The metacritique

2
of Karl Polanyi: A dialectical critical realist and
morphogenetic interpretation of the social theory of Karl Polanyi.

This paper addresses the metacritique
2
of Karl Polanyi. It is argued that the social theory
of Karl Polanyi aims at the demystification of market-systems as theoretically
constructed by both orthodox and heterodox accounts of capitalism. Dialectical critical
realism is best capable of situating the methodological and philosophical accomplishment
of Polanyis historical and dialectical critiques of social-being. In turn, it is argued that
Polanyis transcendental critique offers important insight for the practice of (dialectical)
critical realist social theorizing. In concert with Archers morphogenetic approach to
social being, Polanyis social theory is an attempt to make a useful contribution to
practical social theorizing. It is shown that Polanyis social theory, and emphasis on
systemic integration anticipates many of the strengths of Archers morphogenetic
approach. Polanyis distinction between an embedded and disembedded economy, is
able to sustain Archer emphasis on malintegration.

The Crisis of the New Economy: Toward a Polanyian Explanation
In the 1990s economic growth in Western capitalist economies was impressive.
Theorists proclaimed the rise of the New Economy
1
. The conventional wisdom held
that recessions were still possible, but information technology and global markets would
minimize the depth and duration of any economic slowdown. Inflation would be easier
for central banks to control and the natural rate of unemployment was reduced.
Globalization would bring economic development and prosperity to all nations and all
people. By the end of the decade the conventional wisdom and neo-liberal hopes of a
new era were shattered. Growth rates slowed, recessions and depressions were
commonplace, unemployment began to rise throughout capitalistic economies.
Many heterodox economists argued against the hubris of the proclamations of a
virtually recession-free New Economy. There are now serious concerns that the neo-
liberal institutions, which emerged following the global economic collapse of the 1970s,
are incapable of facilitating peaceful global economic development. Many theorists

1
Newsweek 1995; BusinessWeek The New Economy: What It Really Means, Nov. 11, 1997.
1
warned of the internal contradictions of both neo-liberal institutions
2
and the policy of
market fundamentalism
3
. The current global neo-liberal inspired institutional system has
been argued to be on the brink of socio-economic breakdown, financial collapse, and
perhaps a deep global depression (see for example Aglietta, 1998; Brenner, 1998; Coats
1998 (NLR); Crotty and Dymski, 1999; Krugman, 1997; Krugman, 1999; OHara, 2000;
Palley, 1998; R. Reich, 2002; and Soros, 1998-9). Multiple terrorist attacks, wars in
Afghanistan and Iraq have crushed any hopes of peaceful global development following
the policy measures of market fundamentalism.
There has emerged a new urgency to better understand the relationship between
social institutions and individual agents, and between unintended consequences and
crisis. The urgency for a new understanding is being promoted by the theorists who
heeded warning toward, or resisted neo-liberal institutions and market fundamentalist
policy. But more recently the advocates of neo-liberal institutions and market
fundamentalist policy have joined the chorus. Three of the most renowned neo-liberals
of the late 1980s and early 1990s have pronounced the importance of an institutionally
informed approach toward socio-economic theory and economic policy (i.e. John Gray
1998, 2004; Francis Fukuyama 2005, 2006; and Jeffrey Sachs 2005, 2008).
At both the levels of theory and policy there has been neglect toward the
understanding of how a market system and its unintended consequences coerce
individuals actions and pervert social relations. There had been a fundamental under-

2
The neo-liberal institutions included: (1) the U. S. Dollar as the international currency, and the Federal
Reserve Bank in the U.S. as its manager; (2) Expansion of markets internationally, with conditional
oversight from International Monetary Fund, World Bank, and World Trade Organization; (3) Liberal
National States, committed to the policy prescriptions of the Washington Consensus (see footnote 5 below
for a definition); and (4) hegemony of United States as the single superpower.
3
The policy came to be referred to as the Washington Consensus. See footnote 5 below for a definition.
2
appreciation, if not a misapprehension, of what institutions are needed to support the
proper functional operations of markets. The promise of market fundamentalism was that
the institutionalization of a market system, absent political corruption, would generate
economic growth and prosperity. Reality proved far more complicated.
Rediscovering Polanyis Critique of Economic Liberalism
Today social theorists are eagerly anxious for a reinterpretation of contemporary
circumstances. The current global political cataclysm and international economic
disarray substantiate the theoretical urgency. New policy will be needed to reestablish
global political order and international economic stability. Many theorists have returned
to Karl Polanyis The Great Transformation: The Political and Economic Origins of Our
Time for inspiration and insight for understanding the current global crises
4
. Written in
1944 The Great Transformation offers invaluable analysis and warning against the
liberal creed of the nineteenth century, which reemerges with vengeance in the 1980s
as market fundamentalism, and promoted as the Washington Consensus.
5
Polanyi

4
There is today a great awareness to the importance and relevance of the work of Karl Polanyi for
understanding the contemporary global disorder and crisis. The Karl Polanyi Institute of Political Economy
was created because its founders recognized the importance of Polanyis work for understanding the
contemporary circumstances and crises.
Many Americans date the watershed moment of the contemporary crisis as September 11, 2001.
Most social theorists date the defining moment of the current crisis as 1989 and the collapse of the former
Soviet Union. In a more empirical sense the more accurate watershed moment for the relevance of Karl
Polanyis work to reemerge is not 2001 or 1989, but 1978 and the Iranian Revolution. The result of the
Iranian Revolution was the dual rejection of economic liberalism and Soviet command-economies. Karl
Polanyi had demonstrated the theoretical, historical, and empirical impossibility of such social orders. Karl
Polanyis metacritique of both the philosophical and historical foundations of these social orders offers
enormous insight toward understanding the contemporary circumstances. In full agreement with the Karl
Polanyi Institute home page, the work of Karl Polanyi [re-]opens important avenues of scholarly and
policy research. The Karl Polanyi Institute is located in Montral, Canada at Concordia University.
5
The Washington Consensus refers set of ten economic policy prescriptions promoted by three
Washington, D.C.-based economic institutions: The U.S. Treasury, International Monetary Fund, and the
World Bank. Many crisis-ridden countries have attempted to implement these policies to stabilize their
socio-economy, with highly uneven results. The Washington Consensus has been attacked for its failures
and its role in expanding the institution and forces of markets (market fundamentalism), constraining the
role of the state (neo-liberalism or liberalization), and prohibiting the public sector in the production of
goods and services (privatization).
3
believed the attempt to institute self-regulating market-system in the nineteenth century
resulted in a great social failure by the early twentieth century. He was overly optimistic
that a great transformation had taken place. Neither ontologically nor socio-politically,
had liberalism been abandoned. Polanyi however had maintained: Undoubtedly, our age
will be credited with having seen the end of the self-regulating market. While the
1920s saw the prestige of economic liberalism and the 1930s lived to see the absolutes
of the 1920s called into question. By the time of Polanyis The Great Transformation,
economic liberalism had created and fostered the illusion that dictatorships were bound
for economic catastrophe. This position would prove a factor in precipitating the war
and a handicap in fighting it. By 1940s nearly all governments were regulating markets,
managing currencies, and directing trade. In this sense by the 1940s economic
liberalism suffered an even worse defeat then it had in the 1930s (Polanyi 2001:148-9).
In spite of Polanyis over-optimism, he had an impressively deep understanding
of the virtues and vices of economic liberalism. His work offers unique analyses and
important insights for understanding contemporary circumstances. Polanyis hopes for
the policy lessons learned, failed to be fully realized. He was incorrect to the degree of
which an ontological transformation had taken place. Nonetheless, Karl Polanyis
insights in The Great Transformation should prove most useful, and behold tremendous
potential for situating todays market fundamentalist policy of the Washington Census
and neo-liberal institutions.
Karl Polanyi: A Brief Biographical Sketch
As important as the ideas of Karl Polanyi are for understanding todays global
crises, his work and life are remarkably unknown. Courses on Polanyis work are rare,
4
and very few syllabi include any of Polanyis books on the reading list. Thus a few words
concerning Polanyis personal life will be useful for many readers. Karl Polanyi was an
economist, social theorist, moral philosopher, economic historian, and anthropologist.
His magnum opus, The Great Transformation, has reached the status of a classic in
political economy and social science more generally. His brother Michael Polanyi was a
highly renowned chemist and philosopher (of science). His nephew John Polanyi was
awarded the 1986 noble prize in chemistry. His daughter Kari Polanyi-Levitt Polanyi is a
prominent political economist at McGill University, Montral (emeritus). Karl Polanyi
was born in Vienna in October 1886; he lived and worked in Hungary, Austria, England,
United States, and final Canada, where he died in 1964.
Polanyi began writing The Great Transformation in 1940 during an academic
appointment at Bennington College, in Vermont, USA. He would publish it in 1944 at
the age of 58. The Great Transformation achieved immense acclaim, and Polanyi
received a teaching position in sociology at the prestigious Columbia University in New
York City from 1947-1953. His wife Iiona Duczynska was unable to obtain a visa to
enter the United States due to her involvement in the Hungarian Revolution of the early
1920s as leading figure in, and founder of, the Hungarian Communist Party. Polanyi
would commute from Toronto to New York for the remainder of his career as a visiting
Professor of sociology at Columbia University.
The Economistic Fallacy: The Great Transformation Abandoned
During his time at Columbia University Polanyi published the highly influential
Trade and Market In the Early Empires (edited with Conrad M. Arensberg and Harry N.
Pearson, 1957). The overarching thesis of this work was the rejection of the idea that
5
modern economic theory was universal in scope, whether it is the Smithian (micro),
Keynesian (macro), Marxian (heterodox/socialist). Market mechanisms were not
applicable to pre-capitalist societies. To privilege the economy to a separate analytical
status was a categorial and ontological mistake dubbed the economistic fallacy.
6

