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Hüseyin Özel

A dissertation submitted to the faculty of

The University of Utah

in partial fulfillment of the requirements for the degree of

Doctor of Philosophy

Department of Economics

University of Utah

August 1997

Copyright © Hüseyin Özel 1997

All Rights Reserved


To Ruşen




This dissertation examines Karl Polanyi’s social theory, which underlies his critique of

the market economy, and argues that this theory is founded on an understanding of a

human being as the unity of individuality and sociality and as a “moral” being

characterized by freedom. However, the market system, which is organized on the basis

of the three “fictitious commodities,” namely labor, land, and money,

generates a










dehumanization results from the “commodification” of life itself and signifies the

separation of human beings from their natural surroundings, from each other and even

from their own capacities and powers. The emphasis on this process, it is argued, is the

uniting element of Polanyi’s thought with that of Marx. Since the result of such a process

is the disintegration of the society, it is natural for human beings to protect the social

fabric against the market, as emphasized in Polanyi’s notion of the “double movement,”

which is formed by the extension of the market and society’s “self-protection” and which

gives the capitalist society its unstable character. However, it is argued that the success of









resistance to the “market mentality” dominating every aspects of life in a capitalist

society, which in turn requires the emphasis on the “species” character of human beings,















EF: “The Essence of Fascism,” in Christianity and The Social Revolution, J. Lewis, K. Polanyi, D.K. Kitchin (eds.), London: Victor Gollancz Ltd., 1935.

GT: The Great Transformation: The Political and Economic Origins of Our Time, New York: Rinehart & Co., 1944.

OMM: “Our Obsolete Market Mentality: Civilization Must Find a New Thought Pattern,” Commentary, vol. III, January-June, 1947, pp. 109-117.

BED: “On Belief in Economic Determinism,” The Sociological Review, 1947, pp. 96-


TMEE: Trade and Markets in the Early Empires: Economies in History and Theory, Polanyi, Karl, Condrad M. Arensberg and Harry W. Pearson (eds.) New York:

The Free Press, 1957.

LM: The Livelihood of Man, ed. by Harry W. Pearson, New York; Academic Press, 1977.



First and foremost, I would like to express my indebtedness to E. K. Hunt for his

continuous encouragement and the most valuable guidance, to such an extent that I owe

him even the main thrust of the argument of the dissertation. Without his help, this

dissertation could have never been written. I also wish to thank to Allen Sievers who has

always been very kind to make valuable comments and constructive criticisms, even

when he does not agree with the views defended here. I am also grateful to William

Whisner for his understanding and useful comments. Also, my gratitude goes to Korkut

Ertürk for his idea of keeping a “dissertation log” and for the continuous and extremely

helpful discussions we had throughout the writing of this dissertation, which helped me a

lot to clarify the argument. In this respect I must also express my appreciation to Mümtaz

Keklik who was present in all of these discussions and who made useful comments and

suggestions. Without their help, the writing of this dissertation would not be as

pleasurable as it has been. Needless to say, none of them should be held responsible for

the errors and shortcomings of this dissertation.

Finally, I would like to express my appreciation to Holt, Rinehart and Winston,

the copyright owner of Karl Polanyi’s The Great Transformation (New York: 1944), for

granting me permission for reprinting excerpts from the book.


















1.1. Introduction


1.2. Capitalism and the Fictitious Commodities


1.2.1. Fictitious Commodities


1.2.2. Institutionalization of the System


1.2.3. Dehumanization


1.3. The Economistic Fallacy and the Substantivist Account


1.3.1. Two Definitions of Economic

24 The Formal Definition

25 The Substantive Definition


1.3.2. Particular or General?


1.4. The Human Condition in Polanyi


1.4.1. Voluntarism vs. Functionalism?


1.4.2. Individualism vs. Holism?


1.4.3. Human Being as a Moral Being





2.1. Introduction


2.2. Are Polanyi and Marx Incompatible?


2.2.1. Two Opponents?


2.2.2. The “Civil Society”


2.3. Marx's Conception of Human Nature and Historical Materialism





Historical Materialism



Alienation and Fetishism: Violation of Essential Human Powers



2.4.1. From Alienation to Reification

83 Alienation

83 Fetishism and Reification



2.4.2. Reification and Social Disintegration

92 Commodity Fictions and Fetishism

92 Social “Breakdown”




3.1. Introduction



3.2. The Double Movement and the Fascist Period



3.2.1. The Double Movement and the Impairment of the System


3.2.2. The “Solution”: Fascism


3.3. The Societal Perspective: Meaning of the Double Movement



3.3.1. The Institutional Separation of the Economic from the Political


3.3.2. “Discovery of Society”


3.4. Epilogue: “Freedom in a Complex Society”















“Polanyi’s chief contribution is a concept, a concept of what a knowledge of

society can be,” writes Allen Sievers, as the basic evaluation of his critique of Karl

Polanyi’s “new economics,” in the concluding section of his Has Market Capitalism

Collapsed? (Sievers 1949: 367) This dissertation is an attempt at understanding and

elaborating this concept: I will be dealing with Polanyi’s social theory in the following

pages. It is the basic contention of this dissertation that in order to understand this

concept, one should go back to Marx, for there is a considerable overlap between Polanyi

and Marx in their respective understandings not only of capitalism, or the market system,

but also, at a more fundamental level, of the notion of human nature, for their critiques of

this system are founded on such a notion. In particular, it will be argued that Polanyi's

notion of “fictitious commodities,” which is essential in the emergence of the

“disembedded” economy, comes very close to Marx's notion of commodity fetishism. It

is this aspect of capitalism that converts human beings into mere “things” that both

Polanyi and Marx criticize. In both, it is crucial to understand that capitalism violates our

very humanity by converting interpersonal relations into relations between “things.” Both

think that what we have to do to reclaim our own humanity is to reassert the “reality of

society” rather than to deny it. This assertion, however, requires an emphasis on the

“noneconomic nature of man.” This is the critical position that underlies both Marx's

“historical materialism” and Polanyi's “substantive definition” of the term “economic”

and upon which a conception of a humanistic socialism is built by both thinkers.

In both Marx and Polanyi, the main focus of analysis is capitalism. Capitalism is


a “violation” of essential powers of human beings, or human nature in general; that is,

both of these thinkers thought that man's “essence” is contradicted by his “existence”

under capitalism. The reason for this is that in capitalism, the sphere of the “economic”

becomes separate and dominates individuals' lives. In other words, under capitalism, the

“totality” of man, as the unity of different aspects, has been broken down into separate

and autonomous entities, and among these entities, the economic has become dominant,

or man has become a homo oeconomicus, or a “rational” economic man. As opposed to

this, both emphasized the fact that man is essentially a “social animal”; therefore both of

these thinkers represent the “societal” approach, to use Polanyi's expression. However,

although this is the essential concern in both Marx and Polanyi, that is, both of them

insisted on the totality of human “livelihood,” again to use one of Polanyi's favorite

expressions, the two differed in some points of emphasis and terminology. Nevertheless,

using Marx's and Polanyi's own writings, I will argue that, with respect to the critique of

capitalism, these differences are of minor significance and that substantially they share

the same basic conception about human beings, society, and capitalism. Furthermore, it is

my contention that it is possible to grasp the working of capitalism and its destructive

effects on our lives adequately by using the insights provided by both Polanyi and Marx.

Such a possibility, I believe, justifies the attempt to establish links between these two

accounts. Therefore, with the belief that these two accounts are complementary rather

than rival ones, I will first outline similar aspects of Polanyi and Marx in their analyses

of capitalism, namely, commodity fictions and fetishism, and then try to incorporate


these ideas into a general sketch of reproduction of social structures and discuss

contradictions arising in this reproduction in view of Polanyi's concept of the “double


In the first chapter, I summarize Polanyi’s analysis of the market system and its

destructive effects on the society and argue that the creation of the commodity fictions

and its result, the separation of the economic sphere from the political, together

characterize a “dehumanization” process: it is the existence of these very fictions which

ultimately leads to the separation of human beings even from the very attributes that

characterize their own humanity, namely, from both sociality and individuality. The

reason for this is that these fictions create the conditions within which human beings are

guided by the two “economic” motives, namely, the fear of hunger and the hope of gain,

and hence lead to the breakdown of the social fabric by causing it to become subordinate

to the market. Since this argument requires an understanding of human nature, for it is

the very basis of the analysis, a discussion of Polanyi’s notion of the “substantive

economics” is also provided. It is this notion, so I will argue, which informs Polanyi’s

critique of the market system by emphasizing the general aspects of the human condition,

namely, the “noneconomic nature of man” and man as the “social animal.” In this regard,

I will argue that this conception of the human condition can only be understood if we

consider the importance of the moral aspects of human existence: since according to

Polanyi man is a moral being, the most destructive effect of the market on human society

is far from being economic. It is moral because the market deprives us of our very


freedom by forcing us to be “individuals in the market,” or the homo oeconomicus.

Yet, I will argue in the second chapter that this moral aspect of human existence

and the importance of freedom can be understood better if one considers Marx’s analysis

of capitalism and his conception of human nature. In this regard, after arguing against the

allegation that Marx and Polanyi are incompatible, I outline Marx’s understanding of

human nature and its importance, by focusing on the process of praxis which refers to the

conscious activity of human beings in a social setting and thus presupposes the two

attributes of the human essence, namely, individuality and sociality. I then consider

Marx’s critique of capitalism which rests on this human conception and argue that

Marx’s analysis of alienation and commodity fetishism is a key to understand the

capitalist society, for it is this analysis which reveals the “dehumanizing” character of

this society. I also argue that this framework informs Polanyi’s own understanding of the

commodification process and its dissolving effects on the society through the creation of

reifications. In this regard, it can be asserted that Polanyi’s account of the “social

breakdown,” the result of the commodification process, should be seen as an elaboration

of Marx’s analysis of commodity fetishism.

In the last chapter, from the standpoint of fetishism and reification I consider

Polanyi's notion of the “double movement,” which refers to two conflicting tendencies in

the reproduction of the capitalist society. On the one hand, the market continuously

extends its sphere to include other aspects of human societies, so that the “rest” of the

society becomes subordinate to the market. However, on the other hand, against this


movement is the self-protection of society which takes the form of the reaction of those

groups which are hurt by the extension of the market. In other words, the conflict is

between the reificatory aspect of capitalism which converts human beings and their

relations into mere “things” and the resistance of human beings by reclaiming their

humanity, i.e., sociality: while the social bond is being disintegrated by the market,

through creation of “reified” individuals, human beings still try to retain their humanity

against these dehumanizing effects of the capitalist reality by stressing those bonds. Here,

apart from the contradiction introduced by the reification of social relations, which

results in the dissolution of social institutions, another contradiction arises from the fact

that human beings try to reclaim their humanity against the system. The struggle between

these two movements can be so threatening to the system that in order for capitalism to

function and reproduce itself the demands for humanity and individual freedom may have

to be suppressed violently, as the example of fascism has shown; even if this process

does not inevitably result in fascism, The contradictions in the reproduction process

remain and assert themselves as long as capitalism survives.

