Classical economics, which assumes the free market is economically ideal, plays a major role in public policy making. However, Polayi's (1944) economic sociology provides a valid critique of the free market. Furthermore, empirical studies of political, economic and cultural embeddedness (Dreiling 2000; Granovetter 1985; Grant 1995; King and Pearce 2010; Uzzi 1996) provide evidence of how the economic market is not free from other institutional structures. As such, policy makers should question neo-liberal attempts to support a free market.  ​

In 1776, Smith laid out the foundations of classical "free market" economics. Classical liberal economics rests upon two key assumptions (1) the state and the market can be distinct and (2) the separation of the state and the market is ideal. 

Classical economic theory assumes that trade between two subjects in inherently free. One individual possessing a commodity barters with another individual possessing a commodity. The two either come up with terms of exchange, or trade does not occur. The market consists of this natural process of free trade. 

Classical economists argue the separation of the state from the market results in the most amount of economic wealth. Economic wealth is best achieved when each individual possessing a commodity has the freedom to stop an exchange if they do not agree with the terms.  Furthermore, even when one group has power over another (i.e., relative advantage), free trade is economically beneficial (Ricardo 1821).  As such, classical economics supports the separation of economic and political spheres of society.  ​

Polanyi's economic sociology (1944) critiques the classical liberal economic theory assumption that the state can and should be distinct from the economic marketplace. 

For Polanyi, it is not possible for the marketplace to be distinct from the state because the economy is embedded in the social structure. The market emerged as a result of social, cultural and political relations. Specifically, it developed as a result of particular state laws that established private property, wage labor, and the gold standard (Polanyi 1944).  As such, the economic market never has been and never can be separated from political social institutions. 

According to Polanyi (1944), the marketplace cannot be free because land labor and money are all false commodities.  A commodity is something that is produced for the purpose of exchanging for profit. Land, labor and money do not emerge for the natural purpose of exchange. It is only through public policy that land,labor and money have been transformed into commodities. 

Furthermore, Polanyi (1944) argues the separation of economic and state spheres is problematic, not ideal. Land, labor and money (false commodities) markets are dependent upon social relations to prevail because they were formed by the social structure. When the market attempts to disembed itself from the social structure, if social relations do not intervene, the modern marketplace will fail. In order for society to survive, when the economic market tries to separate itself from society, society must act in order to protect itself, or the social order will collapse. 

By providing historical evidence showing the state's influence upon the development of the modern market, Polanyi completely decimates the key tenants of classical economics: the state and the market can and should be distinct. Polanyi problemetizes classical economists understanding of the marketplace. According to Polanyi, classical economists are incorrect in assuming the marketplace is a natural phenomenon. Instead, he provides historical evidence showing that the concept of the free market is socially constructed. Only through political and social relations can the modern economy be created and maintained. Through historical analysis, Polanyi is able to demonstrate that the market has never been and never can be self-sufficient because it is embedded in society. If the market cannot and will not ever be able to sustain economic relations without state intervention, the classical economic pursuit for a free market becomes completely irrelevant. 

Economic sociologists have built upon Polanyi's argument that the economic market and social political institutions cannot be distinct- the economic market is embedded within political and cultural institutions. Research by Granovetter (1985), Grant (1995), Uzzi (1996), Dreiling (2000) and Brayden and Pearce (2010) provide theoretical and empirical support for Polanyi's critique of classical economics. 

Like Polanyi, Granovetter (1985) critiques classical economic accounts of the economic man, minimally affected by political and cultural institutions. Granovetter's (1985:481) research "concerns the extent to which economic action is embedded in structures of social relations, in modern industrial society." Granovetter's theory contrasts with that of classical economics. Classical economics assumes competitive markets ensure trust and the absence of malfeasance since those things are necessary for transactions to occur.  Granovetter, on the other hand, finds it is not competitive markets but social networks and relations that are primarily responsible for the trust necessary for economic life. In short, Granovetter provides theoretical support for Polanyi's argument that the social structure is necessary for market transactions.  

Grant (1995) provides more empirical support for Polanyi's theoretical argument that economic markets are embedded in society. Grant builds upon Polanyi's concept of double movements. According to Polanyi, in order for society to survive, when the free market tries to separate itself from society, it results in a double movement. Grant examines the 1970s recession and the state response of New Federalism. Grant uses a random effects model drawing from Dun and Bradstreet, Census, Department of Commerce and Conway Data datasets to examine the factors influencing business failure rates. Grant finds the social embeddedness of markets matter in explaining economic outcomes. Upon economic decline in the 1970s, the government initiated numerous economic policies that allocated more economic regulation authority to regional states. The goal was to reduce business failure rates, however, the policy did not fulfill its promises. Instead, policies shifted the fiscal crises from the federal level, to the state. Grant furthers the concept of embeddedness by showing changes in the social structure result in changes in economic relations. 

