Research Foundation of SUNY

The Economistic Fallacy

Author(s): Karl Polanyi
Source: Review (Fernand Braudel Center), Vol. 1, No. 1 (Summer, 1977), pp. 9-18
Published by: Research Foundation of SUNY for and on behalf of the Fernand Braudel Center
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Review,I, 1, Summer1977, 9-18.

The Economistic
Fallacy

KarlPolanyi
Endeavorsto attaina more realisticviewof thegeneralproblemposed to our
generationby man'slivelihoodmeetfromthe outsetwitha formidableobstacle-
an ingrainedhabit of thoughtpeculiarto conditionsof lifeunderthat type of
economythe nineteenthcenturycreatedthroughoutall industrialized societies.
This mentalityis personifiedin the marketing mind.
We wish to point out, in a preliminaryway, the fallacies to which the
marketingmind has givencurrencyand, incidentally, to expound some of the
reasonswhythesefallacieshave influencedpublicthinking so pervasively.
Firstwe will definethe natureof thisconceptualanachronism, thendescribe
the institutional
development from which it sprangand on
enlarge itsinfluence
on our wholemoraland philosophicoutlook.We willtracethereflections of this
attitudeof mindin the organizedfieldsof knowledge,such as economictheory,
economichistory,anthropology, sociology,psychology,and epistemology, that
makeup thesocial sciences.
Such a survey should leave no doubt about the impact of economistic
thinkingon almosteveryaspect of the questionsthatconfrontus, notablythe
*The "Economistic Fallacy" is Chapter I of Karl Polanyi's posthumous The Livelihood of Man (d.,
HarryW. Pearson) soon to be publishedby Academic Press.It is part of a book which Polanyi had been
workingon for severalyears,but was unable to completebeforehis death in 1964. The forthcomingbook
consistsof mostlyunpublishedmanuscriptsthatPolanyiintendedto includein The Livelihood of Man. The
"Economistic Fallacy" was one of the early chaptersand was completedby Polanyisometimein the early
or mid-1950's.

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10 KarlPolanyi

natureof economic institutions, policies,and principles,as theyare revealedin

the formsof organizationof livelihoodin thepast.
To sum up the centralillusionof an age in termsof a logicalerroris rarelyto
the point; yet, conceptuallythe economisticfallacy,in the natureof things,
cannotbe describedotherwise.The logical errorwas of a commonand harmless
kind: a broad, genericphenomenonwas somehowtakento be identicalwitha
species with which we happen to be familiar.In such terms,the errorwas in
equatingthe human economy in generalwithits marketform(a mistakethat
may have been facilitatedby the basic ambiguityof the termeconomic, to
which we will returnlater).The fallacyitselfis patent: the physicalaspect of
man's needs is part of the humancondition;no societycan exist thatdoes not
possess some kind of substantive economy. The supply-demand-price
mechanism,on the other hand, (which we popularlycall the market,)is a
comparatively moderninstitutionof specificstructure, whichis easy neitherto
establish nor to keep going. To narrow the sphere of the genus economic
specificallyto marketphenomena is to eliminatethe greatestpart of man's
historyfromthe scene. On the otherhand,to stretchtheconceptof themarket
until it embraces all economic phenomena is artificiallyto investall things
economicwiththe peculiarcharacteristics thataccompanythe phenomenonof
themarket.Inevitably,clarityof thoughtis impaired.
Realisticthinkersvainlyspelledout the distinctionbetweenthe economyin
generaland its marketforms;timeand again the distinctionwas obliteratedby
the economisticZeitgeist.These thinkers emphasizedthesubstantive meaningof
economic.They identifiedtheeconomywithindustryratherthanbusiness;with
technologyratherthan ceremonialism;with means of productionratherthan
titlesto property;withproductivecapitalratherthanfinance;withcapitalgoods
ratherthan capital - in short,with the economic substanceratherthan its
marketingformand terminology.But circumstanceswere strongerthanlogic,
and overwhelming forcesof historywereat workto weld thedisparateconcepts
intoone.

