Karl Polanyi’s critique of the ideal of the self-adjusting market is increasingly invoked to challenge the negative effects of European integration on national social welfare systems. However, these debates have been caught in an unhelpful opposition between European market openness and national social closure. Challenging common interpretations of Polanyi, this article shows that he develops a theory of the relationship between democratic reciprocity and what the article calls “nonmarket modes of economic coordination.” The problem is not reconciling openness with closure but navigating the dilemmas of democratic capitalism. The article then uses this framework to critique the one-sided nature of European law as well as recent calls for a “social Europe.” The article criticizes these efforts, arguing that the fate of social Europe is bound to the economic and political dynamics unleashed by the project of monetary integration.

I. Introduction

Market openness and social closure: this divide has long structured the debate about the relationship between European integration and the social welfare systems that have evolved at the national level. Embodying the principle of market openness, the European single market promises to do more than just produce what scholars call “output legitimacy” through growth and consumer choice. For many of its advocates, the single market rather reflects a cosmopolitan ideal of individual economic rights that could overcome the dangerous national passions of the past. European law is thus oriented toward an “economic constitutionalism” based on contractual freedom (Joerges 2016b). Against this cosmopolitan vision, many critics of the European project point to the negative effects of economic integration on social protection systems at the national level. In this context, observers increasingly invoke the ideas of the Hungarian political thinker and economic sociologist Karl Polanyi.1 Polanyi’s landmark work, The Great Transformation, provides a thorough critique of the ideal of a society run based on the needs of the market. Polanyi argues that, in the face of market forces, diverse economic classes and social groups will spontaneously come together to seek economic protection from the market. Thus, in the widely accepted reading, Polanyi stands as a great defender of societal closure against the demands of market openness. Critics invoke his thought to challenge the destructive impact of European integration on the ability of member states to protect themselves from market forces.2

The following concurs that debates about European integration and European law can draw productively from the thought of Karl Polanyi. But, it argues, Polanyi points beyond the openness/closure dichotomy that has structured these debates. Far from a defender of the social closure of the midcentury welfare state or an advocate of the return of economic decision-making to the national level, Polanyi provides resources for returning to an older theoretical problem—the dilemmas of democratic capitalism—one that has been displaced in academic and popular debate by the openness/closure dichotomy.3 Here, the tension is not between “openness” and “closure” but between more and less democratic modes of coordinating economic activity. Polanyi combines an appreciation of markets with the fundamental recognition that they are not, and given realistic political assumptions cannot be, the default mode of organizing economic activity. Markets, for Polanyi, require other, nonmarket economic institutions to be politically sustainable—and so the question, for him, is whether the relationship between markets and those nonmarket institutions fosters or undermines democratic ideals. As this article reconstructs it, the core of Polanyi’s thought is his analysis of nonmarket modes of economic coordination—embodied in institutions like labor unions and central banking systems—in relation to democratic principles of political equality and reciprocal cooperation.4

The following develops this reading of Polanyi and applies it to recent developments within the European Union and the European legal order. In so doing, it also contributes to efforts to overcome two significant shortcomings regarding Polanyi’s thought: first, a failure to articulate the role of law within his theory; and second, although Polanyi pays extensive attention to international politics, a relative lack of institutional concreteness when it comes to his vision of political and economic regionalism.5 More centrally, the article attempts to show that Polanyi’s thought can help overcome the theoretical shortcomings of current debates regarding European law, and, in particular, the implicit separation between the “economic” and the “political,” indicating rather, in Christian Joerges’s felicitous phrase, the “political in the economic.” Polanyi points to the tension between the ideal of the single market and different nonmarket modes of coordination. That tension stands behind the recent debates regarding the idea of “social Europe” and about the institutional and legal role of the European Central Bank (ECB) in the eurozone debt crisis. In both cases, the telos of the single market that informs European law runs up against the political realities to which Polanyi draws attention.6 Polanyi’s thought thus challenges the idea, implicit in European law, that economic relationships could be fully constituted by legal norms. Rather, Polanyi’s theory articulates the role of political power and political negotiation in the operation of economic institutions. The crisis of the European legal order in the wake of the eurozone crisis, then, arises in part because of the failure of the market-based model for understanding the relationship between law and the economy. The ideal of the single market ends up “overburdening” law as a vehicle of European integration (Scicluna 2014), investing it with political functions that law cannot fulfill. In this respect, Polanyi’s thought buttresses pluralistic and political approaches to European law, such as Christian Joerges’s long-standing call to introduce a conflict of law approach into European legal thinking (Joerges 2011; Everson and Joerges 2012).

The article proceeds as follows. First, it examines how the opposition between market openness and social closure shapes the debate about integration, grounding both market-liberal and federalist visions of the European Union (section II). It then presents a revisionary interpretation of Polanyi’s thought, arguing that he is concerned not with the undifferentiated movement of “society” against “markets” but with the political forces pushing the development of nonmarket coordinating institutions that mediate between economic production and distribution and democratic values like political equality (section III). The article then uses this framework to challenge the project of European integration through law, focusing in particular on debates regarding social Europe and the legal dimensions of the eurozone crisis (section IV). In conclusion (section V), the article contends that Polanyi’s argument buttresses the effort to rethink European integration as grounded in a principle of reciprocal cooperation and conflicts of law rather than the telos of the single market.

II. On Market Openness and Social Closure

In 1939 Friedrich Hayek published an essay whose influence would belie its slender size, “The Economic Conditions of Interstate Federalism.” In it, Hayek provides a set of arguments that today seem remarkably prescient, articulating the path of the European Union toward what Fritz Scharpf famously defines as “negative integration”—that is, integration focused on reducing barriers to markets rather than building new, common institutions (Scharpf 2009). Hayek’s argument casts the project of interstate federalism as one of realizing the cultural and economic openness produced by market orders against the social closure embodied in the nation-state. As such, Hayek’s essay makes explicit a set of assumptions that, for many observers, now appear built into the structure of European integration. For example, Hayek avers that interstate federalism will push political decision-making beyond the national level and create new, transnational communities of economic interest, such that the “myth of nationality” that grounds “the submission to the will of a majority” will no longer operate (Hayek 1948, 264). Moreover, the tightest straightjacket, Hayek implies, will come from the demands of maintaining a common currency: “With a common monetary unit, the latitude given to the national central banks will be restricted at least as much as it was under a rigid gold standard—and possibly rather more” (Hayek 1948, 259). These new international institutions will thus recreate the promarket constitutional and political constraints that, in Hayek’s view, sustained the liberal order of the nineteenth century until the rise of mass democracy.7

I am far from the first to call attention to Hayek’s vision, one that appears to encapsulate the increasingly prevalent logic of European integration, illuminating the historical, political, and conceptual foundations for the market-creating biases of integration (Dale 2015; Scharpf 2009; Streeck 2014a). My more contentious claim is that Hayek’s logic is also mirrored by European federalists who think that positive, political integration has to catch up with negative, market-based integration. Such views accept the Hayekian association of markets with “postnationalism” and “openness,” even if they wish to appropriately constrain markets through supranational democratic institutions. For many, the alternative to that market-creation bias is to move beyond mere economic integration to a genuine political union, one in which fiscal integration would enable offsetting forms of economic redistribution. Yet advocates of federalism, such as Jürgen Habermas, share a surprising amount of ground with their erstwhile adversaries who defend a minimal, market-based vision of integration. For federalists like Habermas, Hayekian economic integration is a first step down the path toward political integration—if not the only path, then the one most likely and the one taken. In contrast to Hayek, Habermas redeems the legitimacy of democratic procedures, including those that lead to the creation of nonmarket economic institutions. At the same time, though, Habermas accepts the view that market creation produces functional pressures that explode the narrow scope of national solidarity. As much as Habermas pays lip service to a Polanyian analysis of the double movement, his thought intersects to a surprising extent with Hayek’s defense of markets as necessary information-aggregating mechanisms in the face of complexity.

