Despain Polanyi

The metacritique 2 of Karl Polanyi: A dialectical critical realist and morphogenetic interpretation of the social theory of Karl Polanyi. This paper addresses the metacritique 2 of Karl Polanyi. It is argued that the social theory of Karl Polanyi aims at the demystification of market-systems as theoretically constructed by both orthodox and heterodox accounts of capitalism. Dialectical critical realism is best capable of situating the methodological and philosophical accomplishment of Polanyi’s historical and dialectical critiques of social-being. In turn, it is argued that Polanyi’s transcendental critique offers important insight for the practice of (dialectical) critical realist social theorizing. In concert with Archer’s morphogenetic approach to social being, Polanyi’s social theory is an attempt to make a useful contribution to practical social theorizing. It is shown that Polanyi’s social theory, and emphasis on systemic “integration” anticipates many of the strengths of Archer’s morphogenetic approach. Polanyi’s distinction between an “embedded” and “disembedded” economy, is able to sustain Archer emphasis on malintegration. The Crisis of the “New Economy”: Toward a Polanyian Explanation In the 1990s economic growth in Western capitalist economies was impressive. Theorists proclaimed the rise of the “New Economy 1 .” The conventional wisdom held that recessions were still possible, but information technology and global markets would minimize the depth and duration of any economic slowdown. Inflation would be easier for central banks to control and the natural rate of unemployment was reduced. Globalization would bring economic development and prosperity to all nations and all people. By the end of the decade the conventional wisdom and neo-liberal hopes of a new era were shattered. Growth rates slowed, recessions and depressions were commonplace, unemployment began to rise throughout capitalistic economies. Many heterodox economists argued against the hubris of the proclamations of a virtually recession-free New Economy. There are now serious concerns that the neo- liberal institutions, which emerged following the global economic collapse of the 1970s, are incapable of facilitating peaceful global economic development. Many theorists 1 Newsweek 1995; BusinessWeek The New Economy: What It Really Means, Nov. 11, 1997. 1

Transcript of Despain Polanyi

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The metacritique2 of Karl Polanyi: A dialectical critical realist and morphogenetic interpretation of the social theory of Karl Polanyi. This paper addresses the metacritique2 of Karl Polanyi. It is argued that the social theory of Karl Polanyi aims at the demystification of market-systems as theoretically constructed by both orthodox and heterodox accounts of capitalism. Dialectical critical realism is best capable of situating the methodological and philosophical accomplishment of Polanyi’s historical and dialectical critiques of social-being. In turn, it is argued that Polanyi’s transcendental critique offers important insight for the practice of (dialectical) critical realist social theorizing. In concert with Archer’s morphogenetic approach to social being, Polanyi’s social theory is an attempt to make a useful contribution to practical social theorizing. It is shown that Polanyi’s social theory, and emphasis on systemic “integration” anticipates many of the strengths of Archer’s morphogenetic approach. Polanyi’s distinction between an “embedded” and “disembedded” economy, is able to sustain Archer emphasis on malintegration.

The Crisis of the “New Economy”: Toward a Polanyian Explanation

In the 1990s economic growth in Western capitalist economies was impressive.

Theorists proclaimed the rise of the “New Economy1.” The conventional wisdom held

that recessions were still possible, but information technology and global markets would

minimize the depth and duration of any economic slowdown. Inflation would be easier

for central banks to control and the natural rate of unemployment was reduced.

Globalization would bring economic development and prosperity to all nations and all

people. By the end of the decade the conventional wisdom and neo-liberal hopes of a

new era were shattered. Growth rates slowed, recessions and depressions were

commonplace, unemployment began to rise throughout capitalistic economies.

Many heterodox economists argued against the hubris of the proclamations of a

virtually recession-free New Economy. There are now serious concerns that the neo-

liberal institutions, which emerged following the global economic collapse of the 1970s,

are incapable of facilitating peaceful global economic development. Many theorists

1 Newsweek 1995; BusinessWeek The New Economy: What It Really Means, Nov. 11, 1997.


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warned of the internal contradictions of both neo-liberal institutions2 and the policy of

market fundamentalism3 . The current global neo-liberal inspired institutional system has

been argued to be on the brink of socio-economic breakdown, financial collapse, and

perhaps a deep global depression (see for example Aglietta, 1998; Brenner, 1998; Coats

1998 (NLR); Crotty and Dymski, 1999; Krugman, 1997; Krugman, 1999; O’Hara, 2000;

Palley, 1998; R. Reich, 2002; and Soros, 1998-9). Multiple terrorist attacks, wars in

Afghanistan and Iraq have crushed any hopes of peaceful global development following

the policy measures of market fundamentalism.

There has emerged a new urgency to better understand the relationship between

social institutions and individual agents, and between unintended consequences and

crisis. The urgency for a new understanding is being promoted by the theorists who

heeded warning toward, or resisted neo-liberal institutions and market fundamentalist

policy. But more recently the advocates of neo-liberal institutions and market

fundamentalist policy have joined the chorus. Three of the most renowned neo-liberals

of the late 1980s and early 1990s have pronounced the importance of an institutionally

informed approach toward socio-economic theory and economic policy (i.e. John Gray

1998, 2004; Francis Fukuyama 2005, 2006; and Jeffrey Sachs 2005, 2008).

At both the levels of theory and policy there has been neglect toward the

understanding of how a market system and its unintended consequences coerce

individuals’ actions and pervert social relations. There had been a fundamental under-

2 The neo-liberal institutions included: (1) the U. S. Dollar as the international currency, and the Federal Reserve Bank in the U.S. as its manager; (2) Expansion of markets internationally, with conditional oversight from International Monetary Fund, World Bank, and World Trade Organization; (3) Liberal National States, committed to the policy prescriptions of the Washington Consensus (see footnote 5 below for a definition); and (4) hegemony of United States as the single superpower. 3 The policy came to be referred to as the Washington Consensus. See footnote 5 below for a definition.


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appreciation, if not a misapprehension, of what institutions are needed to support the

proper functional operations of markets. The promise of market fundamentalism was that

the institutionalization of a market system, absent political corruption, would generate

economic growth and prosperity. Reality proved far more complicated.

Rediscovering Polanyi’s Critique of Economic Liberalism

Today social theorists are eagerly anxious for a reinterpretation of contemporary

circumstances. The current global political cataclysm and international economic

disarray substantiate the theoretical urgency. New policy will be needed to reestablish

global political order and international economic stability. Many theorists have returned

to Karl Polanyi’s The Great Transformation: The Political and Economic Origins of Our

Time for inspiration and insight for understanding the current global crises4. Written in

1944 The Great Transformation offers invaluable analysis and warning against the

“liberal creed” of the nineteenth century, which reemerges with vengeance in the 1980s

as market fundamentalism, and promoted as the “Washington Consensus.”5 Polanyi

4 There is today a great awareness to the importance and relevance of the work of Karl Polanyi for understanding the contemporary global disorder and crisis. The Karl Polanyi Institute of Political Economy was created because its founders recognized the importance of Polanyi’s work for understanding the contemporary circumstances and crises.

Many Americans date the watershed moment of the contemporary crisis as September 11, 2001. Most social theorists date the defining moment of the current crisis as 1989 and the collapse of the former Soviet Union. In a more empirical sense the more accurate watershed moment for the relevance of Karl Polanyi’s work to reemerge is not 2001 or 1989, but 1978 and the Iranian Revolution. The result of the Iranian Revolution was the dual rejection of economic liberalism and Soviet command-economies. Karl Polanyi had demonstrated the theoretical, historical, and empirical impossibility of such social orders. Karl Polanyi’s metacritique of both the philosophical and historical foundations of these social orders offers enormous insight toward understanding the contemporary circumstances. In full agreement with the Karl Polanyi Institute home page, the work of Karl Polanyi “[re-]opens important avenues of scholarly and policy research.” The Karl Polanyi Institute is located in Montréal, Canada at Concordia University. 5 The Washington Consensus refers set of ten economic policy prescriptions promoted by three Washington, D.C.-based economic institutions: The U.S. Treasury, International Monetary Fund, and the World Bank. Many crisis-ridden countries have attempted to implement these policies to stabilize their socio-economy, with highly uneven results. The Washington Consensus has been attacked for its failures and its role in expanding the institution and forces of markets (market fundamentalism), constraining the role of the state (neo-liberalism or liberalization), and prohibiting the public sector in the production of goods and services (privatization).


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believed the attempt to institute self-regulating market-system in the nineteenth century

resulted in a great social failure by the early twentieth century. He was overly optimistic

that a “great transformation” had taken place. Neither ontologically nor socio-politically,

had liberalism been abandoned. Polanyi however had maintained: “Undoubtedly, our age

will be credited with having seen the end of the self-regulating market.” While the

“1920s saw the prestige of economic liberalism” and the “1930s lived to see the absolutes

of the 1920s called into question.” By the time of Polanyi’s The Great Transformation,

“economic liberalism had created and fostered the illusion that dictatorships were bound

for economic catastrophe.” This position would “prove a factor in precipitating the war

and a handicap in fighting it.” By 1940s nearly all governments were regulating markets,

managing currencies, and directing trade. In this sense by “the 1940s economic

liberalism suffered an even worse defeat” then it had in the 1930s (Polanyi 2001:148-9).