The Economyand the Market

The concept of the economy was born with the French physiocrats
simultaneouslywith the emergenceof the institutionof the market as a
supply-demand-price mechanism.The new phenomenon,neverwitnessedbefore,
was an interdependence of fluctuatingpriceswhichdirectlyaffectedmultitudes
of men. This nascentworldof processwas theresultof thecomparatively recent
-
spreadof trade an institution mucholderthan,and independentof,markets-
intothe articulationsof everydaylife.
Prices,of course,existedbefore,but in no way did theyconstitutea system
of theirown. Theirspherewas, in the natureof things,restrictedto tradeand
finance,since only merchantsand bankersused moneyregularly, a muchgreater
part of the economy being rural and practically tradeless- a thin trickleof
goods in the vast, inert mass of neighborhood life on the manor and in the
household.True, urban marketsknew money and prices,but the rationaleof
controllingthesepriceswas to keep themstable.Not theiroccasionalfluctuation
but theirpredominantstabilitymade theman increasingly importantfactorin

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The EconomisticFallacy 11

the determinationof profitsfromtrade,since theseprofitswere derivedfrom

relativelystable price differentials between distant points ratherthan from
anomalouspricefluctuations in local markets.
But the mere infiltration of trade into everydaylifeneed not of itselfhave
created an economy,in the new and distinctivesense of the term,but for a
number of furtherinstitutionaldevelopments.First among these stood the
penetrationof foreigntrade into markets,graduallytransforming them from
strictly controlledlocal markets into price-making markets with more or less
freelyfluctuatingprices. This was, in the course of time, followed by the
revolutionary innovation of markets with fluctuatingprices for the factors of
production,labor, and land. This change was the most radical of all in its nature
and consequence. Yet not before it had proceeded for some time did the
differentprices, which now included wages, food prices,and rent,show any
noticeable interdependenceand thus produce the conditionsthat made men
accept thepresenceof a hithertounrecognizedsubstantivereality.This emergent
fieldof experience,however,was the economy,and its discovery- one of the
emotionaland intellectualexperiencesthatformedour modernworld- came to
the Physiocratsas an illuminationand constitutedthem a philosophicalsect.
Adam Smith learned fromthem of the "hidden hand," but he did not follow
Quesnayon the path to mysticism.Whilehis Frenchmasterhad noticedmerely
the interdependenceof some revenuesand theirgeneraldependenceon corn
prices,his greaterpupil,livingin theless feudaland moremonetarizedeconomy
of England,was able to include wages and rent in the groupof "prices" and
thus,forthe firsttime,glimpsea visionof thewealthof nationsas an integration
of the variedmanifestations of an underlyingsystemof markets.Adam Smith
became the founderof politicaleconomybecause he recognized,howeverdimly,
the tendencytowardsinterdependence of thesedifferent kindsof pricesin so far
as theyresultedfromcompetitivemarkets.
Althoughthusspellingout the economyin termsof themarketwas originally
nothingelse than a common-senseway of relatingnew conceptsto new facts,it
may be difficultforus to understandwhyit took generationsfortherealization
to occur that what Quesnay and Smithhad reallydiscoveredwas a field of
phenomena essentiallyindependent of the market institutionin which it
manifesteditselfat the time. But neitherQuesnay nor Smith aimed at the
establishmentof the economy as a sphereof social existencethat transcends
market,money,or price - and in so faras theydid, theyfailedin theiraim.
Theyreachednot so muchtowardtheuniversality of the economyas towardthe
specificityof the market. Indeed, the traditionalunity of all humanaffairsthat
still informedtheir thinkingmade them averse to the notion of a separate
economicspherein society,althoughit did not preventthemfrominvesting the
economy with the characteristics of the market. Adam Smith introduced
business methods into the haunts of primevalman, projectinghis famous
propensityto truck,barter,and exchangeeven to the backyard of Paradise.
Quesnay's approach to the economy was no less catallactic. His was an
economics of the produit net, a realisticquantityin termsof the landlord's
accountancybut a mere phantomin the process between man and natureof
which the economy is an aspect. The alleged "surplus," whose creation he
attributedto the soil and the forcesof nature,was no more thana transference