Therefore, in the last chapter, I first give a brief history of the double movement

and discuss how it had led to the fascist period, as presented by Polanyi, and emphasize

the “societal” character of the framework that he uses to show it: even though the main

form of agency that carried out this movement has been the social class and the state,

conceived as an “arena” of the struggle between different classes within the society, the

double movement should not be reduced to a simple form of class struggle. In this


respect, I argue that what the double movement shows is the contradictory character of

the capitalist society: Although every social institution, including the state as an active

participant of the double movement, is an “expression” of the human essence, it also

carries the conditions of the very process of reification. In other words, the very same

social institutions or associations can function to facilitate and disrupt the working of the

market at the same time. Then, from the moral point of view, since it is not easy to

distinguish between human expression and reification, the imperative becomes one of

consciously safeguarding our freedom against the market and the thought pattern that it

dictates, the “market mentality.” This, on the other hand, can only be possible by

accepting the “reality of society” without denying the importance of the individual. Only

by doing so can we take the first step to solve the problem of maintaining “freedom in a

complex society,” as Polanyi himself argued.





1.1. Introduction

The Great Transformation, Karl Polanyi's magnum opus, 1 is primarily a critique

of capitalism, or what he calls the “market economy.” This critique rests on the thesis

that it is impossible to form an economic system according to the prescriptions given by

the utilitarian outlook concerning human societies, an outlook which is based upon the

“invisible hand” paradigm and its basic ingredient, the principle of laissez-faire. He

claims that “the nineteenth century attempted to establish a self-regulating economic

system on the motive of individual gain. We maintain that such a venture was in the very

nature of things impossible” (GT, 269). This self-regulating market economy was

characterized by two related features: the creation of the three “commodity fictions,”

namely, labor, land, and money, which gave rise to a separate “economic” sphere for the

first time in human history, and the reflection of this institutional separation in the minds

of people, “the market mentality,” or, more accurately, economic determinism.

Nevertheless, such a system, and its result, the subordination of the society to the market,

could not survive long precisely because it violates the essential features of humanity, for

it destroys both human and natural substance of the society. Since such an institutional

structure is ultimately bound to the “annihilation” of the society, it should not be any


surprise for society as a whole to try to protect itself. This “double movement,” which

refers to the struggle between the extension of the market on the one hand and the “self-

protection” of the society on the other, would eventually bring an end to the nineteenth-

century market society in the form of fascism. For this reason, Polanyi contends that “in

order to comprehend German fascism, we must revert to Ricardian England” (GT, 30).

This chapter focuses on Polanyi’s analysis of the market system with special

reference to the “fictitious commodities,” which gave rise to the distinct economic sphere

and thus led to the subordination of the society to the market. Since this subordination

means that human beings are placed under the authority of the two “economic” motives,

the fear of hunger and the hope of gain, the result is, as I argue in the first section, a

“dehumanization” process: Within a market society, human beings are separated both

from their natural environment, for land itself comes to be treated as a commodity, and

from their own powers that characterize their agency, for labor power becomes a

commodity. However, seen from another angle, this only means that the very attributes of

human beings, namely, both individuality and sociality, are violated under this system. In

this regard, the most destructive effect of the market system on human lives is its

negation of the “noneconomic nature of man,” to use Polanyi’s expression, by forcing

human beings to act like homo oeconomicus. Yet, since a general outlook concerning the

“human condition” is needed in order to understand this destructive effect, the following

section considers Polanyi’s “substantivist” definition of the term “economic.” For what

this account demonstrates is exactly this “noneconomic nature of man”: among many


forms existed throughout human history, only the market society is an “economic

society” in its full sense. Nevertheless, although the emphasis in this account is on

anthropological data, I argue in the third section that it is based on a philosophical

conviction which emphasizes two integral aspects of the human condition: that human

beings are characterized with both individuality and sociality and that human beings are

moral beings guided by their inner freedom. The conclusion to be derived from this

argument must then be clear: far from protecting it, the market system actually negates

our freedom by converting us to “individuals in the market.” Therefore, it is first

necessary to take a closer look at the commodity fictions.

1.2. Capitalism and the Fictitious Commodities

1.2.1. Fictitious Commodities

Polanyi's main thesis is that capitalism 2 is a unique and peculiar economic system

in human history; never before capitalism had the economic sphere institutionally been

separated from the rest of the society, in the specific sense that the economic system

functions according to its own laws. Considering Polanyi's distinction between embedded

and disembedded conditions of the economy in relation to society, it is easy to see the

peculiarity of this nineteenth-century society. Before capitalism, the economic sphere, or

the market, is embedded in social relations; consequently it is not possible to distinguish

between the market as a self-regulating, independent institution and other social

relations. In these societies, the elements of the economy, or economic transactions, are

always subject to essentially noneconomic considerations such as social status and


political or religious motives. In other words, the term “economic life” has no obvious

meaning in these societies (TMEE, 70). On the other hand, the disembedded, “market

economy,” is characterized by an independent economic sphere in society. This

disembedded economy of the nineteenth century

stood apart from the rest of the society, more especially from the political and governmental system. In a market economy the production and distribution of material goods in principle carried on through a self- regulating system of price-making markets. It is governed by laws of its own, the so-called laws of supply and demand, and motivated by fear of hunger and hope of gain. Not blood-tie, legal compulsion, religious obligation, fealty or magic creates the sociological situations which make individuals partake in economic life but specifically economic institutions such as private enterprise and the wage system (TMEE, 68).

Thus, in a market economy the central institution is “the market,” which actually

denotes a self-regulating system of individual markets, each of which is connected to the

other and sets its own price without any outside intervention. Hence, the whole of

economic life is to be governed by the market prices in such an economy (GT, 43). This,

however, is only another way to say that there are two distinct spheres in this economy:

“A self-regulating market demands nothing less than the institutional separation of

society into an economic and political sphere. Such a dichotomy is, in effect, merely the

restatement, from the point of view of society as a whole, of the existence of a self-

regulating market” (GT, 71).

Nevertheless, the institutional separation of the economic sphere is actually a

result, rather than the essential characteristic of capitalism: what gave rise to this distinct

sphere was, according to Polanyi, the creation of the fictitious commodities, that is, labor,


land and money, all of which must be subjected to sale in the market for the market

economy to function, even though they are not produced in the same sense as the

production of the other, genuine commodities. The creation of the commodity fictions, in

turn, was made necessary by the requirements of the machine production. According to


since elaborate machines are expensive, they do not pay unless large amounts of goods are produced. They can be worked without a loss only if the vent of the goods is reasonably assured and if production need not be interrupted for want of the primary goods necessary to feed the machines. For the merchant this means that all factors involved must be on sale, that is, they must be available in the needed quantities to anybody who is prepared to pay for them. Unless this condition is fulfilled, production with the help of specialized machines is too risky to be undertaken both from the point of view of the merchant who stakes his money and of the community as a whole which comes to depend upon continuous production for incomes, employment and provisions (GT, 41).

It should be emphasized that not what the merchant sells but what he buys, raw

material and labor, has important consequences for the society, because what the term

“raw materials” indicates is nothing but nature itself, whereas what one calls labor is the

whole of human life activity. In other words, in order for the market economy to function

without any intervention, both human beings and nature must be treated as commodities.

This also means that, for the sake of continuous production with complex machines, all

the transactions concerning production must be money transactions, which require the

introduction of a medium of exchange into every stage of production (GT, 41, 74-75).

The result is, therefore, the three fictitious commodities:

labor, land, and money are essential elements of industry; they also must be organized in markets; in fact, these markets form an absolutely vital


part of the economic system. But labor, land, and money are obviously not commodities; the postulate that anything that is bought and sold must have been produced for sale is emphatically untrue in regard to them. In other words, according to the empirical definition of a commodity they are not commodities. Labor is only another name for a human activity which goes with the life itself, which in its turn is not produced for sale, but for entirely different reasons, nor can that activity be detached from the rest of life, be stored or mobilized; land is only another name for nature, which is not produced by man; actual money, finally is merely a token of purchasing power which, as a rule, is not produced at all, but comes into being through the mechanism of banking or state finance. None of them is produced for sale. The commodity description of labor, land and money, is entirely fictitious.

Nevertheless, it is with the help of this fiction that the actual markets for labor, land and money are organized; they are being actually bought and

The commodity fiction, therefore, supplies a vital

sold on the market

organizing principle in regard to the whole of society affecting almost all its institutions in the most varied way, namely, the principle according to which no arrangement or behavior should be allowed to exist that might prevent the actual functioning of the market mechanism on the lines of commodity fiction (GT, 72-73).

This only means that the whole society has become subordinate to the market, for

the very livelihood of a person has become dependent upon the market. Under such a

system human beings for their own existence need to buy commodities on the market

with the incomes they earn by selling other commodities they could offer for sale,

including their own labor power and natural environment, land (BED, 97). In other

words, the desire of gain and the fear of hunger are the universal motives in a market

economy. That is to say, Polanyi argues, since no human community can exist without a

functioning productive apparatus, and in the market economy this productive apparatus is

determined by the market, the embodiment of the economic sphere in a distinct and

separate one has the effect of making the “rest” of society dependent upon that sphere


(OMM, 111). This market society, the society which is “embedded” in or becomes

subordinate to the market economy (LM, 9), 3 was an economic society in the full sense of

the term:

The sides of a triangle do not rightly speaking “influence” the angles, they determine them. The working of a capitalistic society was not merely “influenced” by the market mechanism, it was determined by it. The social classes were now identical with “supply” and “demand” on the market for labor, land, capital, and so on. Moreover, since no human community can exist without a functioning productive apparatus, all institutions in society must conform to the requirements of that apparatus. Marriage and the rearing of children, the organization of science and education, of religion and arts, the choice of profession, the forms of habitation, the shape of settlements down even to the aesthetics of every- day life, must be moulded according to the needs of the system. Here was “economic society”! Here it could be truly said that society was determined by economics. Most significant of all, our views of man and society were violently adjusted to this most artificial of all social settings. Within an almost incredibly short time fantastic views of the human condition became current and gained the status of axioms (BED, 100).

Then, it is no wonder that “the delusion of economic determinism” (OMM, 114)

had to dominate our minds within the market society, which is nothing but “an accessory

of the economic system” (GT, 75). The result of this institutional setting is the dichotomy

between the “material” and the “ideal.” In this society all “economic” behavior is

conducted on the basis of only two motives, the fear of starvation and the hope of profit,

and all other motives, which are usually considered to be the typical motives affecting

everyday lives of human beings, such as honor, pride, solidarity, moral duties and

obligations, are regarded as irrelevant to the everyday activities and forced to gain a rare

and esoteric nature, summed up by the word “ideal,” since they cannot be relied on in the

production process (BED, 100-101). From this time onwards, argues Polanyi,


man was believed to consist of two components, one more akin to hunger and gain, the other to honor and power. the one was “material,” the other “ideal”; the one “economic,” the other “non-economic”; the one “rational,” the other “non-rational.” The Utilitarians went so far as to identify the two sets of terms, thus endowing the “economic” side of man's character with the aura of rationality. He who would have refused to imagine that he was acting for gain alone was thus considered not only immoral, but also mad (OMM, 114).

