Endogenous preferences and embeddedness: implications for economic theory. A reappraisal of Karl Polanyi

Abstract

Karl Polanyi’s contributions to social theory are widely recognised among the generality of social sciences. In the fields of economic anthropology, historical and economic sociology and economic history, Polanyi’s work, in particular The Great Transformation, is considered a classic2. In this article we want to explore its relevance to economic science in general and to the issue of endogeneity of human preferences in particular. By endogenous preferences, following Bowles (1998), we understand the still highly neglected idea in economic theory that individual preferences, that is, reasons for behaviour or attributes of individuals that (along with their beliefs and capacities) account for the actions they take in a given situation (Bowles, 1998: 78), are at least partially formed and moulded by institutions and that this should be taken into account by economists. By analysing Polanyi’s methodological insights, emphasising its opposition between a formalistic and a substantive science of economics we will be in a good position to appreciate the link between these methodological considerations, a more realistic version on preferences and the indispensable need to construct an economic theory which takes into account the moral and political dimensions.