Polanyi, Karl. 1957. "The Economy as Instituted Process." in The Sociology of Economic Life, edited by mark Granovetter and Richard Swedberg. Boulder, CO: Westview Press.
Economics has two main meanings. The substantive derived from man's dependence on nature and his fellows, an interchange between his natural and social environment. The formal meaning is from the logical nature of the means-ends relationship, apparent from the words economical or economizing. The two concepts have little in common.
Polanyi's proposition is that the substantive meaning of economics is the only relevant one in understanding the empirical economies past and present.
The Formal and Substantive Meanings of "Economic"
Rational action is the choice of means in relation to ends. Formal economics refers to a situation of choice that arises out of an insufficiency of means. It is concerned with action within a market, where conditions of choice and action are quantifiable via prices (of all commoidites - products, land, labor, etc.) . This system loses relevance outside of the price-making markets.
The substantive concept is based on the empirical economy, defined as an instituted process of interaction between man and his environment, with results in a continuous supply of want satisfying material means.
The instituting of the economic process gives it unity and stability, producing something with a definite structure in society. The human economy is imbedded in institutions, both economic and non-economic.
Reciprocity, Redistribution, and Exchange
These three patterns are characteristic of instituted economies, though they don't constitute it. But aggregates of personal behaviors based on these three patterns by themselves create an economy. There need to be pre-conditions in society that allow these patterns to be extablished. Only in a symetrically organized environment will reciprocative behavior result in economic institutions of any importance. Only when allocative centers have been set up can individual acts of sharing produce a redistributive economy. And only in the presence of price-making markets will exchange acts of inividuals result in fluctuating prices that integrate the economy.
Factors like kinship, neighborhood, etc are more likely to bring about reciprocating behavior. Division of labor or temporal issues may cause redistributive behavior. In early societies there was often a ban on haggling and barter, which precluded a price-based economy.
Reciprocity was more dominant in older societies (notably in the Pacific Islands, though not for basic consumables). Redistribution is still common in both old and modern societies, with Russia being an extreme example.
Forms of Trade, Money Uses, and Market Elements
Trade is ancient, but markets in the formal economic sense are relatively new. Yet they have formed a stereotype from which all forms of trade are erroneously viewed.
1. Forms of Trade
Trade is a two-sided affair, and relatively peaceful. In ancient societies trade was either a noble thing done by those respected in society for honor, or a despised act where the primary motive was profit. There were no middle-class traders. There are three main types of trade -- gift trade, administered trade, and market trade.
Gift trade involve more ceremony and politics. Administrative trade involves treat and government-controlled channels. Haggling is permitted only on things other than price. Market trade is highly adaptable as it can be applied to all parts of the production process.
2. Money Uses
The exchange use of money arises out of a need for quantifiable objects for indirect exchange. Such use didn't arise from random acts of barter but from the deliberate establishment of a market system. Early money was special-purpose money, and often not something that was exchanged in an open market but was used for accountancy purposes.
3. Market Elements
The market is the locus of exchange. Exchange is the economic relationship, and the market is the economic institution. Remember the exchange occurs under different institutions (reciprocal and redistributive, but only under set rates).
Two market elements of interest are supply crowds and demand crowds. Next is the element of equivalency.
In summary, the market can't be superceded as a general frame of reference unless the social sciences succeed indeveloping a wider frame of reference to which the market itself is referable.