Yet, it is important to realize that this “dualistic fallacy” (BED, 102) is not simply

an illusion; it is nothing but the reflection of the existence of a separate and distinct

economic system founded on hunger and profit motives. That is to say, this fallacy was a

direct consequence of the fact that “under market economy human society itself was

organised on dualistic lines, everyday life being handed over to the material, with

Sundays reserved for the ideal” (BED, 101). In short, though it is quite arbitrary, this

distinction nevertheless has been institutionalized (OMM, 115) in the market society. 4

1.2.2. Institutionalization of the System

Although the market was the central institution, three other institutions were also

important in this market society. Of these four institutions, two of them were economic in

nature, whereas the other two were political, a manifestation of the separation between

economic and political spheres. The economic

institutions were the self-regulating

market and the gold standard. The two political institutions, on the other hand, were the

liberal state and the balance of power system. As can be seen, these institutions can also

be classified according to another distinction: national (liberal state and the market) and

international (balance of power and the gold standard) (GT, 3). The importance of this

latter distinction lies in that Polanyi treats capitalism from the very beginning as an


international system, or as a “world capitalist economy.” 5 Yet what is significant in this

institutional structure is that all the three remaining institutions served for the functioning

of the self-regulating market. At the international level, the balance of power system was

maintaining the peace among the Great Powers, which was necessary if the market

system was not to be disrupted; the gold standard, through its maintaining stable

exchange rates, functioned to prevent the equilibrium from being disturbed. 6 At the

national level, on the other hand, the function of the liberal state was again to make the

working of the self-regulating market smooth. 7

The state has always been important for the market from the very beginning. In


its significance in the establishment of the market system with continuous and

conscious interventions was so prominent that the assertion that “the liberal economic

order was designed by the early English political economists and was instituted by the

power of state” (Polanyi-Lewitt 1995: 10-11) is not an excessive one. With respect to the

“institutionalization” of the market economy, three acts were of utmost importance: the

Poor Law Reform Act of 1834, in establishing the labor market for the first time; the

Bank Act of 1844, in establishing the principle of gold standard; and the repeal of the

Corn Laws in 1846, in establishing the principle of “free trade.” These acts correspond to

the “three tenets” of economic liberalism upon which the market economy was

established (OMM, 113). Yet it should not be forgotten that these three tenets formed one

whole; the achievement of one of them was useless unless the other two were secured



Thus, the Anti-Corn Law Bill of 1846 was the corollary of Peel's Bank Act of 1844, and both assumed a laboring class, which, since the Poor Law Amendment Act of 1834, was forced to give their best under the threat of hunger, so that wages were regulated by the price of grain (GT,


In other words, the institutionalization of capitalism was completed with these

three acts, the most important of which is, of course, the establishment of the labor

market. Such a proposition suggests that capitalism arrived too suddenly (Sievers 1949:

319). 8 As a matter of fact, Polanyi himself emphasizes the abruptness of the change: “the

suddenness with which the transformation occurred

is not a matter of degree but of

kind. A chain-reaction was induced, and the harmless institution of the market flashed

into a sociological explosion” (BED, 100). Nevertheless, Polanyi does not deny that

capitalism needed a long time to develop: “Market economy did not start in a day, nor

did three markets run a pace like a troika, nor did protectionism have parallel effects in

all markets, and so on. This, of course is true; only, it misses the point at issue” (GT, 215-

16). For him, economic liberalism created a novel system by integrating more or less

developed markets. In addition, by 1834, the separation of the land and labor was well on

the way, as were money and credit markets.

For example, both land and money were mobilized long before labor. The

commodification of land had taken place in three steps: the first step was the

commercialization of the soil, which started with the secularization of the church lands

and mobilizing the feudal revenue from the land; the second was the subordination of the

land for the needs of the urban population, that is, the forcing up the food production to


meet industry's demands; and finally, the extension of such a system overseas and to

colonies, the last step to fit land for the self-regulating world market (GT, 179-80). On

the other hand, mobilization of money is a process of the integration of commodity

money, a commodity (usually gold and silver) which functions as money, with the token

money, which had emerged because of the scarcity of commodity money, for such a

system is quite compatible with industrial production under the market economy. This

fact was the reason for the establishment of the gold standard (GT, 193). Yet, from the

standpoint of the functions of money, the process within which money was commodified

must be seen as the generalization of money as a medium of exchange. In a market

economy, it is the function of money being a medium of exchange that is essential, and it

is this function of money that integrates all other functions (means of payment, unit of

account, and store of wealth). In other words, money in a market economy is an “all-

purpose” money, whose essential function is its being a medium of exchange (LM, 98-


All of these developments, commodification of land, money and labor, had taken

place in a relatively long period of time. 9 What was so drastic was the integration of these

more or less developed markets into one market economy. In other words, it is the

institutional structure of the society which was so abruptly transformed, with the

establishment of a self-regulating labor market, for the establishment of a labor market

was the manifestation of the fact that the entire economy is now organized around the

motives of profit and the fear of hunger. In Polanyi's own words,


institutional change, such is its nature, started to operate abruptly. The critical stage was reached with the establishment of a labor market in England, in which workers were put under the threat of starvation if they failed to comply with the rules of wage-labor. As soon as this drastic step was taken, the mechanism of the self-regulating market sprang into gear. Its impact on society was so violent that, almost instantly, and without any prior change in opinion, powerful protective reactions set in (GT,


According to him, although markets exist in all kinds of societies, and the

merchant who is guided by the motive of gain is quite familiar, isolated markets do not

link up into an economy, and the motive of gain does not become a universal one (OMM,

113). Only with the crucial steps taken, the process is completed and culminates with a

new, formerly nonexistent institutional structure:

Besides continuous growth from small beginnings, there is also a very different pattern, that of discontinuous development from previously unconnected elements. The “field,” in which such sudden change as the emergence of a new, complex whole occurs, is the social group under definite conditions. These discontinuities broadly determine both what ideas and concepts gain currency with the members of a group and at what rate. But once disseminated, these ideas and concepts permit change at an enormously accelerated rate, since the patterns of individual behavior can now simply fall into line with the new general pattern preformed by those ideas and concepts. Formerly unconnected elements of behavior thus link directly up in a new, complex whole, without any transition (LM, liii-liv).

This process, once on its way, would eventually lead to the destruction of the

social fabric, for it made the entire human existence subordinate to the demands of this

“gargantuan automaton” (GT, 217), the market system. However, although the creation

of the labor market was to prove detrimental to human society, resistance to the

establishment of it had been even more harmful. Such an attempt, as revealed in the


Speenhamland period between 1795 and 1834, to create a “capitalism without a labor

market” (GT, 124), a contradiction in terms, led to an immediate catastrophe. The

Speenhamland Law of 1795, an unconscious resistance of the eighteenth-century society

to becoming a mere appendage of the market, was an informal paternalistic measure

guaranteeing a minimum income to the poor irrespective of their earnings (GT, 77-78).

The result of this attempt, however, would be the opposite of what had been intended;

although it was designed to prevent the “proletarianization of the common people, or at

least slow it down,” the result was the “pauperization of the masses, who almost lost their

human shape in the process” (GT, 82). The reason for this was that the main effect of this

allowance system was to depress wages even below the subsistence level, for under this

system a man was relieved even if he was employed as long as his income was below the

scale. In other words, it became a system to subsidize employers by public means (GT,

97). 10 According to Polanyi, the Speenhamland period characterizes the clash between

the two opposing tendencies working at the same time: one capitalistic, forcing the poor

to sell their labor, and other paternalistic, which deprives their labor of its market value

(GT, 80). Therefore, the abolishment of the Speenhamland system and establishment of

the labor market, by distinguishing the helpless poor whose place was the workhouse and

the laboring poor who offered his labor for sale, were to prove financially beneficial to

all (GT, 77). 11 Nevertheless, as Polanyi emphasizes time and again, the real danger that

the creation of this last commodity fiction posed for the society was far from being

economic; its essential danger lied in the disruption of individuals’ lives, if not in the


annihilation of the society. In other words, institutionalization of the market system

actually characterizes a “dehumanization” process.

1.2.3. Dehumanization

The most significant aspect of this abrupt overall institutional change, the

creation of the fictitious commodities, is the separation of human beings both from their

own life activities and from their natural environments within which these activities

occur. First of all, according to Polanyi, what one calls “labor” is nothing but the whole

human activity which cannot be separated from life. To put this activity under the rule of

the market, by making it subject to the fear of hunger, then, will mean no less than the

breakdown of the “totality” of life itself. As the above discussion about the separation

between the “ideal” and the “material” shows, human life activity is now broken down

into specific compartments, such as economic, political, religious, etc., and only the

“economic” motives, the fear of hunger and hope of gain, are allowed to govern

individuals' lives. In other words, the whole life activity is now “commodified.”

However, we should be careful about this commodification; what is being reduced to the

commodity status here is not really this activity, namely, labor, itself, but man's abilities

which he uses in engaging this life activity, namely, labor power. Polanyi is very clear

about this. 12 Yet, this means the separation of man not only from his own life activity, but

also, even more importantly, from his own “agency,” the power that characterizes human

beings. Such a process, in turn, would immediately lead to a drastic change in the whole

existence of man:


For the alleged commodity “labor power” cannot be shoved about, used indiscriminately, or even left unused, without affecting also the human individual who happens to be the bearer of this peculiar commodity. In disposing of a man's labor power the system would, incidentally, dispose of the physical, psychological, and moral entity “man” attached to that tag (GT, 73).

The most immediate effect of the commodification of labor, according to Polanyi,

is actually the dissolution of the society into “atoms,” each of which only behaves in

accordance to the profit motive and the fear of starvation, irrespective of the other

members of the society:

To separate labor from other activities of life and to subject it to the laws of the market was to annihilate all organic forms of existence and to replace them by a different type of organization, an atomistic an individualistic one. Such a scheme of destruction was best served by the application of the principle of freedom of contract. In practice this meant that the noncontractual organization of kinship, neighborhood, profession, and creed were to be liquidated since they claimed the allegiance of the individual and thus restrained his freedom (GT, 163).

In other words, the labor contract is the manifestation of “freedom” from the

social bonds which actually protect human beings from destruction, for it is the presence

of these bonds which makes the threat of starvation in the “primitive” societies

nonexistent. In such societies, the danger of starvation is not an individual matter,

because the community will never let one of its members die from hunger, unless the

whole community is faced with this threat (GT, 46; 163-64). In this regard, argues

Polanyi, the effect of early capitalism on the society is almost identical to the effect of

colonialism on precapitalist societies:

Thus the colonists may decide to cut the breadfruit trees down in order to


create an artificial food scarcity or may impose a hut tax on the native to force him to barter away his labor. In either case the effect is similar to that of Tudor enclosures with their wake of vagrant hordes (GT, 164).