Despite Habermas’s endorsement of popular sovereignty as a basis for democratic legitimacy, he shares with Hayek a view of markets as context-transcending mechanisms that overcome the arbitrary bonds of national belonging. This follows from the structure of Habermas’s mature social theory, which rests on a surprisingly Hayekian view of markets as necessary information-processing mechanisms in the face of complexity.8 In The Theory of Communicative Action, Habermas develops what he calls a two-level theory of society, according to which modern societies integrate action through communication as well as through the functioning of anonymous systems like the market economy and the bureaucratic state. At the center of this idea of the modern economic system is the idea that money is primarily “a code by means of which information can be transmitted from sender to receiver” (Habermas 1987, 2:264). Before the rise of capitalist economies, material production and distribution are managed by institutions that use shared cultural ideals and patterns to coordinate action. In modern societies, those material needs are met by institutions that are coordinated through the medium of money. Because of how it functions to encode information, money is a less costly means of coordinating action than communication or cultural norms. The formation of the modern money economy transfers the “structures of mutual recognition that are familiar from face-to-face interactions…in an abstract but binding manner, to the anonymous, systemically mediated interactions among strangers” (Habermas 1996, 448). As a result, Habermas thinks there is a circular process: the increasing use of functional systems to meet material needs liberates cultural institutions from those economic burdens, therefore making dissent and disagreement less costly and so providing more space for the self-criticism of cultural traditions and for individuals to pursue their autonomous life choices.

Habermas’s theory of markets as information-processing devices informs his analysis of European integration. To be sure, Habermas is, overall, a staunch defender of the modern welfare state. He worries about the irrational effects of the marketization of society—the result, however, of markets overstepping their appropriate boundaries and “countersteering” democratic polities. As such, Habermas accepts the outlines of the Hayekian view of markets, worrying only about how to ensure that markets are situated within appropriate legal and political institutions. For Habermas, cultural solidarity at the national level and political integration at the supranational level compensate for the side effects of market-driven integration. Habermas accepts the binary of market openness and social closure, one that presents markets as functionally necessary mechanisms for coordinating action in the face of complexity. In this respect, his theory has genuine affinities with Hayek’s, both of which came to view markets in terms of systems theory, as delicate mechanisms for processing information in the face of complexity.9 Such a perspective leads to both a relative skepticism about political intervention in the markets as well as a certain willingness to view market actors as following the functional imperatives of the systems in which they act.10

In accepting the Hayekian view of markets, Habermas’s analysis of European integration remains within the binary of openness and closure. National and international social policies, lagging behind market formation, compensate for the tensions caused by the otherwise progressive material and cultural benefits brought through transnational integration. Habermas argues that the functional demands of market forces open up traditional communal ties and drive the creation of post-traditional value systems. “The impulse toward opening is generated by new markets, new means of communication, new modes of commercial and cultural networks,” Habermas writes (2000, p. 83). Democracy’s job is to catch up with the transcending effects of the market. Individuals in formerly closed cultural traditions must then catch up to these explosive dynamics by “closing themselves anew—now, of course, with expanded horizons” (Habermas 2000, 83, emphasis in original). The explosive dynamics of integration through globalized markets then produce functional demands for political institutions that can manage the new risks associated with globalization: “if this renewed closure is to come without sociopathological side-effects, then politics has to catch up with globalized markets, and has to do so in institutional forms that do not regress below the legitimacy conditions for democratic self-determination” (Habermas 2000).

The European Union, for Habermas, embodies this potential balancing of openness and closure. Created in the face of functional pressures that transcend the nation-state and with the consciousness that nations cannot pursue their interests at the expense of neighbors, the European Union enables a mode of politics that could catch up with the systemic demands of market forces, although it has not yet done so. Insofar as the European Union has failed, instead turning to various modes of authoritarian technocracy in response to the eurozone crisis, it is because, according to Habermas, leaders have been too tethered to their short-term electoral prospects and so to the national wishes of their electorates. The primary locus of the European Union’s failure, then, has been a continued reliance on the nation-state for legitimating collective decisions, such that no leader is willing to push for a genuine political and fiscal union, even as they recognize that only such a union could compensate for the dysfunctions of monetary union.11

III. The Fictitious Commodities and Economic Coordination

Both Hayek’s neoliberal vision of interstate federalism and Habermas’s federalist vision of political integration share a view of markets as mechanisms for transcending the closed horizons implied by social solidarity. This accords with the normative and legal logic of European integration, where market freedom has been pitted against the dangers of closed economic systems. The question then becomes one of balancing two competing principles: markets or protection? Openness or closure?

Polanyi’s critical account of the market society challenges that binary. To see how, though, requires revising the common interpretations of his thinking. This section provides a fairly detailed reconstruction of the logic of Polanyi’s argument.12 The reconstruction is with an eye to debates about European integration. First, it provides the framework for overcoming the openness/closure dichotomy. But more centrally, Polanyi’s argument shows that debates about social Europe (politics of labor) and the project of Economic and Monetary Union (EMU) (the politics of money) must be considered in tandem. Further, it reveals how, in both cases, the ideal of the self-regulating market buttresses the hope of subordinating the economy to a system of legal norms. Rather than a theorist of “society against markets,” Polanyi presents a useful account of how markets interact with democracy, on the one hand, and what I term nonmarket modes of economic coordination, on the other. To pry Polanyi away from the openness/closure dichotomy, this argument disaggregates his account of the “double movement.” The double movement is usually taken to mean a uniform move toward marketization, followed by a uniform effort to decommodify the three fictitious commodities—land, labor, and money—by “reembedding” them in social and political communities. Rather, I argue that the three fictitious commodities are each fictitious insofar as they produce functional pressures for different nonmarket modes of coordinating the economic activity in question. Thus, for example, labor unions seek to supplant the market-based mechanism for setting wages with one based on coordination and collective action. And these different institutions then are in a dynamic, often conflictual relationship with each other, as well as with democratic values. Such nonmarket institutions are then the potential points for the democratic organization of economic activities.

Karl Polanyi’s The Great Transformation stands as one of the great critiques of the ideal of the market society as well as a classic work of social thought more broadly. In Polanyi’s telling, in nineteenth-century Europe, a series of contingent events—and particularly the unique position of the British Empire vis-à-vis global politics—propelled an unprecedented effort to reorganize society such that the market would become the dominant model of economic and political organization. Society would be organized based on the dictates of the market, the messy work of politics avoided. Polanyi then argues that this “stark utopia” of the market society is self-undermining. The disruptive impacts of markets generate spontaneous movements for nonmarket economic institutions that embody collective expectations regarding social justice and moral worth (Polanyi 2001 [1944], 3). This “double movement” meant, in particular, a restriction of the market mechanism in relation to the three factors of production: land, labor, and capital.