In spite of Polanyi’s over-optimism, he had an impressively deep understanding

of the virtues and vices of economic liberalism. His work offers unique analyses and

important insights for understanding contemporary circumstances. Polanyi’s hopes for

the policy lessons learned, failed to be fully realized. He was incorrect to the degree of

which an ontological transformation had taken place. Nonetheless, Karl Polanyi’s

insights in The Great Transformation should prove most useful, and behold tremendous

potential for situating today’s market fundamentalist policy of the Washington Census

and neo-liberal institutions.

Karl Polanyi: A Brief Biographical Sketch

As important as the ideas of Karl Polanyi are for understanding today’s global

crises, his work and life are remarkably unknown. Courses on Polanyi’s work are rare,


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and very few syllabi include any of Polanyi’s books on the reading list. Thus a few words

concerning Polanyi’s personal life will be useful for many readers. Karl Polanyi was an

economist, social theorist, moral philosopher, economic historian, and anthropologist.

His magnum opus, The Great Transformation, has reached the status of a classic in

political economy and social science more generally. His brother Michael Polanyi was a

highly renowned chemist and philosopher (of science). His nephew John Polanyi was

awarded the 1986 noble prize in chemistry. His daughter Kari Polanyi-Levitt Polanyi is a

prominent political economist at McGill University, Montréal (emeritus). Karl Polanyi

was born in Vienna in October 1886; he lived and worked in Hungary, Austria, England,

United States, and final Canada, where he died in 1964.

Polanyi began writing The Great Transformation in 1940 during an academic

appointment at Bennington College, in Vermont, USA. He would publish it in 1944 at

the age of 58. The Great Transformation achieved immense acclaim, and Polanyi

received a teaching position in sociology at the prestigious Columbia University in New

York City from 1947-1953. His wife Iiona Duczynska was unable to obtain a visa to

enter the United States due to her involvement in the Hungarian Revolution of the early

1920s as leading figure in, and founder of, the Hungarian Communist Party. Polanyi

would commute from Toronto to New York for the remainder of his career as a visiting

Professor of sociology at Columbia University.

The Economistic Fallacy: The Great Transformation Abandoned

During his time at Columbia University Polanyi published the highly influential

Trade and Market In the Early Empires (edited with Conrad M. Arensberg and Harry N.

Pearson, 1957). The overarching thesis of this work was the rejection of the idea that


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modern economic theory was universal in scope, whether it is the Smithian (micro),

Keynesian (macro), Marxian (heterodox/socialist). Market mechanisms were not

applicable to pre-capitalist societies. To privilege the economy to a separate analytical

status was a categorial and ontological mistake dubbed the “economistic fallacy.”6

Alternatively Polanyi’s economic history and social anthropology focused on, and

emphasized the shifting place of the “economic” within society (Levitt-Polanyi

1990:256). Against the economistic fallacy, Polanyi prioritized patterns of social

integration as far more imperative and essential to human life and well-being, than the

patterns or “laws” of the economy. For Polanyi the priority of social integration was

demonstrated in history, and in the anthropology of pre-capitalist societies. The priority

of social integration was confirmed by the contradictions and crises of modern market

society. In this sense Polanyi’s philosophical commitments and scientific results were

theoretical, historical and empirical.

The Challenge of Hayek: Toward a Metacritique2 of Economic Liberalism

The 1944 publication date of The Great Transformation is the same publication

date of Friedrich Hayek’s The Road to Serfdom. Both books were concerned with the

relationship between the economic and political spheres of society. The central thesis of

both books was that there is a symbiotic relationship between the economic and political

spheres and the degree of human freedom obtained in society. However, the historical

analysis and diagnosis found in each book are (or seem to be) polar opposites (Levitt-

Polanyi 2004:5).

6 The economistic fallacy is “the attribution to the economy of privileged analytic and historical status relative to all other spheres of human behavior” (Block and Somers 1984:48).


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Hayek believed any constraint upon, or institutional movement away from free

markets necessarily represented a compromise of human freedom, and a step toward

tyranny, regardless of the time and place. For Hayek, the free-market system of

capitalism was the only social system compatible with human dignity, economic

prosperity and personal liberty. It is superficial to argue that Polanyi’s The Great

Transformation necessarily disagrees with Hayekian central thesis. In fact in a sense,

chapter 20 of Polanyi’s The Great Transformation explicitly recognizes that attempts to

control the market system indeed gave rise to the phenomenon of fascism (Polanyi

2001:245-56), blatantly consistent with Hayek. Likewise intervention in the societies of

Eastern Europe led to institutionalization of command economies. Soviet style command

economies were understood by Polanyi to radically impeded human freedom (ibid:24ff

and pp. 255-6). This conclusion would again be highly consistent with the central thesis

of Hayek. More positively Polanyi would also agree with Hayek that the free-market

system of capitalism did generate human emancipation from material need.

Polanyi never denied that Keynesian redistribution for economic stability was

impossible. Likewise, Marxian “expanded reproduction” was both a theoretical and

practical possibility, and at least not impossible in Polanyi’s analysis. Polanyi would

fully accept that the problems and crises of self-regulating markets appeared to be

economic; consistent with both the Keynesian and Marxian traditions Polanyi never

denied that in capitalism there are severe problems of distribution, and

disproportionalities in the production process. Distribution and disproportionality

problems have caused severe instability, curtailed growth, and generated Great

Depressions. However, socio-economic instability and crisis was not Polanyi’s focus.


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For Polanyi even more urgent than the socio-economic instability and crises generated by

capitalistic market systems, was a socio-cultural crisis. The real and deeper crisis was

the processes of dehumanization of society.

Politically Polanyi proclaimed to be socialist, although never a Marxist, and even

less so a Social Democrat (Polanyi-Levitt 1990:253). For Polanyi the debate between

free-market capitalism and democratic socialism is an illicit dualism. Polanyi aimed to

supersede the dualism, both in theory and practice. He accepted Hayek’s argument, and

later Milton Friedman’s, free-market capitalism had never really fully flourished.

Polanyi, in full agreement with Hayek and Friedman, insisted that intervention and

regulation has always historically disrupted the emergence of full-blown self-regulating

markets. In this sense the history of free-market capitalism had only been a partial

accomplishment, waxing and waning between development of markets and intervention

and regulation of markets. The institutional incompleteness had given rise to

theory/practice (T/P) inconsistencies. These T/P inconsistencies include price controls,

poor laws, environment laws, trade regulations, social insurance such as social security

and unemployment compensation, labor laws, etc., etc., etc. In turn the T/P

inconsistencies generated reification of social goals. Goals of human well-being, quality

of life and real liberty, were replaced by the (Keynesian) goals of growth, stable inflation,

and social economic management of the unemployment rate. Polanyi would not deny

these interventions were antagonistic toward human emancipation from structural

coercion, and the full flourishing of human liberty. However, there is a deeper or more

the real problem than public intervention.


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Metacritique2: The Convergence of Philosophy and Social Theory or the Incidence of the Polanyi-Bhaskar Alliance

For Polanyi there is a deep contradiction between economic development in a

free-market system and the social actions that sustain social (well-)being. Polanyi’s

theoretical aim was to construct an alternative historical and philosophical anthropologic

(meta-)explanation of: (1) the historical institutional incompleteness of free-market

capitalism; (2) the omnipresence of T/P inconsistencies; (3) the reification of social goals;

and (4) the dehumanization process of (free-market) economic development. In short

Polanyi was engaging in the construction of what the social philosopher Roy Bhaskar

calls a metacritique2.

Bhaskar’s theory of explanatory critique, which culminates in metacritique2,

argues, against Hume’s Law, that social science can move from facts to value judgments,

or explains how theory can affect practice. It sustains an ethical naturalism that holds it

is possible to derive moral truths from facts, necessarily denying any “inseparable barrier

between ‘is’ and ‘ought’ statements of the kind posited by Hume, Weber, and Moore”

(Bhaskar 1994:109). In short, Bhaskar maintains that scientific explanation in human

sciences can generate the conditions for human emancipation.

Polanyi undoubtedly tacitly7 accepted this position without making the argument

or developing a theory of explanatory critique. Bhaskar develops the argument for his

theory of explanatory critique in several different places8. A highly succinct version of

Bhaskar’s theory of explanatory critique is offered by Lacey 2007:

7 The pun to Michael Polanyi’s “tacit knowledge” is intentional. However, the literal use in this context radically differs from the sociological meaning of “tacit knowledge” in the philosophy of Michal Polanyi. 8 His most comprehensive expressions of the theory of explanatory critique are to be found in Bhaskar 1986, pp. 169-211; and Bhaskar 1989, pp. 89-114. A summarized version with dialectic development is found in Bhaskar 1993, pp. 258-70. The most succinct version from Bhaskar is found in Bhaskar 1994, p.