Therefore, the first requirement to institutionalize capitalism is to destroy the old

institutions and the bonds of society, so that the threat of hunger becomes an individual

phenomenon forcing human beings to sell their labor power in the market.

This process of the disintegration of the society is also a process of the separation

of human life activity from the natural setting within which it takes place; that is to say,

within this process land also is reduced to a commodity. For Polanyi,

the economic function is but one of many vital functions of land. It invests man's life with stability; it is the site of his habitation; it is a condition of his physical safety; it is the landscape and the seasons. We might as well imagine his being born without hands and feet as carrying on his life without land. And yet to separate land from man and organize society in such a way as to satisfy the requirements of a real-estate market was a vital part of the utopian concept of a market economy (GT , 178). 13

Therefore, “an individualized treatment of the land” (GT, 179), another

requirement in the institutionalization of capitalism, basically meant the separation of

human life from its natural surrounding, including even the physical separation of “our

habitation from nature” (BED, 97).

Now, in the light of this discussion, it is possible to argue that for Polanyi, what













“dehumanization” process: under capitalism, human beings are forced to live through a

“perverse” life within which they are deprived of the very qualities that make them

human, or to use Abraham Rotstein's (1990: 100) metaphor, the market system represents


the artificial, externalized embodiment of the individual or the “blind and dark alter

ego.” 14 The institutional structure of capitalism forces human beings to live through a

separate, fragmented life; in other words, under capitalism the “totality” of human

existence breaks down.

This breakdown of the totality of human lives can be conceived analytically

within two steps, even though it is not easy to distinguish between them in practice, for

they had taken place together following the abrupt institutional change. In the first step,

reduction of labor power to a commodity leads to the breakdown both of the totality of

human life activity into “economic” and “noneconomic” spheres and of the unity

between man and his own powers which he exerts within this life activity, whereas the

commodification of land leads to the breakdown of the unity of man with nature. In the

second, the institutional separation of the economic sphere, this “disembedded

economy,” which is the result of these two commodity fictions, leads to the

transformation of the notion of the human condition. Human beings in capitalism are now

characterized as guided by two “economic” motives: the hope of profit or the fear of

hunger. All other motives, no matter how essential they are in defining what a human

being is, are reduced to the level of insignificance in everyday life, being enveloped

under the term “ideal.” That is, “man's vital unity” has been split into a “‘real’ man, bent

on material values, and his ideal better self” (OMM, 116). This is nothing but the

manifestation of the separation of economics from politics, or actually from morality or


To put it another way, this is nothing but the violation of the very sociality of

human beings. The market mechanism transformed the very substance of human

economy, by transforming “man's ultimate dependence on nature and his fellows for the

means of his survival” for it put this dependence under the rule of the market (LM, 8), or

under the rule of the promise of profit and threat of starvation, which atomizes the

individual. In other words, the disembedded market economy makes the rule of the

“changelessness of man as a social being” (GT, 46) obsolete for it inevitably leads to the

dissolution of the society by forcing man to behave like a homo oeconomicus. However,

in order to understand this I will turn my attention to Polanyi's distinction between the

“substantive” and the “formal” definitions of the term “economic.”

1.3. The Economistic Fallacy and the Substantivist Account

1.3.1. Two Definitions of Economic

As has been seen, once the fictitious commodities were created, the desire of gain

and the fear of hunger have automatically become the universal motives, and, as a

consequence of this, economic determinism has begun to dominate our minds. The most

significant sign of this phenomena, according to Polanyi, is the economistic fallacy, i.e.,

identification of “economic” phenomena with market phenomena (TMEE, 270 and LM,

20), or the extrapolation of the categories that are prevalent in capitalism to other

societies and/or other times.

According to Polanyi, we should distinguish between the two meaning of the












relationship, according to which human beings behave “rationally”; i.e., they use

“scarce” resources in an optimum way to achieve their ends, whereas the substantive

definition “points to the elemental fact that human beings, like all other living things,

cannot exist for any length of time without a physical environment that sustains them”

(LM, 19). According to the substantive definition, “so long as the wants depend for their

fulfillment on material objects the reference is economic. Economic here denotes nothing

else than 'bearing reference to the process of satisfying material wants'“ (LM, 20). Here

the term “material” refers to man's dependence for his “livelihood” upon nature in the

context of social relations. For Polanyi, these two definitions are radically distinct and

different from each other to such a degree that

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 those 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 (TMEE, 244). The Formal Definition

The formal meaning of economic, for Polanyi, is nothing but the reflection of the

working of the market economy, as it is conceptualized in the rational choice theory with

its postulate of atomism. That is, the conceptual framework based on the notions of

“rationality” and atomism is but a distortion of the true representation of man in the

realm of thought, just like the fact that the market economy is basically a distortion of the

real life of man in the real world:


On the face of it, the economistic Weltanschauung may have seemed to contain in its twin postulates of rationalism and atomism all that was needed to lay the foundations of a market society. The operative term was rationalism. For what else could such a society be other than an agglomeration of human atoms behaving according to the rules of a definite kind of rationality? Rational action, as such, is the relating of ends to means; economic rationality, specifically, assumes means to be scarce. But human society involves more than that. What should be the end of man, and how he should choose his means? Economic rationalism, in the strictest sense, has no answer to these questions, for they imply motivations and valuations of a moral and a practical order that go beyond the logically irresistible, but otherwise empty, exhortation to be “economical.” Thus hollowness was camouflaged by ambiguous philosophical colloquialism (LM, 12-13).

Therefore, on the philosophical level, two further meanings of rational had to be

brought in to prove that all economic behavior is “rational”:

With regard to the ends, a utilitarian value scale was postulated as rational; and with regard to the means, the testing scale for efficacy was applied by science. The first scale made rationality the antithesis of the esthetic, the ethical, or the philosophical; the second made it the antithesis of magic, superstition, or plain ignorance. In the first case, it is rational to prefer bread and butter to heroic ideals; in the second, it appears rational for a sick man to consult his doctor in preference to a crystal-ball gazer. Neither meaning of rational is relevant to the principle of rationalism, though per se one may be more valid than the other. While stark utilitarianism, with its pseudophilosophic balance of pain and pleasure, has lost its sway over the minds of the educated, the scientific value scale remains supreme within its limits. Thus utilitarianism, still the opiate of the commercialized masses, has been dethroned as an ethic, while scientific method justly holds its own (LM, 13).

According to Polanyi, this is the way in which the choice of ends and means is

claimed to lie under the supreme authority of rationality. In this regard, what rational

choice theory expresses is that reason from now on could be limited only to the scarcity

situations; hence all human behavior could be reduced to being concerned with the


relation between means and ends: a purely “economistic culture” (LM, 13).

The social philosophy erected on such foundations was as radical as it was fantastic. To atomize society and make every individual atom behave according to the principles of economic rationalism would, in a sense, place the whole of human existence, with all its depth and wealth, in the frame of reference of the market. This, of course, would not really do— individuals have personalities and society has a history. Personality thrives on experience and education; action implies passion and risk; life demands faith and belief; history is a struggle and defeat, victory and redemption. To bridge the gap, economic rationalism introduced harmony and conflicts as the modi of the individual's relations. The conflict and alliances of such self-interested atoms, which formed nations and classes, now accounted for social and universal history (LM, 14).

We should not forget the fact that achievement of such a conception of society,

which declares the triumph of economic rationalism and which leads to the eclipse of the

political thought, was in effect an outstanding feature of the market mentality. Once a

human being is reduced to an “individual in the market” (LM, 29), it was now easy to

argue that “economic” action “was ‘natural

to man and was, therefore, self-

explanatory” (LM, 14). That is, from now on, the term “economic” could safely be

identified with the market activity. This, according to Polanyi,

can be inferred from the ironic fate of that most controversial of modern mythological figures—economic man. The postulates underlying this creation of scientific lore were contested on all conceivable grounds— psychological, moral, and methodological, yet the meaning of the attribute economic was never seriously doubted. Arguments clashed on

the concept of man, not on the term economic

that economic man, that authentic representation of nineteenth-century rationalism, dwelt in a world of discourse where brute existence and the principle of maximization were mystically compounded. Our hero was attacked and defended as a symbol of an ideal-material unity which, on those grounds, would be upheld or discarded, as the case might be. At no time was the secular debate reflected to even a passing consideration of which of the two meanings of economic, the formal and the substantive,

it was taken for granted


economic man was supposed to represent (LM, 21). The Substantive Definition

On the other hand, as opposed to the formal, the substantive meaning “stems, in

brief, from man's patent dependence for his livelihood upon nature and his fellows. He

survives by virtue of an institutionalized interaction between himself and his natural

surroundings. That process is the economy” (LM, 20). In other words, the main thrust of

the substantive approach is Polanyi's proposition that “man's economy, as a rule, is













anthropological data, derived especially from the works of B. Malinowski 16 and R.

Thurnwald, Polanyi seeks to prove that the formalist approach is wrong in its claim that

the “economic” motives exist, as the main determinant of social life, throughout the

whole of human history. For him, in every form of society except for the market

economy economic transactions in the sense of provisioning material needs are

subordinate to social institutions no matter how essential they are for the survival of

human beings. In other words, the “human condition” is not primarily given by the

economic motives:

The economic factor, which underlies all social life, no more gives rise to definite incentives than the equally universal law of gravitation. Assuredly, if we do not eat, we must perish, as much as if we were crushed under the weight of a falling rock. But the pangs of hunger are not automatically translated into an incentive to produce. Production is not an individual, but a collective affair. If an individual is hungry, there is nothing definite for him to do. Made desperate, he might rob or steal, but such an action can hardly be called productive. With man, the political animal, everything is given not by natural, but by social


circumstance. What made the 19th century think of hunger and gain as “economic” was simply the organization of production under a market economy (OMM, 111).

In other words, liberal thought went wrong in the nineteenth century, if not the

twentieth century, in its failure to distinguish between historically specific and general

aspects of human existence, whose consequence is a ubiquitous economic determinism.

However, here what Polanyi argues is not that the economic factor is unimportant; on the

contrary, for him, “no society, could, naturally, live for any length of time unless it

possessed an economy of some sort.” 17 What he argues is that, although the market

institution was fairly common in human history, “previously to our time no economy has

ever existed that, even in principle, was controlled by markets” (GT, 43). For Polanyi, it

is not the existence of economic motives which “defines” human beings; in this respect,

he simply follows Aristotle in the latter’s proposition that human beings are political, i.e.,

social animals. 18

Since the term “material” in the substantive definition refers to the process of

satisfying wants, it is important to understand how these wants are satisfied. For Polanyi

satisfaction of wants can be carried on within an “instituted process.” That is, the

economy “can be briefly (if not engagingly) defined as an instituted process of

interaction between man and his environment, which results in a continuous supply of

want satisfying material means” (TMEE, 248).

