Karl Polányi. Founder of "Mixed Economies"?

Many social scientists agree that Karl Polányi is one of the most important contributors to the history of economic ideas and systems. Not few consider him a founding father of the idea of “mixed economes” or at least deem his work a major contribution to “mixed economies”, perhaps most famously Mariana Mazzucato and Joseph Stiglitz.
These researchers credit Polányi with the insight that so-called "self-regulating market economies" did not arise without the help of government intervention, not only for their creation, but also for their continued existence.
Mixed Economies
Such intervention or regulation ranges from educating the workforce to infrastructure expenditure to the provision and enforcing of contract laws to the correction of “market failures”, and so forth.
Mazzucato points out how government agencies and government-funded research are instrumental to technological revolutions as the drivers of economic development. She convincingly shows how technological innovation, from the iPhone to the internet itself, has been heavily dependent on government action.
Now, it is correct that Polányi has shown that what we have come to call “markets” is an economic construct that has required government action for its creation and continued existence. And we can extrapolate from this insight coherently that such “markets” are most successful if they are supported by government action, as, for instance, Mazzucato has shown.
Yet, that is not what Polányi wanted to show us. His contribution is indeed significantly more sophisticated than that and is, strictly speaking, squarely at odds with the work of the proponents of mixed economies.
Why not Mixed Economies? Circumventing a Common Fallacy
The idea of mixed economies presupposes that economies are ideally and in reality combinations of governmental (e.g., planning) institutions as well as “market institutions”. Yet, Polányi rejects the idea that planning or “market” institutions have central importance for thinking about economics—in particular, that they constitute the two most important poles on an economic continuum.
Rather, for Polányi, planning and “markets” are trivial aspects of all economic activity. Capitalist companies need to plan every step of their economic actions, while every state firm must “buy” and “sell” products internally as well as externally. Therefore, Polányi tends to use in his early writings the term “Verkehrswirtschaft” (an economy in which exchange occurs) to show how trivial the idea of “markets” is.1
Likewise, does he tend to put “market” in square quotes, like Marx, to clarify that the concept is merely that: a concept and a rather empty one on top of that. Similarly, Polányi prefers to use “Verwaltungswirtschaft” (an economy that is administered) in his early writing to show how trivial the idea of “central planning” is.
Therefore, Polányi contrasts his “positive socialist” position in the context of the socialist calculation debate with that of collectivist planners and free “marketeers” alike. Yet, contrary to proponents of mixed economies or market socialists, Polányi does not fall for the common fallacy of theoretically synthesizing the work of planners and “marketeers”. Rather, Polányi rejects the basic assumptions that planners and “marketeers” share wholesale.
Critique of Economic Theoretical Markets
Like Marx, Polányi follows common language usage in denoting the capitalist system as a “market economy”. “Capitalist economy” and “market economy” are for Polányi and Marx co-referential concepts.
Importantly, Polányi, and again, Marx for that, reject the various economic theoretical concepts of “market”. Again, both Marx and Polányi show that the economic theoretical “market” concepts are deeply flawed, trivial, false, or ideological.
For instance, both reject the idea that something like a self-organized price mechanism that leads to optimal results against resource limitations exists. Exactly what proponents of mixed economies like Stiglitz partially accept when they speak of “market failures”.
That means, both thinkers do not fall for the equivocation of “market” as a capitalist economy with “market” as a theoretical economic concept, let alone for the idea that the latter even somewhat refers to the former.
What are “Markets”? Liberal Market Invention is not what you Think
As I mentioned previously, “market” refers for Polányi to the capitalist economic system. When he shows that markets are dependent on government action, he does not want to show, like Mazzucato, how “market economies” in the theoretical economic sense work best when they are supported by the state.
Rather, Polányi wants to show how capitalists used the liberal state to overcome feudalism to create “market” laws and institutions to exploit workers, take their rights to subsistence and housing away in order to make them available for factory work, and reduce their legal status to that of a commodity traded on the “labor market”, which forced them to take whatever job was offered to them—for Polányi and Marx alike, the most perfidious invention of liberal thinkers.
Polányi shows how the “market” is brought into existence and sustained by laws and police action that undermines trade unions. And, perhaps his main aim, at least in “The Great Transformation”, was to show how these “markets” led to mass alienation, mass poverty and unemployment that then led to fascism, not unlike today under “neo”-liberalism, as we might add.
Polányi instead of Mixed Economies
Identifying Polányi as an important proponent of mixed economies or even a founder of the idea is therefore misleading, to say the least. While it is neither strictly speaking false nor incoherent to take certain ideas from Polányi and use them for Mazzucato-style mixed economic thinking, I believe we owe it to Polányi to go back to his work and engage with it more thoroughly because the real Polányi has much more to offer than mixed economies.
Polányi’s genius is that of Marx. He shows how theoretical concepts, with which proponents of mixed economies like Stiglitz or Sen operate so uncritically, have no justification in the first place. To argue with Polányi against “market failures” or how to enhance “market” performance is therefore a bit on a par with demonstrating with Marx that neoliberal economies require welfare states to mitigate damage for the worst-off, i.e., a variety of ideological capture.
Polányi, K. (1922). Sozialistische Rechnungslegung. Archiv für Sozialwissenschaft und Sozialpolitik, 49(2), 377-420. Polányi, K. (1924). Die Funktionelle Theorie der Gesellschaft und das Problem der Sozialistischen Rechnungslegung. (Eine Erwiderung an Prof. Mises und Dr. Felix Weil). Archiv für Sozialwissenschaft und Sozialpolitik, 51(1), 217-228.