Uzzi (1996) shows how social relations shape economic outcomes providing empirical support for Polanyi's arguments that economic markets are embedded within social institutions. Using data from the International Ladies Garment Workers Union and logit regression analysis, Uzzi examines how a firm's likelihood of failure is related to social embeddedness and network structure, controlling for ecological and economic factors. According to Uzzi, social ties affect the opportunities and expectations of economic actors. Individuals within the market face bounded rationality (i.e. a lack of information) that creates uncertainty. Embedded ties help economic actors  by creating trust, fine-grained information transfer and joint problem-solving arrangements. Uzzi's empirical analysis finds markets are characterized by embedded social networks and embeddedness yields positive economic outcomes. This provides support for Polanyi's argument that economic actors require social embeddedness for capital relations to be reproduced. 

Dreiling's (2000) research provides further support for Polanyi's theoretical argument that the market is embedded within the social structure. Using network analysis of the 700 largest corporations in the USA*NAFTA coalition, Dreiling examines how social and economic factors relate to leadership in the USA*NAFTA coalition. Dreiling undermines classical economic assumptions that competition forces individual economic actors to act in their economic interests over social relations. Rather than being driven by economic factors, Dreiling finds social embeddedness affects the political behavior of economic actors. This provides further support for Polanyi's critique of classical liberal economics. 

Like Polanyi, Brayden and Pearce (2010) emphasize the political nature of markets. According to Brayden and Peace (2010:249): "Markets are inherently political, both because of their ties to the regulatory functions of the state and because markets are contested by actors who are dissatisfied with market outcomes and who use the market as a platform for social change." Whereas much of economic sociology focuses on the stabilizing aspects of social embeddedness, King and Pearce use social movement perspectives to show how social contention affects economic markets. As such, Brayden and Pearce provide support and further Polanyi's perspective of social embeddedness. 

Economic sociology finds economic markets are embedded within their social institutional environment. Economic sociology theory and evidence, first put forth by Polanyi, seriously undermines the classical economic sociology assumption that economic markets work best when left free from political institutional arrangements. However, neoliberal politics relies upon assumptions similar to those of classical economics. In order to initiate better public policy, policy makers must become more aware of economic sociology critiques of classical economics and realize the free market is neither possible nor ideal. ​

Dreiling, Michael C. 2000. “The Class Embeddedness of Corporate Political Action: Leadership in Defense of the NAFTA.” Social Problems 47:21–48.

Granovetter, Mark. 1985. “Economic Action and Social Structures: The Problem of Embeddedness.” American Journal of Sociology 91:481–510.

Grant, Donald. 1995. “The Political Economy of Business Failures across the American States, 1970–1985: The Impact of Reagan’s New Federalism.” American Sociological Review 60:851–873.

King, Brayden and Nicholas Pearce. 2010. “The Contentiousness of Markets: Politics, Social Movements, and Institutional Change in Markets.” Annual Review of Sociology. 36: 249-267.

Polanyi, Karl. [1944] 2001. The Great Transformation: The Political and Economic Origins of Our Time. Boston, MA: Beacon Press.

Ricardo, David. 1821. On the Principles of Political Economy, and Taxation. 3rd edition. London, UK: John Murray. 

Smith, Adam. [1776] 2003. The Wealth of Nations. Bantam Classics.

Uzzi, Brian. 1996. “The Sources and Consequences of Embeddedness for the Economic Performance of Organizations: The Network Effect.” American Sociological Review 61.

Hegel (1977; 1991), Marx (1976; 1982) and Weber (1946; 1982) each develop theories describing the relationship between the state and other dimensions of society. These classical theorists created the foundations of political sociology. Other influential state theorists, including Lenin (1982), Parkin (1972), Poulantzas (1973), O'Connor (1973), Offe and Ronge (1975), and Frankel (1979), drew from their work and reinterpreted it to develop their own influential theories of the state. Although each theoretical perspective explains the relationship between the state and society, there are key differences in regards to their theoretical assumptions, concepts, and logic. ​

Hegel's theory of the state assumes a dialectic process based on ideas. Dialectic models contend that through the opposition of two dimensions, something new emerges. For Hegel (1977), society has progressed through contention between how society sees individuals and how individuals see themselves.  Prevailing social conceptions (the thesis) versus a contrary ideas (antithesis) creates a new society (synthesis). Human progress is based on the development of forms of thought. The state is the result of the development of ideas and the collective wills of individuals; it is an idealized collective that transcends society. 

