POSC138S; III. The First Great Globalization and Polanyi

What were the two key institutions that made the First Great Globalization possible?

• The Gold Standard – fixed exchange rates anchored to gold → stable trade/finance.

• The British Empire – ensured security, transport infrastructure, and open markets across colonies.

How did imperialism make Latin America, Asia, the Middle East, and other areas viable for international trade and investment?

• Colonization made parts of Latin America, Asia, Africa, and the Middle East into export-oriented economies supplying raw materials and agricultural goods.

• Infrastructure (railways, ports) built to serve European industrial needs, not local development.

• Local economies became dependent on global trade networks dominated by Western powers.

According to Karl Polanyi, what were pre-capitalist societies based on, if not impersonal market forces?

• Reciprocity – mutual exchange within communities.

• Redistribution – goods collected and reallocated by a central authority (chief, king, temple).

• Householding – production for one’s own use or local needs.

• These systems prioritized social bonds and moral obligations, not profit.

Karl Polanyi

• Economic historian and social theorist who wrote The Great Transformation (1944).

• Argued that markets are not natural — they are socially and politically constructed.

• Before capitalism, economies were embedded in social relations, not driven by impersonal markets.

What is a commodity?

A good or service produced for sale in the market — has exchange value, not just use value.

What three things did Polanyi argue are fictitious commodities, and what makes them “fictitious”?

1. Land – not truly produced for sale; it’s part of nature.

2. Labor – human activity, not a marketable product created for exchange.

3. Money – a medium of exchange, not something “produced.”

• He calls them “fictitious” because treating them as ordinary commodities ignores their social and human dimensions, causing social dislocation when subjected to market forces.

What were some key features of the Industrial Revolution?

• Definition:

  • Period (18th–19th centuries) marked by the mechanization of production, urbanization, and rise of industrial capitalism.

• Key Features:

  • Steam power, factory system, wage labor, mass production.

  • Massive productivity increases → economic growth, but also exploitation and inequality.

  • Created modern working classes dependent on wage labor.

What was The Great Transformation?

• Title of Polanyi’s 1944 book describing how 19th-century market liberalism transformed society.

• The “great transformation” was the creation of a self-regulating market system where land, labor, and money were bought and sold like commodities.

• Polanyi argued this was socially destructive because markets began to “disembed” from society — meaning economic activity stopped being guided by social norms or human needs.

Why did Polanyi call the self-regulating market a “utopian project”?

• He called it “utopian” because a market that runs completely on its own, without government or moral limits, cannot exist in reality.

• States always intervene to protect society (e.g., labor laws, tariffs, welfare).

• Without protection, the market would “annihilate the human and natural substance of society.”