The economic system is, in effect, a mere function of social organization. - Karl Polanyi

Nineteenth-century civilization rested on four institutions. The first was the balance-of-power system which for a century prevented the occurrence of any long and devastating war between the Great Powers. The second was the international gold standard which symbolized a unique organization of world economy. The third was the self-regulating market which produced an unheard-of material welfare. The fourth was the liberal state. Classified in one way, two of these institutions were economic, two political. Classified in another way, two of them were national, two international. Between them they determined the characteristic outlines of the history of our civilization.
Of these institutions the gold standard proved crucial; its fall was the proximate cause of the catastrophe. By the time it failed, most of the other institutions had been sacrificed in a vain effort to save it. But the fount and matrix of the system was the self-regulating market. It was this innovation which gave rise to a specific civilization.

The traditional unity of a Christian society was giving place to a denial of responsibility on the part of the well-to-do for the conditions of their fellows. … To the bewilderment of thinking minds, unheard-of wealth turned out to be inseparable from unheard-of poverty. Scholars claimed in unison that a science had been discovered which put the laws governing man’s world beyond any doubt. It was at the behest of these laws that compassion was removed from the hearts, and a stoic determination to renounce human solidarity in the name of the greatest happiness of the greatest number gained the dignity of secular religion.

To sum up the central illusion of an age in terms of a logical error is rarely to the point; yet conceptually the economistic fallacy, in the nature of things, cannot be described otherwise. The logical error was of a common and harmless kind: a broad, generic phenomenon was somehow taken to be identical with a species with which we happen to be familiar. In such terms, the error was in equating the human economy in general with its market form (a mistake that may have been facilitated by the basic ambiguity of the term economic, to which we will return later).