A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Vančura, Matěj Working Paper Polanyi's Great Transformation and the concept of the embedded economy IES Occasional Paper, No. 2/2011 Provided in Cooperation with: Charles University, Institute of Economic Studies (IES) Suggested Citation: Vančura, Matěj (2011) : Polanyi's Great Transformation and the concept of the embedded economy, IES Occasional Paper, No. 2/2011, Charles University in Prague, Institute of Economic Studies (IES), Prague This Version is available at: http://hdl.handle.net/10419/83289 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. 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This paper can be downloaded at: http://ies.fsv.cuni.cz Polanyi’s Great Transformation and the Concept of the Embedded Economy Matěj Vančura* *IES, Faculty of Social Sciences, Charles University in Prague Email: [email protected] September 2011 Abstract: The paper proposes an interpretation of Polanyi’s Great Transformation based on a distinction between two meanings contained in the concept of the embedded economy (and its opposite – the disembedded economy). Polanyi’s thesis that the market economy is a disembedded economy in fact comprises two main statements: (1) disembeddedness means the predominance of transactions and social interactions that are not submerged in social relationships but are based on economic self-interest and (2) disembeddedness also means the absence of social control over the economic process of production and distribution. Polanyian literature however usually does not distinguish these two meanings of “disembeddedness”. It is usually assumed that the concept may be used to summarize a larger sum of characteristics that distinguish a liberal market economy from other possible systems. As usually defined, the concept implies an antagonistic relationship between market and society, which provides a foundation for a particular “Polanyian” critique of the market economy. This assumption of an antagonistic relationship between the market and the society however contradicts the results of both economic sociology and institutional economics, which have extensively studied the ways in which markets and society become intertwined in modern society and the ways in which the regulatory framework of the welfare state has developed in a gradual manner within the market society. It is argued in this paper that the problematic assumption of an antagonistic relation between market and society is a consequence of the failure to distinguish the two meanings actually contained in the concept of “disembeddedness”. When interpreting Polanyi, it is useful to distinguish between two meanings of “disembeddedness”, calling one (1) “anthropological disembeddedness” and the other (2) “economic disembeddedness”. When we separate the two meanings of disembeddedness, the following question can be posed: does anthropological disembeddedness always imply economic disembeddedness? Inversely, we can ask: in order to assure anthropological embeddedness, do we need economic embeddedness? The paper argues that Polanyi’s affirmative answer to this question was a part of a political argument justified only by the circumstances of a particular moment in history and, also, by his personal political preference for socialism. Polanyi’s affirmative answer to this question was derived from a political choice and not from analysis and, therefore, if we want an analytical concept of “embeddedness”, we cannot accept Polanyi’s original formulation uncritically. Keywords: Karl Polanyi, Ludwig von Mises, embeddedness, economic history, double movement JEL Classification: B15, B25, B31 Outline: INTRODUCTION................................................................................................................................................. 2 PART 1: AN OVERVIEW OF THE GREAT TRANSFORMATION: POLANYI’S ANALYSIS OF SYSTEMIC TRANSFORMATIONS IN WESTERN ECONOMIC HISTORY ........................................................................................................................................... 7 The double movement ............................................................................................................................. 7 The market system................................................................................................................................... 9 The institutions of the market system ..................................................................................................... 10 The individual in the market system ....................................................................................................... 11 The market as a dis-embedded economy ................................................................................................ 13 The counter-movement seen as restriction of the market ....................................................................... 14 PART 2: PUTTING THE ELEMENTS TOGETHER: THE STRUCTURE OF THE GREAT TRANSFORMATION’S CRITIQUE OF THE MARKET ..... 17 The motivations for writing the Great Transformation – the need to make a choice between the market society and socialism ............................................................................................................................. 17 First aspect of Polanyi’s critique of the market economy: the moral critique of the market ...................... 20 Second aspect of Polanyi’s critique of the market economy: the “impossibility thesis” ............................. 21 Some of the controversies surrounding Polanyi’s concept of the disembedded economy and the distinction of the two concepts of embeddedness .................................................................................................... 23 A reinterpretation of the Polanyian thesis on the basis of the distinction between economic and anthropological embeddedness .............................................................................................................. 26 Does Polanyi exaggerate the importance of economic liberalism? .......................................................... 28 The concept of freedom in the Great Transformation ............................................................................. 35 CONCLUSION ................................................................................................................................................. 41 1 Introduction According to Fred Block, Polanyi’s work has acquired the status of a “classical work” and as a consequence, “it is vitally important that Polanyi’s text [The Great Transformation] be subjected to the kind of close, critical scrutiny that scholars normally direct at classical works.” (Block 2003) Such close scrutiny of “classical works” is justified by the influence that these works have due