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12 KarlPolanyi

to the "Order of Nature" of the disparitysellingprice is expected to show

againstcost. Agriculture happenedto occupythecenterof thescenebecause the
revenuesof the feudalrulingclass wereat issue,but foreverafterthenotionof
surplushaunted the writingsof classical economists.The produit net was the
parent of Marx's surplus value and its derivatives.Thus was the economy
impregnated witha notion foreignto the total processof whichit formspart,a
process that knows neither cost nor profit and is not a series of
surplus-producing actions. Nor are physiologicaland psychological forces
directedby the urgeto securea surplusoverthemselves. Neithertheliliesof the
field,nor the birds in the air, nor men in pastures,fields,or factories- tending
or
cattle,raisingcrops, releasingplanes from a conveyerbelt - producea surplus
over their own existence. Labor, like leisure and repose, is a phase in the
course of man throughlife.The constructof a surpluswas merely
self-sufficient
the projectionof the marketpatternon a broad aspect of thatexistence- the
economy.1
If from the outset the logically fallacious identificationof "economic
phenomena" and "market phenomena" was understandable,it later became
almost a practicalrequirementwith the new societyand its way of lifewhich
emergedfromthe throesof theIndustrialRevolution.The supply-demand-price
mechanism, whose first appearance produced the prophetic concept of
"economic law," grewswiftlyintoone of themostpowerfulforceseverto enter
the humanscene. Withina generation- say, 1815 to 1845, HarrietMartineau's
"ThirtyYears' Peace" - theprice-making market,whichpreviouslyexistedonly
in samplesin variousportsof tradeand stock exchanges,showed its staggering
capacity for organizinghuman beings as if they were mere chunks of raw
materialand combiningthem,togetherwiththe surfaceof motherearth,which
could not be freelymarketed,into industrialunits under the command of
private persons mainly engaged in buying and sellingfor profit.Withinan
extremelybriefperiod, the commodityfiction,as applied to labor and land,
transformed the verysubstanceof humansociety.Herewas the identification of
economy and market in practice. Man's ultimate dependence on nature and his
fellows for the means of his survivalwas put under the control of that
new-fangledinstitutionalcreation of superlativepower, the markets,which
developed overnightfromlowly beginnings.This institutionalgadget,which
became the dominantforcein the economy- nowjustlydescribedas a market
economy - then gave rise to yet another,even more extremedevelopment,
namelya whole society embedded in the mechanismof its own economy- a
marketsociety.
From thisvantagepoint,it is not difficultto discernthatwhatwe havehere
called the economisticfallacywas an errormainlyfromthe theoreticalangle.
For all practicalpurposes,the economydid now consistof markets,and the
marketdid envelopsociety.
From thisline of argument,it shouldalso be clearthatthe significance of the
economisticoutlook lay preciselyin its capacityforgivingbirthto a unityof
1 Sec
HarryW. Pearson,"The Economy has No Surplus: Critiqueof a Theory of Development,"Ch.
XVI in K. Polanyi,C Arensberg,H. Pearson,eds., Trade and Marketin the Early Empires (Glencoe, 111.:
Free Pressand Falcon's WingPress, 1957).

