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Citation for published version:
Geoffrey M. Hodgson, ‘Karl Polanyi on economy and society:
a critical analysis of core concepts’, Review of Social
Economy, Vol. 75 (1): 1-25, April 2016.
DOI:
http://dx.doi.org/10.1080/00346764.2016.1171385
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Karl Polanyi on Economy and Society:
A Critical Analysis of Core Concepts
Geoffrey M. Hodgson
1 April 2016
To be published in the Review of Social Economy
Hertfordshire Business School, University of Hertfordshire, Hatfield, Hertfordshire AL10 9AB, UK
www.geoffrey-hodgson.info
g.m.hodgson@herts.ac.uk
KEY WORDS: Karl Polanyi, embeddedness, social, economic, markets, capitalism
JEL classification: B52
ABSTRACT
This journal highlights the social aspects of economic activity. Yet the nature of the
‘social’ and the ‘economic’ are more problematic than often assumed. This article probes
Karl Polanyi’s depiction of the relationship between the ‘social’ and the ‘economic’ and
the notion of ‘embeddedness.’ In his Great Transformation (1944) Polanyi associated the
‘economic’ with motives of material gain, while ‘social’ referred to norms of reciprocity
and redistribution: his distinction underlined different kinds of motivation. But in a 1957
essay he addressed different kinds of institutions that engender different motives. Polanyi
(1944) argued that after 1800 Britain was transformed into a market-oriented ‘economic’
system, based on greed and material gain. He also believed that an effective market
system would be ‘self-adjusting’ and free of political interference, despite his important
additional claim that the state was involved in its creation. Some of Polanyi’s core
concepts and arguments are contradictory and problematic, and need to be reconsidered.
- 1 -
Karl Polanyi on Economy and Society:
A Critical Analysis of Core Concepts
ABSTRACT
This journal highlights the social aspects of economic activity. Yet the nature of the
‘social’ and the ‘economic’ are more problematic than often assumed. This article probes
Karl Polanyi’s depiction of the relationship between the ‘social’ and the ‘economic’ and
the notion of ‘embeddedness.’ In his Great Transformation (1944) Polanyi associated the
‘economic’ with motives of material gain, while ‘social’ referred to norms of reciprocity
and redistribution: his distinction underlined different kinds of motivation. But in a 1957
essay he addressed different kinds of institutions that engender different motives. Polanyi
(1944) argued that after 1800 Britain was transformed into a market-oriented ‘economic’
system, based on greed and material gain. He also believed that an effective market
system would be ‘self-adjusting’ and free of political interference, despite his important
additional claim that the state was involved in its creation. Some of Polanyi’s core
concepts and arguments are contradictory and problematic, and need to be reconsidered.
More than half a century has passed since his death, but the work of Karl Polanyi has not
diminished in influence.
1
Especially since the economic crash of 2008, Polanyi has been cited
as a key critic of the ‘market economy.’ Many have sympathized with Polanyi’s concern
about the potentially destructive, destabilizing or debasing effects of an unleashed market
economy. But, despite his importance, several of Polanyi’s core concepts have been deployed
with little further clarification concerning what they might mean.
In particular, the meanings of key terms such as ‘social’ and ‘economic’ are rarely probed
further in Polanyian discourse. Generally they are far too often taken for granted. Sociologists
have defined the ‘social’ in various ways, but there is no current consensus on the meaning of
the term, or on how it differs from the ‘economic’. The philosopher John Finnis (1980, p.
135) rightly asked: ‘Who has not noticed the peculiar vagueness of the term “social”?’ The
regrettable answer, it seems, is ‘too many’. Similarly, the word ‘economic’ has perennial
ambiguities.
1
The author is very grateful to Bas van Bavel, Fred Block, Deirdre McCloskey, Wolfgang Streeck, anonymous
referees and others for valuable critical comments on earlier drafts of this paper.
- 2 -
Generally, the lack of inter-disciplinary conversation between economics and sociology has
hindered such tasks of conceptual clarification. We need to consider more carefully the
meanings of widely-used and taken-for-granted words.
Even sympathizers have noted some of the conceptual and analytical problems in Polanyi’s
work.
2
Among others, Gareth Dale (2010, p. 246) wrote that his argument concerning ‘how
economies are “embedded” in societies … lacks precision.’ Fred Block and Margaret Somers
(2014, pp. 91, 94) noted the ‘inconsistencies’ and the ‘ambiguities in his discussion of
embeddedness’ in The Great Transformation. They pointed out that Polanyi was under
professional and political pressure to complete the book quickly.
Even more critically, the sociologist Isaac Martin (2015, p. 163) opined that the book is ‘a
mess’ and ‘conceptually sloppy’ with several key terms undefined. Other terms are defined
‘and then used willy-nilly, as if Polanyi forgot what he said the words meant.’ These problems
are not confined to the slippery concept of embeddedness. The serious conceptual flaws in
Polanyi’s work have still so far received insufficient attention. They are a barrier to the
development of the still-viable parts of his approach.
