater part of his life, he earned his living as a journalist and tutoring adults. He had to wait until his appointment at Columbia University in 1947 for an academic position: in England, despite his impeccable references, he was not considered qualified. The Great Transformation was written in America and above all addressed an Anglo-Saxon audience. Nevertheless, the roots of his thinking lay in Central Europe, especially in Hungary and Austria where he had lived and worked for the greater part of his life.

In spite of the changing social conditions which formed the background of his activity, there is a common thread running through Polanyi's work. The question of how the inhumanity of modern society can be overcome is the crucial issue which is at the centre of all his studies – inhumanity to be understood not only as a question of economic organization, of social justice and fair distribution of income and wealth, but also as an issue of human freedom and of personal responsibility, i.e., as an ethical challenge.

Polanyi shared with Karl Marx, Robert Owen, Max Weber, Karl Mannheim, Friedrich Hayek, Walter Lippmann and many others the conviction that the question of freedom has to be posed while recognizing the conditions of a technological civilization. He considered the Industrial Revolution a divide in human history more for its social implications than for the material progress it brought about. However, he accepted that technological advancements, mass production, mass consumption and a worldwide division of labour cannot be reversed and that, therefore, no modern society can be grounded in direct human relationships alone. ‘How can we be free, in spite of the fact of society? And not in our imagination only, not by abstracting ourselves from society, denying the fact of our being interwoven with the lives of others, being committed to them, but in reality.’⁸ With these words, Polanyi summed up the crucial question that gave meaning and direction to his research: how to safeguard personal freedom and responsibility, if in a complex society human ties lose their transparency and the single person is robbed of the possibility of taking responsibility for his/her decisions because he/she is unable to oversee the consequences for other human beings.

Born in 1886 in Vienna, Polanyi spent his youth in Hungary. While studying law and philosophy, he started to engage actively in political debates. In 1907, his first articles were published in the journal Twentieth Century (Huszadik Század) whose editor was Oszkar Jászi. One year later, he became one of the initiators and the founding president of the student movement known as the ‘Galilei Circle’, and continued as editor of the periodical Free Thought (Szabádgondolat) (1913–1919). The objective of the Circle was not just to criticize the conservative character of university teaching but to organize numerous lectures and courses for adults, primarily aimed at workers. This was their way to engage in a vast political movement, which fought for the democratization and moral regeneration of Hungary and for a non-dogmatic science – against religious, ethnic and class prejudices. Several members of that variously progressive or revolutionary culture, often personal friends of Polanyi, participated in the activities of the Circle: among others, György Lukács, Karl Mannheim, Werner Sombart, Max Adler, Eduard Bernstein, the psychoanalyst Sándor Ferenczi and the composer Béla Bartók, the poet Endre Ady and the philosopher of law and historian of institutions Gyula Pikler. At the same time, Polanyi cooperated with Jászi, leader of the Radical Party and a minister of the first Hungarian Republic in 1918.

The early period of his life ended after the First World War when political reasons prompted him to seek exile in Vienna. ‘After a nine months’ interval almost equally divided between a democratic and a Communist revolution,’ he writes, ‘the feudal nobility regained political control’ of Hungary.⁹ Polanyi had been a supporter of the coalition government led by Mihály Károlyi, and he had laboured three months for the People's Commissariat of Social Production in the Communist Republic of Béla Kun, though disagreeing with its tendency ‘to control every aspect, including the economic, of its citizens’ life’.¹⁰ The seizure of power by the reactionary government of Miklós Horthy in 1919 caused Polanyi to choose to live in Vienna, where many Hungarians took shelter, among them Ilona Duczynska, whom he married in 1922.

The First World War was the decisive event in Polanyi's life. When in 1919 he arrived in Vienna, issues of socialization of the economy were being hotly debated. On the fringes of Austro-Marxism and influenced by Guild Socialism, Polanyi participated in the debate on the feasibility of a socialist economy based on efficiency, social justice and participatory democracy. In ‘Red Vienna’, he felt at ease. In his contributions to the debate, he rejected dogmatism and opposed both the economism of the Second International and Bolshevist methods of seizing and keeping power by fratricidal struggle.¹¹ British Guild Socialism and such prominent representatives of Austrian socialism as Otto Bauer and Max Adler clearly influenced his point of view. Democracy should be kept alive through the participation of individuals in organizations corresponding to diverse aspects (‘functions’) of their existence, such as political parties and trade unions, local administrations and neighbourhoods, consumers’ cooperatives and cultural associations.