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Bhaskar argues that, in the social sciences, if a theory, which confirms (1) that some widely held belief is false and (2) that a prevailing social structure is an important causal factor in sustaining the prevalence of this false belief, becomes soundly established – in accordance with such uncontroversial cognitive criteria as empirical adequacy and explanatory power – then (3) a negative ethical valuation of the structure follows, ceteris paribus, from the theory. Moreover, if a soundly established theory (the same or another) confirms (4) that a certain activity may contribute to displacing the structure, then (5) a positive ethical evaluation of the activity follows, ceteris paribus, also. In some cases, the false belief, e.g., that the structure is not causally implicated in the persistence of social ills, may be an ideological belief, one whose being held widely is a condition for structure’s maintenance. Then, the inference to (5) amounts to a positive valuation of emancipatory activities aimed at removing these ills (p. 197). A successful totalizing explanatory critique (i.e. metacritique2) necessarily

establishes previous held beliefs and theory, or “conventional wisdom” more generally,

as in some significant way fallacious, deceptive, illusory, and/or ideological. Bhaskar

outlines the fine structure of metacritique2 as designating a set of beliefs, theory or

conventional wisdom as fallacious, deceptive, illusory, and/or ideological if three

conditions are satisfied:

(a) one should possess a new theory or set of theories that can explain most, or most of the significant, phenomena that the conventional wisdom can explain plus some significant phenomena that the conventional wisdom cannot. The new theory should also explain in immanent or metacritical1 terms why this so;

(b) one should be able to demonstrate that conventional wisdom embodies categorial

error, that it offends against a necessary condition for our adequate understanding of social being, or of some relevant domain of social being. The new theory must necessarily circumvent these categorial errors, and overcome them;

(c) one should be able to explain the reproduction of the conventional wisdom,

including its limits of possibility, for example of a level of social structure that the theory is able to explain, which the conventional wisdom is unable to describe. In other words, the metacritique2 of the new theory should not only explain the historical reproduction of the conventional wisdom, but also be able to self-reflexively situate the new theory, in such a way that conventional wisdom fails (amended from Bhaskar 1994:220; also see Bhaskar 1986:243).

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


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The conclusion of the Bhaskar’s theory of explanatory critique can be stated as: When a

new theory achieves a metacritique2 of conventional wisdom a pejorative evaluation of

the conditions generating, and the structures and actions sustaining and reproducing can

be, and automatically is, issued, and ceteris paribus, motivate action oriented to

transforming the conditions, structures, and actions at fault.

Dialecticalization of the Theory of Explanatory Critique

Before moving onto Polanyi’s metacritique2 in his The Great Transformation, a

brief mention should be made about the dialectical development of the theory of

explanatory critique (e.g. Bhaskar 1986) to metacritique2 (e.g. Bhaskar 1993)9.

Metacritique2, via dialectical critical realism, supersedes the explanatory critique by

means of the development of a new and bold ontology which pivots upon and prioritizes

the categories of absence, real contradiction, historical process, development and decline

(i.e. process), mediation and reciprocity; while sustaining the ontological categories of

critical realism such as stratification, differentiation, structure, agency, transfactual

efficacy, emergence, and systemic openness.

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


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Metacritique2 incorporates metacritique110

which isolates a real absence in theory,

practice, or text, indicating an (theoretically) incompleteness, contradiction (real or

theoretical), theory/practice inconsistency, split or reification of some kind (Bhaskar

1993:354). Metacritique1 then identifies and labels the inconsistency or incompleteness

(etc.) categorially. When it is successful Metacritique1\Metacritique2 achieves a Kuhnian

(paradigm) shift11 in our comprehension of reality or social being. In other words, the

theory of explanatory critique is split into metacritique2 and metacritique1, respectively,

due to the dialectical development of a new and bold ontology (metacritique2), and

scientific activity that is explicitly inspired and informed by this ontology, along with the

development of new categories and concepts to articulate and understand reality

(metacritique1). Bhaskar then can say: Metacritique2 > metacritique1 (Bhaskar 1993:62n).

The main source of metacritique1 according to Bhaskar, is immanent critique, or the

identification of theory/practice inconsistencies. Immanent critique demonstrates internal

inconsistencies of a theory, especially between theory and practice. In turn an important

10 Bhaskar’s theory explanatory critique proposes that social science is necessarily an act of criticism. The criticism is on two levels – (1) criticism of the work, theory and practice of other theorists or traditions; and (2) criticism of social reality itself. In critical realism these levels of criticism corresponds to the distinction between the intransitive dimension (objects and generative mechanisms of knowledge) and transitive dimension (antecedently established facts, theories, models, methods, and techniques of scientific inquiry). The possibility of science, or a philosophy for science, identifies the distinction between the intransitive and transitive dimensions, while the possibility of a philosophy of science pinpoints a third dimension, which Bhaskar calls the ‘metacritical dimension’ of discourse (Bhaskar 1986:25). Bhaskar urges that science presupposes the use of method, strategy, and theory for the production of knowledge. Hence, a metacritical dimension, or philosophy and historical sociology of philosophy is presupposed (Bhaskar 1986:231). In Bhaskar’s usage metacritical refers to the self-reflexive scrutiny of the philosophical and sociological presuppositions of accounts of science (see Hartwig 2007:267). 11 Thomas Kuhn’s scientific paradigm was not simply a set of current theories, but the entire worldview in which theories exists, and the implications (e.g. of action) which are entailed by it. Thus, when a paradigm shift occurs it is as if the world, or all of reality, has changed, because reality literally has changed as we now perceive it. In Kuhn’s words: "though the world does not change with a change of paradigm, the scientist afterward works in a different world" (Kuhn 1970:121). Critical realism incorporates the insights of Kuhnian shifts, while rejecting Kuhn’s incommensurability thesis, or judgmental relativism, and ontological idealism alike. Instead, for critical realism, the (Kuhnian) shift is strictly within the transitive and metacritical dimensions (see footnote 10); because no shift occurs in the intransitive dimension, theories and paradigms are commensurable in contrastive and critical way.


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form of, and source for, immanent critique is an Achilles Heel critique (Bhaskar

1994:216) which attacks a theory at its seemingly strongest point and shows the point to a

weakness. Following:

Metacritique2 > metacritique1 > immanent critique > Achilles Heel critique (Bhaskar 1993:66n).

When a metacritique2 has been constructed the prevailing conventional wisdom is

placed into a new context. With a theory and new context an ideological critique can be

lodged against the prevailing conventional wisdom. Typically the advocates of the

conventional wisdom will resist and struggle in theory will ensue, along with struggles in

practice. The latter occurs because theory invariably informs practice. Hence, if a theory

is challenged, so too is the practice it informs12. That is to say when a theory is deemed

by an alternative theory as ideological a struggle in both theory and practice will ensue.

Bhaskar calls such struggles “hermeneutical hegemonic/counter-hegemonic struggles”

(Bhaskar 1993:278-9). Bhaskar’s various forms of critiques can be set out in figure on

the following page.

The argument is that Polanyi in his The Great Transformation follows Bhaskar

lines of critique remarkably close. Starting from the strong (middle) line of critique in

figure 1 below, Polanyi engages in a sequence of Achilles’ Heel critiques, developing in a

full immanent critique of economic liberalism. He then pinpoints the omissions if

mainstream economics, and develops new set of categories to better comprehend social

reality and history. This is based on an ontological shift which occurs in Polanyi’s

conceptualization of social being. He is then able to demonstrate that economic

12 A very simply example: Suppose I have theory that all homeless people are lazy and dishonest, hence I refuse to donate money to the homeless. But a new theory, based on some evidence, is presented that homeless are simply down on their “luck”, but otherwise ambiguous. With the change in theory, I might change my practice and donate to a homeless shelter.


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liberalism is ideological, both in its ontology and practice. Whereby he recommends a

change in (institutional) praxis based on his explanatory critique. Finally he initiates an

axiological shift in behavior, that is potentially emancipatory. We know turn to the

Polanyi’s critique in The Great Transformation.

Figure 1 A Topology of Critiques (adapted from Bhaskar 1993:242)

The Metacritique2 of Karl Polanyi

In his The Great Transformation Karl Polanyi is engaging in a Bhaskar-style

metacritique2. Polanyi develops a new and bold ontology based on anthropological

studies of primitive societies based on the work of Malinowski, Thurnwald, Firth,

Ratcliff-Brown, among others (see Polanyi’s “Notes on sources” pp. 276-80). Polanyi’s

study of anthropology creates a Kuhnian shift in the assumptions informing our

understanding of social relations and inter-/intra-subjective. Polanyi rejected the idea that

human beings having a “natural” economic psychology or an universal “propensity to

truck, barter and exchange one thing for another” to put it in Adam Smith’s articulation.

According to Polanyi it was a categorial error to claim that the economic psychology of


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human beings is in all times and places, is a “propensity to truck, barter and exchange.”

This propensity is not universal, argues Polanyi, but highly contingent on a particular

institutional arrangement centered on the institution of the market-system.

The point here is not to unfold Polanyi’s theory of human nature, but demonstrate

that at the root of his critique is an ontological shift toward what constitutes human nature

itself. Polanyi, as a philosophical realist, will argue that there does exist a universal

human nature, but it cannot be reduced to the tendency to truck, barter and exchange.