On this conception, first, economy is instituted in the sense of “a sequence of

functional movements that are embedded in social relations” (Polanyi 1960: 329), and,

second, the word “process”


suggests analysis in terms of motion. The movements refer either to changes in location, or in appropriation, or both. In other words, the

material elements may alter their position either by changing place or by

changing “hands.”

be said to exhaust the possibilities comprised in the economic process as

a natural and social phenomenon.

Locational movements include production, alongside of transportations, to which the spatial shifting of objects is equally essential

The appropriative movement governs both what is usually referred to as circulation of goods and their administration. In the first case, the appropriative movement results from transactions, in the second case, from dispositions (TMEE, 248).

Between them, these two kinds of movements may

In short, we can see the “institutedness” as the integration of two elements:

“things in movement” from an “operational” point of view, and “persons in situations”

from a sociological one (Polanyi 1971: 19-20). Within this framework, the problem of

how empirical economies are instituted can be solved by considering various “forms of

integration,” or the “transaction modes” (Sievers 1991: 64), each of which is dominant in

one society at a time. These forms of integration refer to the ways in which the economy

is organized in a specific society, and as such they are relatively independent both of the

political structure and of the “ideals and cultures” prevalent in that society. They are

simply “the institutionalized movements through which the elements of the economic

process—from material resources and labor to the transportation, storage, and

distribution of goods—are connected” (LM, 35). According to Polanyi, throughout

human history there have been four forms of integration:

namely, householding, 19

reciprocity, redistribution, and exchange. Seen from the standpoint of the “movements”


that characterize these forms of integration, reciprocity refers to symmetrical movements,

though it does not necessarily imply a dual relationship, or an equal “exchange” between

parties, whereas redistribution refers to the movements from a center. As opposed to

these two forms, movements are of random character in a market economy (LM, 36-39).

Nevertheless, these forms or patterns of integration are always accompanied by the

social institutions, the “supporting structures,” within which the economy is organized, a

fact that expresses what the “embeddedness” means. In this regard, the institutional

patterns corresponding to each form above are autarchy, symmetry, centricity, and

market pattern, respectively (Sievers 1991: 64). Here the important point is that these

“supporting structures, their basic organization, and their validation spring from the

societal sphere” (LM, 37). From this “sociological” point of view, it should be

emphasized that these structures which carry the forms of integrations refer to neither

individual nor aggregative behavior. It would be a mistake, as in the case of Adam

Smith's famous “propensity to truck, barter, and exchange,” to suppose that “individual

acts and attitudes simply add up to create the institutional structures that support the

forms of integration” (LM, 37). For example, redistribution is not an individual pattern at

all; it always presupposes prior existence of a center from which the distribution is

carried on. The same is true for reciprocity and exchange. Although in all cases they also

presuppose definite kinds of personal attitudes and actions, those of mutuality and barter,

none of these forms are possible on the societal plane without the prior existence of a

structural pattern which is not the result of individual actions of mutuality or barter. In


this regard, Polanyi emphasizes that only in the existence of the supporting structures

will personal attitudes result in economic institutions of any importance (LM, 38). Here

the important fact is that mere aggregates of personal behaviors do not by themselves

produce such structures:

We merely insist that if, in any given case, the societal effects of individual behavior depend on the presence of definite institutional conditions, these conditions do not for this reason result from the personal behavior in question. Superficially, the supporting pattern may seem to result from accumulation of a corresponding kind of personal behavior, but the vital elements of organization and validation are necessarily contributed by an altogether different type of behavior (TMEE, 251-52). In other words, institutions, which support the form of integrations, refer to “the

collective actions of persons in structured situations” (LM, 37). These four forms of

integration, with the four supporting structures corresponding to them, thus constitute the

“substantivist” approach, which can be employed to analyze “all the empirical economies

of the past and present” (TMEE, 244). Such an emphasis on overall human history,

empirical character of the inquiry notwithstanding,

suggests that the substantivist

account is about the human condition, for its main focus is the general, or universal,

aspects of human existence in order to show that the market system is a violation of these

human traits. As we shall see, this is exactly the case, despite all the emphasis given to

the four “forms of integration” by the followers and the critics of Polanyi alike.

1.3.2. Particular or General?

Polanyi's formal-substantive economy distinction and especially his concept of

economistic fallacy have created much debate in anthropology, even though they have


not been considered as novel or controversial by sociologists (Humphrey 1969: 178).

This distinction has immediately started the formalist-substantivist debate in economic


From the standpoint of “formalism,” the notion of the economistic fallacy has

been criticized on the basis of rational choice theory, and it has been argued that the

principle of rationality, in the sense of optimizing behavior, can be used to explain the

whole of history, and even it can be extended to the realm of nature (Rottenberg 1958; Le

Clair 1962; Burling 1962; Cook 1966; Rutten 1990). 20 One common implication that can

be derived from all these criticisms is that Polanyi misread the entire human history,

which can safely be characterized as a collection of rational behavior, for rationality in

optimizing sense is the eternal aspect of the human condition. 21 Yet, the most interesting,

and even damaging, critique of Polanyi from the point of the rational choice theory has

been given by D. North (1977), who meets Polanyi's challenge “head on” by arguing that

Polanyi's forms of integration are, far from being incompatible with it, purely explainable

by the rational choice theory. According to North, reciprocity and redistribution “are

everywhere characteristic today as in the past in resource allocation within households,

voluntary organizations, and in government,” and thus nonmarket allocation of resources

was and still is a major aspect of economic organization (p. 709). The reason for this is

that the existence of transaction costs associated with defining property rights can give

rise to these kinds of nonmarket allocations:

An essential pre-condition for price-making markets is the existence of well-defined and enforced property rights over the goods or service to be


exchanged. Such a condition does not exist today, or in the nineteenth century, for many goods and services, and was conspicuously absent throughout most of recorded history.

The costs of defining and enforcing property rights—transaction costs— lead to non-price allocation of many goods and services today, because the costs of delineation or enforcement exceed the benefits (North 1977:


Therefore, to the extent that these transaction costs are high compared to

benefits, nonmarket allocations will be used within the organization of the economy, in a

way quite consistent with the rational choice theory. Admittedly, this is a powerful

critique of Polanyi's “substantivist” approach. However, although North himself

recognizes the importance of the state as a nonmarket allocator of resources, he is not

willing to recognize the role played by the state and the whole political and judicial

structure in capitalist societies in enforcing property rights and the contracts. I believe the

real problem here is that North's own reasoning is determined by the very separation of

the economic and political spheres in market economies. That is to say, the real problem

here is not whether or not transaction costs exist, but the fact that Polanyi's “pre-

analytical vision” 22 is not compatible with that of neoclassical economics, or with the

very market mentality, for it is basically a “societal” approach. In other words, the

importance of Polanyi's message does not lie, as many followers of Polanyi seem to

think, in his notion of the “forms of integration,” but in his critique of capitalism itself, as

a system which violates our very humanity. Before elaborating this point, however, it is

necessary to consider briefly some other criticisms directed to the substantivist approach

for these criticisms raise the question of the distinction between the historically specific

and the general aspects of human existence.


In this regard, among the criticisms concerning the adequacy of the substantivist

approach in dealing with real societies is Fernand Braudel's complaint that Polanyi's

theory “is entirely based on a distinction based (if it be said to be based at all) on a

number of heterogeneous samples” (1982: 227). In other words, it might be dangerous to

generalize the substantivist account to the entire human history. Thus, Manning Nash,

commenting on Dalton (1971a), argues that “the institutionalist analysis of Polanyi is

rather crude and ad hoc. His principles of exchange are descriptive of some societies, but

have little analytical value

The principles lead to mechanical, schematic, and static

understanding at a superficial level” (p. 87), whereas R. F. Salisbury, in the same

commentary, believes that Polanyi's classification of economies on the basis of “forms of

integration” is useful, but “only to help beginning students appreciate the different

repertoires of superficial economic forms found in different societies” (p. 89).

Along the same lines, Maurice Godelier, a Marxist anthropologist, in his

comment on Dalton (1981) argues that Polanyi never gives an explanation about why a

particular structure prevails and why “embeddedness” occur in a certain way (p. 65).

Similarly, Godelier thinks that Polanyi “never sought to find out whether the hierarchy of

causes which determine the reproduction of a social system is the same as the hierarchy

of the institutions which obviously dominate its functioning” (p. 67). According to him,

Polanyi takes these two distinct sets of causes as identical. Godelier also thinks that

“what Polanyi calls integrative mechanisms are what the Marxists call, on the one hand,


relations of production and, on the other hand, forms of circulation of the social product”

(p. 66). That is, according to Godelier, Polanyi confuses these two distinct levels. 23

As a reply to this group of criticisms, namely, that the categories of the

substantivist approach are not analytically adequate to study actual economies, it is

possible to consider Humphrey’s (1969) argument that Polanyi

wanted to proceed from a substantive definition of the economy to an empirical study of the place of the economy in society, without any theoretical presupposition about the function of the economy. It may therefore be a mistake to judge his substantive definition of the economic as an attempt at a complete and exhaustive definition (Humphrey 1969:


However, even though she is right in her assertion that the substantivist definition

is not intended as an exhaustive one and it must be enriched empirically, this definition

itself is a “theoretical presupposition” through which the empirical level is examined. In

this regard, in the “Introductory Note” to TMEE, we read:


main task of the book is conceptual: it argues that only a small

number of alternative patterns for organizing man's livelihood exist and it provides us with tools for the examination of nonmarket economies. These tools are applied in a series of empirical researches, although the underlying theory transcends them (pp. xvii-xviii, emphases mine).


Technological progress is cumulative and unbounded, but economic organization is not. There are only a few general ways in which the economy may be organized. It is this limitation of the possible patterns of economic organization and their effective combinations which gives to the thoughts and data offered here some topicality (p. xviii, emphasis mine).

In these passages, the emphasized claims are not simply empirical findings; they

are, in a sense, theoretical claims which have some independence of the empirical


analyses. 24 Here, one should not be misled by the emphasis on the empirical economies:

although substantive economics deals with different forms of human existence prevalent

throughout the history by using mainly anthropological data, it is necessary to stress that













“transhistorical,” aspects of human existence. Therefore, this discussion brings us to a











“transhistorical” and “historical” categories in Polanyi’s work. Especially in his project

in anthropology, Polanyi seems to have emphasized the particular aspect, by focusing on

the empirical economies, at the expense of the general or universal aspect of human

societies. In this connection, despite Dalton’s (1971a: 186n) claim that Polanyi was not

arguing against generalization but against the universal applicability of conventional

economics, the comment made about Dalton's paper by Carol F. Swartwart, who

distinguishes between two questions, is worth citing:

(1) Can conceptual models developed to fit modern Western Institutional arrangements be usefully, or validly, applied to primitive Non-Western cultures? (2) Can a universalistic theory be developed which can adequately deal with the variability of the phenomena cross-culturally? A negative answer to the first question does not necessarily imply a negative answer to the second question (p. 94).