Alternatively Polanyis economic history and social anthropology focused on, and
emphasized the shifting place of the economic within society (Levitt-Polanyi
1990:256). Against the economistic fallacy, Polanyi prioritized patterns of social
integration as far more imperative and essential to human life and well-being, than the
patterns or laws of the economy. For Polanyi the priority of social integration was
demonstrated in history, and in the anthropology of pre-capitalist societies. The priority
of social integration was confirmed by the contradictions and crises of modern market
society. In this sense Polanyis philosophical commitments and scientific results were
theoretical, historical and empirical.
The Challenge of Hayek: Toward a Metacritique
2
of Economic Liberalism
The 1944 publication date of The Great Transformation is the same publication
date of Friedrich Hayeks The Road to Serfdom. Both books were concerned with the
relationship between the economic and political spheres of society. The central thesis of
both books was that there is a symbiotic relationship between the economic and political
spheres and the degree of human freedom obtained in society. However, the historical
analysis and diagnosis found in each book are (or seem to be) polar opposites (Levitt-
Polanyi 2004:5).

6
The economistic fallacy is the attribution to the economy of privileged analytic and historical status
relative to all other spheres of human behavior (Block and Somers 1984:48).
6
Hayek believed any constraint upon, or institutional movement away from free
markets necessarily represented a compromise of human freedom, and a step toward
tyranny, regardless of the time and place. For Hayek, the free-market system of
capitalism was the only social system compatible with human dignity, economic
prosperity and personal liberty. It is superficial to argue that Polanyis The Great
Transformation necessarily disagrees with Hayekian central thesis. In fact in a sense,
chapter 20 of Polanyis The Great Transformation explicitly recognizes that attempts to
control the market system indeed gave rise to the phenomenon of fascism (Polanyi
2001:245-56), blatantly consistent with Hayek. Likewise intervention in the societies of
Eastern Europe led to institutionalization of command economies. Soviet style command
economies were understood by Polanyi to radically impeded human freedom (ibid:24ff
and pp. 255-6). This conclusion would again be highly consistent with the central thesis
of Hayek. More positively Polanyi would also agree with Hayek that the free-market
system of capitalism did generate human emancipation from material need.
Polanyi never denied that Keynesian redistribution for economic stability was
impossible. Likewise, Marxian expanded reproduction was both a theoretical and
practical possibility, and at least not impossible in Polanyis analysis. Polanyi would
fully accept that the problems and crises of self-regulating markets appeared to be
economic; consistent with both the Keynesian and Marxian traditions Polanyi never
denied that in capitalism there are severe problems of distribution, and
disproportionalities in the production process. Distribution and disproportionality
problems have caused severe instability, curtailed growth, and generated Great
Depressions. However, socio-economic instability and crisis was not Polanyis focus.
7
For Polanyi even more urgent than the socio-economic instability and crises generated by
capitalistic market systems, was a socio-cultural crisis. The real and deeper crisis was
the processes of dehumanization of society.
Politically Polanyi proclaimed to be socialist, although never a Marxist, and even
less so a Social Democrat (Polanyi-Levitt 1990:253). For Polanyi the debate between
free-market capitalism and democratic socialism is an illicit dualism. Polanyi aimed to
supersede the dualism, both in theory and practice. He accepted Hayeks argument, and
later Milton Friedmans, free-market capitalism had never really fully flourished.
Polanyi, in full agreement with Hayek and Friedman, insisted that intervention and
regulation has always historically disrupted the emergence of full-blown self-regulating
markets. In this sense the history of free-market capitalism had only been a partial
accomplishment, waxing and waning between development of markets and intervention
and regulation of markets. The institutional incompleteness had given rise to
theory/practice (T/P) inconsistencies. These T/P inconsistencies include price controls,
poor laws, environment laws, trade regulations, social insurance such as social security
and unemployment compensation, labor laws, etc., etc., etc. In turn the T/P
inconsistencies generated reification of social goals. Goals of human well-being, quality
of life and real liberty, were replaced by the (Keynesian) goals of growth, stable inflation,
and social economic management of the unemployment rate. Polanyi would not deny
these interventions were antagonistic toward human emancipation from structural
coercion, and the full flourishing of human liberty. However, there is a deeper or more
the real problem than public intervention.

8
Metacritique
2
: The Convergence of Philosophy and Social Theory or the
Incidence of the Polanyi-Bhaskar Alliance

For Polanyi there is a deep contradiction between economic development in a
free-market system and the social actions that sustain social (well-)being. Polanyis
theoretical aim was to construct an alternative historical and philosophical anthropologic
(meta-)explanation of: (1) the historical institutional incompleteness of free-market
capitalism; (2) the omnipresence of T/P inconsistencies; (3) the reification of social goals;
and (4) the dehumanization process of (free-market) economic development. In short
Polanyi was engaging in the construction of what the social philosopher Roy Bhaskar
calls a metacritique
2
.
Bhaskars theory of explanatory critique, which culminates in metacritique
2
,
argues, against Humes Law, that social science can move from facts to value judgments,
or explains how theory can affect practice. It sustains an ethical naturalism that holds it
is possible to derive moral truths from facts, necessarily denying any inseparable barrier
between is and ought statements of the kind posited by Hume, Weber, and Moore
(Bhaskar 1994:109). In short, Bhaskar maintains that scientific explanation in human
sciences can generate the conditions for human emancipation.
Polanyi undoubtedly tacitly
7
accepted this position without making the argument
or developing a theory of explanatory critique. Bhaskar develops the argument for his
theory of explanatory critique in several different places
8
. A highly succinct version of
Bhaskars theory of explanatory critique is offered by Lacey 2007:

7
The pun to Michael Polanyis tacit knowledge is intentional. However, the literal use in this context
radically differs from the sociological meaning of tacit knowledge in the philosophy of Michal Polanyi.
8
His most comprehensive expressions of the theory of explanatory critique are to be found in Bhaskar
1986, pp. 169-211; and Bhaskar 1989, pp. 89-114. A summarized version with dialectic development is
found in Bhaskar 1993, pp. 258-70. The most succinct version from Bhaskar is found in Bhaskar 1994, p.
9
Bhaskar argues that, in the social sciences, if a theory, which confirms (1) that some
widely held belief is false and (2) that a prevailing social structure is an important causal
factor in sustaining the prevalence of this false belief, becomes soundly established in
accordance with such uncontroversial cognitive criteria as empirical adequacy and
explanatory power then (3) a negative ethical valuation of the structure follows, ceteris
paribus, from the theory. Moreover, if a soundly established theory (the same or another)
confirms (4) that a certain activity may contribute to displacing the structure, then (5) a
positive ethical evaluation of the activity follows, ceteris paribus, also. In some cases,
the false belief, e.g., that the structure is not causally implicated in the persistence of
social ills, may be an ideological belief, one whose being held widely is a condition for
structures maintenance. Then, the inference to (5) amounts to a positive valuation of
emancipatory activities aimed at removing these ills (p. 197).

A successful totalizing explanatory critique (i.e. metacritique
2
) necessarily
establishes previous held beliefs and theory, or conventional wisdom more generally,
as in some significant way fallacious, deceptive, illusory, and/or ideological. Bhaskar
outlines the fine structure of metacritique
2
as designating a set of beliefs, theory or
conventional wisdom as fallacious, deceptive, illusory, and/or ideological if three
conditions are satisfied:
(a) one should possess a new theory or set of theories that can explain most, or most
of the significant, phenomena that the conventional wisdom can explain plus
some significant phenomena that the conventional wisdom cannot. The new
theory should also explain in immanent or metacritical
1
terms why this so;

(b) one should be able to demonstrate that conventional wisdom embodies categorial
error, that it offends against a necessary condition for our adequate understanding
of social being, or of some relevant domain of social being. The new theory must
necessarily circumvent these categorial errors, and overcome them;

(c) one should be able to explain the reproduction of the conventional wisdom,
including its limits of possibility, for example of a level of social structure that the
theory is able to explain, which the conventional wisdom is unable to describe. In
other words, the metacritique
2
of the new theory should not only explain the
historical reproduction of the conventional wisdom, but also be able to self-
reflexively situate the new theory, in such a way that conventional wisdom fails
(amended from Bhaskar 1994:220; also see Bhaskar 1986:243).