Polanyi does not deny that markets have always had a presence in complex societies.

However, markets and exchange function quite differently in different times and places.

Polanyi’s study of markets in history will establish an additional bold historical

ontological claim, which will ground the argument for the presence of additional

categorial errors committed by the conventional wisdom of economic science.

Polanyi’s analysis in The Great Transformation is in the context of the great

crisis of modernity. Socio-economically the Great Depression had manifest causing

personal deprivation, economic poverty, social destitution and hardship, and political

friction. Politically World War II had erupted leading to the deaths, and murders, of

millions of human beings. Polanyi believed that real contradictions, internal to the social

institutions of the “market-system” of modernity, were the root causes of both the Great

Depression (and its consequences of material impoverishment) and the world war.

Hence, there was a tremendous urgency for Polanyi to develop his metacritique2 of the

crises that had become modern society.

For Polanyi the self-regulating market-system was internally contradictory, hence

a crisis-ridden system. In agreement with Karl Marx and John Maynard Keynes the


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capitalism system necessarily generated the poverty that was the historical characteristic

of the system and its development. Polanyi believed that the attempt to institute a self-

regulating market-system manifest material impoverishment and political conflict, but

further believed such a system was disruptive of, and antagonistic toward human cultural,

ethical action, and personal identity. Polanyi had a key interest in articulating the

dehumanizing tendencies of free-market economic development. Once again, Polanyi is

putting forth a new and very bold ontological position.

The Double Movement: The Achilles Heel of Economic Liberalism

Polanyi identified the major internal contradiction of the self-regulating market-

system as the double movement. From the early nineteenth to early twentieth century

“the dynamics of modern society was governed by a double movement” (Polanyi

2001:136). On the one hand free-market liberalism unleashed the social propensity

toward continuous economic expansion and an impetus toward innovation and

technological improvement; or the “almost miraculous improvement” ushered in by the

eighteenth century Industrial Revolution (Polanyi 2001:35). This “movement” or

tendency toward expansion and improvement was indeed the very virtue and greatest

strength of the liberal creed, the promise of Adam Smith’s invisible hand metaphor and

his visionary model of “commercial society.”

Mainstream economists understood the expansionary and improvement

movement of liberalism all too well. The promise of expansion and improvement, and

the consequential prosperity potentially created, would become the paradigm of the

marginal revolution. Through the work of Stanley Jevons, Alfred Marshall, and the

Austrian School, especially through the work of Ludwig von Mises and his student von


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Hayek, the expansion and improvement result of economic liberalism was formalized and

promoted academically and politically as the best, if not the only, social order to generate

wealth and prosperity, and absent poverty.

Polanyi accepted the account from the “liberal creed” regarding the historical fact

that the system of free markets had created “almost miraculous improvement.” But the

miraculous improvement was historically “accompanied by a catastrophic dislocation of

the lives of the common people” (Polanyi 2001:35). The continuously expanding

markets and technology improvement was met by “a countermovement checking the

expansion” to minimize the catastrophic dislocation. The protection from the

countermovement was vital for the protection of society, but “in the last analysis it was

incompatible with self-regulation of the market” (Polanyi 2001:136). The double

movement is a deep internal contradiction to the self-regulating market-system.

As capitalism progressed and expanded, the enclosures movement displaced serfs

and peasants, and destroyed land and livelihood. With expansion of mass factory

production the very “fabric of society was being disrupted; desolate villages and the ruins

of human dwellings testified to the fierceness with which the revolution raged,

endangering the defences of the country, wasting its towns, decimating its population,

turning its overburdened soil into dust, harassing its people and turning them from decent

husbandmen into a mob of beggars and thieves” (Polanyi 2001:37). The

countermovement resisted the radical change ushered by the policies and institutions of

economic liberalism. The countermovement “was more than the usual defensive

behavior of a society faced with change; it was a reaction against a dislocation which


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attacked the fabric of society and which would have destroyed the very organization of

production that the market had called into being” (Polanyi 2001:136).

Polanyi maintained that there was no disagreement between the liberal tradition

and himself on the existence of the double movement. “Liberal writers like Spencer and

Sumner, Mises and Lippmann offer an account of the double movement substantially

similar to our own” (Polanyi 2001:148). Thus it is more or less agreed “that the liberal

movement, intent on the spreading of the market system, was met by a protective

countermovement tending toward its restriction (Polanyi 2001:151). Likewise, Polanyi

and the liberal tradition fully accepted the technology improvement and economic

prosperity created by economic liberal policy and institutions (Polanyi 2001:35). The

disagreement between Polanyi and the liberal tradition pivoted on alternative

interpretations of the social causes and forces, and socio-political motivations underlying

the countermovement.

Liberal theorists viewed the existence of the countermovement and all modes of

protectionism as mistakes of agency “due to impatience, greed, and shortsightedness, but

for which the market would have resolved its difficulties” (Polanyi 2001:148). The

problem here was that countermovement would have to be understood as a great “anti-

liberal” or collectivist “conspiracy” (Polanyi 2001:151). Polanyi offers several reasons

why such a collectivist conspiracy was pure invention. First, there existed an “amazing

diversity” in issues resisted, and modes of resistance, which often included supporters of

economic liberal policy. Secondly, the collectivist reactions were startlingly

spontaneous, local, and often unconnected to other countermovements in other times and

places. Thirdly, the historical political ideological configurations were highly varied.


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Forth, economic liberals often themselves advocated restrictions on the freedom of trade

and market activity; hence, anti-liberal, or collectivist ideology could hardly have been

their motive13. Polanyi insists that ignorance, impatience, greed, and shortsightedness are

desperately ineffective, incomplete and deficient as an explanation for the ubiquitous,

diversity, and intensity of the countermovement.

In Polanyi’s alternative view, in fact his main thesis was that the concept of a self-

regulating market-system was strictly utopian and could not actually be institutionalized

as a social reality14, without destroying the foundations of culture, society and social

being. Polanyi’s interpretation would pivot on metacritique1, or isolating the

inconsistencies of economic liberalism, and the absence or theoretical inability of liberal

theorists to adequately account for the present of the countermovement, and persistence

of personal poverty, social deprivation, economic crisis which characterizes the historical

development of capitalism as a social system.

Initiating Polanyi’s metacritique1 was the very existence of a ubiquitous, highly

diverse, and often intense countermovement. The Polanyian metacritique1 would further

reinterpret market activity in history; develop a radically new understanding of the

constitutions of the main “factors of production,” land, labor, and capital/money, and a

rediscovery of the role of economy in the fabric of society.

Before outlining the fine structure of the upper level of Polanyi’s metacritique1, it

is worth pointing out the Polanyian critiques which support it. Polanyi’s theory of double

13 John M. Keynes would be a very obvious example. But a striking phenomenon in the works of liberal writers such as Mises, Hayek and Friedman is the degree of restriction on trade and intervention in market activity which they advocate. 14 Polanyi writes that his “thesis” is “that the origins of the cataclysm lay in the utopian endeavor of economic liberalism to set up a self-regulating market system” (Polanyi 2001:31).


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movement is an Achilles’ Heel critique (AH critique)15. Polanyi isolates and accepts the

strong point in the liberal creed: free-market policy generates technological improvement,

economic prosperity, and increased political freedom. He then pinpoints a blind spot in

liberal version. Namely, economic liberal theorist cannot account for the rise of a

ubiquitous, highly diverse, and often intense countermovement. Polanyi then argues that

the very institutional system responsible for the creation of the celebrated technological

improvement, economic prosperity, and increased political freedom, is also responsibility

for the destruction of the social and culture fabric. Hence what appears to be the strong

point of economic liberalism is actually shown to be a highly weak point, or debilitating

aspect to the policies of economic liberalism. The symbiotic relationship between

“improvement” and destroyed human “habitation” is demonstrated to be the Achilles’

heel of economic liberalism.

Polanyi’s theory of the double movement is also an immanent critique16 of

economic liberalism. It is immanent in that the promise of liberalism cannot be achieved

without the full destruction of society itself. In others the very conditions of

legitimization of the market system: technological improvement, economic prosperity,

and increased political freedom cannot be sustained. Hence a real Habermasian

15 Bhaskar (1993:396) defines an Achilles’ Heel critique as follows: “An Achilles’ Heel critique pinpoints the blindspot in a theory, characteristically at what appears to be its strongest point.” 16 David Harvey (1990:5) explains immanent critique as follows: “As immanent critique, [critical theory] then 'enters its object,' so to speak, 'boring from within.' Provisionally accepting the methodological presuppositions, substantive premises, and truth-claims of orthodoxy as its own, immanent critique tests the postulates of orthodoxy by the latter's own standards of proof and accuracy. Upon 'entering' the theory, orthodoxy's premises and assertions are registered and certain strategic contradictions located. These contradictions are then developed according to their own logic, and at some point in this process of internal expansion, the one-sided proclamations of orthodoxy collapse as material instances and their contradictions are allowed to develop 'naturally.”