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The EconomisticFallacy 13

motivations and valuationsthatwould bringabout in practicewhatit preconized

as an ideal, namelythe identityof marketand society.For onlyifa way of life
is organizedin all relevantaspects,includingpicturesof the innerman and the
natureof society- a philosophyof everydaylifecomprising criteriaof common
sensebehavior,of reasonablerisks,and of a workablemorality- are we offered
thatcompendiumof theoreticaland practicaldoctrineswhichalone can produce
a societyor, what amountsto the same thing,transform a givensocietywithin
the lifetimeof a generationor two. And sucha transformation was achieved,for
betteror for worse,by the pioneersof economism.This is to say no less than
that the marketingmind containedthe seeds of a whole culture- withall its
possibilitiesand limitations- and the pictureof innerman and societyinduced
by life in a marketeconomynecessarilyfollowedfromthe essentialstructure of
a humancommunityorganizedthroughthe market.
The EconomisticTransformation
This structurepresenteda violentbreak withtheconditionsthatprecededit.
Whatbeforewas merelya thinspreadof isolatedmarketswas now transmuted
intoa self-regulating systemof markets.
The crucialstep was thatlabor and land weremade intocommodities;thatis,
they were treatedas if theyhad been producedforsale. Of course,theywere
not actuallycommodities,since theywere eithernot producedat all (like land)
or,ifso, not forsale (like labor).
Yet no more thoroughlyeffectivefictionwas everdevised.Because laborand
land were freelybought and sold, the mechanismof the marketwas made to
apply to them.There was now a supplyof labor and demandforit; therewas a
supplyof land and demand forit. Accordingly, therewas a marketpriceforthe
use of labor power,called wages,and a marketprice forthe use of land,called
rent.Labor and land wereprovidedwithmarketsof theirown,similarto those
of thepropercommoditiesproducedwiththeirhelp.
The truescope of such a stepcan be gaugedifwe rememberthatlabor is only
anothername forman,and land fornature.The commodityfictionhandedover
the fate of man and nature to the play of an automatonthat ran in its own
groovesand was governedby its own laws. This instrument of materialwelfare
was controlledsolelyby the incentivesof hungerand gain- or,moreprecisely,
eitherfearof goingwithoutthe necessitiesof life or the expectationof profit.
So long as no propertyless personcould satisfyhis need forfood withoutfirst
sellinghis labor in the market and so long as no propertiedperson could be
prevented from buying in the cheapest marketand sellingin the dearest,the
blind mill would turn out ever increasingamounts of commoditiesfor the
benefitof the human race. Fear of starvationwith the worker,lure of profit
withtheemployerwould keep thevastmechanismrunning.
Such an enforced utilitarian practice fatefullywarped Western man's
understanding of himselfand his society.
As regardsman, we were made to accept the view that his motivescan be
described as either "material" or "ideal" and that the incentiveson which
everydaylife is organizednecessarilyspringfromthe materialmotives.It is easy
to see that under such conditionsthe humanworldmustindeed appear to be
determinedby materialmotives.If, forexample,you singleout whatevermotive