220. Accessible versions are found in Bhaskar 1991, pp. 145-161; Collier 1994, pp. 169-204; and Bhaskar
and Collier 1998, pp. 385-9. Early and rudimentary versions are offered by Bhaskar 1979, p. 63; and
Edgley 1976, pp. 2-7. Sympathetic to the theory of explanatory critique, but doubtful of Bhaskars version
are offered by Lacey 1997, pp. 213-41; Lacey 1999; Lacey 2002, pp. 7-31; and Lacey 2007, pp. 196-201.
Kanth 1999, pp. 187-208, rejects explanatory critique as a necessary or sufficient condition for human
emancipation; Lawson 1999, pp. 239-47, attempts to refute Kanth 1999.
10

The conclusion of the Bhaskars theory of explanatory critique can be stated as: When a
new theory achieves a metacritique
2
of conventional wisdom a pejorative evaluation of
the conditions generating, and the structures and actions sustaining and reproducing can
be, and automatically is, issued, and ceteris paribus, motivate action oriented to
transforming the conditions, structures, and actions at fault.
Dialecticalization of the Theory of Explanatory Critique
Before moving onto Polanyis metacritique
2
in his The Great Transformation, a
brief mention should be made about the dialectical development of the theory of
explanatory critique (e.g. Bhaskar 1986) to metacritique
2
(e.g. Bhaskar 1993)
9
.
Metacritique
2
, via dialectical critical realism, supersedes the explanatory critique by
means of the development of a new and bold ontology which pivots upon and prioritizes
the categories of absence, real contradiction, historical process, development and decline
(i.e. process), mediation and reciprocity; while sustaining the ontological categories of
critical realism such as stratification, differentiation, structure, agency, transfactual
efficacy, emergence, and systemic openness.

9
A comprehensive analysis of this development, would pivot on the four moments (i.e. MELD) of
dialectical critical realism (see Bhaskar 1994:132-40 and pp. 161-74; Norrie 2007:130-8; Hartwig
2007:295-303) and the moral realism and ethical naturalism (see Bhaskar 1993:291-7 and pp. 259ff;
Bhaskar 1994:109-10; Norrie 2007:137) which Bhaskar argues for, develops, and is committed. But
comprehension would take us too far afield for our purposes.
11
Metacritique
2
incorporates metacritique
1
10

which isolates a real absence in theory,
practice, or text, indicating an (theoretically) incompleteness, contradiction (real or
theoretical), theory/practice inconsistency, split or reification of some kind (Bhaskar
1993:354). Metacritique
1
then identifies and labels the inconsistency or incompleteness
(etc.) categorially. When it is successful Metacritique
1
\Metacritique
2
achieves a Kuhnian
(paradigm) shift
11
in our comprehension of reality or social being. In other words, the
theory of explanatory critique is split into metacritique
2
and metacritique
1
, respectively,
due to the dialectical development of a new and bold ontology (metacritique
2
), and
scientific activity that is explicitly inspired and informed by this ontology, along with the
development of new categories and concepts to articulate and understand reality
(metacritique
1
). Bhaskar then can say: Metacritique
2
> metacritique
1
(Bhaskar 1993:62n).
The main source of metacritique
1
according to Bhaskar, is immanent critique, or the
identification of theory/practice inconsistencies. Immanent critique demonstrates internal
inconsistencies of a theory, especially between theory and practice. In turn an important

10
Bhaskars theory explanatory critique proposes that social science is necessarily an act of criticism. The
criticism is on two levels (1) criticism of the work, theory and practice of other theorists or traditions; and
(2) criticism of social reality itself. In critical realism these levels of criticism corresponds to the
distinction between the intransitive dimension (objects and generative mechanisms of knowledge) and
transitive dimension (antecedently established facts, theories, models, methods, and techniques of scientific
inquiry). The possibility of science, or a philosophy for science, identifies the distinction between the
intransitive and transitive dimensions, while the possibility of a philosophy of science pinpoints a third
dimension, which Bhaskar calls the metacritical dimension of discourse (Bhaskar 1986:25). Bhaskar
urges that science presupposes the use of method, strategy, and theory for the production of knowledge.
Hence, a metacritical dimension, or philosophy and historical sociology of philosophy is presupposed
(Bhaskar 1986:231). In Bhaskars usage metacritical refers to the self-reflexive scrutiny of the
philosophical and sociological presuppositions of accounts of science (see Hartwig 2007:267).
11
Thomas Kuhns scientific paradigm was not simply a set of current theories, but the entire worldview in
which theories exists, and the implications (e.g. of action) which are entailed by it. Thus, when a paradigm
shift occurs it is as if the world, or all of reality, has changed, because reality literally has changed as we
now perceive it. In Kuhns words: "though the world does not change with a change of paradigm, the
scientist afterward works in a different world" (Kuhn 1970:121). Critical realism incorporates the insights
of Kuhnian shifts, while rejecting Kuhns incommensurability thesis, or judgmental relativism, and
ontological idealism alike. Instead, for critical realism, the (Kuhnian) shift is strictly within the transitive
and metacritical dimensions (see footnote 10); because no shift occurs in the intransitive dimension,
theories and paradigms are commensurable in contrastive and critical way.
12
form of, and source for, immanent critique is an Achilles Heel critique (Bhaskar
1994:216) which attacks a theory at its seemingly strongest point and shows the point to a
weakness. Following:
Metacritique
2
> metacritique
1
> immanent critique > Achilles Heel critique (Bhaskar 1993:66n).
When a metacritique
2
has been constructed the prevailing conventional wisdom is
placed into a new context. With a theory and new context an ideological critique can be
lodged against the prevailing conventional wisdom. Typically the advocates of the
conventional wisdom will resist and struggle in theory will ensue, along with struggles in
practice. The latter occurs because theory invariably informs practice. Hence, if a theory
is challenged, so too is the practice it informs
12
. That is to say when a theory is deemed
by an alternative theory as ideological a struggle in both theory and practice will ensue.
Bhaskar calls such struggles hermeneutical hegemonic/counter-hegemonic struggles
(Bhaskar 1993:278-9). Bhaskars various forms of critiques can be set out in figure on
the following page.
The argument is that Polanyi in his The Great Transformation follows Bhaskar
lines of critique remarkably close. Starting from the strong (middle) line of critique in
figure 1 below, Polanyi engages in a sequence of Achilles Heel critiques, developing in a
full immanent critique of economic liberalism. He then pinpoints the omissions if
mainstream economics, and develops new set of categories to better comprehend social
reality and history. This is based on an ontological shift which occurs in Polanyis
conceptualization of social being. He is then able to demonstrate that economic

12
A very simply example: Suppose I have theory that all homeless people are lazy and dishonest, hence I
refuse to donate money to the homeless. But a new theory, based on some evidence, is presented that
homeless are simply down on their luck, but otherwise ambiguous. With the change in theory, I might
change my practice and donate to a homeless shelter.
13
liberalism is ideological, both in its ontology and practice. Whereby he recommends a
change in (institutional) praxis based on his explanatory critique. Finally he initiates an
axiological shift in behavior, that is potentially emancipatory. We know turn to the
Polanyis critique in The Great Transformation.