In Vienna in the early 1920s, the question of socialization was not an abstract academic issue. A socialist transformation of society seemed an achievable objective. While in Austria the political power was in the hands of conservative forces at the federal level, in Vienna the Social Democratic Workers’ Party had won the elections for the city council in 1919 and continued to dominate until 1933. The influence of trade unions and the consumer cooperative movement was strong. Important measures were tackled – such as limiting rents, the expansion of social housing and the creation of community colleges. The general aim of reforms was the improvement of working and living conditions and of workers’ education. The question of how to organize a socialist economy was at the top of the political agenda. Intellectuals from various political currents participated in the discussion. In these debates, Polanyi opposed models of an administrative economy based on central planning. He also contested the idea of a moneyless ‘natural economy’, proposed by, among others, Otto Neurath. In his own socialist perspective, socialization had to be grounded in associations of collective interests at the local, regional and national levels. Negotiations between associations of workers representing producers and cooperatives representing consumers should partly replace and partly complement the market process.

The fertile and vibrant intellectual climate in ‘Red Vienna’ and the debates with the protagonists of Austro-Marxism and the Austrian School of Economics (Friedrich Wieser, Eugen Böhm-Bawerk, Ludwig Mises, Friedrich A. Hayek) continued to shape Polanyi's thinking for the rest of his life. The three articles we publish in the first section originate from this context. In ‘On Freedom’, Polanyi lays down the basic ideas of his social philosophy. Marx's writings play a key role in his thinking, not the economic analysis, but Marx's critical theory of reification and alienation and, most of all, the idea of social freedom – that is, freedom within and through society, freedom in the ‘positive’ sense of a conscious participation in relevant decisions for social life. The question of how to pursue social freedom and personal responsibility under the conditions of a complex technological civilization is at the heart of the ‘problem of overview’ (Übersichtsproblem) – or ‘the problem of freedom in a complex society’, as Polanyi prefers to say in the 1940s and 1950s.

‘On Freedom’ deals mainly with such questions. This 1927 manuscript intended to be a philosophical investigation on the problem of the ‘socialist theory’ he had previously dealt with in ‘Some Reflections Concerning our Theory and Practice’, building on guild socialism and Otto Bauer's idea of functional democracy. This article, in its turn, follows two interventions in the debate on ‘socialist accounting’ that Polanyi published in one of the most important social science journals of the German speaking world, Archiv für Sozialwissenschaft und Sozialpolitik.

‘The Functionalist Theory of Society and the Problem of Socialist Economic Accounting’ is Polanyi's rejoinder to comments by Ludwig von Mises and Felix Weil to his 1922 essay ‘Socialist Accounting’.¹² Here Polanyi challenges Mises's provocative statement that socialism would necessarily destroy not only freedom but also economic rationality.¹³ He rejects Mises's contraposition of central planning versus self-regulating markets. Functional socialism, he maintains, allows for organizing a socialist economy in which democracy and social efficiency would strengthen each other. The fact that an article written by an independent intellectual with no formal qualification in economics or sociology elicited a response from Mises, and a published reply by Polanyi indicates how open and lively the intellectual climate in Vienna was.

In 1924, Polanyi started to work as a member of the editorial team of Der Österreichische Volkswirt, the most important economic and financial weekly in Central Europe. This position allowed him to follow the international affairs and the unfolding world crisis in great detail. He wrote more than 250 pieces for that magazine. The article ‘Economy and Democracy’ was published at the end of 1932, just a few weeks before Hitler's appointment by Hindenburg as Reich Chancellor. In this article – and also in the following ‘The Mechanism of the World Economic Crisis’ – Polanyi demonstrates his awareness of the deadly tensions threatening European civilization even before the rise to power of fascism in Germany. In his interpretation of the Great Depression, the focus is not on the economic crisis as such but on the conflict between the market system and democracy, finding its expression in that between classes. In particular, he argues, the attempt to restore the international gold standard proved itself to be incompatible with the achievements of the labour movement and parliamentary democracy.

Later, in The Great Transformation in the first instance, that conflict is considered in its deeper sense. The market capitalist economic system, led as it is by the motive of monetary gain, tends to subordinate the needs of its human and natural environment to its own goals. Polanyi points out, then, a fundamental contradiction: society cannot but be ‘caught on the horns of a dilemma: either to continue on the path of a utopia bound for destruction, or to halt on this path’, thereby undermining the functioning of the market system.¹⁴ The inevitability of this dilemma, in which the class conflict is inherent, led society to an impasse when the crisis cut off economic and political space for compromise. At this point, Polanyi concludes, the time ‘was ripe for the fascist solution’,¹⁵ which refers specifically to the conditions in 1930s Europe but holds a more general significance. When capitalism and democracy become incompatible – as he points out in ‘The Essence of Fascism’ – the survival of the former requires the abolition of the latter.