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legitimization crisis17 has been immanently demonstrated by Polanyi. As an immanent

problem or internal contradiction, political conspiracy is not the culprit behind forms of

protectionism and trade restrictions. Rather protectionism and trade restrictions are a

manifestation from the ontological constitution of policies and institutions of economic

liberalism and market activity itself. The ontological constitution of the institution of the

self-regulating market is both destructive and impracticable.

The Axiological Shift: Polanyi’s Social Theory of an Embedded Economy or the Deinstitutionalization of Economistic Fallacy

Polanyi’s analysis is not merely negative or pure critique. The metacritique2

Polanyi constructs is an axiological shift. The axiological shift is instructive and

potentially emancipatory. Polanyi’s metacritique2 is an axiological reclaiming of the role

of economics in social being. The formal definition of economics as the study rational

maximizing of social agents under conditions of scarcity, for the production of goods and

services in order to satisfy unlimited wants18 is peculiar in human history, and particular

to market economies. Polanyi maintained that a careful study of history and

anthropology offers a more general, or universal, definition of economics.

Most broadly Polanyi’s substantive definition of economics is how social agents

relate to one another and to the social and natural environment in their production of

goods and service to satisfy (limited/unlimited19) wants20. It presupposes neither rational

17 Habermas’ concept of “legitimation crisis” refers to a situation in theory or practice, but especially practice, when the “the ‘organizational principles’, or ‘organizational institutions’, of society does not permit the resolution of problems and crises that are critical for, and necessary to the continued existence of that social order (see Habermas 196?). 18 This definition of economics is the conventional wisdom. Lionel Robbins is the best-known advocate of this definition: “the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses” (Robbins 1932:16). 19 Whether individual or social wants are limited or unlimited is an axiological question, conditioned by the institutional arrangement of society.


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decision-making nor conditions of scarcity. Agency and individual actions in non-market

economies is not so much based on the rational maximization principles, but rather on

social relationships, cultural values, moral considerations, politics and religion.

The outstanding discovery of recent historical and anthological research is that man’s economic, as a rule, is submerged in his social relationships. He does not act so as to safeguard his individual interest in the possession of material goods; he acts so as to safeguard his social standing, his social claims, his social assets. He values material goods only in so far as they serve this end. Neither the process of production nor that of distribution is linked to specific economic interests attached to the possession of goods; but every single step in the process is geared to a number of social interests which eventually ensure that required step be taken (Polanyi 2001:48).

Polanyi summarized the difference between the formal and substantive definition of

economics as follows:

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

capital/wage nexus whereby, and wherefore, the notion of “economic” emerges as term

with independent meaning from society21. The formal definition of the economy is only

20 In Polanyi’s own words, the substantive economy is an "instituted process of interaction between man and his environment, which results in a continuous supply of want satisfying material means" (1968:126). 21 Polanyi dates the emergence of full-blown capitalism from 1834. However, the notion of an economy begins to have independent meaning from social being by the seventeenth century in the literature of mercantilist writers.

More specifically political economy emerges as an independent and systematic discipline in strict concomitance with the development of the capitalist mode of production, or the historical attempt to institute a self-regulating market-system. The theoretical autonomy of political economy in fact coincided with the establishment of the economic process as a circular process of production and reproduction of surplus product, or the material goods beyond the needs of any given society.

John Stuart Mill marked the transition from political economy to economics, abandoning the notion surplus product as an explanation for profit. Instead profits (as were wages, rent, and interest) were


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applicable to modernity. It is categorial error to apply to pre-modern society and post-

modern societies alike. Its only application is to the ideal of a self-regulating market


A market economy is an economic system controlled, regulated, and directed by market prices; order in the production and distribution of goods is entrusted to this self-regulating mechanism. An economy of this kind derives from the expectation that human beings behave in such a way as to achieve maximum money gains. It assumes markets in which the supply of goods (including services) available at a definite price will equal the demand at that price. It assumes the presence of money, which functions as purchasing power in the hands of its owners. Production will then be controlled by prices, for the profits of those who direct production will depend upon them; the distribution of the goods also will depend upon prices, for prices form incomes, and it is with the help of these incomes that the goods produced are distributed amongst the members of society. Under these assumptions order in the production and distribution of goods is ensured by prices alone (Polanyi 2001:71-2). The conception of such an economy is utopia. According to Polanyi attempts to

institutionalize the ideal of a self-regulating market economy will generate calamities and

catastrophe, due to deep internal contradictions. The main (Polanyian) contradiction that

emerges from the market economy, in turn generating the historical phenomenon of the

double movement, is that society becomes an adjunct to markets. The social relations

which are so important to the maintenance and reproduction of society are demoted, and

destabilized in market society. The economy becomes “disembedded” from the social

relations, broadly understood.

The disembedded economy prioritized production for gain, and sanctioned

behavior antagonistic to social patterns of integration. The antagonism toward social

explained as remuneration for some factor of production (respectively, entrepreneurship, labor, land, capital/money). Mill would maintain there existed no (social) “laws” that determined distribution of these remunerations.

The “Marginalist Revolution” in 1870s would formally establish political economy as economics. Moreover, it was claimed the social “laws” of markets determined distribution, just as it determined all other prices of commodities. In 1870s economics emerges as an independent and systemic discipline in strict concomitance with the first global crisis or Great Depression. In economics the production process was no longer conceived as a practice to achieve surplus product, but instead a practice to satisfy unlimited wants.


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patterns of integration, destabilized society and gave rise to the phenomenon of a Great

Depression. With patterns of integration disrupted, there emerged cultural degradation

and an institutional existential assault on the quality of human life. We are now in a

position to explain the patterns of integration and principles of behavior that Polanyi

rediscovered and promoted for the institutionalization in the future post-modern society

to emerge following the great transformation.

The Rediscovery of Social Integration

In contrast to a disembedded economy, an embedded economy is integral to the

whole social fabric. Unlike a market society, social axiology in an embedded economy is

not reduced to mere exchange-value (see Meikle 19??:169-73). Instead in societies of

antiquity the axiological motives were predominantly social. Social integration within

embedded economy is not achieved through the market institution via the mechanism of

price adjustment. Instead Polanyi maintained all economies are integrated by three

modes of transaction or principles of behavior, reciprocity, redistribution and

householding. Each of these principles of behavior is associated with an integrative

institutional pattern, and in turn each gives rise to particular social and political structures

and institutional forms.

Reciprocity is most often the dominant principle of behavior in societies of

antiquity and developing societies. The principle of reciprocity involves transactions of

material goods and services, with an aim toward nurturing and maintaining social

relations. “Reciprocity is enormously facilitated by the institutional pattern of symmetry”

(Polanyi 2001:51). The institutional pattern of symmetry can be understood as a social

chain of mutual obligation or indebtedness. Symmetry is a key integration pattern of all


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societies. Contemporary automobile driving provides an example. Driver one yields to

another driver two on the assumption there will be symmetry of such action as long as the

principle is not too frequently violated. In this sense all drivers are symmetrically

obligated to each other in a chain of reciprocal actions.

In this sense symmetry is social pattern of mutual gift-giving (think of modern

day holiday-card exchanges). It does not require that participates give back and forth to

one another, for a considerable amount of time can elapse between giving and receiving.

And the transactions may not involve the same partners. Moreover, haggling and

bargaining need not play any part in the transaction.

Redistribution is a principle of behavior that involves the allocation or

reallocation of goods on the basis of social custom, political process, law, or central

authority. The integrative pattern in redistribution was centricity. The integrative pattern

of centricity involved a social center figure, which need not have political power, who

would provide a strategy “for the collection, storage, and redistribution of goods and

services” (Polanyi 2001:51). Most often the redistribution was based upon social rank or

status. As such, redistribution need not be based on equality or any notion of justice,

reproduction and social well-being is the aim of redistribution. Redistribution integration

principle of centricity is an essential pattern to all societies. Centricity nurtures,

promotes, and sustains society’s division of labor, foreign trade, taxation for public

purposes, and defense provisions (Polanyi 2001:50).

In householding the aim is toward self-sufficiency, and “consists in the production

of one’s own use” (Polanyi 2001:55)22. The social integrative pattern associated with

housing is autarchy or decentralized self-governance. Householding may include 22 Self-efficacy might be very useful development for Polanyian social theory.


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exchange for accessory production, or the surplus product of the household. As long as

the market exchange was only for surplus product, the self-sufficiency of the household

need not be diminished. Householding was an important integrative pattern for the

Greek oikos, the European Medieval manor, and the extended peasant family.

In his later works Polanyi would see householding as less important. The work of

Finley would reestablish the importance of householding or self-sufficiency as a

motivation principle, and autarchy as an integrative pattern to ancient economies (Finley

1973; Cartledge 2002:14). According to Polanyi it was Aristotle who best understood the

importance of householding (Polanyi 1968). Aristotle understood the axiological

implications of production for gain as opposed to production for the oikos and self-

sufficiency. Production for gain, undermined householding, damaged the integrative

principle of reciprocity, and destroyed the sense of good will. Aristotle prophetically

understood the danger of market production for gain by seeing the damage that would be

done to social integration, and consequently to the sense of fairness and social justice.