For Hegel (1991), the state is the most progressive form of social relations because unlike the state, other forms of social relations (e.g., the family and civil society) do not represent universal altruism. Universal altruism forms solidarity among all individuals out of their collective will. The family, on the other hand, promotes selective altruism (i.e., forming solidarity among selective individuals due to familial relations). Civil society (i.e., historical periods before the establishment of a state) represents universal egoism, where people are related because of self-interest rather than the common good. The state serves the function of relating individuals through universal altruism. As such, the state is able to shape society and unify diverse collectives. According to Hegel, state managers are the group most likely to act through universal altruism because they do not have concrete economic self-interests like other groups in society. 

Hegel saw the state as a way for individuals to achieve higher degrees of freedom. For Hegel, society is constantly progressing to achieve more and more degrees of freedom. The state is the result of this progress, developed to regulate self-interests and represent the common good. As such, the state works to reconcile the will of society with the will of the individual. 

​Marx's theory of the state was not fully developed, however, it can be induced from his critique of Hegel's theory of the state (Carnoy 1984). Like Hegel, Marx assumes a dialectic process; however, Marx's historical materialism is directly opposed to Hegel's idealism. For Marx, society has progressed through contention between the relations of production (class relations) and the forces of production (the way people transform materials). Marx argues against Hegel's focus on ideas claiming it is the material organization of society that is both the basis of representation and the basis of emancipation of society (Marx 1976). Inherent contradictions between the relations of production and the forces of production provide new incentives and mechanisms for class revolutions to result in a new mode of production. It is the material conditions of society (not the development of ideas) that drive human progress. 

Marx's historical materialism led to a historical concept of the state; this is also opposed to Hegel's conception. Whereas Hegel saw the state as something that transcends the collective, Marx viewed the state as an entity subjugated to historical materialism. Society is shaped by the relations and forces of production and it is society that shapes the state. The state is the result of class conflict and provides the means of class reproduction, exploitation and dominance. 

Whereas Hegel viewed the state as representative of collective wills, Marx viewed the state as representative of the ideology of the ruling class and a repressive arm of the ruling class. According to Marx (1982:26): "The class which has the means of material production at its disposal, has control at the same time over the means of mental production, so that thereby, generally speaking, the ideas of those who lack the means of mental production are subject to it. The ruling ideas are nothing more than the ideal expression of the dominant material relationships, the dominant material relationships grasped as ideas; hence of the relationships which make the one class the ruling one, therefore, the ideas of its dominance." For Marx, super-structures (e.g.,ideology and the state) are forms of organization that are representative of the mode of production. Still, the structure of society is based on material relations. The state is reflective of class relations and provides the means for capitalist dominance. 

Unlike Marx and Hegel, who use a dialectic method, Weber uses ideal types. Ideal types are abstractions that rarely exist in their pure form, but provide understanding by describing the salient characteristics of an empirical phenomenon.  The ideal type is a shortcut to knowledge: after we understand the ideal type, to understand the empirical form, we only have to understand the part that makes them distinct from the ideal type. 

Weber's theory of the state emerges from his conceptualization of legitimate authority. Legitimate authority (i.e., accepted rule) can be characterized by three ideal types: legal authority, traditional authority and charismatic authority (Weber 1982).  Legal-rational  authority is rule based upon formal rules and regulations. Traditional authority is rule based on the sanctity of tradition. Charismatic authority is rule based upon devotion to an individual based on their perceived exceptionalness. According to Weber, modern society is becoming increasingly characterized by legal-rational authority. 

Bureaucracies and officials are key aspects of legal-rational authority (Weber 1946). There are six key characteristics of bureaucracies: (1) set jurisdictional areas, (2) formal authority to give commands, (3) officials are held responsible to fulfill duties (4) a clear organizational hierarchy, (5) individual activities are based on formal rules, and (6) expert training is required to administer rules.   Bureaucracies are administered by officials. The ideal type of the official is: (1) a vocation, (2) a position in a hierarchy which guarantees a set rank and prescribed rules, (3) an appointed position, (4) a position usually held for life, (5) compensated with a fixed salary, and (6) set for a career path. For Weber, the modern state is a form of legal-rational authority made up of bureaucracies and officials. As such, it is a power structure establishing legitimized repression. 