Figure 1
A Topology of Critiques
(adapted from Bhaskar 1993:242)
The Metacritique
2
of Karl Polanyi
In his The Great Transformation Karl Polanyi is engaging in a Bhaskar-style
metacritique
2
. Polanyi develops a new and bold ontology based on anthropological
studies of primitive societies based on the work of Malinowski, Thurnwald, Firth,
Ratcliff-Brown, among others (see Polanyis Notes on sources pp. 276-80). Polanyis
study of anthropology creates a Kuhnian shift in the assumptions informing our
understanding of social relations and inter-/intra-subjective. Polanyi rejected the idea that
human beings having a natural economic psychology or an universal propensity to
truck, barter and exchange one thing for another to put it in Adam Smiths articulation.
According to Polanyi it was a categorial error to claim that the economic psychology of
14
human beings is in all times and places, is a propensity to truck, barter and exchange.
This propensity is not universal, argues Polanyi, but highly contingent on a particular
institutional arrangement centered on the institution of the market-system.
The point here is not to unfold Polanyis theory of human nature, but demonstrate
that at the root of his critique is an ontological shift toward what constitutes human nature
itself. Polanyi, as a philosophical realist, will argue that there does exist a universal
human nature, but it cannot be reduced to the tendency to truck, barter and exchange.
Polanyi does not deny that markets have always had a presence in complex societies.
However, markets and exchange function quite differently in different times and places.
Polanyis study of markets in history will establish an additional bold historical
ontological claim, which will ground the argument for the presence of additional
categorial errors committed by the conventional wisdom of economic science.
Polanyis analysis in The Great Transformation is in the context of the great
crisis of modernity. Socio-economically the Great Depression had manifest causing
personal deprivation, economic poverty, social destitution and hardship, and political
friction. Politically World War II had erupted leading to the deaths, and murders, of
millions of human beings. Polanyi believed that real contradictions, internal to the social
institutions of the market-system of modernity, were the root causes of both the Great
Depression (and its consequences of material impoverishment) and the world war.
Hence, there was a tremendous urgency for Polanyi to develop his metacritique
2
of the
crises that had become modern society.
For Polanyi the self-regulating market-system was internally contradictory, hence
a crisis-ridden system. In agreement with Karl Marx and John Maynard Keynes the
15
capitalism system necessarily generated the poverty that was the historical characteristic
of the system and its development. Polanyi believed that the attempt to institute a self-
regulating market-system manifest material impoverishment and political conflict, but
further believed such a system was disruptive of, and antagonistic toward human cultural,
ethical action, and personal identity. Polanyi had a key interest in articulating the
dehumanizing tendencies of free-market economic development. Once again, Polanyi is
putting forth a new and very bold ontological position.
The Double Movement: The Achilles Heel of Economic Liberalism
Polanyi identified the major internal contradiction of the self-regulating market-
system as the double movement. From the early nineteenth to early twentieth century
the dynamics of modern society was governed by a double movement (Polanyi
2001:136). On the one hand free-market liberalism unleashed the social propensity
toward continuous economic expansion and an impetus toward innovation and
technological improvement; or the almost miraculous improvement ushered in by the
eighteenth century Industrial Revolution (Polanyi 2001:35). This movement or
tendency toward expansion and improvement was indeed the very virtue and greatest
strength of the liberal creed, the promise of Adam Smiths invisible hand metaphor and
his visionary model of commercial society.
Mainstream economists understood the expansionary and improvement
movement of liberalism all too well. The promise of expansion and improvement, and
the consequential prosperity potentially created, would become the paradigm of the
marginal revolution. Through the work of Stanley Jevons, Alfred Marshall, and the
Austrian School, especially through the work of Ludwig von Mises and his student von
16
Hayek, the expansion and improvement result of economic liberalism was formalized and
promoted academically and politically as the best, if not the only, social order to generate
wealth and prosperity, and absent poverty.
Polanyi accepted the account from the liberal creed regarding the historical fact
that the system of free markets had created almost miraculous improvement. But the
miraculous improvement was historically accompanied by a catastrophic dislocation of
the lives of the common people (Polanyi 2001:35). The continuously expanding
markets and technology improvement was met by a countermovement checking the
expansion to minimize the catastrophic dislocation. The protection from the
countermovement was vital for the protection of society, but in the last analysis it was
incompatible with self-regulation of the market (Polanyi 2001:136). The double
movement is a deep internal contradiction to the self-regulating market-system.
As capitalism progressed and expanded, the enclosures movement displaced serfs
and peasants, and destroyed land and livelihood. With expansion of mass factory
production the very fabric of society was being disrupted; desolate villages and the ruins
of human dwellings testified to the fierceness with which the revolution raged,
endangering the defences of the country, wasting its towns, decimating its population,
turning its overburdened soil into dust, harassing its people and turning them from decent
husbandmen into a mob of beggars and thieves (Polanyi 2001:37). The
countermovement resisted the radical change ushered by the policies and institutions of
economic liberalism. The countermovement was more than the usual defensive
behavior of a society faced with change; it was a reaction against a dislocation which
17
attacked the fabric of society and which would have destroyed the very organization of
production that the market had called into being (Polanyi 2001:136).
Polanyi maintained that there was no disagreement between the liberal tradition
and himself on the existence of the double movement. Liberal writers like Spencer and
Sumner, Mises and Lippmann offer an account of the double movement substantially
similar to our own (Polanyi 2001:148). Thus it is more or less agreed that the liberal
movement, intent on the spreading of the market system, was met by a protective
countermovement tending toward its restriction (Polanyi 2001:151). Likewise, Polanyi
and the liberal tradition fully accepted the technology improvement and economic
prosperity created by economic liberal policy and institutions (Polanyi 2001:35). The
disagreement between Polanyi and the liberal tradition pivoted on alternative
interpretations of the social causes and forces, and socio-political motivations underlying
the countermovement.
Liberal theorists viewed the existence of the countermovement and all modes of
protectionism as mistakes of agency due to impatience, greed, and shortsightedness, but
for which the market would have resolved its difficulties (Polanyi 2001:148). The
problem here was that countermovement would have to be understood as a great anti-
liberal or collectivist conspiracy (Polanyi 2001:151). Polanyi offers several reasons
why such a collectivist conspiracy was pure invention. First, there existed an amazing
diversity in issues resisted, and modes of resistance, which often included supporters of
economic liberal policy. Secondly, the collectivist reactions were startlingly
spontaneous, local, and often unconnected to other countermovements in other times and
places. Thirdly, the historical political ideological configurations were highly varied.
18
Forth, economic liberals often themselves advocated restrictions on the freedom of trade
and market activity; hence, anti-liberal, or collectivist ideology could hardly have been
their motive
13
. Polanyi insists that ignorance, impatience, greed, and shortsightedness are
desperately ineffective, incomplete and deficient as an explanation for the ubiquitous,
diversity, and intensity of the countermovement.
In Polanyis alternative view, in fact his main thesis was that the concept of a self-
regulating market-system was strictly utopian and could not actually be institutionalized
as a social reality
14
, without destroying the foundations of culture, society and social
being. Polanyis interpretation would pivot on metacritique
1
, or isolating the
inconsistencies of economic liberalism, and the absence or theoretical inability of liberal
theorists to adequately account for the present of the countermovement, and persistence
of personal poverty, social deprivation, economic crisis which characterizes the historical
development of capitalism as a social system.
Initiating Polanyis metacritique
1
was the very existence of a ubiquitous, highly
diverse, and often intense countermovement. The Polanyian metacritique
1
would further
reinterpret market activity in history; develop a radically new understanding of the
constitutions of the main factors of production, land, labor, and capital/money, and a
rediscovery of the role of economy in the fabric of society.
Before outlining the fine structure of the upper level of Polanyis metacritique
1
, it
is worth pointing out the Polanyian critiques which support it. Polanyis theory of double

13
John M. Keynes would be a very obvious example. But a striking phenomenon in the works of liberal
writers such as Mises, Hayek and Friedman is the degree of restriction on trade and intervention in market
activity which they advocate.
14
Polanyi writes that his thesis is that the origins of the cataclysm lay in the utopian endeavor of
economic liberalism to set up a self-regulating market system (Polanyi 2001:31).
19
movement is an Achilles Heel critique (AH critique)
15
. Polanyi isolates and accepts the
strong point in the liberal creed: free-market policy generates technological improvement,
economic prosperity, and increased political freedom. He then pinpoints a blind spot in
liberal version. Namely, economic liberal theorist cannot account for the rise of a
ubiquitous, highly diverse, and often intense countermovement. Polanyi then argues that
the very institutional system responsible for the creation of the celebrated technological
improvement, economic prosperity, and increased political freedom, is also responsibility
for the destruction of the social and culture fabric. Hence what appears to be the strong
point of economic liberalism is actually shown to be a highly weak point, or debilitating
aspect to the policies of economic liberalism. The symbiotic relationship between
improvement and destroyed human habitation is demonstrated to be the Achilles
heel of economic liberalism.
Polanyis theory of the double movement is also an immanent critique
16
of
economic liberalism. It is immanent in that the promise of liberalism cannot be achieved
without the full destruction of society itself. In others the very conditions of
legitimization of the market system: technological improvement, economic prosperity,
and increased political freedom cannot be sustained. Hence a real Habermasian

15
Bhaskar (1993:396) defines an Achilles Heel critique as follows: An Achilles Heel critique pinpoints
the blindspot in a theory, characteristically at what appears to be its strongest point.
16
David Harvey (1990:5) explains immanent critique as follows: As immanent critique, [critical theory]
then 'enters its object,' so to speak, 'boring from within.' Provisionally accepting the methodological
presuppositions, substantive premises, and truth-claims of orthodoxy as its own, immanent critique tests the
postulates of orthodoxy by the latter's own standards of proof and accuracy. Upon 'entering' the theory,
orthodoxy's premises and assertions are registered and certain strategic contradictions located. These
contradictions are then developed according to their own logic, and at some point in this process of internal
expansion, the one-sided proclamations of orthodoxy collapse as material instances and their contradictions
are allowed to develop 'naturally.
20
legitimization crisis
17
has been immanently demonstrated by Polanyi. As an immanent
problem or internal contradiction, political conspiracy is not the culprit behind forms of
protectionism and trade restrictions. Rather protectionism and trade restrictions are a
manifestation from the ontological constitution of policies and institutions of economic
liberalism and market activity itself. The ontological constitution of the institution of the
self-regulating market is both destructive and impracticable.
The Axiological Shift: Polanyis Social Theory of an Embedded Economy or the
Deinstitutionalization of Economistic Fallacy

Polanyis analysis is not merely negative or pure critique. The metacritique
2

Polanyi constructs is an axiological shift. The axiological shift is instructive and
potentially emancipatory. Polanyis metacritique
2
is an axiological reclaiming of the role
of economics in social being. The formal definition of economics as the study rational
maximizing of social agents under conditions of scarcity, for the production of goods and
services in order to satisfy unlimited wants
18
is peculiar in human history, and particular
to market economies. Polanyi maintained that a careful study of history and
anthropology offers a more general, or universal, definition of economics.
Most broadly Polanyis substantive definition of economics is how social agents
relate to one another and to the social and natural environment in their production of
goods and service to satisfy (limited/unlimited
19
) wants
20
. It presupposes neither rational

17
Habermas concept of legitimation crisis refers to a situation in theory or practice, but especially
practice, when the the organizational principles, or organizational institutions, of society does not
permit the resolution of problems and crises that are critical for, and necessary to the continued existence of
that social order (see Habermas 196?).
18
This definition of economics is the conventional wisdom. Lionel Robbins is the best-known advocate of
this definition: the science which studies human behaviour as a relationship between ends and scarce
means which have alternative uses (Robbins 1932:16).
19
Whether individual or social wants are limited or unlimited is an axiological question, conditioned by the
institutional arrangement of society.
21
decision-making nor conditions of scarcity. Agency and individual actions in non-market
economies is not so much based on the rational maximization principles, but rather on
social relationships, cultural values, moral considerations, politics and religion.
The outstanding discovery of recent historical and anthological research is that mans
economic, as a rule, is submerged in his social relationships. He does not act so as to
safeguard his individual interest in the possession of material goods; he acts so as to
safeguard his social standing, his social claims, his social assets. He values material
goods only in so far as they serve this end. Neither the process of production nor that of
distribution is linked to specific economic interests attached to the possession of goods;
but every single step in the process is geared to a number of social interests which
eventually ensure that required step be taken (Polanyi 2001:48).

