Written by: Richard Volzke on January 31, 2014

Polanyi, in his book The Great Transformation, traces the evolution of social and economic transformation in the early 20th century. This book was written at the height of World War II and explains how the economic system moved to a market based system around the turn-of-the-century. Polanyi discussed that world’s economy moved away from the traditional agricultural based system of the day to today’s market based system.  The agricultural system is based on local farms and businesses. The book gives a good overview on the impact of moving from a traditional-based economic system to a market-based system, and how the market based system has destabilized nations in the past and will likely again in the future.

A market based economy is, “an economy in which decisions regarding investment, production and distribution are based on supply and demand, and prices of goods and services are determined in a free price system.”[1] A traditional-based economic system is more of an agricultural style of economy in which food is produced on local farms, such as a family farm found back in the 1800s or before. There are advantages and disadvantages to both systems.  Agricultural based economics have the advantage of being localized and not able to negatively impact a vast majority of people. In other words, if the local family farm fails it may or may not affect its neighbors, reducing the risk of widespread impact.  Alternatively, when a market based economic system fails, it affects a vast majority of people and countries. A society or country that uses market-based economics finds itself under great pressure when a part of the supply and demand chain fails. For example, during the 1970s there was a perceived gas shortage in the United States. This perceived shortage affected every aspect of American life as it drove up the price of gas, which in turn caused prices for other items to be higher than they normally would be.  This ultimately sent the US economy into recession.

I thoroughly enjoyed this week’s reading, and appreciated Polanyi’s unique insight and understanding on market-based economies. Unfortunately, we have failed to learn from history and are once again, in my opinion, heading for another global market meltdown. As the world becomes more globally dependent on each other for goods, services, and economic stability, have become more susceptible to global market unrest and volatility which results in societies and countries being devastated by natural or unnatural disasters.  For example, what if an earthquake devastates a major oil producing country and they are no longer able to supply oil to market?  Items that are made from oil or consume oil would no longer be readily supplied.  This creates a ripple effect to other products and impacts economic markets on a global scale.

I am a firm believer that countries need to go back to a quasi-traditional market. What I mean is that we should go back on the gold standard, where money is based on how much gold is available in a particular country.   Further, we should look to the local market for sourcing items that are necessary for sustaining basic essentials.  This would protect local economic markets from volatile forces that affect market-based economies.

About the Author

Richard Volzke