Recast in this way, Polanyi’s thought does not rest on the opposition between market openness and democratic closure. Rather, he points to the inevitable role of political power in the overall structuring of market systems, such that the opposition between market openness and social closure needs to be supplanted, or at least supplemented, by an investigation of the effect of increasing the scope of market relationships on the balance of power within nonmarket institutions.13 As the political scientist Peter Mair has emphasized, market integration is not simply a legal framework that enables outsiders to access economic systems: it alters the interests and composition of the actors within that system and so their ability to sustain, for example, egalitarian and redistributive economic institutions (Mair 2013). A further implication is that there is an unavoidable role for political conflict, negotiation, and compromise within economic institutions that, within the dominant paradigms of European integration, are presented as the domain of legally regulated interactions between individuals. As we will see, this will be a central problem for the effort to integrate the ECB—a quintessential nonmarket coordinating institution—into the legal architecture of the European Union. The central question becomes how to ensure an egalitarian distribution of power within these nonmarket coordinating institutions while ensuring that wider interests of nonnationals are also respected.

In place of the openness/closure dichotomy, Polanyi’s thought implies the continued relevance of an older tension: that between capitalism and democracy. Democratic citizenship embodies a claim to equal voice and relatively equal political influence in shared political institutions. In Polanyi’s analysis, the inevitable failure of the ideal of the market society means that there is a deep and abiding tension between capitalism, in which owners of capital have an incentive to maximize the scope of market mechanisms and so the opportunities for profit, and democratic ideals embodied in the nonmarket economic institutions. Such institutions are, in Polanyi’s argument, the result of the democratic channeling of collective demands of constituencies formed around the three fictitious commodities. As such, Polanyi thinks that modern capitalist societies were increasingly marked by the conflict between the democratic ideal of political equality and the market ideal of contractual equality—a tension that proved catastrophic in interwar continental Europe. Polanyi’s concern is not with the distributive outcomes of market processes or the risks of social exclusion because of market failures.14 Rather, it is with the undemocratic implications of the nonmarket institutions that evolve in response to the functional strains of the market society—institutions that could, he thinks, be brought under democratic supervision and so further the project of realizing a democratic form of political freedom.

Thus, rather than the pendulum of embedding/disembedding or the idea of society against markets, the core of Polanyi’s economic sociology is the connection between the three fictitious commodities and these nonmarket modes of what Polanyi calls “economic integration.” In the tradition of thinkers like Max Weber, Polanyi provides a set of ideal-types to orient the analysis of the relationship between democratic ideals, the modern state, and the organization of complex economic activities. For Polanyi, the counterreaction of “society” to the formation of the “market society” is shorthand for the specific institutional structures produced by and strategic openings available to the political actors centered on each of the fictitious commodities (Block and Somers 2014). Polanyi’s first great conceptual breakthrough is the idea of the three fictitious commodities—land, labor, and money—as points at which the ideal of individual contractual freedom runs up against the reality of collective political institutions. And the second is his analysis of distinctive “modes of economic integration.” These are an effort to relativize markets as only one among several ideal-typical mechanisms of economic coordination in modern societies.

These two aspects of Polanyi’s argument fit together, with the three fictitious commodities each corresponding to one of the nonmarket modes of economic integration Polanyi identifies. He identifies reciprocity, redistribution, exchange, and householding as four distinct modes of what he calls economic integration—that is, general institutional patterns to ensure the sustained production and movement of material goods (Polanyi 1957, 2001, 45–58).15 Both reciprocity and redistribution are modes of economic integration based on shared norms and values, where economic institutions are “submerged in…social relationships” (Polanyi 2001, 48). Reciprocity refers to the sustained movement of goods based on horizontal principles of mutuality. The classic example is the gift economy, whereby a significant portion of goods is distributed based on the need to reciprocate gift giving. The solidarity implied by labor unions is also an instance of reciprocity, especially insofar as unions are integrated into an intersectoral bargaining system. In intersectoral bargaining systems, the distribution of wages is partially removed from the market and rather operates through institutions organized on the basis of reciprocity, whereby workers in some sectors will often accept lower wages than they could receive on the market because they support the mutual obligations implied by union solidarity. Redistribution similarly points to modes of economic integration where economic coordination is intertwined with social and political institutions. In redistribution, a central authority is responsible for collecting and then distributing the goods in question. Again, Polanyi turns to anthropology for paradigmatic examples: chiefs or other authorities that would take some portion of goods through in-kind taxation and then redistribute it either generally or to specific social strata. But there are important contemporary analogues, including the evolution of modern banking systems, where central banks operate as a central authority to regulate the distribution of credit through the economy.

In contrast to reciprocity and redistribution, exchange and householding refer to modes of economic integration that seek to coordinate economic activities without such a shared normative horizon. Householding refers to the organization of economic activity based on hierarchical commands, typically within a self-sufficient unit. For Polanyi, the original model for householding is Aristotle’s discussion of production for use within the Greek household, which he says operates according to the principle of autarky (Polanyi 2001, 57). But Polanyi also elsewhere identifies autarky with the turn toward planning and national self-sufficiency in the interwar USSR and Germany, one which Polanyi, as with many of his contemporaries, became familiar with as a result of not just the Soviet Union but wartime mobilization more generally (Polanyi 2001, 198, 253–56). Last, exchange refers to the coordination of activity through mutually beneficial trade between independent parties. In both householding and exchange, economic actors face others as adversaries to be strategically negotiated with: either as other households (states) that pose a military threat or as competitors in the market. While, to an extent, exchange activities may be embedded in various reciprocal norms that can reduce transaction costs, the important point is that they need not be. Often it will be advantageous to create situations where people are less bound by such norms and so able to fully “truck and barter” to determine the optimal market price.

The first point of these categories, for Polanyi, is to displace the fallacy that markets are the default or natural mode of economic coordination. Polanyi contends that, while exchange has always been part of economic systems, the emergence of capitalism in England generated an ideology that sought to transform all economic relationships into exchange relationships. The rise of a “market society” meant that each of the inputs of production—land, labor, and money—required a market price, and so the state and economic elites worked together to ensure, as much as possible, that each functioned as a commodity. Yet for Polanyi, this was a “utopian” effort. Polanyi’s critique is realist in spirit: regardless of how efficient markets are under ideal conditions, the strains produced by the demands of efficiency—such as for lower wages or else deflation to preserve competitiveness—will become too politically costly to sustain.16 The crux of his critique of the utopia of the market society is that given that none of the three fictitious commodities can realistically function like commodities, there will be political pressure to create nonmarket coordinating institutions centered on each commodity.