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14 KarlPolanyi

you please and organizeproductionin sucha manneras to makethatmotivethe

individual'sincentiveto produce, you will have induced a pictureof man as
altogetherabsorbed by that motive. Let the motivebe religious,political,or
esthetic;let it be pride,prejudice,love, or envy;and manwillappearessentially
religious,political,esthetic,proud,prejudiced,engrossedin love or envy.Other
motives,in contrast,will appear distant and shadowy - ideal - since they
cannotbe reliedupon to operatein thevitalbusinessof production.The motive
selectedwillrepresent"real" man.
In fact,humanbeingswill labor fora largevarietyof reasonsso longas they
formpart of a definitesocial group. Monks traded for religiousreasons,and
monasteriesbecame the largesttradingestablishments in Europe.The kula trade
of the TrobriandIslanders,one of themostintricatebarterarrangements known
to man, was mainlyan estheticpursuit.Feudal economydependedlargelyon
customor tradition.Withthe Kwakiutl,the chiefaim of industryseemedto be
to satisfya point of honor. Under mercantiledespotism,industrywas often
plannedso as to servepowerand glory.Accordingly, we tendto thinkof monks,
WesternMelanesians,villeins,the Kwakiutl,or seventeenth-century statesmenas
ruled by religion,esthetics,custom, honor, or power politics, respectively.
Nineteenth-century societywas organizedin sucha fashionas to makehungeror
gain alone into effectivemotivesfor the individualto participatein economic
life. The resultingpicture of man ruled only by materialisticincentiveswas
entirelyarbitrary.
As regardssociety,the kindreddoctrinewas propoundedthatitsinstitutions
were "determined"by the economic system.The marketmechanismthereby
created the delusion of economic determinism as a generallaw forall human
society. Under a market economy, of course,this law holds good. Indeed, the
working of the economic system here not only "influences" the restof society
but actuallydeterminesit - as in a trianglethe sides not merelyinfluencebut
determinethe angles.
In the stratificationof classes,supplyand demandin the labor marketwere
identicalwiththeclassesof workersand employers,respectively. The social class
of capitalists,landowners,tenants,brokers,merchants, professionals, and so on
was delimitedby the respective markets forland, money, and capital and their
uses, or forvariousservices. The income of these social classeswas fixedby the
market,theirrankand positionby theirincome.
While social classes were directly determined,other institutionswere
indirectlyaffectedby the marketmechanism.State and government, marriage
and the rearingof children,the organizationof scienceand educationor religion
and the arts,the choice of profession,the formsof habitation,the shape of
settlements,the veryestheticsof privatelife- everything had eitherto comply
with the utilitarianpatternor at least not interferewith the workingof the
marketmechanism.But, sinceveryfewhumanactivitiescan be carriedon in the
void (even a saintneedinghis pillar),the indirecteffectsof the marketsystem
came verynear to determining the wholeof society.It was almostimpossibleto
avoid the erroneousconclusionthat,as "economic" man was "real" man, the
economicsystemwas "really"society.

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The EconomisticFallacy 15

EconomicRationalism
On the face of it, the economisticWeltanschauung may have seemed to
containin its twinpostulatesof rationalismand atomismall thatwas neededto
lay the foundationsof a marketsociety.The operativetermwas rationalism.For
whatelse could such a societybe otherthan an agglomeration of humanatoms
behavingaccording to the rulesof a definite kind of rationality?Rationalaction,
as such, is the relatingof ends to means; economic rationality,specifically,
assumesmeans to be scarce. But humansocietyinvolvesmore than that.What
should be the end of man, and how should he choose his means? Economic
rationalism, in the strictsense,has no answerto thesequestions,fortheyimply
motivationsand valuationsof a moral and practicalorderthatgo beyond the
logicallyirresistible,but otherwiseempty,exhortationto be "economical."Thus
hollownesswas camouflagedby ambiguousphilosophicalcolloquialism.
To maintainthe unity of the facade,two furthermeaningsof rationalwere
broughtin. Withregardto the ends,a utilitarianvalue scale was postulatedas
rational;and withregardto the means,the testingscale forefficacywas applied
by science. The firstscale made rationalitythe antithesisof the esthetic,the
ethical, or the philosophical; the second made it the antithesisof magic,
superstition, or plainignorance.In the firstcase, it is rationalto preferbreadand
butter to heroic ideals; in the second, it appears rationalfor a sick man to
consult his doctor in preferenceto a crystal-ballgazer. Neithermeaningof
rationalis relevantto the principleof rationalism,thoughper se one may be
morevalid than the other.Whilestarkutilitarianism, withitspseudophilosophic
of
balance pain and pleasure,has lost its sway over the mindsof the educated,
the scientific value scale remains supreme within its limits.
Thus utilitarianism,
still the opiate of the commercialized masses, has been dethroned as an ethic,
whilescientificmethodjustlyholds its own.
Nevertheless, so long as rationalis used, not as a fashionabletermof praise
but in the strictsenseof pertaining to reason,thevalidationof the scientifictest
of means as rational is no less arbitrarythan the attemptedjustificationof
utilitarianends. To sum up: the economicvariantof rationalismintroducesthe
scarcityelementinto all means-endsrelations;moreoverit posits as rational,in
regardto the ends and the means themselves,two different value scales that
happen to be peculiarlyadapted to market situations but otherwise have no
universalclaim to be called rational.In this way, the choice of ends and the
choice of means are claimedto lie underthe supremeauthorityof rationality.
Economic rationalismappears to achieve both the systematiclimitationof
reasonto scarcitysituationsand its systematicextensionto all humanendsand
means, thus validatingan economistic culture with all the appearances of
irresistiblelogic.
The social philosophyerectedon such foundationswas as radicalas it was
fantastic.To atomize societyand make everyindividualatombehaveaccording
to the principlesof economicrationalismwould, in a sense,place the wholeof
humanexistence,withall its depth and wealth,in the frameof referenceof the
market.This, of course,would not reallydo - individualshavepersonalities and
societyhas a history.Personalitythriveson experienceand education;action
impliespassion and risk;life demands faithand belief; historyis struggleand
defeat, victory and redemption.To bridge the gap, economic rationalism