Polanyi summarized the difference between the formal and substantive definition of
economics as follows:
The substantive meaning [of "economic"] implies neither choice nor insufficiency of
means; man's livelihood may or may not involve the necessity of choice and, if choice
there be, it need not be induced by the limiting effect of a "scarcity" of the means; indeed,
some of the most important physical and social conditions of livelihood such as the
availability of air and water or a loving mother's devotion to her infant are not, as a rule,
so limiting. The cogency that is in play in the one case and in the other differs as the
power of syllogism differs from the force of gravitation. The laws of the one are the laws
of the mind; the laws of the other are those of nature. The two meanings could not be
further apart; semantically they lie in opposite directions of the compass (Polanyi, "The
Economy as Instituted Process", in Polanyi, Arensberg, & Pearson, Trade and Market in
the Early Empires, Chicago, Gateway, 1957, p. 243-44).

It is only in era of modernity, with the rise of capitalistic social relations,
capital/wage nexus whereby, and wherefore, the notion of economic emerges as term
with independent meaning from society
21
. The formal definition of the economy is only

20
In Polanyis own words, the substantive economy is an "instituted process of interaction between man
and his environment, which results in a continuous supply of want satisfying material means" (1968:126).
21
Polanyi dates the emergence of full-blown capitalism from 1834. However, the notion of an economy
begins to have independent meaning from social being by the seventeenth century in the literature of
mercantilist writers.
More specifically political economy emerges as an independent and systematic discipline in strict
concomitance with the development of the capitalist mode of production, or the historical attempt to
institute a self-regulating market-system. The theoretical autonomy of political economy in fact coincided
with the establishment of the economic process as a circular process of production and reproduction of
surplus product, or the material goods beyond the needs of any given society.
John Stuart Mill marked the transition from political economy to economics, abandoning the
notion surplus product as an explanation for profit. Instead profits (as were wages, rent, and interest) were
22
applicable to modernity. It is categorial error to apply to pre-modern society and post-
modern societies alike. Its only application is to the ideal of a self-regulating market
economy.
A market economy is an economic system controlled, regulated, and directed by market
prices; order in the production and distribution of goods is entrusted to this self-
regulating mechanism. An economy of this kind derives from the expectation that human
beings behave in such a way as to achieve maximum money gains. It assumes markets in
which the supply of goods (including services) available at a definite price will equal the
demand at that price. It assumes the presence of money, which functions as purchasing
power in the hands of its owners. Production will then be controlled by prices, for the
profits of those who direct production will depend upon them; the distribution of the
goods also will depend upon prices, for prices form incomes, and it is with the help of
these incomes that the goods produced are distributed amongst the members of society.
Under these assumptions order in the production and distribution of goods is ensured by
prices alone (Polanyi 2001:71-2).

The conception of such an economy is utopia. According to Polanyi attempts to
institutionalize the ideal of a self-regulating market economy will generate calamities and
catastrophe, due to deep internal contradictions. The main (Polanyian) contradiction that
emerges from the market economy, in turn generating the historical phenomenon of the
double movement, is that society becomes an adjunct to markets. The social relations
which are so important to the maintenance and reproduction of society are demoted, and
destabilized in market society. The economy becomes disembedded from the social
relations, broadly understood.
The disembedded economy prioritized production for gain, and sanctioned
behavior antagonistic to social patterns of integration. The antagonism toward social

explained as remuneration for some factor of production (respectively, entrepreneurship, labor, land,
capital/money). Mill would maintain there existed no (social) laws that determined distribution of these
remunerations.
The Marginalist Revolution in 1870s would formally establish political economy as economics.
Moreover, it was claimed the social laws of markets determined distribution, just as it determined all
other prices of commodities. In 1870s economics emerges as an independent and systemic discipline in
strict concomitance with the first global crisis or Great Depression. In economics the production process
was no longer conceived as a practice to achieve surplus product, but instead a practice to satisfy unlimited
wants.

23
patterns of integration, destabilized society and gave rise to the phenomenon of a Great
Depression. With patterns of integration disrupted, there emerged cultural degradation
and an institutional existential assault on the quality of human life. We are now in a
position to explain the patterns of integration and principles of behavior that Polanyi
rediscovered and promoted for the institutionalization in the future post-modern society
to emerge following the great transformation.
The Rediscovery of Social Integration
In contrast to a disembedded economy, an embedded economy is integral to the
whole social fabric. Unlike a market society, social axiology in an embedded economy is
not reduced to mere exchange-value (see Meikle 19??:169-73). Instead in societies of
antiquity the axiological motives were predominantly social. Social integration within
embedded economy is not achieved through the market institution via the mechanism of
price adjustment. Instead Polanyi maintained all economies are integrated by three
modes of transaction or principles of behavior, reciprocity, redistribution and
householding. Each of these principles of behavior is associated with an integrative
institutional pattern, and in turn each gives rise to particular social and political structures
and institutional forms.
Reciprocity is most often the dominant principle of behavior in societies of
antiquity and developing societies. The principle of reciprocity involves transactions of
material goods and services, with an aim toward nurturing and maintaining social
relations. Reciprocity is enormously facilitated by the institutional pattern of symmetry
(Polanyi 2001:51). The institutional pattern of symmetry can be understood as a social
chain of mutual obligation or indebtedness. Symmetry is a key integration pattern of all
24
societies. Contemporary automobile driving provides an example. Driver one yields to
another driver two on the assumption there will be symmetry of such action as long as the
principle is not too frequently violated. In this sense all drivers are symmetrically
obligated to each other in a chain of reciprocal actions.
In this sense symmetry is social pattern of mutual gift-giving (think of modern
day holiday-card exchanges). It does not require that participates give back and forth to
one another, for a considerable amount of time can elapse between giving and receiving.
And the transactions may not involve the same partners. Moreover, haggling and
bargaining need not play any part in the transaction.
Redistribution is a principle of behavior that involves the allocation or
reallocation of goods on the basis of social custom, political process, law, or central
authority. The integrative pattern in redistribution was centricity. The integrative pattern
of centricity involved a social center figure, which need not have political power, who
would provide a strategy for the collection, storage, and redistribution of goods and
services (Polanyi 2001:51). Most often the redistribution was based upon social rank or
status. As such, redistribution need not be based on equality or any notion of justice,
reproduction and social well-being is the aim of redistribution. Redistribution integration
principle of centricity is an essential pattern to all societies. Centricity nurtures,
promotes, and sustains societys division of labor, foreign trade, taxation for public
purposes, and defense provisions (Polanyi 2001:50).
In householding the aim is toward self-sufficiency, and consists in the production
of ones own use (Polanyi 2001:55)
22
. The social integrative pattern associated with
housing is autarchy or decentralized self-governance. Householding may include

22
Self-efficacy might be very useful development for Polanyian social theory.
25
exchange for accessory production, or the surplus product of the household. As long as
the market exchange was only for surplus product, the self-sufficiency of the household
need not be diminished. Householding was an important integrative pattern for the
Greek oikos, the European Medieval manor, and the extended peasant family.
In his later works Polanyi would see householding as less important. The work of
Finley would reestablish the importance of householding or self-sufficiency as a
motivation principle, and autarchy as an integrative pattern to ancient economies (Finley
1973; Cartledge 2002:14). According to Polanyi it was Aristotle who best understood the
importance of householding (Polanyi 1968). Aristotle understood the axiological
implications of production for gain as opposed to production for the oikos and self-
sufficiency. Production for gain, undermined householding, damaged the integrative
principle of reciprocity, and destroyed the sense of good will. Aristotle prophetically
understood the danger of market production for gain by seeing the damage that would be
done to social integration, and consequently to the sense of fairness and social justice.
Polanyis argument is that these principles of behavior and social integration
patterns are present in all societies. Each of these behavior-integration pairs have a meta-
social result or form. Reciprocity-Symmetry promoted social order and encouraged a
sense of fairness, justice, honesty, and trust throughout the society. Redistribution-
Centricity assured reproduction, stability and a sense of empathy, altruism, and respect.
Householding-Autarchy sustained the ideal of self-sufficiency and practical self-efficacy,
supporting the notions of liberty, freedom, and self-determination.