However, the answer to such a question may not be given merely by using

anthropological data; what we also need is a philosophical argument, which specifies the

general human condition and the underlying social theory. 25 For Polanyi's critique of

capitalism requires, and I believe is actually based on, such a conception of the human

condition emphasizing the sociality of human beings. The analyses of the nonmarket


societies in the substantivist approach, at least in Polanyi’s own version, always

presuppose this philosophical conviction about the human condition, which is used to

validate the assertions put forward regarding those societies, as the references to Aristotle

show, even though this outlook is not elaborated much. The same is also true for the

critique of capitalism in The Great Transformation, although the emphasis here again is

given to the anthropological data in demonstrating the “noneconomic nature of man.”

Unfortunately, this point seems to have been entirely omitted in the anthropological

debate over the substantivist approach. In this debate Polanyi's message is reduced to

three forms of integration, namely, reciprocity, redistribution and exchange, without ever

mentioning his moral critique of the market system. The result of this reduction is aptly

characterized by Berthoud (1990: 171):

With such fragmentation, there are indeed two Polanyis. One is considered a theoretician of primitive and archaic societies, as in the Trade and Market in the Early Empires. The second Polanyi is a radical critic of our economic modernity, as in The Great Transformation. 26

This partition is unfounded. Nothing could be more detrimental to a

genuine comprehension of Polanyi's work, which must be understood as a whole, within the same comparative approach. More precisely, there are in Polanyi's writings three connected domains of reflection: general

theory, history, and policy

first is equated with the search for

universal and general concepts in order to compare economies within societies; the second is identified with the study of specific historical periods and societies; the third addresses the most crucial problems faced by humanity, on the basis of the first two domains of reflection.


Likewise, Polanyi's daughter, Polanyi-Lewitt, argues:

It has not been sufficiently appreciated that Polanyi's research in economic anthropology was directly motivated by the problems that he sought to address throughout his life: how to organize the economy of our modern technological society in a manner that would make production


subordinate to man's societal and cultural needs; how to “re-embed” the economy in society, to use his terminology; how to institute a social and political order in which personal responsibility of man for his fellow man, and man for his natural environment, can supersede the dictates of impersonal market forces and impersonal state technocracies (1990: 116-


Although these problems and the way Polanyi handled them will be dealt with in

the following parts of this dissertation, at this point it is possible to argue that a key to the

solutions to all of these problems can be summed up in a general problem: necessity of an

understanding of what the human essence or the human condition is, and this is exactly

what Polanyi has done in his work, seen in its entirety.

In order to understand Polanyi's whole project, it is necessary to distinguish

between historically specific and general categories prevalent in his work. The Great

Transformation is concerned with the historically specific categories, namely, with the

categories of the market economy. Nevertheless, the argument of the whole work

depends critically upon the general, transhistorical aspects of the human condition, as

Polanyi emphasized continuously. For example, in a letter to Jacob Marshak dated 1943,

Polanyi says that The Great Transformation is concerned with “a socialism focused on

the ultimate convictions about the nature of man” (quoted in Mendell 1989: 477).

Likewise, in the closing pages of this book, when he is discussing socialism he poses the

question :

is freedom an empty word, a temptation, designed to ruin man and his works, or can man reassert his freedom in the face of that knowledge [of the reality of society] and strive for its fulfillment in society without relapsing into moral illusionism?

This anxious question sums up the condition of man. The spirit and content of this study should indicate an answer (GT, 258A; emphasis



is easy to understand why it must





order to talk about the

“dehumanizing” aspect of capitalism, one should have a conception about the human

condition; otherwise Polanyi's whole critique of capitalism does not make any sense, for

if what we call human nature depends exclusively upon the social context, then it is not

very difficult to defend capitalism on the basis of human nature. For Polanyi, however,

capitalism is a “twisted” or a “perverted” existence for the humanity as a whole because






themselves and their natural environments into

commodities, a quite contrary fact to their “definitions.”

Therefore, the critique of the market society requires an understanding of the

conditions that characterize both human beings themselves and their existence, and this

is the guiding thread in Polanyi's anthropological studies. However, one important aspect

of this anthropological work seems to be overlooked in the debate over the substantivist

approach: for Polanyi, the priority had always been to understand (and to think the ways

of transcending) the market economy. For example, in the very distinction between the

formalist and substantivist definition of economic, it is not the “substantivist” definition

which determines the course of the work; on the contrary, methodologically speaking, the

“formalist” definition determines the whole endeavor in the sense that all the categories

or institutions of the formalist approach, especially trade, markets, and money, this

“catallactic triad,” which are the dominant categories in the market society, are traced

back in the history to a period or society where they are not dominant. In other words,


Polanyi's work of the “primitive societies” was not made for the sake of understanding

them in their own right but for the sake of understanding the conditions that gave rise to

the emergence of the distinct and separate sphere of the market. 27 Therefore, first we

have a description of the market society, with its characteristic features (i.e., commodity

fictions and the market mentality), then an argument about the dehumanizing conditions

prevalent in this society (i.e., the effects of commodity fictions on human beings), and

finally a historical-anthropological study which seeks to demonstrate that these

conditions do not exist throughout the whole of human history. 28 This line of

argumentation can be seen from almost every work of Polanyi, from The Great

Transformation to his last work, The Livelihood of Man, which was published

posthumously in 1977. 29

1.4. The Human Condition in Polanyi

1.4.1. Voluntarism vs. Functionalism?

Although the assumption of the existence of “two Polanyis” is an unfounded one,

it is however true that there is a certain tension between Polanyi's analysis in The Great

Transformation and his “substantivist” position, namely, between “voluntarism” and

“functionalism” especially when the relation between individual agency and social

institutions or structures is considered. In this section a resolution to this tension will be


Polanyi's substantivist approach, especially his conception of the economy as an

“instituted process,” is purely functionalist. 30 On this conception, as we have seen above,


forms of integration do exist by virtue of their role in provisioning material needs for the

survival of the society in general. The supporting structures or the institutional patterns,

on the other hand, are necessary for the operation of these forms of integrations. In short,

social institutions just exist for the sake of the survival of the society:

Since there is no separate economic organization and, instead, the economic system is embedded in social relations, there has to be an elaborate social organization to take care of such aspects of economic life as the division of labor, disposal of land, organization of work, inheritance, and so on. Kinship relations tend to be complicated because they have to provide the groundwork of a social organization that substitutes for a separate economic organization. (Incidentally, Thurnwald remarked that kinship relations tend to become simple as soon as separate political-economic organizations develop, since “there is no need for complicated kinship relations any more”) (LM, 53). Even worse than this is that this instituted process, seen from two separate angles,

“values and motives” on the one hand and “physical operations” on the other, is a very

“unfortunate model” (Berthoud 1990: 179), because it does not allow any interaction

between the two:

What matters here is that our forms of integration are relatively independent of the aims and character of the governments, as well as of the ideals and ways of the cultures in question. A neutral attitude in regard to the moral and philosophical implications of governmental policies and cultural values is, indeed, a requisite of any objective inquiry into the shifting relations of the economic process to the political and cultural spheres of the society as a whole. Unless our classification of empirical economies is reasonably free of motivational and valuational associations, our conclusions might be vitiated by unwittingly assuming what is supposedly deduced from the evidence (LM, 36).

Such a conceptualization, as G. Berthoud rightly emphasizes, is rather surprising

for Polanyi, because it implies an “insistence on knowing exactly what is meant by the

economy, in any institutional setting” (Berthoud 1990: 180). Such an emphasis on the


economic process as an objective reality independent of values clearly undermines

Polanyi's whole critique of the market economy.

On the other hand, in The Great Transformation, one has a more “voluntaristic”

approach, for in this book one gets the impression that the market economy was

established by conscious design. The market economy as a “project,” designed by the

liberals and implemented by the state interventions, is a prevalent theme throughout the

whole book. For example, “there was nothing natural about laissez-faire; free markets

could never have come into being merely by allowing things to take their course,” and

laissez-faire was not a method to achieve a thing, it was the thing to be achieved”

(GT, 139). An “enormous increase in continuous, centrally organized and controlled

interventionism” was necessary for the institutionalization of capitalism, because “to

make Adam Smith's ‘simple and natural liberty’ compatible with the needs of a human

society was a most complicated affair” (GT, 140). To this end, namely, for the

institutionalization of the market system and for ensuring its proper working, the most

suitable means was the state. This was actually one of the cornerstones of the liberal

doctrine itself:

Of the three things needed for economic success—inclination, knowledge, and power—the private person possessed only inclination. Knowledge and power, Bentham taught, can be administered much cheaper by government than by private persons. It was the task of the executive to collect statistics and information, to foster science and experiment, as well as to supply the innumerable instruments of final realization in the field of government. Benthamite liberalism meant the replacing of Parliamentary action by action through administrative organs (GT, 139).


As can be seen from this passage, even though this conception is voluntaristic, it

also includes functionalist aspects: in order for the market economy to function properly,

not only must the fictions be created and sustained, but even the social and political

institutions (i.e., the state and the balance of power system) must be at the service of the

market; all social institutions are determined by the “needs” of the market system. Yet, in

this case, this does not necessarily mean a contradiction, because as different writers

[e.g., Little (1991: 93) and Hollis (1994: 97-98)] emphasize, functional explanations are

quite useful for artificial systems created by deliberate design which seeks to achieve

certain ends by the selected characteristics. Thus, if we accept that the market economy

was created by such a deliberate design, functionalist explanation makes sense. Yet, in

Polanyi's analysis, there is no need to invoke functional claims in order to understand the













produces/reproduces the commodity fictions, and itself is reproduced through the

reproduction of these fictions. Although in the process individuals are reduced to

“functional units” for this mechanism, this is only the result of the working of the system;

individuals do not exist and act for the sake of reproducing the system, but they are

forced to behave like functional units, i.e., as homo oeconomicus. In this sense, Polanyi's

analysis is a description of the working of the market economy. In other words, since it is

possible to assert that this economy functions as if it were designed intentionally,

functional questions can still be useful in understanding the system. 31

Voluntarism, however, still seems a disturbing implication for Polanyi's analysis,


because in this case the whole system appears as a coldbloodedly devised, giant

conspiracy against humanity. It is possible to find some passages in Polanyi's writings

which suggest that he did not hold this view. For example, in his argument that the

market economy was a “stark utopia” (GT, 3), he argues that

It was an illusion to

assume a society shaped by man's will and wish alone. Yet this was the result of a market-view of society which equated economics with contractual relationships, and contractual relations with freedom. The radical illusion was fostered that there is nothing in human society that is not derived from the volition of individuals and that could not, therefore, be removed again by their volition (GT, 257-58).

liberal economy gave a false direction to our ideals

The liberal vision envisaged a utopia because liberal thinkers could not foresee

the consequences of the actions they recommended: since the market economy was

inhumane in the sense that it requires the separation of human beings from their

environment and from their own agency and hence poses a threat of the destruction of the

very society, the “self-protection” of the society would inevitably be on the way. From

this argument it is possible to infer that the process within which the market economy

developed has rather been a “two way” process in the sense that both intentional actions

and their unintended consequences had played a significant role. Even Speenhamland, as

a conscious resistance to the development of the market economy, would have its own

consequences which the creators of the system had not intended: wages had decreased

even below the subsistence level, thus leading to a social catastrophe.