Polanyi’s argument is that these principles of behavior and social integration

patterns are present in all societies. Each of these behavior-integration pairs have a meta-

social result or form. Reciprocity-Symmetry promoted social order and encouraged a

sense of fairness, justice, honesty, and trust throughout the society. Redistribution-

Centricity assured reproduction, stability and a sense of empathy, altruism, and respect.

Householding-Autarchy sustained the ideal of self-sufficiency and practical self-efficacy,

supporting the notions of liberty, freedom, and self-determination.


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The Primacy of Aristotle in the History of Economic Thought

Which behavior-integration pair is predominating in a society is an axiological

and cultural contingency. Polanyi’s emphasis was that the forth behavior-integration pair

of Barter/Exchange-Market was present in nearly very civilization or human society, but

the social role of markets “was not more than incidental to economic life” (Polanyi

1968:3). Markets were only incidental to economic life and peripheral to social being for

Aristotelian reasons.

Market Production for gain and market motivation was caustic to the greater

patterns of integration. Self-regulating markets imply competition and power relations,

and may involve acts of desperation or social disadvantage; necessarily trade relations for

gain involve antagonistic trading agents. The antagonism between trading agents is

corrosive on the integration patterns, meta-social forms. Hence, Barter/Exchange-Market

pattern tended to be antagonistic to the other behavior-integration pairs and their meta-

social results.

The market pattern [in contrast to the embedded economy] being related to a peculiar motive of its own, the motive of truck or barter, is capable of creating a specific institution, namely, the market. Ultimately, that is why the control of the economic system by the market is of overwhelming consequence to the whole organization of society: it means no less than the running of society as an adjunct to the market. Instead of economy being embedded in social relations, socials are embedded in the economic system. […] once the economic system is organized in separate institutions, based on specific motives and conferring a special status, society must be shaped in such a manner as to allow that system to function according to its own laws (Polanyi 2001:60). The Aristotelian resistance of self-regulating markets prevailed throughout human

history. On this point Polanyi was insistent, “previously to our time no economy has ever

existed, even in principle, [that] was controlled by markets. […] gain and profit made on

exchange never before played an import part in human economy. […] We have good

reason to insist on this point with all the emphasis at our command” (Polanyi 2001:45,


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emphasis added). The Aristotelian view was dominant; “gain and profit made on

exchange” was corrosive of social patterns of integration. Consequently, inhibiting social

reproduction and generating the tendency toward socio-economic crisis, hence

necessitating political management of socio-economic crisis, manifesting conditions for

political rivalry, contention, and war. In the Aristotelian view “gain and profit made on

exchange” was further destructive of the meta-social forms of justice, human empathy,

and self-determination. Consequently it was disruptive to the stability of human material

life dislocating social relations, generating unemployment, poverty, anxiety, general

unhappiness and lack of wellness23.

Polanyi identifies a major categorial error dominate in mainstream economics.

The categorial error is the application of the market pattern as the integrative form for the

interpretation and understanding of all complex civilizations. His proposition and

hypothesis is, the orthodox assumption of the conventional wisdom, that the market

pattern is the predominate social integrative form in complex civilizations is an historical

error (see Polanyi et. al. 1957:244-6).

The conventional wisdom is accustomed to assuming the hallmark of the

economy, indeed of civilization more generally, is the market pattern. Historical and

anthropological studies do not support this assumption. Thus Polanyi asks (and answers),

What is to be done, though, when it appears that some economies have operated on altogether different principles, showing a widespread use of money, and far-flung trading activities, yet no evidence of markets or gain made on buying or selling? It is then that we must re-examine our notions of the economy. (Polanyi et. al. 1957:xvii).

23 E.P. Thompson’s Making of the English Working-Class can be read in this context with spectacular consistency to the work of Karl Polanyi. To be sure Thompson’s main aim was to demonstrate the role of working-class agency in the making of capitalistic institutional forms. However, much of the “organized” and “conscious” action of the eighteenth century English people were based on unacknowledged conditions and unintended (institutional) consequences.


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Polanyi’s call for re-examination is noticeably a metacritique2 comment. It is a challenge

to the orthodox ontology of the economy. The Polanyian aim is to overcome the

categorial error of applying the market pattern to all civilizations and avoid the

economistic fallacy.

The Historical Function and Origin of the Market Pattern

The geo-historical metamorphosis of “isolated markets into a market economy,

regulated markets into a self-regulating market, is indeed crucial” (Polanyi 2001:60).

Polanyi concern is unambiguously the function and origin of the market pattern. With

respect to function, the overarching point of Polanyi, is that it cannot assume to be simply

for gain. The presence of exchange, and more generally transactions, may simply be a

network of reciprocity of social symmetry. In such cases gain may be part of the aim, but

it could be a highly small, or even absent part of an exchange or transaction.

Polanyi distinguishes between three types of market patterns: local, external, and

internal. Local market patterns are generally between neighbors and are not necessarily

motivated by gain, nor involve competition. Instead they are dominated by the

motivation of reciprocity, and the pattern of symmetry. External trade is carrying, or

peddling surplus product to neighbors that have an absence of a particular good. External

are highly eclectic. The may be for gain, but need not necessarily be so; reciprocity or

even retaliation is just as likely of a motivation.

Polanyi’s argument should not be exaggerated. In both local markets and external

markets, barter for gain, a Pareto improvement for both immediate trading may result. In

this sense Polanyi is not denying the possibility of the interpretation of the conventional

wisdom. Rather he is heeding warning that it was common in pre-industrial transactions


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that Pareto improvement for both immediate participates need not occur when the

behavioral patterns of reciprocity, redistribution, householding, or otherwise


With respect to internal or national markets the function is clearly gain. The

Polanyian question is then what is the origin of the national market. This is the more

esoteric insight of Polanyi. His point is not to deny the historical existence of

competitive national markets in human history. Rather is point is twofold: First not to

conflate all exchanges and transactions with the motive for gain (hence the distinction

between local, external, and internal markets; second the origin of competitive national

markets was not “the natural outcome of the spreading of markets” or from a human

propensity to truck and barter. In this sense, he rejects the conventional sequence and

chorology of the ‘development’ of internal or national market patterns. The conventional


Human Propensity to Barter → Division of Labor → Local Market Pattern → Extension of Market Pattern to Nation/Region → Extension of Market Pattern to Long-Distance Trade

Polanyi proposes a revised sequence:

Long-Distance Trade ↔ State Construction of National Market Pattern → Change in Local Division of Labor → Change in Local Market Pattern (e.g. from reciprocity to gain) → Emergence of Social Necessity to Barter The Polanyian revised sequence first emphasized that national market patterns did

not emerge from local exchange or transactions (Polanyi 2001:66). This is not to deny

the existence of such transactions, but to emphasis the motivation behind them; and the

social patterns of integration generated. The second emphasis, and primary point, was

the role of the state as necessary in the construction and maintenance of competitive

market patterns. Mercantilism was the piece-meal produced pamphlets that articulated

the policy of internalization or nationalization of foreign trade. The main motive of


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mercantilism was seemingly “the purposes of power in foreign affairs” (Polanyi

2001:69), i.e. to assure profits in foreign trade.

In his critique of Polanyi, Fernand Braudel (1982:224-9) misinterprets Polanyi

and his colleagues’ primary point. Braudel interprets Polanyi as denying the existence of

market patterns of gain24. Instead Polanyi’s point is that competitive markets require

intervention to assure social integration. The point seems completely lost to Braudel.

Braudel then proceeds to over-interpret Polanyi in two ways. He first over-interprets

Polanyi concerning the role of gain in local market patterns within historic civilizations.

Polanyi does not claim the absence of the motivation of gain, as Braudel over-interprets

him, but the relative diminished importance of gain in such societies. The second over-

interpretation concerns the degree to which market economies become disembedded.

Consequently he does not fully appreciate Polanyi’s revised sequence and its

contemporary relevance. Braudel does not seem to understand Polanyi’s emphasis on the

role of state intervention for the creation of national markets. As a consequence Braudel

seems to completely miss the implication of Polanyi’s analysis for social theory and

insights for social policy,25 and the potential Polanyi offers for understanding

contemporary circumstance26.

24 In fact in Polanyi's last book Dahomey and the Slave Trade (Polanyi 1966), he amplifies the themes of external trade and the existence of ports of trade which were too briefly dealt with in The Great Transformation (Polanyi 2001:64-70), and in a 1963 paper published in The Journal of Economic History (Polanyi 1963). He shows that 'ports of trade' were common. External trade would bring goods and services that were not available within the local reciprocity system. However, external trade was limited to the ‘ports of trade’ and port cities, were the often competitive market pattern could be administered and controlled by local or municipal port authorities. The municipal port authorities would ensure that the market pattern of competitive trade was isolated from the domestic network of reciprocity and patterns of symmetry. Polanyi does point out the limit upon the price mechanism in these ‘ports of trade.’ Municipal port authorities set the exchange rules and rates, not always by price (Polanyi 1966). 25 Polanyi expresses the insights for social policy in the following terms: “In the receding rule of the market in the modern world, shapes reminiscent of the economic organisation of earlier times make their


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The Myth of Market Non-Intervention: Polanyi’s Theory of Fictitious Commodities

We are now in a position to explicitly identify the primary paradox or “root

problem” of market society: interventionism by the state (Polanyi 2001:239). Self-

regulation implies non-intervention, but the ontology of markets, both in its genesis and

maintenance requires intervention. The necessity of maintenance is implied and

demonstrated by our presentation of the Polanyian double movement above. Now we

turn to the deeper ontology that produces the double movement, and necessity for market


For Polanyi the deep or real ontological problem is that the price mechanism is

not capable of self-regulating the most important “commodities” in society: land, labor

and money. Mainstream economics call these commodities, along with entrepreneurship

the “factors of production.” If the price mechanism fails to regulate the supply and

demand of all commodities, then the economy cannot be fully ruled by self-regulating

“laws” of market.