Moreover, in Polanyi’s argument, each commodity becomes connected to nonmarket coordinating institutions that embody one of the three nonmarket modes of integration: the labor movement creates reciprocal coordinating institutions (labor/reciprocity), landed elites support militarism and autarky (land/householding), and the bourgeois eventually demands a redistributive (in Polanyi’s technical sense) monetary system (money/redistribution). Surveying the development of the modern labor movement, Polanyi observes that, for its utopian theorists like Robert Owen, “the principle of cooperation or ‘union’ would solve the problem of the machine without sacrificing either individual freedom or social solidarity, either man’s dignity or his sympathy with his fellows” (Polanyi 2001, 203). Labor unions, then, mark the formation of reciprocal, nonmarket institutions that replace the principle of exchange with the principle of reciprocal cooperation for determining wages. Landed elites, reacting to the commodification of land, reminded free traders of the military nature of spatial control over territory: “it had been forgotten by free traders that land formed part of the territory of the country, and that the territorial character of sovereignty was not merely a result of sentimental associations, but of massive facts, including economic ones” (Polanyi 2001, 193). There was an affinity between the reaction to markets in defense of land and the formation of the autarkic structure of the military state organized on the basis of householding. Finally, the strains of maintaining commodity money in the gold standard, with its dramatic deflation to adjust to trade imbalances, produced demands for central banking, which “spread the effects of restrictions [in the money supply] to the whole community while shifting the burden of the restrictions to the strongest shoulders” (Polanyi 2001, 203). Central banking, by centralizing the money supply and adjusting the effects of monetary contraction (or counteracting it altogether), is a nonmarket redistributive institution that ensures that viable banks and firms are not destroyed because of temporary insolvency.

In part, these coordinating institutions can be thought of as responses to what economists today call market failures. Given search costs, the cost of moving, and other frictions in the labor market, labor will not be perfectly mobile, and so there will be a need for institutions that coordinate, for example, workers’ and employers’ investments in skills.17 Corporatist wage bargaining helps harmonize the wage demands of different segments of the labor force to head off the collective action problems that produce inflationary spirals. Similarly, central banking helps solve market failures or “liquidity traps” among capital holders, who may underinvest due to the self-fulfilling perception that others will also underinvest. But Polanyi’s argument differs from a market-failure perspective in two ways. First, his account emphasizes the normative dimensions of both redistribution and reciprocity as coordination mechanisms, and thus their (potential) connection to democratic ideals. And, second, he argues that those institutions are formed in conjunction with the creation of collective actors who can then sustain the more or less egalitarian distribution of power within the economy. Labor unions, embodying reciprocity, and organized central banking systems, embodying redistribution, both mark points at which collective political power functions to directly coordinate economic activity. Both, then, stand in a complex relationship to democratic political institutions. On the one hand, both of them structure and supplant market interactions and so mobilize principles of solidarity and normative legitimacy. At the same time, both are vulnerable to capture by political constituencies that will use them to favor market formation or their own partial interests. Or else those institutions may gain a powerful interest themselves in “planning” markets. Benjamin Braun (2018) shows how the ECB’s power is increasingly dependent on encouraging the formation of financial markets. Either way, such nonmarket coordination institutions are arenas in which atomistic economic action gives way to political conflict.

One of the characteristic stories of the era of “neoliberalism,” typically taken to have begun with the inflation crises of the early 1970s, has been the shifting balance of power between these different economic institutions. In response to inflation driven by empowered workers, central banking authorities increasingly asserted their autonomy from political democracy and enacted policies that contributed to marketization and undermined the political capacity of labor unions and their allied political parties (Hung and Thompson 2016). European integration and European law have reflected these shifts. Polanyi’s theory, then, points to a distinctive interpretation of the recent crises of European law, one that relates them to the underlying dilemmas of democratic capitalism rather than the tension between openness and closure.

But before discussing that, there is a limitation of Polanyi’s thought worth noting, especially in this context: he never explicitly develops a theory of law or constitutionalism in relationship to the economy. Law plays an ambiguous role in Polanyi’s thought. His early writings evince voluntarist skepticism toward legality. Polanyi writes of the “reification” inherent in law, which produces a “wall” between the “past impulses formulated as law” and the “fluid impulses to create law which are at work today.” In his ideal “functional democracy,” the “wall” between law and democracy “will be infinitely thin and completely transparent” (Polanyi 2018, 34). This Rousseauian reconciliation of law and will is utopian under modern conditions of complexity and plurality, especially when such law is to regulate the interactions between communities with their own legal cultures and political histories.

By The Great Transformation, Polanyi abandons the belief that a democratic society must be transparent to itself. Instead, he affirms the inevitability of legally-regulated power in complex economic systems. As a result, law comes to play a dual role in Polanyi’s theory. Most overtly, law is the medium for the creation of the market society against which Polanyi positions the democratic reorganization of the economy. The foundation of the fictitious commodities is the legal ideal of the contract. “The market view of society” equates “economics with contractual relations, and contractual relations with freedom” (Polanyi 2001, 266). The functioning of the market society depends on the maximal scope for free contract in the exchange of the three fictitious commodities and so the removal of those commodities from regulatory or political impediments to contract. On the other hand, the decommodification side of the “double movement” also operates through law, with Polanyi pointing to “factory laws and social legislation” as aspects of the “self-protection of society” (Polanyi 2001, 87). But the more important dynamic is the formation of nonmarket institutions—from labor unions to central banks—that must retain discretionary powers that can be regulated and enabled, but not determined, by legal norms. Polanyi hopes that these institutions, by steering economic institutions according to political equality rather than contractual freedom, will make “juridical and actual freedom…wider and more general than ever before; regulation and control can achieve freedom not only for the few, but for all” (Polanyi 2001, 265, emphasis added).18 There is, then, an asymmetry built into law as a medium of economic organization. The formation of the market society occurs entirely through the legal medium, with its advocates seeking to completely subordinate state power to constitutional rules. On the other hand, the formation of nonmarket institutions requires administrative political organizations capable of responding to the particulars of economic events, and thus they retain a discretionary political power that can never be fully specified by legal norms.

IV. Labor, Money, and the Crises of European Law

While for much of its existence the European Union was seen as a relatively low-salience political program, largely enacted by political elites, today the project of European integration is in crisis—a crisis fueled precisely by the inability, within the constitutional architecture of the European Union, to acknowledge the economic realities to which Polanyi points. In particular, Polanyi emphasizes how the “economic” and the “political” become intertwined through the formation of nonmarket coordinating institutions focused on labor, on the one hand, and money, on the other. Market orders demand wage labor unconstrained by nonmarket institutions like unions and a monetary system that prioritizes price and exchange rate stability. While Europe often presents itself as “balancing” market and social demands, the reality is that the project of European integration, and particularly monetary integration, produces marketizing dynamics that have undermined democratic institutions within the economy.

The dilemmas of democratic capitalism play out in the tension between the politics of labor and the politics of money, tensions that are evident with recent European politics. Two of the most significant recent debates regarding the economic implications of European law—regarding, first, the idea of “social Europe” and, second, the response to the eurozone crisis—closely follow the path of Polanyi’s theory, insofar as they focus on the tensions that arise with the effort to make both labor and money fit with the demands of market freedoms. Moreover, Polanyi’s theory shows that the question of labor, encompassed by post-Laval debates over social Europe, and the question of money, brought to the fore by the extraordinary actions of the ECB to resolve the eurozone crisis, must be treated in tandem. Both, I contend, show that the ideal of a legally regulated, market-based economic order runs up against the realities of nonmarket modes of economic integration that Polanyi theorizes as cornerstones of modern democratic societies—nonmarket modes that bring politics to the fore. Money requires centralized nonmarket institutions that end up making “redistributive” decisions about the allocation of credit (especially in emergencies). Labor requires horizontal, reciprocal nonmarket institutions that ensure solidarity within the economy.19 The politics of the ECB have pointed to how its distributive constraints—namely, to accede to the creditor states demands for conditionality in exchange for their agreement to provide liquidity—undermine the horizontal reciprocity of labor solidarity in debtor states.