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16 KarlPolanyi

introducedharmonyand conflictas the modi of the individual'srelations.The

conflictsand alliancesof such self-interested atoms,whichformednationsand
classes,now accounted forsocial and universalhistory.
No single author ever propounded the complete doctrine.Benthamstill
believedin government and was unsureof economics;Spenceranathemizedstate
and government but knewonlylittleof economics;and von Mises,an economist,
lacked the encyclopedic knowledge of the other two. Among them they
neverthelesscreated a myththatwas the daydreamof the educated multitude
duringthe HundredYears' Peace, from1815 to WorldWarI, and evenafter,up
to Hitler'swar. Intellectually,this mythrepresentedthe triumphof economic
rationalism and, inevitably,an eclipseof politicalthought.
The economic rationalism of the nineteenth century was the direct
descendantof the politicalrationalismof the eighteenth. It was as unrealisticas
its predecessor,if not more so. As to the factsof historyand the natureof
they were equally foreignto both brandsof rationalism.
political institutions,
The political Utopiansignoredthe economy,while the Utopiansof the market
took no note of politics.On balance, if the thinkersof theEnlightenment were
notoriously unheedful of some of the economic facts,theirnineteenth-century
successorswere totallyblind to the sphereof state,nation,and power,to the
pointof doubtingtheirexistence.
EconomicSolipsism
Such economicsolipsism,as it mightwellbe called,was indeedan outstanding
featureof themarketmentality.Economicaction,it was deemed,was "natural"
to men and was, therefore, Men would barterunlesstheywere
self-explanatory.
prohibitedto do so, and marketswould thuscome into beingunlesssomething
was done to preventit. Trade wouldbeginto flow,as ifinducedby the forceof
gravity,and would create pools of goods, organized in markets,unless
governments conspiredto stop the flowand drainthepool. As barterquickened,
money would make its appearanceand all thingswould be drawnintothewhirl
of exchanges,unless some archaic moralistsraised an outcryagainstlucre or
unenlightened tyrantsdepreciatedthecurrency.
This eclipse of politicalthinkingwas the intellectualdeficiencyof theage. It
originatedin the economic sphere,yet eventuallyit destroyedany objective
approach to the economy itself, insofar as the economy possessed an
institutional background other than a supply-demand-price mechanism.
Economistsfeltso safe withinthe confinesof such a purelytheoreticalmarket
systemthat they only grudgingly conceded to nationsmore than a nuisance
value. An Englishpoliticalwriterof the 1910's was deemedto haveclinchedthe
case againstthe necessityforwarsby provingthatas a businesspropositionwar
did not pay; and in Geneva, the League of Nations to its last hour remained
blind to the political facts that made the gold standardan anachronism.The
discountingof politics spreadfromCobden's and Bright'sfree-trading illusions
to Spencer's fashionablesociologyof "industrialvs militarysystems."By the
1930's, almost nothingwas leftamongthe educated of the politicalcultureof
David Hume or Adam Smith.
The eclipse of politicshad a mostconfusingeffecton themoralaspectsof the
philosophyof history.Economicssteppedinto the vacuum,and a hypercritical

