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The Great Transformation is a famous book on the social and political upheavals that took place in England during the rise of the market economy, authored by Hungarian political economist Karl Polanyi. Polanyi contends that the modern market economy and the modern nation-state should be understood not as discrete elements, but as the single human invention he calls the Market Society.

Polanyi argued that the development of the modern state went hand in hand with the development of modern market economies and that these two changes were inexorably linked in history. His reasoning for this was that the powerful modern state was needed to push changes in social structure that allowed for a competitive capitalist economy, and that a capitalist economy required a strong state to mitigate its harsher effects. For Polanyi, these changes implied the destruction of the basic social order that had existed throughout all earlier history, which is why he emphasized the greatness of the transformation. His empirical case in large part relied upon analysis of the Speenhamland laws, which he saw not only as the last attempt of the squirearchy to preserve the traditional system of production and social order, but also a self-defensive measure on the part of society that mitigated the disruption of the most violent period of economic change. The book also presented his belief that market society is unsustainable because it is fatally destructive to the human and natural contexts it inhabits.

Polanyi turns the tables on the orthodox liberal account of the rise of capitalism by arguing that “laissez-faire was planned”, whereas social protectionism was a spontaneous reaction to the social dislocation imposed by an unrestrained free market. He argues that the construction of a ‘self-regulating’ market necessitates the separation of society into economic and political realms. Polanyi does not deny that the self-regulating market has brought “unheard of material wealth” , however he suggests that this is too narrow a focus. The market, once it considers land, labor and money as "fictitious commodities" (fictitious because each possesses qualities that are not expressed in the formal rationality of the market) “subordinate[s] the substance of society itself to the laws of the market.”^[1] This, he argues, results in massive social dislocation, and spontaneous moves by society to protect itself. In effect, Polanyi argues that once the free market attempts to disembed itself from the fabric of society, social protectionism is society’s natural response; this he calls the ‘double movement’. Polanyi did not see economics as a subject closed off from other fields of enquiry, indeed he saw economic and social problems as inherently linked. He ended his work with a prediction of a socialist society (not altogether unlike the modern European welfare state), through a process in which "after a century of blind 'improvement', man is restoring his 'habitation.'"^[2]

Polanyi, Karl. The Great Transformation, ISBN 080705643X

• Excerpt from Chapter 4, Societies and Economic Systems, of The Great Transformation
• Another excerpt, p. 43-46
• Review of The Great Transformation from Economic History Services
• An Austrian School rebuttal of The Great Transformation - From the Ludwig von Mises Institute.