The idea and project of a “social Europe” is a response to the persistent criticism that European law undermines not just the viability of domestic welfare systems but also the capacities of the actors that have historically sustained them—most centrally, the organized labor movement. Yet the dominant framing of “social Europe” has come to buttress, rather than challenge, these tendencies, insofar as that framing positions welfare institutions as insuring against temporary market turbulence and so enabling the commodification of labor. With the so-called Laval quartet of decisions by the European Court of Justice (ECJ), debates about the effects of European law on domestic social welfare and labor bargaining systems entered a new phase.20 Each of these rulings pitted domestic nonmarket labor institutions against the principles of free movement and nondiscrimination. The ECJ’s interpretation of the posted workers directive as a floor rather than a ceiling and application of proportionality principles to strikes confirmed what many had feared: that the market-making telos of European law would come to view self-organized workers not as democratic organs of equality but as protectionist measures that require justification. The task of European law, then, would be to balance the market openness of the four freedoms against the social closure implied by positive social rights. Yet given the institutional configuration of the European Union and the nature of its competencies, the logic of this conflict generally tends to prioritize negative integration over all else, as protecting the single market places nonmarket reciprocal institutions under suspicion.

In response to the uproar of the Laval quartet, as well as the post-bailout structural adjustments in debtor countries after the eurozone debt crisis (about which more below), there has been a concerted push to emphasize the social dimensions of European integration, culminating in the creation of the European Pillar of Social Rights.21 While surely a welcome marker of renewed commitment to the social dimension of European integration, the Pillar attempts to square the circle between market-driven flexibility and the democratic self-organization of workers.22 Moreover, as Sacha Garben notes, the Pillar does not mention “fundamental social rights” already recognized by the ECJ, such as “to maximum working time and minimum rest period and annual paid leave, nor does it reference workers’ dignity” (2019, p. 9). The Pillar continues with the general trend of segmenting off social Europe from the more fundamental questions of market and monetary integration, even as many hope the European Semester can come to include social indicators. Garben continues:

The Pillar has not engaged in the more difficult exercise in which the internal market, budgetary balance and social justice are not presented as synergetic, non-controversial, apolitical issues that benefit citizens, workers, and businesses alike, but instead are recognised for sensitive, political issues that are, at least partially, at odds with each other (2019, p. 10).

The move toward a social union, then, remains stuck in the opposition between openness and closure, markets and society. The enhancement of social Europe, here, is intended to ensure the smoother functioning of the single market, reinforcing the view that social policies are primarily about compensating for unexpected risks that temporarily exclude people from participating in markets.23 Lost in this paradigm is the democratic legitimacy of the various forms of nonmarket social and economic integration gathered under the heading of social Europe. Their legitimacy extends beyond the capacity of such institutions to respond to market failures and contribute to the stability of the single market. Rather, they also embody an intrusion of democratic norms of political equality into economic institutions that do not conform to the model of contractual freedom. Insofar as debates over social Europe accept this market-based framework, where the function of social policies is to correct for market failures, they segment off debates about domestic nonmarket institutions, like labor unions, from broader questions about the democratic implications of money and the market system.

Perhaps more significant from a Polanyian perspective has been the crisis in European constitutionalism provoked by the drawn-out aftermath of the 2008 financial crisis. Polanyi helps reframe debates about social Europe away from the openness/closure dichotomy and toward a theory of interlocking institutional mechanisms for realizing equal freedom. And this theory points to the inherent construction flaws of the EMU, defects that became dramatically evident during the eurozone crisis. Indeed, Polanyi’s analysis of money casts doubt on the ideal of a constitutionally regulated monetary system, instead highlighting the inevitable role of politics and power in the creation and regulation of money.24 From this perspective, the deconstitutionalization of the emergency response to the eurozone crisis is hardly surprising (Kreuder-Sonnen 2016).

As I noted above, Polanyi views central banking as a nonmarket, redistributive form of economic integration that became functionally necessary given the disruptive strains of the gold standard. But the tensions Polanyi identifies persist in an era of fiat money, especially insofar as countries embrace floating exchange rates and thus a market-based view of money. At the heart of Polanyi’s theory of money is the tension between the two political facets of money, as he understands it: money as a “means of exchange” and money as a “means of payment.” The idea of money as a means of exchange presents money as, ideally, outside the reach of politics, “a purely economic category, a commodity used for the purpose of indirect exchange” (Polanyi 2001, 204–5). In contrast, money as a means of payment refers to the role of money in sustaining ongoing economic activity. Here, what is crucial is the supply of liquidity and credit rather than the stability of money as a means of exchange—liquidity that is ultimately guaranteed by the political power of the state, operating through agencies like central banks that are willing to use “any means necessary” to respond to market uncertainty during times of liquidity crises. These two functions of money operate according to different logics, with important political implications for thinking about the relationship between law, the economy, and European integration. As a means of exchange, the function of money is to maintain the price stability that facilitates international trade. And the concern with exchange rate stability was one of the central impetuses behind the formation of the EMU. But as a means of payment, the central role of money is to secure the flow of credit that ensures that viable enterprises are sustainable in the long run. Central banking, thus, functions to ensure that temporary liquidity constraints do not undermine profitable activity.

In good times, these two functions can make peace with each other: credit is relatively abundant, so banks can focus on price stability. Crises pull them apart, revealing their distinct underlying normative premises and political implications. Particularly notable here is the central role Polanyi takes creditor-debtor relationships to play for money as a means of payment. At the heart of money as a means of payment is the political guarantee of the future solvency of financial “intermediaries” such as banks, a guarantee that is the precondition for the ongoing circulation of credit and debt in the economy. Whereas the ideal of exchange implies discrete interactions between otherwise anonymous buyers and sellers, money as a means of payment, insofar as it refers essentially to the future-oriented supply of credit in the economy, rests on potentially charged relationships of debt. Thus, while the ideal of price stability embodied in the ECB positions each member state equally vis-à-vis the treaties, the dynamics of credit and debt created hierarchical divisions within the eurozone. In his late essay “Semantics of Money-Uses,” Polanyi argues that the idea of payment originated in the need for some sort of quantitative metric for people to repay their debt to their social community: “punishment approximates payment when the process of riddance of guilt is numerable” (Polanyi 1971, 182).25 While debtor-creditor relationships need not be moralized in this way, the fact that they are both sustained and hierarchical lends itself to moralizing rhetoric, whereby debt proves the moral inferiority of debtors. But the converse of moralized discourse about debt is the inherently redistributive dimension to money as a means of payment, where the state guarantee of credit ultimately points to a collective pooling of risk across a community (Viehoff 2018; Sangiovanni 2013). The state facilitates access to credit for those who would otherwise be priced out of credit markets in exchange for the ability to tax them and so secure future liabilities.

The EMU institutionalizes these two functions of money at two different political levels, creating intractable forms of conflict once the 2008 financial crisis arrived. Money as a means of exchange was institutionalized through the euro, even as the state’s ability to manage liquidity through issuing bonds, and thus money as a means of payment, remained a national obligation. Nonetheless, a European safe asset has always been encouraged by the ECB through shadow banking (Gabor and Vestergaard 2018). As a result of this division and the reliance on shadow banking, the ECB lacked the competencies and the willingness to fully secure this safe asset in hard times. What the crisis revealed is that the existence of a safe asset—and so of the supply of liquidity—is dependent on political credibility and power: “central bank backstops are needed to preserve safety” (Gabor and Vestergaard 2018, 43). Instead of securing the stability of the euro as a means of payment, the institutional constraints built into the treaties meant a continuous reversion to the minimum winning coalitions and so a muddying through that prolonged the crisis, until an ad hoc, extratreaty solution—the European Stability Mechanism—could be found (Jones, Kelemen, and Meunier 2016). Moreover, the ECB’s constitutional constraints mean that it has encouraged, postcrisis, the increasing formation of securitization and other markets for debt, as intervening in such markets remains one of the ECB’s few tools for managing liquidity (Braun 2018).