26
The Primacy of Aristotle in the History of Economic Thought
Which behavior-integration pair is predominating in a society is an axiological
and cultural contingency. Polanyis emphasis was that the forth behavior-integration pair
of Barter/Exchange-Market was present in nearly very civilization or human society, but
the social role of markets was not more than incidental to economic life (Polanyi
1968:3). Markets were only incidental to economic life and peripheral to social being for
Aristotelian reasons.
Market Production for gain and market motivation was caustic to the greater
patterns of integration. Self-regulating markets imply competition and power relations,
and may involve acts of desperation or social disadvantage; necessarily trade relations for
gain involve antagonistic trading agents. The antagonism between trading agents is
corrosive on the integration patterns, meta-social forms. Hence, Barter/Exchange-Market
pattern tended to be antagonistic to the other behavior-integration pairs and their meta-
social results.
The market pattern [in contrast to the embedded economy] being related to a peculiar
motive of its own, the motive of truck or barter, is capable of creating a specific
institution, namely, the market. Ultimately, that is why the control of the economic
system by the market is of overwhelming consequence to the whole organization of
society: it means no less than the running of society as an adjunct to the market. Instead
of economy being embedded in social relations, socials are embedded in the economic
system. [] once the economic system is organized in separate institutions, based on
specific motives and conferring a special status, society must be shaped in such a manner
as to allow that system to function according to its own laws (Polanyi 2001:60).

The Aristotelian resistance of self-regulating markets prevailed throughout human
history. On this point Polanyi was insistent, previously to our time no economy has ever
existed, even in principle, [that] was controlled by markets. [] gain and profit made on
exchange never before played an import part in human economy. [] We have good
reason to insist on this point with all the emphasis at our command (Polanyi 2001:45,
27
emphasis added). The Aristotelian view was dominant; gain and profit made on
exchange was corrosive of social patterns of integration. Consequently, inhibiting social
reproduction and generating the tendency toward socio-economic crisis, hence
necessitating political management of socio-economic crisis, manifesting conditions for
political rivalry, contention, and war. In the Aristotelian view gain and profit made on
exchange was further destructive of the meta-social forms of justice, human empathy,
and self-determination. Consequently it was disruptive to the stability of human material
life dislocating social relations, generating unemployment, poverty, anxiety, general
unhappiness and lack of wellness
23
.
Polanyi identifies a major categorial error dominate in mainstream economics.
The categorial error is the application of the market pattern as the integrative form for the
interpretation and understanding of all complex civilizations. His proposition and
hypothesis is, the orthodox assumption of the conventional wisdom, that the market
pattern is the predominate social integrative form in complex civilizations is an historical
error (see Polanyi et. al. 1957:244-6).
The conventional wisdom is accustomed to assuming the hallmark of the
economy, indeed of civilization more generally, is the market pattern. Historical and
anthropological studies do not support this assumption. Thus Polanyi asks (and answers),
What is to be done, though, when it appears that some economies have operated on
altogether different principles, showing a widespread use of money, and far-flung trading
activities, yet no evidence of markets or gain made on buying or selling? It is then that we
must re-examine our notions of the economy. (Polanyi et. al. 1957:xvii).


23
E.P. Thompsons Making of the English Working-Class can be read in this context with spectacular
consistency to the work of Karl Polanyi. To be sure Thompsons main aim was to demonstrate the role of
working-class agency in the making of capitalistic institutional forms. However, much of the organized
and conscious action of the eighteenth century English people were based on unacknowledged conditions
and unintended (institutional) consequences.
28
Polanyis call for re-examination is noticeably a metacritique
2
comment. It is a challenge
to the orthodox ontology of the economy. The Polanyian aim is to overcome the
categorial error of applying the market pattern to all civilizations and avoid the
economistic fallacy.
The Historical Function and Origin of the Market Pattern
The geo-historical metamorphosis of isolated markets into a market economy,
regulated markets into a self-regulating market, is indeed crucial (Polanyi 2001:60).
Polanyi concern is unambiguously the function and origin of the market pattern. With
respect to function, the overarching point of Polanyi, is that it cannot assume to be simply
for gain. The presence of exchange, and more generally transactions, may simply be a
network of reciprocity of social symmetry. In such cases gain may be part of the aim, but
it could be a highly small, or even absent part of an exchange or transaction.
Polanyi distinguishes between three types of market patterns: local, external, and
internal. Local market patterns are generally between neighbors and are not necessarily
motivated by gain, nor involve competition. Instead they are dominated by the
motivation of reciprocity, and the pattern of symmetry. External trade is carrying, or
peddling surplus product to neighbors that have an absence of a particular good. External
are highly eclectic. The may be for gain, but need not necessarily be so; reciprocity or
even retaliation is just as likely of a motivation.
Polanyis argument should not be exaggerated. In both local markets and external
markets, barter for gain, a Pareto improvement for both immediate trading may result. In
this sense Polanyi is not denying the possibility of the interpretation of the conventional
wisdom. Rather he is heeding warning that it was common in pre-industrial transactions
29
that Pareto improvement for both immediate participates need not occur when the
behavioral patterns of reciprocity, redistribution, householding, or otherwise
predominate.
With respect to internal or national markets the function is clearly gain. The
Polanyian question is then what is the origin of the national market. This is the more
esoteric insight of Polanyi. His point is not to deny the historical existence of
competitive national markets in human history. Rather is point is twofold: First not to
conflate all exchanges and transactions with the motive for gain (hence the distinction
between local, external, and internal markets; second the origin of competitive national
markets was not the natural outcome of the spreading of markets or from a human
propensity to truck and barter. In this sense, he rejects the conventional sequence and
chorology of the development of internal or national market patterns. The conventional
sequence:
Human Propensity to Barter Division of Labor Local Market Pattern Extension of
Market Pattern to Nation/Region Extension of Market Pattern to Long-Distance Trade

Polanyi proposes a revised sequence:
Long-Distance Trade State Construction of National Market Pattern Change in Local
Division of Labor Change in Local Market Pattern (e.g. from reciprocity to gain)
Emergence of Social Necessity to Barter

The Polanyian revised sequence first emphasized that national market patterns did
not emerge from local exchange or transactions (Polanyi 2001:66). This is not to deny
the existence of such transactions, but to emphasis the motivation behind them; and the
social patterns of integration generated. The second emphasis, and primary point, was
the role of the state as necessary in the construction and maintenance of competitive
market patterns. Mercantilism was the piece-meal produced pamphlets that articulated
the policy of internalization or nationalization of foreign trade. The main motive of
30
mercantilism was seemingly the purposes of power in foreign affairs (Polanyi
2001:69), i.e. to assure profits in foreign trade.
In his critique of Polanyi, Fernand Braudel (1982:224-9) misinterprets Polanyi
and his colleagues primary point. Braudel interprets Polanyi as denying the existence of
market patterns of gain
24
. Instead Polanyis point is that competitive markets require
intervention to assure social integration. The point seems completely lost to Braudel.
Braudel then proceeds to over-interpret Polanyi in two ways. He first over-interprets
Polanyi concerning the role of gain in local market patterns within historic civilizations.
Polanyi does not claim the absence of the motivation of gain, as Braudel over-interprets
him, but the relative diminished importance of gain in such societies. The second over-
interpretation concerns the degree to which market economies become disembedded.
Consequently he does not fully appreciate Polanyis revised sequence and its
contemporary relevance. Braudel does not seem to understand Polanyis emphasis on the
role of state intervention for the creation of national markets. As a consequence Braudel
seems to completely miss the implication of Polanyis analysis for social theory and
insights for social policy,
25
and the potential Polanyi offers for understanding
contemporary circumstance
26
.

24
In fact in Polanyi's last book Dahomey and the Slave Trade (Polanyi 1966), he amplifies the themes of
external trade and the existence of ports of trade which were too briefly dealt with in The Great
Transformation (Polanyi 2001:64-70), and in a 1963 paper published in The Journal of Economic History
(Polanyi 1963). He shows that 'ports of trade' were common. External trade would bring goods and
services that were not available within the local reciprocity system. However, external trade was limited to
the ports of trade and port cities, were the often competitive market pattern could be administered and
controlled by local or municipal port authorities. The municipal port authorities would ensure that the
market pattern of competitive trade was isolated from the domestic network of reciprocity and patterns of
symmetry. Polanyi does point out the limit upon the price mechanism in these ports of trade. Municipal
port authorities set the exchange rules and rates, not always by price (Polanyi 1966).