Like Marx and unlike Hegel, Weber does not view the state as freeing for individuals or representative of universal altruism. Weber believed that the state provided a way to develop policies to better benefit society. However, he did not believe that the democratic state could achieve its goal of political equality. In modern society, the state owns a monopoly on legitimate force and the means of administration within a given territory. Legitimacy is maintained on legal-rational grounds, but the irrationality of rationality derails the state from achieving its goals (Weber 1946). The state’s ability to achieve goals of political equality is hampered by the political system and the nature of elected political officials. Although the state operates though legal-rational authority on formal-rational grounds, the state is embedded with forms of charismatic and traditional authority.  For instance, elected officials employ charismatic authority to become elected (Weber 1946).  Rather than campaigning on public policy and facts, political demagogues use the prejudice and passions of citizens rather than rational argument to achieve their self-interest (Weber 1946). Administrative staff also obtain their positions through forms of traditional rationality. Through allegiance to the political demagogue and the political party, administrative staff are appointed to positions of power.  Although the state was designed to prevent the favoritism associated with monarchies and the age of feudalism, this has not occurred.  Instead, the development of the state has expanded and centralized power structures creating a new form of monopoly of power. In conclusion, Weber theorized the democratic state as a bureaucratic power structure that legitimately dominates citizens and is incapable of achieving goals of political equality.

Hegel, Marx and Weber provide the foundations of political sociology. As such, important social theorists drew upon their work to expand understanding of the state. Key scholars include: Lenin (1982), Parkin (1972), Poulantzas (1973), O'Connor (1973), Offe and Ronge (1975), and Frankel (1979). By building upon classical perspectives, these key scholars expanded knowledge of the relationship between the state and other key institutional arrangements in society.

​Lenin draws upon Marx's historical materialism and antagonisms between the relations and forces of production. The state is determined by the mode of production. Lenin (1982) builds upon Marx's conceptualization of the state as the repressive arm of the bourgeois. For Lenin, the state is an instrument of capitalist rule; it is the armed repressive apparatus of the capitalist class. As such, it must be completely destroyed to achieve a revolutionary change in the mode of production. 

Like Marx and Weber, Lenin sees the state as a form of coercive power. However, he goes beyond prevailing theory by explaining how the state reflects class relations: through instrumental control. According to Lenin, the state is a mechanism of class dominantion. Democratic governments facilitate capitalist control through two primary mechanisms: (1) legitimizing capitalist order and mystifying the masses, and (2)  allowing capitalists to make decisions behind the scenes (Lenin 1982). As such, democratic governments are not representative of collectives but serve as an instrument of the capitalist class. 

Like Lenin, Parkin (1972) draws from Marx's historical materialism, examining the conditions leading to a new mode of production. Parkin (1972: 45) expands upon Marx's theory of social change: "For Marx, the antagonisms stemming from weaknesses in social integration (exemplified i the extreme case by class polarization) plus the weaknesses in system integration (the contradiction between the forces of production and the relations of production) are understood to be the twin mechanisms responsible for social transformation." Parkin asks why, when there are both antagonisms with social integration and system integration do some societies have successful revolutions and others do not. 

Parkin employs Marx's concept of system contradiction to explain why some revolutions in industrial societies failed. System contradiction occurs when there is poor system integration (Parkin 1972). System integration is the degree of connectedness between the forces of production and the relations of production. When the forces of production do not adequately represent the relations of production, social change is likely to occur. However, if revolution occurs before the revolutionary class has matured within the old mode of production, the pre-mature revolution will result in weak system integration and social instability. Because the Russian Revolution occurred before capitalism was given a chance to become advanced, the Russian Revolution resulted in weak system integration and social instability. Disequilibrium established out of lack of integration between state bureaucrats and the intelligentsia was harmful to the productive forces of society, causing the Russian Revolution eventually fail. 

For Parkin, the state is a historically contingent stratification structure; it is not and instrument determined by elites. Who holds power in the state varies over time and has implications for society. Revolutions are more likely to occur when there is power disequilibrium (i.e., those who are economically dominant are not politically dominant).  Social stability occurs when those who are economically dominant are also politically dominant. The state is the core mechanism for distributing political power. Inconsistencies between those who hold political power and those who control society's productive forces affect the historical development of society. 

Poulantzas builds from Marx's concept of class place to also describe class position.  Class place is an individual's position in the economy (e.g., division of labor and occupation). Class position is the ideological and political alliances adopted by groups. Like Weber, Poulantzas sees class not just based on ones economic position, but also related to one's cultural and organizational position in society. As such, the capitalist class is made up of competing class factions with important economic differentiations. 