Similarly, for Polanyi, the gold standard was meant to remove money from political control and so ensure a separation between the economic and the political. The remarkable feature of the EMU was to turn not to the fixity of a common commodity but instead to the credibility of treaty commitments to remove money from politics. In place of the market discipline of the gold standard, the EMU looked to law to entrench rule-governed monetary stability in the eurozone, even as the era of fiat money produces intrinsic instability in financial markets that require flexible political agency. Not surprisingly, then, the attempt to “constitutionalize” money created legal tensions in two directions. First, the extraordinary efforts of the ECB to overcome sovereign debt crises strained Article 125 of the Treaty on the Functioning of the European Union, the so-called no-bailout clause. More destructively, the fallout created a new system of technocratic authoritarianism that went beyond enforcing the Stability and Growth Pact’s budgetary rules in its interventions in debtor states.

While defenders of the EMU argued that monetary union would spontaneously produce convergence and so become an optimal currency zone over time, now convergence was to be enforced through “conditionality”—structural, supply-side reforms without even the pretense of democratic legitimacy. These reforms were enforced via the constant threat of a new market panic, mirroring the dynamic Polanyi identified with the gold standard (Holmes 2014; Woodruff 2016). He remarks on how the gold standard pushed creditor countries to impose uniform economic and political systems on debtor countries, institutions that were “required as a check on the finances and currencies of debtor countries with the consequent need for controlled budgets” (Polanyi 2001, 261). The jealously guarded monetary sovereignty of creditor countries “was combined with its complete opposite, an unrelenting pressure to spread the fabric of market economy and market society elsewhere” (Polanyi 2001, 261). As with the gold standard, the EMU’s institutional separation between money as a means of exchange and money as a means of payment comes at the price of democratic legitimacy, as the fabric of debtor states is reshaped based on the functional demands of the EMU—not to mention the need to appease domestic audiences in creditor states.

The eurozone crisis inaugurated a new era in the relationship between the EMU and the ideal of social Europe. Even as the Pillar and other developments seek to restore the standing of social Europe and even bring social indicators into the European Semester, the mechanism for reporting on states’ compliance with the various fiscal requirements of the monetary union, the debate about social Europe maintains the fundamental separation between democratically enacted social rights and the single currency area. Yet the course of the crisis shows the close connection between the commodification of money—the separation between money as a means of payment and money as a means of exchange—and the mobilization of labor as a commodity. As deeply counterproductive as it was from a long-term economic perspective, austerity and structural adjustment are not just the products of German ordoliberal ideology, which, according to many commentators, stands behind the insistence on strict conditionality vis-à-vis the bailouts of debtor states.26 Rather, Europe is entrapped by the institutional separation between the different functions of money, especially in the absence of other compensating economic mechanisms (Offe 2015). Faced with the dynamics of the currency union, the primary competitive advantage for less productive debtor countries is lower per unit labor costs—that is, to subject the cost of labor as much as possible to the market mechanism. Paeans to social Europe notwithstanding, the commodification of money in the EMU contributes to the uneven commodification of labor, one that affects Europe’s periphery more.

Finally, the contradictory role of law in the eurozone crisis mirrors the tension between money as a means of exchange and money as a means of payment. The paradox of the European order after the crisis is the simultaneous strengthening of constitutional constraints on member states and relaxing of legal constraints on European-level actors, such as the ECB. The intensification of constitutionalism simultaneously undermines the integrity of the European legal order (Joerges 2019; Joerges and Everson 2014). But these contradictions mirror the contradictions within the institutionalization of money in the EMU. The overwhelming value of stability for money as a means of exchange corresponds to strong constitutional precommitments that would regulate the production of money. Combined with worries about moral hazard, this ideal informed the strengthening of treaty norms and supervision of euro member budgets. At the same time, the crisis brought to the fore the redistributive dimension of money as a means of payment, a dimension that resists constitutional regulation insofar as it requires the discretionary actions of central banks to sustain financial intermediaries in the face of crises. As a result, the ECB sought room to make decisions that stretched the limits of the treaties regulating it, decisions that then had to be reconciled with the European legal order (Joerges 2016a).

The two most pertinent decisions here—Pringle and Gauweiler—both, against their intentions, testify to Polanyi’s arguments about the limits of law in regulating nonmarket economic coordination.27 In these cases, European courts had to contrive legal justifications for the new governance mechanisms embodied in the European Stability Mechanism (Pringle) and the ECB (Gauweiler). And most notably, to do so they resorted not just to legal formalism but also to the counterfactual ideal of the market itself. Gauweiler codified the requirement that the ECB use political conditionality to simulate the effects of market discipline. The idea of what the market would have done becomes a mechanism for filling in the gaps in European law.28 By pointing to the teleological economic rationale behind articles like Article 125 of the Treaty on the Functioning of the European Union, the court enabled the extraordinary actions of the ECB but then implicitly codified the demand that political authorities within the European Union enforce fiscal discipline—and even go beyond such discipline to structural economic changes. The ideal of economic constitutionalism was to replace the capricious power of the state with the anonymous order of competition and the market. At the heart of the ideal of the market society was a deep distrust of political power—the desire to subordinate it to constitutional rules that promised to prevent free riding and, when such rules failed, to the anonymous order of competition. In the face of this, Polanyi argues for the unavoidable role of coercion and power in the economy. He contends that nonmarket aspects of economic integration require the ongoing exercise of political power—whether the collective power of organized workers or the power of the state expressed through central banking. The tragic irony of the eurozone crisis is that the effort to remove money from the hands of states ended up creating a new concentration of power in the ECB less accountable than those that came before, one that operates at the very edge of its constitutional authority (Klooster 2018).

V. Conclusion: Realizing Reciprocity and Equality beyond the Market Utopia

Once the dust settles, economic and political crises can leave behind a clearer sense of the contradictions that so much of normal politics avoids. So it is with the long eurozone debt crisis—the lingering trauma of which has reappeared in the debate over “coronabonds”—mutual European debt instruments to finance member states’ responses to the COVID-19 pandemic. The improvised crisis management revealed deep contradictions in the European constitutional project—not just between European law and democratic legitimacy, so long the focus of critical European Union debates, but more fundamentally of the ideal of “economic constitutionalism,” of a rule-governed single market order constituted by European treaties (Joerges 2016b). Was the eurozone crisis merely a blip along the path to the fully constitutionalized economic order, one in which the treaties and the Commission would ensure alignment in the fiscal policies of all member states? Or does the simultaneous extralegality of the ECB and hyperlegality of the new treaties like the Treaty on Stability, Coordination, and Governance—a combination that has contributed to the broader crisis of legitimacy of the European Union—indicate more fundamental incoherences in the current project of legal integration?