25
Polanyi expresses the insights for social policy in the following terms: In the receding rule of the
market in the modern world, shapes reminiscent of the economic organisation of earlier times make their
31
The Myth of Market Non-Intervention:
Polanyis Theory of Fictitious Commodities

We are now in a position to explicitly identify the primary paradox or root
problem of market society: interventionism by the state (Polanyi 2001:239). Self-
regulation implies non-intervention, but the ontology of markets, both in its genesis and
maintenance requires intervention. The necessity of maintenance is implied and
demonstrated by our presentation of the Polanyian double movement above. Now we
turn to the deeper ontology that produces the double movement, and necessity for market
intervention.
For Polanyi the deep or real ontological problem is that the price mechanism is
not capable of self-regulating the most important commodities in society: land, labor
and money. Mainstream economics call these commodities, along with entrepreneurship
the factors of production. If the price mechanism fails to regulate the supply and
demand of all commodities, then the economy cannot be fully ruled by self-regulating
laws of market.
According to Polanyi the price mechanism fails to adequately regulate the factors
of production as commodities, because they are not real commodities. Polanyi defines a
commodity as good or services produced for sale on the market. Land, labor and money
are not produced for sale on the market, hence they are not commodities; or in Polanyis
language they are fictitious commodities.

appearance. Of course we stand firmly committed to the progress and freedoms which are the promise of
modern society. But a purposeful use of the past may help us to meet our present over concern with
economic matters and to achieve a level of human integration, that comprises the economy, without being
absorbed in it (Polanyi et al. 1957 xviii).
26
To be sure Braudels propose is empirical and historical. Hence, the third fault of Braudel is easily
forgiven.
32
Land and raw material more generally does not have the constitution of a
commodity because, for example, depletion. Consider a national park that has timber for
sale. If logging is allowed the price of lumber will merely reflect the marginal effort of
logging, it will not reflect the destruction of the environment. Likewise, in the
production and sale of oil the price does not reflect the potential for depletion, but the
marginal costs of drilling and refining.
Labor also does not follow the dictates of the market. Consider a real
commodity in surplus, such as peas. Suppose the price of peas is too high, hence quantity
supplied is greater than quantity demanded. What will happen? The price of peas will
fall; perhaps slowly or rapidly, depending on the degree of competition, level of demand,
etc. In any case no violence to the integrity of peas occurs if the price falls rapidly, or if
they are stored in warehouses for future higher priced sales. For human labor the results
are different. A surplus of workers is unemployment. A rapid decrease in wages, given a
surplus, does tremendous damage to the financial circumstances and well-being of
workers and (according to Keynes multiplier theory) the stability of macroeconomy.
Money, in an economic sense, is the most problematic of all. The price of money,
i.e. interest rates, moves in the wrong direction when the macroeconomy is unhealthy or
in a depression. The money supply also must be adjusted to control the problems of
inflation and deflation alike, along with changes in the exchange rates with other
currencies. Neo-liberalism has completely accepted monetary intervention since the time
of Polanyi. Intervention it is. Self-regulating markets are purely utopia.


33
Implications following the Theory of Fictitious Commodities
There are three implications in Polanyis analysis. First individuals resist the
negative impacts manifest from the market failures of the fictitious commodities. This is
the real root of the double movement. Second, the market for fictitious commodities
must be managed and regulated. Markets for land, labor, and money do not self-regulate,
the mechanism of self-regulation, i.e. the price system is not capable of adjusting the
market of fictitious commodities. Without management of markets of fictitious
commodities, there is a tendency toward market collapse, leading to the potential of
political protest and social revolution. In short, money necessities a central bank; the
public sector must mediate disputes between labor and business; the public sector must
protect land, waterways, environment from destruction and pollution. Thirdly, it is an
axiological mistake to subject land and labor to the dictates of the market. Not only does
it do violence to the moral realism implicit in Polanyi
27
, it is an abomination of human
history (see Polanyi 2001:76; also Block 2001:xxv).
The presence of the double movement indicates a malfunction of system
integration. Culmination of this malfunction is a Great Depression. Hence, the fictitious
commodities necessarily impede system integration, or create system malintegration.
The malfunction of systemic integration in a self-regulating of the market-system arises
for two reasons. (1) The presence of fictitious commodities leads to the failure of the
price mechanism to adjust markets, and regulated the market system. (2) Competitive
market activity tends to undermine the alternative patterns of system integration.
Competition undermines reciprocity, self-regulation undermines redistribution, and

27
See Gregory Baums (1996) Karl Polanyi: on ethics and economics for an argument that supports
Polanyi holding a moral realism position.
34
extension of markets implies a deep division of labor and specialization, undermining
householding.
Polanyis anticipation of
Archers Morphogenetic Cycles Approach to Social Theory
Polanyis social theory anticipates the work of Margaret Archer and her modeling
of morphogenetic cycles. Archers morphogenetic approach to social theory draws from
and develops upon David Lockwoods distinction between social integration and
system integration. In this distinction Lockwood is wrestling with two distinct
sociological traditions, the conflict theory of Marxian class conflict, and the
functionalist theory of the Parsonsian/Durkheimian traditions. Lockwood attempts a
type of synthesis of these traditions by conceiving a relationship between social
integration and system integration. According to Lockwood the basis of this
distinction is real. Whereas the problem of social integration focuses attention upon the
orderly or conflictful relationships between the actors, the problem of system integration
focuses on the orderly or conflictful relationship between the parts of a social system
(Lockwood 1964:245).
This allows for social conflict between agents (e.g. employees and employers),
while supporting the successful reproduction of social relations (e.g. the relationship
between employee/employer reproduced). In this sense social conflict is insufficient for
the transformation of social relations. Transformation of social relations requires
malintegration of the part or subsystems of a social system. However, if there exists
systemic malintegration, but no social conflict, again no transformation in social relations
takes place. According to Lockwood social transformation requires both social
malintegration and systemic malintegration (Lockwood 1964:252; Archer 1996:291).
35
Accepting Lockwoods distinction between social and system integration Archer
constructs a theory and model of cultural and structural processes of change. She calls
her theoretical model the morphogenetic/morphostasis (M/M) approach to social theory
(1996; 1995; 2000). Her overarching aim is to build a sociological framework within the
same theoretical umbrella, to better understand the relationship between agency, culture,
and structure (Archer 1996:274). Archers M/M approach to social theory
conceptualizes the interplay between structure, cultural, and agency over time and space
(Archer 1996:15).
Without going into the fine details of Archers model we will hone-in on the
structural domain of the M/M model. Archers M/M framework is based on two basic
propositions:
(i) That structure necessarily pre-dates the action(s) which
reproduce or transform it;
(ii) That structural elaboration necessarily post-dates the action
sequences which gave rise to it.

Archer makes an analytical distinction between three phases in otherwise continuous
process of human activity and interaction. In Phase 1, agents draw from the modes of
interaction conducted in previous experience, and from knowledge of past social
relations. In Phase 1 structural conditioning takes place, based upon the
intended/unintended consequences of previous actions, and the
acknowledged/unacknowledged conditions previously existing. In Phase 2 interaction
between agents takes places in current time. In Phase 3 the social relations informing
Phase 1, will either be reproduced or transformed. Archer calls the Phase 3 structural
elaboration (Archer 1995:193).
36
The basics of the M/M approach can be illustrated in figure 2, the
Morphogenetic/static diagram (Archer 1995:157):

------- Pre-existing structures
T
1
or prior interactions
Previous (Structural conditioning)
Cycles T
0


T
2
Production T
3
Subsequent
(Social Interaction) Cycles T
5


Reproduction/Morphostasis T
4

(Social elaboration)
-----
Transformation/Morphogenesis T
4

(Social elaboration)

Figure 2
The basic morphogenetic/static cycle with its three phases
(Adapted from Archer 1995:158)

Polanyi is himself attempting to model social and system (mal)integration
28
. He
implicitly has something in mind very reminiscent of Archers morphogenetic cycle.
However, for Polanyi there is social mediation between Archers Phase 1 Phase 2 and
social mediation between Phase 2 Phase 3. In pre-modern societies the social
mediations are the patterns of integration, symmetry, centricity, and autarchy; along with
the transaction modes of reciprocity, redistribution, and householding. These social
mediations, i.e., Polanyis patterns of integration and modes of transaction are readily
accommodated by the morphogenetic/static cycle diagram, as demonstrated in figure 3:

28
The ability for the model to sustain both social/system integration and social/system malintegration is an
important feature of Lockwood/Archer model. Archer (1996:288ff) demonstrates that Habermas is unable
to sustain the ontological result of malintegration at the systemic level. Polanyi, in concert with
Lockwood/Archer, underscores the ontological importance of systemic malintegration has not only an
important feature in his model, but the predominate practical result of modernity. Polanyi argues
adamantly, malintegration is the root cause of modern political tensions, warfare, forms of imperialism
(which could argued to include chronologically, imperialism, colonialism, neo-colonialism, and
globalization), unemployment, poverty, social class conflicts, international and national financial crises,
and environmental and atmospheric destruction; among other forms of dehumanization.
37
------- Pre-existing structures
T
1
or prior interactions
Previous (Structural conditioning)
Cycles T
0

Transaction Modes Patterns of Integration
Reciprocity Symmetry
Redistribution Centricity
Autarchy Householding
-------------- -------------------
Transaction/Barter Local/External Markets

T
2
Production T
3

(Social Interaction)



Transaction Modes Patterns of Integration
Reciprocity Symmetry
Redistribution Centricity Subsequent
Autarchy Householding Cycles T
5