The spreading of fascism, the changing political climate in Austria, accelerated by the suspension of the parliament, and the impending attack against organized labour and the Social Democratic Party induced Polanyi to intensify his research on fascism. In 1933, he decided to leave Vienna for London. In the difficult situation created in March by the authoritarian measures taken by Engelbert Dollfuss, the Austrian chancellor, in a vain attempt to control the subversive Nazi movement, Polanyi's well-known anti-fascist and socialist position could cause trouble for Der Österreichische Volkswirt. In England he continued to work as foreign editor of the weekly till 1938, when its publication was interrupted as a consequence of the annexation of Austria by the Third Reich.

Polanyi's analysis of the rise of fascism is a consistent further development of his study of economic breakdown. In so far as he highlights features that are topical again in our times, the question is worthy of closer consideration. The fascist threat occurred, he maintains, when the body politic lost the capacity to implement effective reforms of the market system, however necessary these might have been. As a consequence, the economic mechanism upon which society depended for its material existence was brought to a halt. In ‘The Fascist Virus’, Polanyi underlines that:

In the 1930s in Europe the conflict between society and the market system had reached a new level. The ‘regime of panic’ blocked necessary reforms.

The understanding of the intractability of the clash in this particular situation in Europe distinguishes Polanyi's analysis from conventional approaches. The ‘double movement’ – the enforcing of the market system on the one hand and the ‘defence’ of society on the other – was not as responsible for the collapse of civilization in the nineteenth century as was the impasse and the impossibility of appropriate radical reforms. Indeed, fascist movements took the lead when the double movement had come to an end. In ‘Fascism and Marxian Terminology’ Polanyi had already pointed out that:

These lines are crucial if we want to learn from Polanyi's understanding of the breakdown of nineteenth-century civilization in order to tackle current challenges. Under the conditions of the 1930s in Europe, only those forces that were able to offer an escape from the deadlock had a chance of seizing power. Fascism was the backward-looking reaction, Polanyi maintained, which sacrificed freedom and democracy so as to safeguard the economy in its capitalist form.

Polanyi was interested not only in the economic and social conditions that produced the rise of fascism, but also in its historical and philosophical roots. In 1935, he joined J. Lewis and D. K. Kitchin to edit the book Christianity and Social Revolution, to which he contributed ‘The Essence of Fascism’. As the writings in Section III of this book show, Polanyi also collaborated in England with the Christian left movement, which organized seminars, debates and lectures not only for its members but also for a larger public. The debates turned on current problems, such as the political role of Christians and pacifism, and also on philosophical and theoretical questions. Marx's Economic and Philosophical Manuscripts of 1844, published for the first time in Germany by S. Landshut and J. R. Meyer in 1932, were examined in a group reading guided by Polanyi. The influence of these studies and discussions is evident in ‘Community and Society’, ‘The Christian Criticism of our Social Order’ and ‘Christianity and Economic Life’ and continues to be traceable in his later reflection, in particular in the last chapter of The Great Transformation.

In the second half of the 1930s, Polanyi undertook several lecture tours in the United States before he started to work as a teacher for the Worker's Education Association (WEA) under the presidency of Richard Tawney, with whom he maintained a friendly relationship beyond their engagement in the WEA. Polanyi shared with Tawney the idea that politics and culture should recover the dominant place that the economy in its market capitalist form had occupied. His teaching, mainly given in small towns in Sussex and Kent, further acquainted him with the living and working conditions of the English working class. The encounter with working-class life in 1930s England gave him a culture shock. In the richest country of Europe, the condition of the working class seemed much worse than in Red Vienna, in impoverished Austria, where social status and cultural achievements of workers had reached exceptionally high levels. His courses for the WEA did not only comprise world affairs but also English social and economic history. The lecture notes for these courses formed the skeleton on which The Great Transformation was constructed. Also, the essay Europe To-day,¹⁶ which deals with international politics from the First World War to the Spanish Civil War, is addressed to working-class students. In his preface, G. D. H. Cole signifies his approval by commending the book both ‘as a friend’ of the author and because of the ‘comprehensive’ analysis it offers. In particular, he supports Polanyi's ‘essential point’ which unfortunately is still topical eighty years later: the need for ‘an international democratic front […] against war-mongering and aggressiveness’ (p. 11).