The foregoing has argued that these incoherences are not products of the incompleteness of integration, to be overcome through a federalist political union, but rather a symptom of the underlying political assumptions of the single market project. The project of integration through law privileges not the formation of well-regulated or legally embedded markets but the commodification of the factors of production, most notably labor and money. Insofar as it is understood as a compensatory effort to respond to market failures and temporary exclusion from the market, social Europe will always be catching up with the dynamics produced by the telos of the single market. This is even more so under conditions of heightened economic heterogeneity within the European Union. The increasing diversity of social models within the European Union constrains the ability to coordinate national-level nonmarket economic institutions, intensifying the centrifugal dynamics already analyzed with regard to the EMU. Under such conditions, the European Union increasingly embodies a “constitutional architecture of injustice,” in Paul O’Connell’s evocative phrase (O’Connell 2019).

In all, then, Polanyi’s thought provides an alternative economic framework to the single market, one that emphasizes the importance of nonmarket coordinating institutions as sites of ongoing political contestation. Here, Polanyi’s perspective could complement different efforts to develop a more pluralistic view of the nature of the European Union. Two, in particular, are relevant: first, “demoicratic” theories of the legitimacy of European integration, which emphasize the value of differentiated integration, and second, the conflict of laws approach to European law, which rejects the need for clear-cut supremacy of European law and calls instead for constitutional dialogue between different legal systems (Bellamy 2019; Bellamy and Kröger 2019). Given economic complexity and interdependence, an ideal of reciprocity requires multiple institutional embodiments, such that different groups can realize the norms of reciprocity appropriate to their relationship. As demoicratic theorists argue, economic rights are always realized through democratic institutions that have evolved at the national level with specific standards of legitimacy. This would require rethinking the central role of the four freedoms in European integration, and particularly their increasing interpretation as fundamental or even human rights. There may be ways in which the ideals of free movement, and particularly the free movement of persons, could become tools for ensuring that democratized economic institutions realize a principle of reciprocal cooperation with members of other institutional systems, such that they are responsive to the interests of members of other systems and vice versa. At the same time, Polanyi would challenge the exclusively national framework of intergovernmental views like demoicratic theories. Rather, there may be a need to build new forms of transnational institutions that could coordinate, for example, monetary and fiscal policy with labor policy.

Similarly, the conflicts of laws approach seeks to incorporate societal and democratic considerations into adjudicating between different levels of European law. Moreover, the conflicts of laws approach rejects the ideal of a single, coherent, and overriding European constitutional order, one that would fully constitute and constitutionalize economic activities and relationships, with European courts then tasked with defending the integrity and supremacy of that order. The normative basis for the supremacy and cohesiveness of the European legal order too often rests on the ideal of the competitive market. But if political power retains a permanent role in the regulation of economic activities, then legal institutions must recognize their limits with regard to economic rights and enter into dialogue with other sources of political legitimacy. To do so, though, a more substantive notion of fairness and equality must guide the interpretation of conflicts between national social systems and European law, a principle that means more deference to the diverse local forms of the nonmarket coordinating institutions. From a Polanyian perspective, the purpose of treaty provisions like the four freedoms is to ensure reciprocity—ensuring all equal access to distinct social protection regimes and ensuring that such regimes do not unduly harm outsiders—while still exercising a general principle of deference, especially where those regimes regulate power imbalances, such as between workers and employers. However, the current trends indicate increasing isolation of European decision-making from popular control and a weakening of democracy in periphery and debtor countries, both of which place limits on the political basis for a Polanyian countermovement within Europe.

The market openness/social closure dichotomy assumes that, in principle, the European legal and constitutional order can approach the ideal of the competitive order. National-level social policies exist to buttress this market-making process, responding to market failures and temporary forms of economic exclusion. In place of the market openness/social closure dichotomy, Polanyi’s social theory points to the essential role of nonmarket coordinating institutions in modern economies. These nonmarket coordinating institutions are an unavoidable point of entry of political power into the economic sphere—whether the relative power of labor and capital or the power of the state expressed through central banking. Yet the recognition of these limits of the single-market project need not point to a return to the ideal of national sovereignty. Rather, Polanyi’s thought points to a principle of reciprocity in regulating international economic relationships, according to which actors agree to recognize the interests of members of other economic systems. Polanyi himself envisioned a future economic system that would allow for both “economic collaboration of governments and the liberty to organize national life at will” (Polanyi 2001, 262, emphasis in original). Polanyi recognizes the cosmopolitan hopes embodied in the ideal of the market society, reflected in the desire to overcome “the passions of nationalism and class war, vested interests, and monopolists” (Polanyi 2001, 151). Following Polanyi, the great challenge today is to devise institutional and political mechanisms that can help to realize the egalitarian potential of nonmarket coordinating institutions that have evolved at the national level while ensuring the equal and fair treatment of the members of other systems, enacting an international principle of reciprocal cooperation.

Acknowledgments

The first seed for this article was presented at “The Political in the Economy and Its Law: Symposium in Honour of Professor Christian Joerges” at the Hertie School of Governance, December 5, 2018, and I thank Başak Çalı for the invitation. Subsequent versions were presented at the “Theorizing Europe 3.0” discussion group and the workshop “Capitalism and Democracy in the 21st Century: Polanyian Perspectives,” November 26, 2019, and I thank the Hertie School, the Jacques Delors Institute, and the American Academy in Berlin for their support of the workshop. I am grateful to the participants in all the workshops for their comments, and particularly Christian Joerges and Vladimir Bogoeski for engaging with multiple drafts. Hagen Schulz-Forberg and the two anonymous reviewers provided astute feedback. Lisa Herzog, Turkuler Isiksel, Claus Offe, and Sabrina Marasa all provided helpful comments on drafts of the article. Final research for the article was completed while I was a fellow at the American Academy in Berlin, and I thank them for their support.

Author Biography

Steven Klein is a lecturer in the Department of Political Economy, King’s College London (as of September 2020). He was a Berlin Prize Fellow at the American Academy in Berlin (fall 2019) and has previously held positions at the University of Florida and the European University Institute. His research focuses on democratic theory, critical social theory, theories of political economy and the welfare state, and the history of European social and political thought. Klein’s book The Work of Politics: Making a Democratic Welfare State (Cambridge University Press) will be released in September 2020.

Footnotes

2.

More than anyone, Christian Joerges has been responsible for drawing Polanyi’s thought into debates about European law, and my argument owes an immense debt to his work (see especially Joerges and Falke 2011). For other important references to Polanyi in this context, see Ashiagbor (2013); Caporaso and Tarrow (2009); Crouch (2013); Everson and Joerges (2012); Frerichs (2017, 2016); Goldmann (2017); Habermas (2000, p. 84-86); Holmes (2014); Joerges and Rödl (2009); Streeck (2020); Woodruff (2016). Notably, these recent invocations of Polanyi are in contrast to his influence on the “new regionalism” of Björn Hettne (2005), who saw in regional integration a potential basis for Polanyi’s double movement. As I will argue, though, disaggregating Polanyi’s idea of the double movement by focusing on different types of nonmarket coordinating institutions enables us to better see the contradictions of European integration.

3.

Against this critique, liberal defenders of the integration project emphasize how European law embeds markets in social principles like nondiscrimination that help to reconcile inclusion and openness. This then triggers the worry that such principles end up being a further Trojan horse for market-biased integration. See, for example, the exchange between Caporaso and Tarrow (2009) and Höpner and Schäfer (2012).