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The EconomisticFallacy 17

attitudetowardthe moralvindicationof politicalactionsset in. This resultedin

a radical discounting of all forces but the economic in the field of
historiography.The marketingpsychology,which regardsonly "material"
motivesas real, whilerelegating"ideal" motivesto the limbo of ineffectually,
was extendednot only to nonmarketsocietiesbut to all past historyas well.
Most of earlyhistorynow appearedas a jumble of slogansaboutjusticeand law
bandied about by pharaohsand god-kingsfor the sole purpose of misleading
theirhelplesssubjectswho groveledunder the knout.The whole attitudewas
self-contradictory Whycajole a populationof bond slaves?And ifcajolingthere
mustbe, could it be done throughpromisesthatmeantnothingto the cajoled?
But if the promisesmeantsomething, justiceand law musthavebeen morethan
mere words. That a populationof actual bond slavesneed not be cajoled, and
thatjustice and freedommusthavbeen recognizedas valididealsby all before
theycould be employedas a bait by the few,escaped thecriticalapparatusof a
hypercriticalpublic.Underthe swayof modernmass-democracy, slogansbecame
a kind of politicalorganizingforcethat theycould neverhave been in ancient
Egyptor Babylon.On the otherhand,justice and law, whichwereembodiedin
the institutionalstructureof earliersocieties,had wornthinunderthe market
organizationof society.A man's property,his revenueand income,thepriceof
hiswareswerenow "just" onlyiftheywereformedin themarket;and as to law,
no law reallymatteredexceptthatwhichreferred to propertyand contract.The
variedpropertyinstitutionsof the past and the substantivelaws thatmade up
theconstitution of theidealpolis had now no substanceto workupon.
Economic solipsismgeneratedthatunsubstantialconcept of justice,law, and
freedomin thenameof whichmodernhistoriography refusedall credenceto the
numberlessancienttextsin whichthe establishment insistence
of righteousness,
on the law, the maintenanceof a central economy without bureaucratic
oppressionwas declaredto be the aim of the ancientstate.
The true conditionof affairsis so differentfromwhat is congenialto the
marketmentalitythatit is not easy to conveyin simplewords.Actually,justice,
law, and freedom,as institutionalized values,firstmake theirappearancein the
economicsphereas a resultof stateaction.Undertribalconditions,solidarityis
safeguardedby custom and tradition;economic life is embeddedin the social
and political organizationof society;no conomie transactionstake place; and
random acts of barter are discouragedas a peril to tribal solidarity.When
rule emerges,the god-kingsuppliesthat centerof communallife of
territorial
which the looseningof the clan threatensto deprivethe group. At the same
time,an enormouseconomic advance becomes possible,and is actuallymade,
with the help of the state: economic transactions, formerly banned as gainful
and antisocialare made gainless,and hencejust lawful,throughtheactionof
as
the god-king,who is the fount of justice. This justice is institutionalized in
of
equivalencies,proclaimedin statutes,and practicedin tens thousands of cases
by those organs of palace and temple who handle the taxational and
redistributiveapparatus of the territorial state. The rule of law is
institutionalizedin economic life throughthe administrative provisionsthat
regulatethe behaviorof guildmembersin theirtradedealings.Freedomcomes
to themthroughlaw; thereis no masterwhom theymustobey; and, so longas
theykeep theiroath to the godhead and theirloyaltyto theguild,theyare free

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18 KarlPolanyi

to act accordingto theirbusinessinterests,responsibleto no superior.Each of

thesesteps towardsman's introduction intoa realmofjustice,law, and freedom
originallyresultedfrom the action
organizing of thestatein theeconomicfield.
But such recognitionsof the early role of the statewerebarredby economic
solipsism.Thus did the mentalityof the markethold sway. The absorptionof
the economy by marketingconcepts was so complete that none of the social
disciplines could escape its effects. Unwittingly,they were turned into
strongholds of economisticmodesof thought.

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