The Great Transformation and fictitious commodities

Working Definition

In Karl Polanyi’s social theory, the Great Transformation names the nineteenth-century historical rupture in which economic life was wrenched out of its social, religious, and political matrix (disembedded) for the first time in human history, subordinating society as a whole to the mechanism of a self-regulating price market. For such a system to operate, it had to treat as ordinary market goods three foundational elements of collective existence that were never produced for sale: labor (human beings themselves and their lived time), land (nature and physical habitat), and money (a social token of purchasing power and credit)—which Polanyi termed fictitious commodities. Because abandoning these three foundations entirely to the blind fluctuations of supply and demand would physically destroy both society and the natural environment, market expansion inevitably triggers a “double movement”: the utopian drive to extend laissez-faire is met by a spontaneous countermovement of social self-protection through labor legislation, central banking, tariffs, welfare institutions, or—under conditions of acute democratic paralysis—authoritarian nationalism and fascism.

Genesis and Global Lineage

Karl Polanyi set out this argument in The Great Transformation (1944), written between 1940 and 1943 at Bennington College in Vermont and drawing on Workers’ Educational Association lectures on English economic history that he had delivered in Britain during the 1930s. His overarching question was why Europe’s “Hundred Years’ Peace” (1815–1914) collapsed in the 1930s into the simultaneous catastrophe of the Great Depression, fascism, Stalinism, and world war. Polanyi inverted the diagnosis of Austrian School liberals such as Ludwig von Mises and Friedrich Hayek: it was not trade unions, social insurance, or state intervention that ruined a healthy market order, but the reverse—the dogmatic insistence on defending the gold standard and a self-regulating market at the cost of mass unemployment and deflation forced societies into desperate self-defense, which in the institutional deadlock of the 1930s took the form of fascism. In the second half of the twentieth century, Polanyi’s concept of “embeddedness” became the founding charter of economic anthropology (sparking the substantivist–formalist debate) and of the “new economic sociology” inaugurated by Mark Granovetter (1985).

Central European Lineage

Although The Great Transformation was written in English in Britain and the United States, its conceptual architecture was forged in Budapest and interwar Vienna. Born in Vienna in 1886 and raised in Budapest, Károly Polányi (older brother of the philosopher of science Michael Polanyi) studied law at the Universities of Budapest and Kolozsvár (now Cluj-Napoca, Romania) and in 1908 became the first president of Budapest’s Galileo Circle (Galilei Kör), the crucible of Hungary’s progressive intelligentsia. Following the fall of Mihály Károlyi’s democratic government and Béla Kun’s Soviet Republic in 1919, Polanyi went into exile in Vienna, where from 1924 to 1933 he served as senior international editor of Der Österreichische Volkswirt, Central Europe’s premier economic and political weekly. Interwar Vienna gave Polanyi a dual historical laboratory from which his 1944 book directly grew: on one side, he witnessed the municipal socialism of “Red Vienna” (Rotes Wien, 1918–1934), where the Social Democratic city government partially de-commodified housing and working-class cultural life through monumental public housing estates (Gemeindebauten); on the other side, he engaged in a direct theoretical debate with Ludwig von Mises (1922–1924) and tracked week by week how orthodox deflationary policies enforced to defend the gold standard under League of Nations supervision strangled the fragile democracies of Austria, Hungary, and Weimar Germany. Seventy-five years later, Shoshana Zuboff built The Age of Surveillance Capitalism (2019) directly on Polanyi’s Central European triad, adding human experience and behavior as a “fourth fictitious commodity.”

Why Now

Between 2018 and 2026, Polanyi’s “double movement” became the single most widely cited macro-sociological lens for understanding the end of post-1989 hyperglobalization. After three decades of capital-account deregulation, labor flexibilization, and privatization of public infrastructure, the decade following 2016 brought a fierce protective countermovement across both the political right and left: the return of tariffs, supply-chain reshoring, and industrial policy in the United States and the European Union; urban revolts against housing financialization and platform precarity; and the surge of nationalist welfare chauvinism. Simultaneously, between 2022 and 2026 a new Polanyian conflict erupted over the commodification of human cultural expression, language, and creative labor: commercial generative AI laboratories scraped the open internet to treat centuries of human writing, art, and voice as free raw material for training proprietary foundation models, triggering copyright lawsuits, strikes (such as the 2023 Hollywood WGA and SAG-AFTRA strikes), and new digital enclosures.

Explanatory Power

Polanyi’s framework enables us to distinguish an economy with markets (concrete marketplaces for exchanging produced goods, which have existed since antiquity) from a market society, in which the price mechanism becomes the sole arbiter of housing, caregiving, ecology, and civic dignity. When urban housing is treated purely as a liquid financial asset and commodity (as in major metropolitan centers between 2015 and 2026), the price mechanism functions “efficiently” on paper—allocating apartments to institutional funds and short-term tourist rentals with the highest willingness to pay—while hollowing out neighborhoods and pricing out teachers, nurses, and firefighters. The same holds for labor: a nail factory responding to a drop in demand can store unsold nails in a warehouse without harming the iron, whereas “storing surplus labor” means broken families, skill erosion, and psychological trauma for living human beings. The concept of fictitious commodities explains why deregulating markets for credit, land, and work never produces stable equilibrium, but always generates a political crisis.

Axes of Debate

Underappreciated Angle

The most subversive insight in The Great Transformation is encapsulated in Polanyi’s famous aphorism: “Laissez-faire was planned; planning was not.” Contrary to the liberal myth that the free market emerged naturally once the state stepped out of the way, nineteenth-century laissez-faire required an unprecedented expansion of state administrative, policing, and legislative machinery to smash traditional guild protections, abolish local parish relief (via the Poor Law Amendment Act of 1834), enforce the enclosure of common lands, and impose factory discipline—which is why the utilitarian reformer Jeremy Bentham simultaneously designed free-market legislation and the Panopticon prison. Conversely, the protective countermovement of the late nineteenth and twentieth centuries—factory acts, central bank lender-of-last-resort powers, social insurance, agricultural tariffs—was rarely the fruit of a premeditated collectivist conspiracy. It was enacted piecemeal and pragmatically, often by conservative statesmen (from Bismarck to Victorian Tories) scrambling to extinguish immediate social fires ignited by dogmatic market experiments.