4.

Particularly pertinent here is the Streeck-Habermas debate about the implications of European integration, a debate which broke starkly along the lines of national/international, closure/openness. See Habermas (2015) and Streeck (2014b, 2017).

5.

Alexander Ebner (2015) also argues that Polanyi is focused on nonmarket coordinating institutions, although he does not systematically develop the idea.

6.

For international politics in Polanyi’s thought and its subsequent influence, see the discussions in Dale (2015, 2016). For law in Polanyi, see Frerichs (2019) and the essays in Joerges and Falke (2011). As Dale emphasizes, regional geopolitical blocks were always an important aspect of Polanyi’s thinking, one that Polanyi failed to fully develop as the Cold War accelerated international conflict rather than cooperation.

7.

On the idea of the single market as the governing telos of European law, see Isiksel (2016).

8.

For the central role of international institutions in postwar neoliberal thought, see Slobodian (2018).

9.

For a similar critique of Habermas’s theory of money in the context of the eurozone, see the insightful discussion in Streeck (2015).

10.

For the influence of systems theory and cybernetics on Hayek, see Slobodian (2018, p. 224-262).

11.

Timo Jütten notes Habermas’s reticence to directly criticize actors in the financial sector after the financial crisis, as we should see that they were following the “socially recognized logic of profit maximization” (2013, p. 588).

13.

For an expanded version of this argument, see Klein (2020).

14.

This is a point that some economists have recently come to emphasize. Daron Acemoglu and John Robinson caution against taking competitive markets as a regulative ideal, such that all moves in that direction are beneficial. Such efforts, they warn, can neglect how “the extant political equilibrium may critically rest upon” market failure. “Policies that seek to address market failures,” they continue, “can reduce the economic rents for certain groups and thus may have unintended political consequences, particularly when the rents that are destroyed are those of groups that are already weak, further tilting the balance of power in society” (Acemoglu and Robinson 2013, 174–75). For a similar argument in political theory, see Jubb (2020); Klein (2017).

15.

Crucially, for Polanyi, the tension is between an ideal of the market society and democracy, and not between markets as discrete institutions and democracy. He envisions a permanent role for the coordinating function of markets. But insofar as markets are always intermeshed with nonmarket institutions, there is a necessary role for state power and collective decision-making regarding economic activities.

16.

My argument is based on a systematic reconstruction of Polanyi’s categories, which, as ideal-types, will always blur into each other when applied to reality. There are different versions of these distinctions scattered in Polanyi’s writings. For example, Polanyi does not always distinguish householding from redistribution, sometimes arguing that ancient households were themselves modes of redistribution (i.e., Polanyi 1977, 41). Similarly, Polanyi never explicitly connects the modes of economic integration with the fictitious commodities. At times, though, he does hint at such an argument, such as when he connects the development of money with redistributive institutions (Polanyi 1977, 64–66). Again, my effort is to systematize Polanyi’s valuable but sometimes only suggestive intuitions.

17.

For Polanyi’s realism, see Lindsay (2015).

18.

For the classic analysis of welfare institutions that emphasizes skills investment, see Hall and Soskice (2001).

19.

Polanyi recognizes the potential threat to individual freedom posed by this centralization of power and so hopes for a complementary strengthening of individual rights: “The true answer to the threat of bureaucracy as a source of abuse of power is to create spheres of arbitrary freedom protected by unbreakable rules. For however generously devolution of power is practiced, there will be strengthening of power at the center, and, therefore, danger to individual freedom. This is true even in respect to the organs of democratic communities themselves, as well as the professional and trade unions whose function it is to protect the rights of each individual member” (Polanyi 2001).

20.

While important, here I leave aside the relationship between the commodification of land, the territorial state, and the problem of autarky.

21.

Case C-341/05, Laval un Partneri Ltd v Svenska Byggnadsarbetareförbundet, Svenska Byggnadsarbetareförbundet, avd. 1, Svenska Elektrikerförbundet, EU:C:2007:809; C-438/0, The International Transport Workers’ Federation and The Finnish Seamen’s Union v Viking Line ABP and OÜ Viking Line Eesti, EU:C:2007:772; C-319/06 - Commission v Luxembourg, EU:C:2008:350; C-346/06, Rüffert v Land Niedersachsen, EU:C:2008:189. For debates regarding the impact of the Laval quartet, see Ashiagbor (2013); Dale and El-Enany (2013); Feenstra (2017); Joerges and Rödl (2009).

22.

Interinstitutional Proclamation on the European Pillar of Social Rights, OJ C 428, 13.12.2017.

23.

For a slightly more optimistic evaluation of the Pillar as marking, alongside the revisions of the Posted Workers Directive, a “resocialization” of the European project, see Joerges, Bogoeski, and Nüse (2019).

24.

At the same time, European social democratic parties have embraced “supply-side” arguments that focus on human capital formation. “Aimed at creating human capital, for example through active labour market policies, public childcare provision, or education, social investment was supposed to both modernise the welfare state and contribute to economic growth” (Bremer and McDaniel 2019, 8). In this framework, which complements the varieties of capitalism approach to the welfare state, so-called “social partners” like unions can play a necessary function in securing investment in skills and other forms of social investment, but they can also produce labor market rigidities and drain public coffers in a way that will weaken long-run growth.

25.

Indeed, even from a legal perspective, money always involves the complex entanglement of law, power, and the state. And this is particularly so in an era when so much money is created through complex financial mechanisms. Katherine Pistor’s (2019) pioneering work has helped untangle these relationships.

26.

For an analysis of the moralization of debt in the debates around the eurozone crisis, see Prinz and Enzo Rossi (forthcoming). For how such moralizing narratives can obscure the structural injustice in credit markets, see Herzog (2017).

27.

For arguments that emphasize the influence of ordoliberal ideas, see Bonefeld (2019); Woodruff (2016). For a more skeptical account of the relationship between eurozone crisis management and ordoliberalism, see Hien and Joerges (2018). According to that line of argument, far from the culmination of ordoliberalism, the rise of executive authoritarianism and the teleological justification of austerity both mark the limits of ordoliberalism as a tradition able to respond to current political realities.

28.

Case C-370/12, Thomas Pringle v Government of Ireland and Others, EU:C:2012:756; Case C-62/14, Peter Gauweiler and Others v. Deutscher Bundestag, EU:C:2015:400. More recently, litigation over the ECB’s various quantitative easing programs have raised similar but new constitutional issues, focusing on the division of competencies between monetary and economic policy—a division that, again, presupposes that money can become solely a means of exchange. See C-493/17, Weiss and Others, EU:C:2018:1000, and the landmark response from the German Federal Constitutional Court, BVerfG, Judgment of the Second Senate of 5 May 2020 – 2 BvR 859/15.

29.

Thus, the court finds that Outright Monetary Transactions, where the ECB committed to unlimited purchases of sovereign bonds on secondary markets to avert panic selling of bonds, would be justified because the conditionality prevents it from altering the (hypothetical) course of action under pure market conditions: “the fact that the purchase of government bonds is conditional upon full compliance with the structural adjustment programmes to which the Member States concerned are subject precludes the possibility of a programme, such as that announced in the press release, acting as an incentive to those States to dispense with fiscal consolidation, relying on the financing opportunities to which the implementation of such a programme could give rise.” Case C-62/41, para. 120.

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