-------------- -------------------
Transaction/Barter Local/External Markets
-----
Reproduction/Morphostasis
(Transformation/Morphogenesis) T
4

(Social elaboration)

Figure 3
The pre-modern social system
The basic morphogenetic/static cycle with its three phases
Including Polanyis social mediations
In figure 3 internal or national markets are more or less absence. The trade and market
activity that predominates is either local or external. When it is local the transaction
modes of reciprocity, redistribution, and autarchy are hegemonic, and barter for gain is
both unusual and crass. As such the patterns of system integration are symmetry,
centricity, and householding. Between T
1
T
2
phases, agents draw from their
knowledge and experience of previous transactions, which informs their activity in their
social interaction or during the T
2
T
3
phase. Of course social conflict is potential, or
even likely, during T
2
T
3
phase. However, when the transaction modes are not
38
transgressed and patterns of integration are stalwart then stable reproduction or
morphostasis cycle is likely.
Key to Polanyi is that in pre-modern social systems, barter for gain is a shadow
activity. It was restrained by only being allowed in designated areas, such a port towns,
and other external markets. In figure 3, the dashed line separating Transaction/Barter
and Local/External Markets from respectively the other transaction modes and patterns
of integration are intended to demonstrate barter for gain as a shadow activity.
With the geo-historical emergence of the market system barter for gain, or
pecuniary barter comes to overshadow the others transaction modes. We say
overshadowed because no society, according to Polanyi, can exist without the transaction
modes of reciprocity, redistribution and householding. The only question is the relative
strength. The institutional pattern of integration in a market society is the market itself,
and the price changes as the adjustment mechanism.
Polanyi argues that because land, labor, and money are fictitious commodities
price changes are incapable of adjusting the system toward integration. Market self-
regulation is a utopia or ideal that has never, and can never, be realized. Hence, some
form of protection and management of fictitious commodities will always be performed.
However, according to Polanyi, it is not simply that the patterns of integration are
replaced by the markets/price mechanism, but also the transactions modes of reciprocity,
redistribution, and householding are damaged by the pecuniary exchange activity. This is
important because the three transaction modes are essential for every society. Hence,
during the T
2
T
3
phase the damage caused by pecuniary activity must be mended.
39
Figure 4 illustrates the market societies of modernity and high-modernity. The
other three transactions modes are overshadowed by pecuniary barter and the real
patterns of social integration are both overshadowed and hidden by the ideal of the self-
regulating market. Self-regulating markets are a fiction, an ideology overshadowing and
hiding an important institutional reality: market activity requires intervention and repair.
------- Pre-existing structures
T
1
or prior interactions
Previous (Structural conditioning)
Cycles T
0

Transaction Modes Institutional Patterns of Malintegration
Pecuniary Barter Self-Regulating Market Ideal Public/Social Intervention
----------------- -----------------------------------------------------------
Reciprocity Protection of Fictitious Commodities
Redistribution (a) Money Management (Central Bank)
Householding (b) Environmental Laws
(i) Regulation of Externalities
(ii) Production of Public Goods
(c) Labor Laws

T
2
Production T
3

(Social Interaction) Subsequent
Institutional Cycles T
5

Transaction Modes Patterns of Malintegration
Pecuniary Barter Market PracticePublic Intervention
------------------ --------------------------------------
Reciprocity Restoration of Reciprocity
Redistribution Mass Redistribution
Householding Remediation of Social-efficacy
-----
Reproduction/Morphostasis
(Transformation/Morphogenesis) T
4

(Social elaboration)

Figure 4
The (high-)modernity social market system
The intervention required concerns addressing the inadequacy of the price mechanism for
regulating land, labor and money. The mending and repair concerns the damage suffered
to the behavioral patterns of reciprocity, redistribution, and householding. Reciprocity
must be restored, redistribution must be carried out on a massive scale, and there must be
40
remediation for a sense of social-efficacy. Figure five attempts to summarize the
common forms of restoration of reciprocity, mass redistribution, and remediation of
social-efficacy.

Institutional Patterns of Malintegration
Market PracticePublic Intervention
--------------------------------------
Legislation
Restitution
Restoration of Reciprocity Retribution
Regulation

Entitlement Programs
Social Insurance Program
Mass Redistribution Fiscal Discretionary Policy
Price Regulation and Legislation

Skill Development Program
Vicarious Experiences
Remediation of Social-efficacy Social Persuasion
Coping Capabilities

Figure 5
(High-)Modernity Social Market System
Institutional Patterns of Integration
Morphogenesis Cycle from T
3
T
4

Conclusion
Karl Polanyis social theory and analysis has much to offer contemporary social
theorists. Many contemporary theorists are returning to Karl Polanyi for insights and
inspiration for understanding the current global crises. In this paper I have demonstrated
that Polanyi anticipates remarkably close the ideal of Roy Bhaskars sketch of social
science as an effort of explanatory critique. In his The Great Transformation Polanyi
constructs a sequence of Achilles Heel critiques which demonstrate the weaknesses of
mainstream neo-classical economic for explaining and understanding historical and
anthropological phenomena. These sequential critiques culminate in Polanyis main
Achilles Heel critique which demonstrates that capitalisms greatest strength, i.e.,
41
economic development and technological improvement, simultaneously destroys human
habitation and diminishes the quality of human life. Hence, capitalisms greatest strength
is shown to actually be grounds for its greatest weaknesses.
From here Polanyi was shown to engage in the development of a rigorous
immanent critique. Polanyi identifies a series of theory/practice inconsistencies
stemming from the theory of economic liberalism, and the ideal of self-regulating
markets. Constituting his metacritique
1
, Polanyi develops numerous new concepts and
theory to isolate and identify the omissions and blind-spots of conventional wisdom; and
demonstrates the tendency of reification manifest from the deficiencies of economic
liberalism as a theory. Polanyi metacritique
1
is based upon a new bold social ontology
constructed from his second-hand analyses and interpretations of social history,
anthropology and philosophy. Polanyis bold social ontology provides him the ability to
explain the reproduction of an improvised theory, constituting his metacritique
2
. The
latter section of The Great Transformation Polanyi engages in a series of demonstrations
of the biases and categorial errors committed by mainstream economic analysis,
constituting Polanyis ideological critiques.
It was further argued that Polanyi anticipated the morphogenetic cycle of
Margaret Archer. It was argued that there is great consistency between the aims of
Polanyis social theory and Archers M/M approach. Polanyi clearly distinguishes
between social integration and system integration. Important to Archers version,
Polanyi was shown to persistently maintain a commitment to malintegration as an
essential feature of a disembedded economy. Polanyi also offers insights in the
historical details of malintegration, and the necessary institutional forms to mend the
42
malintegration of market systems of modernity. An alliance between Polanyis social
theory and Archers M/M approach has great potential and promise for developing new
insights and inspirations for contemporary social scientists
29
.
The Bhaskarian driven interpretation allows us to make comment on the
relationship between Polanyi and Karl Marx. On the surface Polanyis more reformist
language, and Marxs revolutionary language suggests Marxs theory to be more radical
and greater challenge to economic liberalism. However, unfolding the details of
Polanyis metacritique
2
may evoke the opposite judgment. Marx has an over-emphasis
on immanent critique; this is not surprising in that the subtitle of Capital is a critique of
political economy. Polanyi develops a more explicit metacritique
2
that I will suggest is

29
The Archerian driven interpretation of Polanyi may be especially useful for developing Polanyian social
theory toward a contemporary analysis of the New Economy. It would pivot upon developing the
relationships of the new institutional forms and then attempting to understanding the degree of system
integration or malintegration that occurs. According to Archers M/M approach, there can exist social
conflict without systemic crisis. According to Polanyi and Archer social conflict and contradictions in
social being (See chapter 1 of Polnayi (2001), and Archer (2000:276ff) on The scenario of high-
modernity.) are characteristic of capitalistic social relations. In modern society, Polanyi identified four
key institutional forms, each leading to specific stresses, or contradictions. These four social forms and
corresponding stresses/contradictions are summarized below:

Self-Regulating Market Unemployment, Poverty, Boom/Bust Sequence
Gold Standard Exchange Rate Problems, Financial Crisis
Liberal State Class Conflict
Balance of Powers Imperialist Rivalries

Polanyi argues that each of these institutions were under specific stresses, and relatively morphogenetic (as
opposed to morphostatic). It was the contradictions of the gold standard which ultimately accounted for the
great transformation.
In high modernity the institutions and stresses have changed and can be summarized as:

Semi-Regulated Market Managed employment and Inflation, Entitlement Programs, Managed Growth,
U.S. Dollar Financial Crisis (impotent management by IMF and World Bank; potent management by
U.S. Federal Reserve but highly biased toward nationalistic purposes)
Non-liberal State Segmented Workers; Segmented Class Conflict
U.S. Hegemony Non-traditional resistance, e.g. terrorism, opting out of international system (e.g. Iran, Cuba, etc.)

In high modernity the most noxious contradiction is U.S. international hegemony, which disrupts the
functioning of the other symbiotic related institutional forms (the stresses have been summarized above in
the first two pages of this paper).
43
44
potentially a greater challenge the conventional wisdom of economic liberalism and neo-
classical economic theory.