According to Polanyi the price mechanism fails to adequately regulate the factors

of production as commodities, because they are not real commodities. Polanyi defines a

commodity as good or services produced for sale on the market. Land, labor and money

are not produced for sale on the market, hence they are not commodities; or in Polanyi’s

language they are “fictitious commodities.”

appearance. Of course we stand firmly committed to the progress and freedoms which are the promise of modern society. But a purposeful use of the past may help us to meet our present over concern with economic matters and to achieve a level of human integration, that comprises the economy, without being absorbed in it” (Polanyi et al. 1957 xviii). 26 To be sure Braudel’s propose is empirical and historical. Hence, the third fault of Braudel is easily forgiven.


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Land and raw material more generally does not have the constitution of a

commodity because, for example, depletion. Consider a national park that has timber for

sale. If logging is allowed the price of lumber will merely reflect the marginal effort of

logging, it will not reflect the destruction of the environment. Likewise, in the

production and sale of oil the price does not reflect the potential for depletion, but the

marginal costs of drilling and refining.

Labor also does not follow the dictates of the market. Consider a “real”

commodity in surplus, such as peas. Suppose the price of peas is too high, hence quantity

supplied is greater than quantity demanded. What will happen? The price of peas will

fall; perhaps slowly or rapidly, depending on the degree of competition, level of demand,

etc. In any case no violence to the integrity of peas occurs if the price falls rapidly, or if

they are stored in warehouses for future higher priced sales. For human labor the results

are different. A surplus of workers is unemployment. A rapid decrease in wages, given a

surplus, does tremendous damage to the financial circumstances and well-being of

workers and (according to Keynes’ multiplier theory) the stability of macroeconomy.

Money, in an economic sense, is the most problematic of all. The price of money,

i.e. interest rates, moves in the wrong direction when the macroeconomy is unhealthy or

in a depression. The money supply also must be adjusted to control the problems of

inflation and deflation alike, along with changes in the exchange rates with other

currencies. Neo-liberalism has completely accepted monetary intervention since the time

of Polanyi. Intervention it is. Self-regulating markets are purely utopia.


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Implications following the Theory of Fictitious Commodities

There are three implications in Polanyi’s analysis. First individuals resist the

negative impacts manifest from the market failures of the fictitious commodities. This is

the real root of the double movement. Second, the market for fictitious commodities

must be managed and regulated. Markets for land, labor, and money do not self-regulate,

the mechanism of self-regulation, i.e. the price system is not capable of adjusting the

market of fictitious commodities. Without management of markets of fictitious

commodities, there is a tendency toward market collapse, leading to the potential of

political protest and social revolution. In short, money necessities a central bank; the

public sector must mediate disputes between labor and business; the public sector must

protect land, waterways, environment from destruction and pollution. Thirdly, it is an

axiological mistake to subject land and labor to the dictates of the market. Not only does

it do violence to the moral realism implicit in Polanyi27, it is an abomination of human

history (see Polanyi 2001:76; also Block 2001:xxv).

The presence of the double movement indicates a malfunction of system

integration. Culmination of this malfunction is a Great Depression. Hence, the fictitious

commodities necessarily impede system integration, or create system malintegration.

The malfunction of systemic integration in a self-regulating of the market-system arises

for two reasons. (1) The presence of fictitious commodities leads to the failure of the

price mechanism to adjust markets, and regulated the market system. (2) Competitive

market activity tends to undermine the alternative patterns of system integration.

Competition undermines reciprocity, self-regulation undermines redistribution, and

27 See Gregory Baum’s (1996) Karl Polanyi: on ethics and economics for an argument that supports Polanyi holding a moral realism position.


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extension of markets implies a deep division of labor and specialization, undermining


Polanyi’s anticipation of Archer’s Morphogenetic Cycles Approach to Social Theory

Polanyi’s social theory anticipates the work of Margaret Archer and her modeling

of morphogenetic cycles. Archer’s morphogenetic approach to social theory draws from

and develops upon David Lockwood’s distinction between “social integration” and

“system integration.” In this distinction Lockwood is wrestling with two distinct

sociological traditions, the “conflict theory” of Marxian class conflict, and the

“functionalist theory” of the Parsonsian/Durkheimian traditions. Lockwood attempts a

type of synthesis of these traditions by conceiving a relationship between “social

integration” and “system integration.” According to Lockwood the basis of this

distinction is real. “Whereas the problem of social integration focuses attention upon the

orderly or conflictful relationships between the actors, the problem of system integration

focuses on the orderly or conflictful relationship between the parts of a social system”

(Lockwood 1964:245).

This allows for social conflict between agents (e.g. employees and employers),

while supporting the successful reproduction of social relations (e.g. the relationship

between employee/employer reproduced). In this sense social conflict is insufficient for

the transformation of social relations. Transformation of social relations requires

malintegration of the “part” or subsystems of a social system. However, if there exists

systemic malintegration, but no social conflict, again no transformation in social relations

takes place. According to Lockwood social transformation requires both social

malintegration and systemic malintegration (Lockwood 1964:252; Archer 1996:291).


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Accepting Lockwood’s distinction between social and system integration Archer

constructs a theory and model of cultural and structural processes of change. She calls

her theoretical model the morphogenetic/morphostasis (M/M) approach to social theory

(1996; 1995; 2000). Her overarching aim is to build a sociological framework within the

same theoretical umbrella, to better understand the relationship between agency, culture,

and structure (Archer 1996:274). Archer’s M/M approach to social theory

conceptualizes the interplay between structure, cultural, and agency over time and space

(Archer 1996:15).

Without going into the fine details of Archer’s model we will hone-in on the

structural domain of the M/M model. Archers M/M framework is based on two basic


(i) That structure necessarily pre-dates the action(s) which reproduce or transform it;

(ii) That structural elaboration necessarily post-dates the action sequences which gave rise to it.

Archer makes an analytical distinction between three phases in otherwise continuous

process of human activity and interaction. In Phase 1, agents draw from the modes of

interaction conducted in previous experience, and from knowledge of past social

relations. In Phase 1 structural conditioning takes place, based upon the

intended/unintended consequences of previous actions, and the

acknowledged/unacknowledged conditions previously existing. In Phase 2 interaction

between agents takes places in current time. In Phase 3 the social relations informing

Phase 1, will either be reproduced or transformed. Archer calls the Phase 3 “structural

elaboration” (Archer 1995:193).


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The basics of the M/M approach can be illustrated in figure 2, the

Morphogenetic/static diagram (Archer 1995:157):

◄◄◄------- Pre-existing structures ▼ T1 or prior interactions Previous (Structural conditioning) Cycles T0 T2 Production T3 Subsequent (Social Interaction) Cycles T5… ▲ Reproduction/Morphostasis T4 ▲ (Social elaboration) ▲ -----►►►

Transformation/Morphogenesis T4 (Social elaboration)

Figure 2 The basic morphogenetic/static cycle with its three phases

(Adapted from Archer 1995:158)

Polanyi is himself attempting to model social and system (mal)integration28. He

implicitly has something in mind very reminiscent of Archer’s morphogenetic cycle.

However, for Polanyi there is social mediation between Archer’s Phase 1 – Phase 2 and

social mediation between Phase 2 – Phase 3. In pre-modern societies the social

mediations are the patterns of integration, symmetry, centricity, and autarchy; along with

the transaction modes of reciprocity, redistribution, and householding. These social

mediations, i.e., Polanyi’s patterns of integration and modes of transaction are readily

accommodated by the morphogenetic/static cycle diagram, as demonstrated in figure 3:

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


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◄◄◄------- Pre-existing structures ▼ T1 or prior interactions Previous (Structural conditioning) Cycles T0 Transaction Modes Patterns of Integration Reciprocity Symmetry Redistribution Centricity Autarchy Householding -------------- ------------------- Transaction/Barter Local/External Markets

T2 Production T3

(Social Interaction) Transaction Modes Patterns of Integration Reciprocity Symmetry Redistribution Centricity Subsequent Autarchy Householding Cycles T5… -------------- ------------------- ▲ Transaction/Barter Local/External Markets ▲ -----►►► Reproduction/Morphostasis

(Transformation/Morphogenesis) T4 (Social elaboration)

Figure 3

The pre-modern social system The basic morphogenetic/static cycle with its three phases

Including Polanyi’s social mediations

In figure 3 internal or national markets are more or less absence. The trade and market

activity that predominates is either local or external. When it is local the transaction

modes of reciprocity, redistribution, and autarchy are hegemonic, and barter for gain is

both unusual and crass. As such the patterns of system integration are symmetry,

centricity, and householding. Between T1 → T2 phases, agents draw from their

knowledge and experience of previous transactions, which informs their activity in their

social interaction or during the T2 → T3 phase. Of course social conflict is potential, or

even likely, during T2 → T3 phase. However, when the transaction modes are not


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transgressed and patterns of integration are stalwart then stable reproduction or

morphostasis cycle is likely.