In other words, Polanyi's account should not be treated as a purely “voluntarist”

one, for it allows a dynamic interaction between ideas and the material conditions within


which these ideas are effective. For example, in another context, Polanyi says:

Although in its quiet way England has staged a social revolution, he would be a courageous man who would assert that any conscious process of thought accompanied it. The English people have an almost innate reluctance to formulating social ideas in words. Their own, time-honored semantics have taught them that words more often divide than unite. Thus, there is no English school of sociology. But there is an English method of social action, which subordinates thought to life, and seeks to find solutions in life itself. If one only tries long enough, questions may spontaneously resolve themselves, the English seem to say—and in any case one avoids the mistake of making them insoluble by attempting to force a solution where none is yet possible (Polanyi 1946: 280). 32

Such a notion of the “subordination of thought to life” can be conceived as lying

in the framework of what Giddens calls “double hermeneutic” On this conception, the

social world is constituted by both the actions of the actors and the “metalanguages”

invented by the social sciences (Giddens 1984: 374). In other words, social science is not

only affected by society, but at the same time it is an effective agent in shaping society;

that is, social science is internal to its “subject matter” in a way natural science is not. On

the basis of this conception, we can argue that social science, especially political

economy, had played a significant role in the development of capitalism. Political

economy in the nineteenth century, or in the twentieth for that matter, has been both a

reflection of the market relations, of the newly emerging independent economic sphere,

and an active participant of creation/recreation of these relations. Polanyi is aware of this:

Laissez faire meant to Bentham only another device in social mechanics. Social not technical invention was the intellectual mainspring of the

Industrial revolution

theoretical in the true sense, and could not compare in practical importance with those of the social sciences of the day. It was to these latter that the prestige of science as against routine and tradition was due,

The triumphs of natural science had been


and unbelievable though it may seem to our generation, the standing of natural science greatly gained by its connection with the human sciences. The discovery of economics was an astounding revelation which hastened greatly the transformation of the society and the establishment of the market system, while the decisive machines had been the inventions of uneducated artisans some of whom could hardly read or write. It was thus both just and appropriate that not the natural but the social sciences should rank as the intellectual parents of the mechanical revolution which subjected the powers of the nature to man (GT, 119).

Therefore, by allowing the dynamic interaction between “science” and its

“subject matter,” it is possible to avoid “voluntarism”: although the process was a

“reflexively monitored” one, to use Giddens's term, it has also been carried out by the

social dynamics independent of the individuals and their intentions. Nevertheless, this

does not necessarily mean that Polanyi's conception of society is a “holistic” one, which

denies the individual and its actions as proper units of social science, as we shall see.

1.4.2. Individualism vs. Holism?

Although Polanyi’s overall account can be regarded as a critique of the social

theory based on individualistic foundations, it should not be seen as a “holistic” position

emphasizing the notion of “totality” either. For Polanyi it is essential to avoid

reifications, i.e., converting human properties into abstract entities, like regarding society

as something completely independent from or above the individuals. In his analysis of

fascism, Polanyi criticizes the conception of “totality” as follows:

The Mind is the chief actor in producing that other plane of existence in which there is society which is not personal relationship. Society which is the realm of Totality has not persons for its units. The Political, the Economic, the Cultural, the Artistic, the Religious, etc., are the units; persons are not related to one another except through the medium of that sphere of Totality which comprises them both. If they exchange their


goods they are fulfilling an adjustment Totality, i.e., the Whole; if they co-operate in producing them, they are relating themselves not to one another, but to the product. Nothing personal has here substance unless it be objectified, i.e. has become impersonal. Even friendship is not an immediate relationship of two persons, but a relation of both to their common Friendship. What the individual person is supposed to contain as a subjective experience in himself, he thus encounters as colourless semi- translucent objectivity outside himself. Society is a vast mechanism of intangible entities, of Mind-stuff; the substance of personal existence is merely the shadow of a shadow. We are in a world of spectres in which everything seems to possess life except human beings (EF, 373-74).

Escape from this world of “spectres,” i.e., reifications, is also essential in order to

save Polanyi's substantivist approach from the strong functionalist and even structuralist

tendencies that it has and that give quite a limited role for the individual agency. In this

regard, it is possible to suggest that the two claims in the substantivist account given

above, namely, that “the societal effects of individual behavior depend on the presence of

definite institutional conditions” and that the institutions should be conceived as “the

collective actions of persons in structured situations,” can be taken to imply a position

similar to Giddens's concept of the “duality of structure,” which states that “the

structured properties of social systems are simultaneously the medium and outcome of

social acts” (Giddens 1981: 19). On this conception, societies or social systems cannot

exist without human agency, but nevertheless it is not the case that actors create social

systems; they reproduce or transform them, remaking what is already made in the

continuity of praxis (Giddens 1984: 25). In other words, structures always both constrain

and enable intentional human action, yet their production and reproduction are the

“unintended consequences” of this intentional action. Even though this gives us a sketch


of how the social institutions and structures are reproduced, 33 it should be stressed that

this reproduction requires active practices of individuals

as neighbors, professional persons, consumers, pedestrians, commuters, sportsmen, hikers, gardeners, patients, mothers, or lovers—and are accordingly capable of representation by almost any type of territorial or functional association such as churches, townships, fraternal lodges, clubs, trade unions, or, most commonly, political parties based on broad principles of adherence (GT, 154).

Such a conception of society, based on “positioned practices,” again to use

Giddens's term, requires an understanding of it as constituted by real individuals who are

at constant interaction with each other, as Polanyi himself put:

How is a society conceivable which is not a relationship of persons? This implies a society which would not have the individual as its unit. But in such a society, how can economic life be possible if neither co-operation nor exchange—both personal relationships between individuals—can take place in it? How can power emerge, be controlled, and directed to useful ends, if there exists no individuals to express their wills or wishes? And what kind of human being is supposed to populate this society if this being is to possess no consciousness of itself and if its consciousness is not to have the effect of relating him to his fellows? In human beings endowed with the type of consciousness we know such a thing seems frankly impossible (EF, 371).

Actually, it is this impossibility, impossibility of separating individuality from

sociality, that characterizes Polanyi's understanding of human nature appropriately;

human beings, for him, are defined by the unity of individuality and sociality, a fact

which is a discovery of Christianity for the first time. This “discovery of the uniqueness

of the individual and of the oneness of mankind” (GT, 258A) characterizes Christianity's

“individualism,” which is essentially the same as socialist “individualism.” This

individualism, for Polanyi,


is the doctrine of the Brotherhood of Man. That man have souls is only another way of stating that they have infinite value as individuals. To say that they are equals is only restating that they have souls. The doctrine of Brotherhood implies that personality is not real outside community. The reality of community is the relationship of persons. It is the Will of God that community shall be real.

the discovery of the individual is the discovery of mankind. The discovery of the individual soul is the discovery of community. The discovery of equality is the discovery of society. Each is implied in the other. The discovery of the person is the discovery that society is the relationship of person (EF, 370).

In short, Polanyi's conception of the human condition, which is the basis of his

critique of capitalism, requires a conviction that human beings are social beings, even

though this never implies that they are not individuals at the same time. In fact, the two

can never be separated, as John Dewey puts aptly:

These “social” ties do not inhere in “individuals”; they inhere integrally in human beings in their very humanity. Their connection with the traits that mark one human being off from the other is so pervasive and intimate that what happens to the latter cannot be either understood nor effectively dealt with save as the former are held in full view.

is as truly but an adjective as is “social.” Each word is a

name for what is intrinsic in the constitution and development of human beings (Dewey 1946: 2).


Therefore, a human being is characterized by the unity of sociality and

individuality, the two inseparable characteristics of the human condition, a unity which is

broken down in the market society.

1.4.3. Human Being as a Moral Being

According to Polanyi, this view of human essence as the unity of individuality

and sociality is derived essentially from Christianity. However, this position should not


be taken as a form of mysticism, 34 for the emphasis here is on humanity, and Christianity

is being credited with the discovery of this unity. Since Christianity has always been

identified with “Western civilization,” it can be inferred that Polanyi also endorses the

values that have been associated with Western civilization, from the Judaeo-Christian

tradition to the Enlightenment. Of course such an emphasis upon “the West” also poses

the question of “Orientalism” in Edward Said's (1979) sense. We can say that Polanyi is

well aware of the problematic aspects of this position, considering especially his remarks

about colonialism and, above all, about the market economy, this Western “invention,”

and its leading to fascism. 35 In this regard, his daughter states that “by the ‘west’ he

meant not the power grouping of that name, which ‘has shamefully identified democracy

with capitalism and progress with colonialism, but a cultural entity dating from the

Renaissance and Humanism which gave rise equally to capitalism and socialism’”

(Polanyi-Lewitt 1964: 119). In short what Polanyi speaks for is the “Western

Universalism” (Polanyi-Lewitt 1964: 119), which can be expressed as the “unity of

mankind” as embracing the unity of both individual and universal or social aspects of the

human condition.

On the other hand, emphasis upon Christianity also indicates that according to

Polanyi man is a “moral being,” or in Rotstein's terms, “a religious being,” to be

understood in a very broad sense. According to Rotstein, Polanyi “saw it as central to

man's nature to invest the world with meaning and to locate his own person and the

import of his life within such a universe (1990: 99). Such a position clearly includes


“hermeneutical” elements, which themselves require the category of interpretation, for

“institutions are embodiments of human meaning and purpose” (GT, 254). 36 There is also

a second order, or “double,” hermeneutics when we consider the social science itself, as

we have seen above: social science is confronted with the problem of interpretation

regarding both the community of scientists and the actions of its “subject matter,” the

“lay” actors themselves. In other words, “critical” analysis is not an “option,” it is a

necessity in understanding societies (Giddens 1984: xxxv). 37 Within this position, which

underlies Polanyi's own analysis, individuals are characterized by their inner freedom, a

theme to which I will return in the last chapter when I discuss the problem of “freedom in

a complex society.” In this regard, it can be stated that Polanyi's social theory includes a

moral philosophy within which human freedom plays an essential role. In other words,

according to this social theory, social institutions are basically “expressions” of the

human essence or freedom. In this connection, Glasman (1994: 70) argues that Polanyi's

social theory is based on the view that

human society is the transformation of external nature through human nature, which is the realization of freedom through the moral relations created by productive association. The relations of production are

are thus the

benchmark of liberty. The institutions of work

organizations that protect and renew both freedom and community.