A detailed textual analysis of key passages in Polanyi’s work is essential to try to ascertain
his intended meaning of prominent terms. After his classic work on The Great
Transformation (1944), he attempted to clarify some key concepts and ideas, particularly in a
later essay on ‘the economy as instituted process’ (Polanyi et al. 1957, pp. 243-70; reprinted
in Polanyi 1968). In the process some of their meanings shifted. The analysis here is mostly
confined to these two works.
Much previous criticism of Polanyi’s argument has centred on his claim that markets
played a marginal role in economic systems prior to the nineteenth century. Subsequent
scholars have claimed that markets and prices had a substantial economic influence in ancient
civilizations such as in Rome and Babylonia. But these criticisms do not overturn the
importance of a shift from a non-market to a market system. If markets are defined, following
Polanyi, as organized forums of exchange, rather than trade in general, then they have existed
for no more than a few thousand years (Hodgson 2015a). Other forms of commodity
exchange appear much earlier. But if market-driven systems are older than Polanyi sometimes
suggested, we still need to identify key changes that occurred with the ‘transformation’ from a
mostly custom-driven to a largely market economy.
These issues of historical timing are important but secondary to the main argument here,
which is primarily conceptual – largely about the meaning of words and the grounding of
analytical claims. There are other important aspects of Polanyi’s work – such as his views on
socialism – that are omitted. Instead the focus is on core concepts and analytical claims,
primarily in his famous work on The Great Transformation.
This article is organized in seven subsequent sections. Section 1 considers Polanyi’s uses of
the terms ‘economy’ and ‘economic’ – it is shown that he often associated these words with
the self-interested motive of material gain, as well as with the system of material production.
By contrast ‘social’ referred to other kinds of motive. Section 2 outlines Polanyi’s view of the
nature of the transformation of society into a market economy, bearing in mind his usage of
key terms. Section 3 involves a critical analysis of his claims concerning pre-transformation,
‘socially embedded’ economies. Section 4 considers the subsequent discourse on
2
For other forceful criticisms see Hann and Hart (2009). Holmes (2012) gives a useful overview. An earlier
critique is Sievers (1949).
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‘embeddedness.’ Section 5 addresses Polanyi’s claim that land, labour and money are not
commodities. Section 6 addresses markets and considers Polanyi’s proposal that they are
essentially self-regulating. Section 7 concludes the essay and considers some ways in which
some of Polanyi’s important conclusions may be salvaged and rebuilt.
I must forewarn the reader that, while I do believe that there are insights to be salvaged
from Polanyi’s work, it is far beyond the scope of this essay to attempt a reconstruction of his
thought. My primary objective is to persuade the reader of the necessity of such a task, by
pointing to the definitional and conceptual problems that lie at the core of his work. Hence
this essay is primarily about textual and conceptual analysis, not theoretical reconstruction.
1. Polanyi’s uses of the terms ‘economic’ and ‘social’
Some distinctive terms pervade Polanyi’s writing. But often they lack clear definition and
their intended meaning must be extracted by textual analysis. Consider the following
revealing passage from The Great Transformation (Polanyi 1944, p. 46):
The outstanding discovery of recent historical and anthropological research is that man’s
economy, 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.
So far, the intended meaning of the word ‘social’ is unclear. But, as Polanyi continues, it is
contrasted with other attributes:
He values material goods only in so far as they serve this [social] 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 that process is geared to a
number of social interests which eventually ensure that the required step be taken. Those
interests will be very different in a small hunting or fishing community from those in a
vast despotic society, but in either case the economic system will be run on noneconomic
motives.
Here in a nutshell is Polanyi’s proposal that the economy has been ‘submerged’ or
‘embedded’ in ‘social relationships’. Note first that Polanyi uses the term ‘economic’ in at
least two very different ways. Even in the above extract, the terms ‘economic system’,
‘economic interests’ and ‘economic motives’ rely on multiple meanings of their shared
adjective.
Polanyi (1944, p. 30) himself noted this ambiguity in the word ‘economic’. He argued that
while nineteenth century industrial society rested on ‘economic foundations.’ It was also
‘economic in a different and distinctive sense, for it chose to base itself on a motive only
rarely acknowledged in the history of human societies, and certainly never before raised to the
level of a justification of action and behaviour in everyday life, namely gain. The self-
regulating market system was uniquely derived from this principle.’
Hence one meaning of ‘economic’ in several passages of The Great Transformation
concerns behaviour motivated by gain (Polanyi 1944, pp. 30, 41, 46, 49, 53, 268, 269).
‘Economic’ here refers primarily to a type of motivation: it does not refer to an outcome, a
sphere of society, or a type of analysis.
The second meaning that Polanyi sometimes attributed to ‘economic’, particularly when
conjoined with other words such as ‘foundations’ or ‘system’, concerned that which gives rise