For Poulantzas (1973), the state is reflective of the social relations of capitalist class factions. State bureaucracies represent the historically contingent relations among different class segments.  According to Poulantzas (1978:132): "Each state branch or apparatus and each of the respective sections and levels frequently constitutes the powerbase and favored representative of a particular fractions of the bloc, or of a conflicting alliance of several fraction opposed to certain others" (Poulantzas, 1978:132). Dominant capitalist class factions join a coalition, creating a power bloc necessary to push public policy that facilitates capitalist reproduction. 

Poulantzas is different from Lenin in two key ways: (1) Poulantzas' state is relatively autonomous, whereas Lenin's state is instrumentalist, and (2) Poulantzas' state is influenced by a power bloc whereas Lenin's state is influenced by a cohesive dominant class. The state policy mediates conflict between competing factions of the capitalist class. For Poulantzas (1973), the state maintains relative autonomy meaning it is separate from but tied to the means of production. The state is not an instrument of a unified capitalist class, but representative of capitalist class factions that mobilize to form a power bloc.  

O'Connor's theory of the state draws upon both Marxist and Weberian theory. Like Marx, O'Connor sees the state as necessary to perpetuate capitalist relations during economic crisis caused by inherent contradictions associated with capitalism. Like Weber, O'Connor's state is a bureaucratic form of control facilitating legitimate rule. O'Connor (1973) draws upon these classical perspectives to explain why the bureaucratic state continues to grow as capitalism advances. 

For O'Connor, the state grows because it facilitates capital accumulation. Due to contradictions of capitalism (as explained by Marx), the economy is prone to periods of crisis caused by overproduction or underproduction.  The state attempts to manage these crises because it requires continued profits to survive and maintain the legitimate rule.  The state tries to overcome capitalist crises through social expenditures and social capital spending (O'Connor 1973). In the process of managing economic crisis, state bureaucracy and debt expands. This leads to a crisis of the state that is is distinct from but related to economic crises. 

Whereas Lenin views the state as an instrument of the capitalist class, O'Connor claims there is a continuous struggle between the state and capitalist groups. According to O'Connor (1973:9): "The socialization of costs and the private appropriation of profits creates a fiscal crisis, or "structural gap," between state expenditures and state revenues." This enhances conflict between the state and the capitalist class. 

Offe and Ronge advance Weberian conceptions of the state by examining the inherent contradictions between the goals of the capitalist organization of society and the goals of the bureaucratic organization of the state. The state is dependent upon the capitalist class for its sources of income, so it has interests in facilitating capital accumulation. However, the power of state managers is in direct competition with the  capitalist class. The extension of state policies threatens the continuity of the current economic relations within the capitalist class. In addition, the increased size of the state threatens capitalist dominance. The state provides the means for which individuals to improve their social position which threatens capitalist order. As such, there is direct conflict between the state and the capitalist class. 

Whereas Poulantzas argues that the state is part of society working to mediate class conflict, Offe and Ronge (1975), like O'Connor, claim that its role as mediator separates the state from society and provides it with the capacity to act autonomously, yet still support capitalist accumulation. Offe and Ronge focus on the power structures created by autonomous state action. The state and capitalism are related in that the state seeks to preserve the value of commodities. However, as the state functions to preserve the value of commodities, it is of economic, structural and ideological threat to capitalism. State run organizational power structures compete with monopoly capital.  

Similar to O'Connor and Offe and Ronge, the state is viewed as necessary to facilitate capital accumulation. The state is distinct but intertwined with the economy. Like Weber, Frankel views the administrative capacities of the state as an efficient way to achieve goals. According to Frankel (1979), the state provides tools necessary to ensure long-term economic plans are carried out. The state administration must be continuously involved in the economy and manage conflict to maintain its own legitimacy and survival. During times of economic crisis, the legitimacy of the state is put into question, forcing the state to become involved. The state cannot be seen as distinct from the economy because they are necessarily related. The logic of capital accumulation and the logic of the state overlap because the state serves an economic role. However, state structures are not reflective of class relations, nor do they serve as an instrument of the ruling class. 

Like Offe and Ronge, Frankel (1979) examines the internal divisions between the state and economic system. The state must continuously become involved in the economy in order to maintain its legitimacy. However, the legitimacy crisis of the state is ongoing, as no state in capitalist society has been able to reconcile the inherent contradictions associated with capitalism. Regardless, the state continuously becomes involved because its survival depends on it. The state threatens capitalists, as they do not hold absolute power of the state. The state is able to act autonomously in a way opposed to capitalist interests because its function is also ideological and not limited to the capitalist system. For Frankel (1979), the state is not determined by capitalism; instead it is an institutional development representative of the historical dynamics of class struggle. 

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