In this theory, to repeat, it should not be forgotten that although institutions are

embodiments of human freedom, they also impose constraints upon this freedom,

because they both enable and at the same time constrain intentional actions of

individuals. That is to say, action both presupposes and in a sense “shapes” social


institutions and relations. In other words, purposive actions of human beings, directed to

realize their own potentialities, has to operate within the constraints that social

institutions created. Such a conception, again, is implied in Polanyi's insistence on the

impossibility of shaping the society “by man’s will and wish alone.”

The view of man as a “moral being,” we can contend, has important implications

in respect of Polanyi's critique of the market economy. On this conception, a moral being

is a “strong evaluator” in Charles Taylor's (1985a, chs. 1&2) sense, that is,

man is

endowed with the capacity to evaluate his desires strongly in the sense that he is not only

concerned with the outcomes of the motivations but also with the “quality” of the

motivations. In other words, he goes “deeper,” i.e, characterizes his motivations at

greater depth (Taylor 1985a: 25). However, since an “individual in the market” must

behave only on the basis of the hope of gain or fear of hunger (or pain and pleasure for

that matter), he is forced to be reduced to an individual who lacks “depth,” as we

ordinarily use this metaphor for people:

Someone is shallow in our view when we feel that he is insensitive, unaware or unconcerned about issues touching the quality of his life which seem to us basic or important. He lives on the surface because he seeks to fulfill desires being touched by the “deeper” issues, what these desires express and sustain in the way of modes of life; or his concern with such issues seems to us to touch on trivial or unimportant questions, for example, he is concerned about the glamour of his life, or how it will appear, rather than the (to us) real issues of the quality of life.

The compleat Utilitarian would be an impossibly shallow character, and we can gauge how much self-declared Utilitarians really live their ideology by what importance they attribute to depth (Taylor 1985a: 26).

Thus, the market economy violates our very essence, 38 for it forces us to behave


like those “shallow Utilitarians,” by identifying hunger and profit as the only two

motives that guide our lives. In other words, here we have a gap between the moral

universe of the individual and the contradictory demands of the market economy

(Rotstein 1990: 100-101). The effect of the existence of this gap is again brilliantly

described by Rotstein:

Since the moral individual must safeguard his inner freedom, that is, avoid those choices and actions that violate the cardinal principles for which he stands, he must suddenly find himself morally defenceless in the economic sphere. The option not to make these economic choices is no longer his, and there is anarchic outcome in their effect on his fellow human beings. The integrity of this interpersonal element of the “person in community” is sabotaged by an alien and external network that channels economic life (Rotstein 1990: 105). Accordingly, since capitalism deprives humans of their very freedom, the

imperative of protecting our freedom poses a responsibility for the humanity as a whole:

“the vital task of restoring the fullness of the life to the person, even though this may

mean a technologically less efficient society” (OMM, 116). 39 This requires abolishment

of the distinction between the “ideal” and the “material,” which in turn requires

abolishment of the independent, separate economic sphere, disembedded from the society

as the result of the commodity fictions. In other words, since under the market system,

“society as a whole remained invisible” (GT, 258; OMM, 116), the task before us is to

accept the “reality of the society,” for “it is the Will of God that community shall be

real.” However, before discussing this issue at greater length in the third chapter, we

must turn our attention to the relations between Polanyi and Marx for this relation is

essential in understanding Polanyi's overall account.




2.1. Introduction

Polanyi’s analysis of the market system, as we have just seen, characterizes a

dehumanization process: since human beings themselves and their natural environment

are reduced to fictitious commodities, human beings are separated both from their

surroundings and from their own powers that they exert in their life activity.

Furthermore, this commodification process leads to the dissolution of the society into the

atoms, for the individual in this society becomes a homo oeconomicus. In other words,

the market system violates the “noneconomic nature of man,” which in turn implies the

negation of an essential characteristic of a human being: the “individual in the market” is

no longer a social being. Therefore, according to Polanyi, the market system is a “stark

utopia” because it forces individuals to live through a perverse life contrary to their


Such a conception of the market system, however, is quite similar to that of

Marx, as I argue in this chapter. Terminological differences notwithstanding, in Marx

too, the system, capitalism, is characterized by a dehumanization process: According to

Marx, labor power, the total mental and physical abilities and capacities of a human

being, becomes a commodity in capitalism. However, this means the separation of human

beings from their natural and social surroundings, from their own productive activity, in


short from their own “species-being,” i.e., the conditions that characterize their humanity,

as Marx’s analysis of alienation demonstrates. For this reason, I examine some possible

connections between Marx and Polanyi in this chapter, with special reference to the

distinction between the specific and the general aspects of human existence. In the first

two sections below, after showing that the two need not necessarily be considered as

opponents, as some of the followers of Polanyi wish to think, I argue first that the general

framework that Polanyi uses to analyze the market system, namely, the institutional

separation of the economic sphere from the political, which is only a manifestation of the

“commodification” process, comes directly from Marx. Second, since understanding of

this commodification process requires an understanding of the “human condition,” for the

“dehumanizing” aspects of this process are emphasized in both Marx and Polanyi, I turn

to Marx’s notion of human essence. This notion considers the human being as a “species-

being,” or as the unity of individuality and sociality, and emphasizes the “noneconomic

nature of man,” as Polanyi once remarked. I also argue that this notion of human essence

also forms the basis of Marx’s historical materialism and therefore, contrary to the

allegation that Marx was an economic determinist, it emphasizes the noneconomic

aspects of human existence. For Marx too, only with capitalism does the economic

become central and the society come to be characterized by the separation between the

economic and the political spheres. In the last section, then, I examine Marx’s analysis of

capitalism and argue that the twin notions of alienation and fetishism are essential in

demonstrating the dehumanizing aspect of this system. This analysis shows that within


the capitalist commodification process human beings, the real subjects, become

predicates of their own predicates, for labor power becomes a commodity, and therefore

social relations between them appear as relations between things. In this regard, I argue

that this “reification” process has a dissolving effect on the society and that this is the

crucial link between Marx and Polanyi because it is Polanyi who actually showed that the

extension of the market into every sphere of life will ultimately causes a social

“breakdown.” In other words, Polanyi’s analysis of the extension of the market

characterizes the process of reification caused by the commodification of the whole of

human existence.

2.2. Are Polanyi and Marx Incompatible?

2.2.1. Two Opponents?

One of the claims that most of the followers and interpreters of Polanyi, the most

prominent of whom is George Dalton, “who has made every effort to disassociate

Polanyi’s thought from that of Marx” (Halperin 1984: 247), frequently raise is that Marx

was committed to economic determinism and, therefore, to the economistic fallacy in his

framework of “historical materialism” (e.g., Dalton 1981; Dalton and Köcke 1983; Block

and Summers 1984: 48; Schroyer 1991).

Especially in economic anthropology, the differences between Marx and Polanyi

have been emphasized intensively. Yet, with respect to the debate between the

“substantivist” and the “formalist” positions, it is quite interesting to observe that Marx is

always used as a “yardstick,” or actually as a “scapegoat,” in this controversy: whereas


the formalists accuse Polanyi of being a follower of Marx, 1 the substantivists on the other

hand have taken great pains to distinguish Polanyi sharply from Marx. For them, Marx is

as much an economic determinist as the formalists themselves.

For example, according to Dalton, although “there are definite affinities

(agreements, similarities) between Marx and Polanyi in both paradigm and commitment

to socialism,

the differences between Marx and Polanyi are much more important than

their similarities. Marx and Polanyi definitely represent rival (alternative, disagreeing,

contradictory) paradigms or theoretical systems” (Dalton 1981: 75). With respect to the

similarities, Dalton (1981: 75-76) argues that both Marx and Polanyi regarded all

precapitalist societies and economies as comprising a single field for investigation; that

is, economic anthropology begins with early economic history; and also both differed

from “conventional economics,” representing the tradition from Ricardo to Samuelson.

However, when we consider the differences, he argues that, first, whereas Marx was right

about economic determinism of the nineteenth- and twentieth-century industrial

capitalism, he was wrong to assume that the primacy of the economic is also true for the

precapitalist societies; he was also wrong about what must inevitably follow capitalism.

Second, Polanyi has nothing to say about the deep causes of the sequential change; his

thought presupposed “no stage, no evolution, no propelling mechanisms transforming

one epoch into another” (Dalton 1981: 77), whereas Marx had such a conception. In

addition, Polanyi was not a Marxist because “there is no such thing as a Marxian

employing in his analysis a set of conceptual terms different from Marx's” (Dalton 1981:


77). Finally, in Marxian analysis there is no counterpart to Polanyi's concern with early

foreign trade and early money wages (p. 78). Likewise, Dalton and Köcke (1983)

maintain that the claim that Polanyi is a member of Marxist family and his theory could

be incorporated in historical materialism is “utter nonsense” (p. 37). For them, first of all,

although for both Marx and Polanyi capitalism is a unique occurrence in the history and

Polanyi's “substantive” meaning of economic and Marx's “mode of production” appear to

be similar, “the conclusions each drew were utterly different” (Dalton and Köcke 1983:

37). Second, “Polanyi's use of much more ethnographic data distinguishes his work from

Marx's” (p. 39). Third, Marx's main focus was capitalism whereas Polanyi has a general

account for “all the empirical economies, past and present.” Fourth, in terms of the

distinction between substantivist and Marxist “paradigms,” Marxist anthropologists

“wind up in utter disagreement among themselves” (p. 41); that is, Marxists have no

shared paradigm whereas the substantivists do. 2

On the other hand, opposed to this view is anthropologist Lucette Valensi's belief

that Karl Polanyi “never claimed that he was in disagreement with Marxism


Polanyi explicitly rejected, however, was the unilinear schema of evolution, defended by

the Marxists of the early XX. century” (1981: 9). 3 Likewise, J. R. Stanfield says, “I

would include Marx and Polanyi in the compatibility category” (1980: 594), but he

believes that Polanyi “detected a fatalistic determinism in Marxism,” although he

immediately adds that “Polanyi

often distinguished Marx from his followers”


The last point raised by Stanfield is important: Polanyi usually distinguishes

Marx from his followers. Unfortunately he is not very clear about Marx himself; his

treatment of Marx is always “tangential” (Sievers 1949: 307). According to Sievers, one

reason “might be found for this choice in the difficulties in engaging in Marxist polemics

while attempting constructive work along independent lines” (1949: 307), but he thinks

that Marx was “a determinist to a degree which denies the essential free character of

human nature” (Sievers 1949: 311), and “neither Owen nor Marx offer a humanistic basis

for a socialist reconstruction of society” (p. 359). Still, when he is discussing the role of

classes in Polanyi's account, he says that “Polanyi may not be as far from Marx as he

perhaps deems himself” (Sievers 1949: 341). Sievers, too, recognizes Polanyi's

distinction between Marx himself and his followers (p. 358).

On the other hand, in the Great Transformation Polanyi says, in passing, that