Karl Polanyi's ‘The Great Transformation’, Explained for the AI Era

Karl Polanyi is the economic historian I keep coming back to whenever I try to make sense of what technology is doing to us. He died in 1964, and his great work — The Great Transformation — was published in 1944, in the shadow of the Second World War. On the face of it, it is about the rise of the market economy in nineteenth-century Britain and the catastrophe that followed in the twentieth. But read it now, with an eye on artificial intelligence and the companies building it, and it stops feeling like history. It reads like a warning written for exactly this moment: markets trying to swallow the last things that were never really made to be sold.

Polanyi was an outsider to the economics of his day, and proudly so. Born in Vienna in 1886, raised in Budapest, he lived through the collapse of the Austro-Hungarian world, fled fascism, and wrote his masterpiece in exile. He was not interested in tidy models of supply and demand but in the far bigger question those models quietly assume away: what happens to a society when you try to organise the whole of it around the market? His answer was that you cannot do it without breaking something — and that the breakage always comes back to bite.

The myth of the self-regulating market

The idea Polanyi set out to demolish was the one he called the self-regulating market — the belief that markets are a natural force that, if simply left alone, will organise economic life on their own and deliver the best outcome for everyone. Prices find their level, supply meets demand, and government need only stand back. It is the bedrock of laissez-faire, and still the water our economic culture swims in.

Polanyi’s first move was historical, and it is devastating. The self-regulating market, he argued, is not natural at all. For most of human history, economies were embedded in society — trade and production were woven into family, custom, religion and community, and the idea of a separate sphere called “the economy” obeying its own laws would have made no sense. The market that supposedly runs itself did not grow up organically. It had to be built, deliberately and often brutally, by the state. Free markets, in his famous phrasing, were planned; only the pushback against them was spontaneous. That inversion — that laissez-faire was itself an act of enormous government intervention — is one of the sharpest things anyone has said about capitalism.

The self-regulating market was never natural. It had to be built by the state — and then it began treating living things as if they were merchandise.

Once you see markets as constructed rather than natural, the political stakes change completely. If the market is a force of nature, interfering with it is folly. But if it is a human institution we designed, we can design it differently — and we are allowed to ask who it serves.

Fictitious commodities: the things that were never made to be sold

Polanyi’s deepest idea, and the one I find most useful, is what he called fictitious commodities. A real commodity is something produced in order to be sold — a chair, a sack of grain, a phone — and the logic of the market works reasonably well for those.

But the nineteenth-century market economy, to function, had to treat three things as commodities that are nothing of the sort: land, labour and money. Land is really just nature — the earth, rivers, forests, the living world we are part of. Labour is really just human beings, their time and effort and lives. Money is a token of trust society issues to make exchange possible. None of the three was produced for sale: land was here before us, labour is not separable from the person who does it, money is not manufactured to be traded like wheat. Polanyi called them fictitious commodities because pretending they are ordinary goods is a useful fiction that lets the market extend over everything — and a dangerous one, because it is a lie about what they are.

And the lie has consequences. Treat labour as a pure commodity, priced with no floor, and in a downturn you do not just get cheaper goods — you get hungry families, broken health, wrecked communities. Treat land as a pure commodity and you get exhausted soil and polluted rivers. Treat money as one and you get manias and crashes that wipe out businesses that did nothing wrong. Run the market machine over things that are actually people, nature and trust and you do not get efficiency. You get harm — because human beings and the living world will not behave like inventory, and forcing them to try does damage that shows up as suffering, not on a balance sheet.

This is exactly the same shape as the older story of the enclosure of the commons, where shared land was fenced, priced and turned into private property, and the people who depended on it were turned into wage labourers with nothing left to sell but themselves. Enclosure was the market reaching into land and labour; Polanyi gave us the language to see it as a general pattern rather than a one-off.

The double movement: society pushes back

Here is where Polanyi becomes a prophet rather than merely a critic. He argued that the history of market society is a double movement. There are two opposing forces at work at once. The first is the push to expand the market into every corner of life — to commodify more, deregulate more, let the price mechanism reach further. The second is the counter-movement: society, feeling itself being torn apart, spontaneously organising to protect itself. Trade unions, factory laws, public health measures, welfare provision, environmental regulation, central banks — all of these are society’s reflex against the damage of unrestrained markets, welling up from people’s refusal to be treated as raw material.

The double movement is not a happy story of balance. Polanyi thought the tension could be resolved well or catastrophically. The great crisis of his own century — the collapse of the gold standard, the Depression, the rise of fascism, the descent into world war — he read as the self-regulating market pushing society past its breaking point, and society lashing back in forms both hopeful and horrifying. Protection can take the shape of a welfare state, or of a strongman promising to restore what the market destroyed — a warning that has not aged a day.

