Polanyi begins his masterpiece, The Great Transformation (TGT), with the stark observation that “Nineteenth-century civilization has collapsed”. The nineteenth-century civilization was a bold attempt to establish a self-regulating market encompassing the entire globe. Polanyi believed that the self-regulating market, which he called a “gargantuan automaton” once it reached the entire globe, was perilous to society and that its full realization was impossible. According to him, money – commodity-money under the international gold standard, to be precise – was, simultaneously, what held the nineteenth-century civilization together and what played the biggest role in its demise.

Given the importance Polanyi attributes to money and given that money is one of the three fictitious commodities that he discusses at great length, one should expect that the vast secondary literature on Polanyi pays sufficient attention to the place of money in Polanyi’s thought. Unfortunately, that is not entirely the case. Although there are excellent discussions of Polanyi’s writings on international finance, the nature of money, and the functions of money in different economic systems in history, Polanyi’s theoretical framework on money remains elusive. This chapter fills this gap by outlining the analytical connections between Polanyi’s theory of money, commodity fiction, and embeddedness. It will be shown that Polanyi’s theory of money is an integral part of his criticism of the market system and that Polanyi corroborates this criticism through historical analyses of the international gold standard as well as special-purpose money in different allocation systems. This chapter also suggests that Polanyi’s theory of money offers rich avenues for examining money and finance in contemporary capitalism.

The basic argument of the chapter can be summarized as follows. Polanyi’s theory of money rests on a thorough criticism of orthodox perspectives on money. These conventional accounts of money, which harken back to Aristotle and are reproduced without critical reflection in economics textbooks, portray money primarily as a medium of exchange that serves as a measure of value and unit of account. The orthodox theories find the origins of money in the evolution of market society, which replaced the inefficiency of barter and truck with the genesis of a generalized medium of exchange.