Key to Polanyi is that in pre-modern social systems, barter for gain is a shadow

activity. It was restrained by only being allowed in designated areas, such a port towns,

and other external markets. In figure 3, the dashed line separating “Transaction/Barter”

and “Local/External Markets” from respectively the other transaction modes and patterns

of integration are intended to demonstrate barter for gain as a shadow activity.

With the geo-historical emergence of the market system barter for gain, or

pecuniary barter comes to overshadow the others transaction modes. We say

overshadowed because no society, according to Polanyi, can exist without the transaction

modes of reciprocity, redistribution and householding. The only question is the relative

strength. The institutional pattern of integration in a market society is the market itself,

and the price changes as the adjustment mechanism.

Polanyi argues that because land, labor, and money are fictitious commodities

price changes are incapable of adjusting the system toward integration. Market self-

regulation is a utopia or ideal that has never, and can never, be realized. Hence, some

form of protection and management of fictitious commodities will always be performed.

However, according to Polanyi, it is not simply that the patterns of integration are

replaced by the markets/price mechanism, but also the transactions modes of reciprocity,

redistribution, and householding are damaged by the pecuniary exchange activity. This is

important because the three transaction modes are essential for every society. Hence,

during the T2 → T3 phase the damage caused by pecuniary activity must be mended.


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Figure 4 illustrates the market societies of modernity and high-modernity. The

other three transactions modes are overshadowed by pecuniary barter and the real

patterns of social integration are both overshadowed and hidden by the ideal of the self-

regulating market. Self-regulating markets are a fiction, an ideology overshadowing and

hiding an important institutional reality: market activity requires intervention and repair.

◄◄◄------- Pre-existing structures ▼ T1 or prior interactions Previous (Structural conditioning) Cycles T0 Transaction Modes Institutional Patterns of Malintegration Pecuniary Barter Self-Regulating Market Ideal → Public/Social Intervention ----------------- ----------------------------------------------------------- Reciprocity Protection of Fictitious Commodities Redistribution (a) Money Management (Central Bank) Householding (b) Environmental Laws (i) Regulation of Externalities (ii) Production of Public Goods (c) Labor Laws

T2 Production T3

(Social Interaction) Subsequent Institutional Cycles T5… Transaction Modes Patterns of Malintegration ▲ Pecuniary Barter Market Practice→Public Intervention▲ ------------------ --------------------------------------▲ Reciprocity Restoration of Reciprocity ▲ Redistribution Mass Redistribution ▲ Householding Remediation of Social-efficacy ▲ -----►►► Reproduction/Morphostasis

(Transformation/Morphogenesis) T4 (Social elaboration)

Figure 4

The (high-)modernity social market system

The intervention required concerns addressing the inadequacy of the price mechanism for

regulating land, labor and money. The mending and repair concerns the damage suffered

to the behavioral patterns of reciprocity, redistribution, and householding. Reciprocity

must be restored, redistribution must be carried out on a massive scale, and there must be


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remediation for a sense of social-efficacy. Figure five attempts to summarize the

common forms of restoration of reciprocity, mass redistribution, and remediation of


Institutional Patterns of Malintegration Market Practice→Public Intervention -------------------------------------- ╟ Legislation ╟ Restitution Restoration of Reciprocity ╟ Retribution

╟ Regulation ╟ Entitlement Programs

╟ Social Insurance Program Mass Redistribution ╟ Fiscal Discretionary Policy ╟ Price Regulation and Legislation ╟ Skill Development Program ╟ Vicarious Experiences Remediation of Social-efficacy ╟ Social Persuasion ╟ Coping Capabilities

Figure 5

(High-)Modernity Social Market System Institutional Patterns of Integration

Morphogenesis Cycle from T3 → T4


Karl Polanyi’s social theory and analysis has much to offer contemporary social

theorists. Many contemporary theorists are returning to Karl Polanyi for insights and

inspiration for understanding the current global crises. In this paper I have demonstrated

that Polanyi anticipates remarkably close the ideal of Roy Bhaskar’s sketch of social

science as an effort of explanatory critique. In his The Great Transformation Polanyi

constructs a sequence of Achilles Heel critiques which demonstrate the weaknesses of

mainstream neo-classical economic for explaining and understanding historical and

anthropological phenomena. These sequential critiques culminate in Polanyi’s main

Achilles Heel critique which demonstrates that capitalism’s greatest strength, i.e.,


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economic development and technological improvement, simultaneously destroys human

habitation and diminishes the quality of human life. Hence, capitalism’s greatest strength

is shown to actually be grounds for its greatest weaknesses.

From here Polanyi was shown to engage in the development of a rigorous

immanent critique. Polanyi identifies a series of theory/practice inconsistencies

stemming from the theory of economic liberalism, and the ideal of self-regulating

markets. Constituting his metacritique1, Polanyi develops numerous new concepts and

theory to isolate and identify the omissions and blind-spots of conventional wisdom; and

demonstrates the tendency of reification manifest from the deficiencies of economic

liberalism as a theory. Polanyi metacritique1 is based upon a new bold social ontology

constructed from his second-hand analyses and interpretations of social history,

anthropology and philosophy. Polanyi’s bold social ontology provides him the ability to

explain the reproduction of an improvised theory, constituting his metacritique2. The

latter section of The Great Transformation Polanyi engages in a series of demonstrations

of the biases and categorial errors committed by mainstream economic analysis,

constituting Polanyi’s ideological critiques.

It was further argued that Polanyi anticipated the morphogenetic cycle of

Margaret Archer. It was argued that there is great consistency between the aims of

Polanyi’s social theory and Archer’s M/M approach. Polanyi clearly distinguishes

between “social integration” and “system integration.” Important to Archer’s version,

Polanyi was shown to persistently maintain a commitment to malintegration as an

essential feature of a “disembedded” economy. Polanyi also offers insights in the

historical details of malintegration, and the necessary institutional forms to mend the


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malintegration of market systems of modernity. An alliance between Polanyi’s social

theory and Archer’s M/M approach has great potential and promise for developing new

insights and inspirations for contemporary social scientists29.

The Bhaskarian driven interpretation allows us to make comment on the

relationship between Polanyi and Karl Marx. On the surface Polanyi’s more reformist

language, and Marx’s revolutionary language suggests Marx’s theory to be more radical

and greater challenge to economic liberalism. However, unfolding the details of

Polanyi’s metacritique2 may evoke the opposite judgment. Marx has an over-emphasis

on immanent critique; this is not surprising in that the subtitle of Capital is “a critique of

political economy.” Polanyi develops a more explicit metacritique2 that I will suggest is

29 The Archerian driven interpretation of Polanyi may be especially useful for developing Polanyian social theory toward a contemporary analysis of the “New Economy.” It would pivot upon developing the relationships of the new institutional forms and then attempting to understanding the degree of system integration or malintegration that occurs. According to Archer’s M/M approach, there can exist social conflict without systemic crisis. According to Polanyi and Archer social conflict and contradictions in social being (See chapter 1 of Polnayi (2001), and Archer (2000:276ff) on “The scenario of high-modernity.”) are characteristic of capitalistic social relations. In modern society, Polanyi identified four key institutional forms, each leading to specific stresses, or contradictions. These four social forms and corresponding stresses/contradictions are summarized below: Self-Regulating Market →Unemployment, Poverty, Boom/Bust Sequence Gold Standard → Exchange Rate Problems, Financial Crisis Liberal State → Class Conflict Balance of Powers → Imperialist Rivalries Polanyi argues that each of these institutions were under specific stresses, and relatively morphogenetic (as opposed to morphostatic). It was the contradictions of the gold standard which ultimately accounted for the “great transformation.” In high modernity the institutions and stresses have changed and can be summarized as: Semi-Regulated Market → Managed employment and Inflation, Entitlement Programs, Managed Growth, U.S. Dollar → Financial Crisis (impotent management by IMF and World Bank; potent management by

U.S. Federal Reserve but highly biased toward nationalistic purposes) Non-liberal State → Segmented Workers; Segmented Class Conflict U.S. Hegemony → Non-traditional resistance, e.g. terrorism, opting out of international system (e.g. Iran, Cuba, etc.) In high modernity the most noxious contradiction is U.S. international hegemony, which disrupts the functioning of the other symbiotic related institutional forms (the stresses have been summarized above in the first two pages of this paper).


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potentially a greater challenge the conventional wisdom of economic liberalism and neo-

classical economic theory.