Push a market into everything, and society does not sit still. It pushes back — sometimes toward protection, sometimes toward something darker.

Reading the present: AI and the new fictitious commodities

Now bring it to the machine humming in our pockets and data centres. If land, labour and money were the fictitious commodities of the industrial age, the AI era is busy inventing a new set: our words, our attention, our relationships and our judgement. None of these was made to be sold. All are now being treated as raw material to be extracted, priced and traded.

Start with words. Everything we have written — our books, posts, code, emails, the accumulated expression of human culture — has been scraped up as training data to build systems that then compete with the very people who produced it. That writing was made to communicate, not to be fed into a market as a commodity input. Turning it into one is a Polanyian move: pretending something produced for human reasons is just merchandise lying around to be harvested, the fiction stretched over a new kind of common.

Then attention. The attention economy already treats our finite, one-life-only capacity to notice things as inventory to be captured and resold to advertisers. Our relationships are next, as AI companions and engagement-optimised feeds intermediate the way we connect, monetising intimacy itself. And now our judgement: the daily acts of deciding, choosing and discerning are being packaged as a service to be automated and sold back to us. Each is a fictitious commodity in Polanyi’s exact sense — a human faculty or bond that markets are pretending is an ordinary good.

This is the through-line I keep tracing in how technology gets captured: a shared human resource — the commons, labour, attention, now cognition itself — gets enclosed by whoever has the power to price it and make the enclosure look natural and legal. Ask the three questions that cut through every version of the story. Who takes? The platforms and model-builders. Who pays? The writers, artists, workers and users whose words, attention and livelihoods are the raw material. Who fights back? That last one is where Polanyi’s prediction earns its keep.

The prediction: overreach provokes a counter-movement

If Polanyi is right, the most confident forecast we can make about AI is not about the technology at all. It is about the reaction. Push the market deep enough into words, attention, relationships and judgement, and society will not lie there and take it. A counter-movement will rise, demanding limits and protection — and it will not need to be organised from the top. It will well up from people’s refusal to be treated as feedstock.

And you can already see it forming. Authors and artists suing over training data. Newspapers cutting licensing deals or blocking the crawlers. Voice actors and illustrators organising against having their likeness and style cloned. Parents pushing back against feeds engineered to hijack children’s attention. Regulators writing AI rules; antitrust suits taking aim at platform power; a public mood that has curdled from techno-optimism into suspicion. This is the double movement in real time — the protective reflex of a society that senses it is being commodified faster than it agreed to. The backlash against Big Tech and AI is not irrational fear of progress. In Polanyi’s frame, it is exactly what a healthy society does when the market overreaches.

His lens also sharpens the argument about where this is heading. When a handful of firms own the infrastructure everyone else must pay to use — the models, the clouds, the platforms — and extract rents rather than compete in open markets, we have drifted from capitalism toward something closer to technofeudalism — the market, sold to us as the guarantor of freedom, becoming instead a system of dependence and dispossession, and provoking the protective backlash that always follows.

A fair word about the criticisms

I would be doing Polanyi a disservice if I pretended his thesis is settled truth. It is genuinely debated. Economic historians have questioned his account of the past — pre-industrial economies may have been more market-oriented, and the transition less abrupt, than his narrative allows. Critics on the free-market side argue that the very market expansion he distrusted has, over two centuries, lifted enormous numbers out of grinding poverty — and that the counter-movement he praised can itself ossify into sclerosis, capture and stagnation. And “fictitious commodity” is a powerful phrase that does a lot of unexamined work: deciding what should be beyond the reach of markets is a moral and political judgement, not something Polanyi proved.

All fair. But you do not have to swallow Polanyi whole to find him indispensable. Even his critics tend to concede the core intuition: that there are things whose wholesale commodification a society will not tolerate, and that pushing past that line reliably summons a reaction. You can argue about where the line sits. You cannot, watching the present, argue it does not exist.

Why he matters now

What Polanyi gives us is not a policy manual but a pair of glasses. Put them on and the news rearranges itself. The fight over training data, the anxiety about attention, the loneliness of algorithmic feeds, the revolt against the tech giants — these stop looking like separate stories and start looking like one, the one he told in 1944: a market economy attempting to commodify the very substance of human life, and a society mustering itself to say no.

The open question — the one Polanyi could not answer for us — is what shape the counter-movement takes. It could mature into sane protection: rights over our own data and words, limits on manipulative design, a fair share of the value our attention and expression create. Or it could curdle, as it did in his century, into something angrier and more dangerous. Which of those we get is not written in the technology. It is a political choice, still open, still ours. That is the real reason to read Karl Polanyi in the age of AI. He does not tell us the counter-movement is coming; he tells us it is already here — and that what we do with it is the whole game.