The lecture tours in the United States presented an opportunity to establish connections with American universities. In summer 1940, a teaching position at Bennington College was offered to Polanyi by President Robert D. Leigh on the recommendation of Peter F. Drucker. A subsequent grant from the Rockefeller Foundation allowed him to work on what would become The Great Transformation.¹⁷ Even though a draft submitted by Polanyi was criticized by a reviewer of the Foundation for lacking scientific rigor, the grant was extended for a second year. Robert MacIver, a renowned political economist and sociologist at Columbia University, recognized the extraordinary significance of the book, declared his readiness to write the preface and subsequently invited Polanyi to join Columbia. Without these fortunate circumstances, a classic of the twentieth century might never have been published.

The articles in Section IV demonstrate that in America Polanyi continued his studies in political philosophy, sociology, history and international politics. He turned to Rousseau so as to raise fundamental questions of political science: is there a solution to ‘the paradox of freedom’? May people be at the same time ruler and ruled, educators and educated? Studying the parliamentary cultures in England, France, America and Russia, he intended to promote democracy as an ideal which would be differently pursued by each country, according to its own history and choices.

In 1943, Polanyi left two of the last chapters of The Great Transformation unfinished and hastily returned to London to participate in discussions on the post-war order. The Labour Party victory of 1945 seemed to open the door to a socialist future for Britain. In the article ‘British Labour and American New Dealers’, Polanyi envisages the possibility of a new solidarity between British and American progressive forces. He was also realistically aware of the minority nature of those forces. Though the American transformation – the New Deal – had taken a different way from fascism, even before Roosevelt's death the fall of many democratic reforms was foreseeable, in so far as the Pax Americana was going to coincide with the diffusion of ‘universal capitalism’ and free-market universalism. As the pieces in Section V indicate, it was Polanyi's hope that the wartime alliance with the Soviet Union would endure; he envisioned a world of peaceful coexistence of major regional formations, including Britain and its Commonwealth offshoots, Europe, India and China. By ‘coexistence’, Polanyi means the possibility that different forms of democratic societies, each of them upholding its particular way of life, could cohabit peacefully.¹⁸

The appointment at Columbia University in 1947 gave him the opportunity to continue his studies of the relationship between the economy and society in primitive, archaic and modern times. Already in The Great Transformation he had drawn on the findings of Malinowski, Thurnwald and other anthropologists. At Columbia, his class ‘General Economic History’ attracted numerous students from different fields. The collective research he organized, together with some colleagues and students, resulted in the 1957 book Trade and Market in the Early Empires, which includes his groundbreaking essays ‘The Economy as Instituted Process’, ‘Aristotle Discovers the Economy’ and ‘Marketless Trading in Hammurabi's Time’.¹⁹ This book started a debate on the comparative theory of economic systems, which continues to this day among anthropologists, archaeologists and historians.

The texts in Section VI of this collection are a result of Polanyi's research at Columbia. With the exception of the first one, they were posthumously published in The Livelihood of Man (1977). In these studies, Polanyi develops well-known concepts such as ‘economic fallacy’ and the distinction between ‘embedded’ and ‘dis-embedded’ economy. His principal objective is to demonstrate that the separation of the economy from society is a peculiar arrangement that distinguishes the market society from all other societies known in human history. In the introduction to that book, he explicitly gives the need to face present social problems as the motive for his comparative analysis of economic systems. The ‘economic determinism’ is thereby criticized as the ideological expression of our society's typically ‘economic’ organization.

Polanyi's focus on the conflict between economy and society produced by the self-regulating market system accounts for the uniqueness of his approach. His analysis differs from interpretations in the tradition of economic liberalism as well as of Marxist sociology in so far as he examines economic institutions and their ‘place’ in society from the point of view of society as a whole. This approach does not mean that Polanyi denies the existence of the economic laws and contradictions that characterize the capitalist market economy; indeed, explaining the historical specificity of those ‘laws’ makes his analysis immune to any form of ‘economic determinism’. Economic conflicts separated from the social context offer only a limited explanation of modern civilization and its transformations. Such conflicts become relevant, Polanyi demonstrates, when (or in so far as) they influence society as a whole. The point of view of society allows studying the historical limitation of the market society, which comes dramatically to the fore when the balance between the market system and democracy is thrown into turmoil.