During the two decades or so that I taught "international relations" as an academic discipline at the London School of Economics and Political Science (LSE), the most challenging and rewarding part of the job was giving core-course lectures on political and social ideas - sometimes branded "theory" - that are relevant to understanding the arena of relations between states and peoples. The heart of the postgraduate masters' course was a set of "great books": not a tight or fixed canon but a body of works that introduced some shaping ideas (sovereignty, states, and nation, forexample) - and which, above all, got the students thinking. 

Fred Halliday is ICREA Research Professor at IBEI, the Barcelona Institute for International Studies. His many books include Islam and the Myth of Confrontation (IB Tauris, 2003), 100 Myths About the Middle East (Saqi, 2005), and The Middle East in International Relations: Power, Politics and Ideology (Cambridge University Press, 2005)

Fred Halliday's articles include:

"Crises of the middle east: 1914,1967, 2003"(15 June 2007)

"Lebanon, Gaza, and Iraq: three crises" (22 June 2007)

"Yemen: murder in Arabia Felix" (13 July 2007)

"Eternal Euzkadi, enduring ETA" (3 August 2007)

"Cyprus's risky stalemate" (26 August 2007)

"Islam and Europe: a debate in Amsterdam" (1 October 2007)

"Justice in Madrid: the "11M" verdict" (5 November 2007)

"The mysteries of the US empire" (30 November 2007)

"The assassin's age: Pakistan in the world" (28 December 2007)

"Islam, law and finance: the elusive divine"(12 February 2008)

"Stolen Wealth Funds: fantasies of control"(4 March 2008)

"Two feminist pioneers: Iranian, Lebanese, universal"(18 April 2008)

"Tibet, Palestine and the politics of failure"(9 May 2008)

"1968: the global legacy" (11 June 2008)

"Mediterranean mirage: Europe's sunken politics"(29 July 2008)

"The miscalculation of small nations" (21 August 2008) 

There were three books that gave me particular satisfaction in teaching, because each in its own way did what all education should do, namely challenge the assumptions of common sense. The first was EH Carr's classic, The Twenty Years' Crisis (1939), a work that combined an attack on the illusions and wishful thinking of much writing on international relations with a staunch defence of the need for utopia, dreams, and distant aspirations in human affairs.

The second key book was Benedict Anderson's Imagined Communities, a study of how the sentiments and affinities of people who had no direct experience or contact with one could coalesce into a shared identity which they came to understand as national, and of the arbitrary and artificial (if often inexorable) nature of this emergent belonging. To tell a group of 100 young people from all over the world that their own much cherished nations were modern rather than ancient, little more grounded in objective fact than the loyalties of a club of football supporters, and that the very concept of "nation" was analytically and morally questionable, was a rare, professorial and cosmopolitan, pleasure. If they remember nothing else of what I taught, I hope they remember that. 

A retrieval of history

The third great and thought-provoking, work was Karl Polanyi's The Great Transformation: The Political and Economic Origins of Our Time (1944). This is a book of imaginative and wide-ranging historical sociology that traces the rise of the modern capitalist market from the industrial revolution in England in the late 18th century (the "great transformation" of the book's title) to the convulsions of the 1920s and 1930s and the outbreak of the second world war. 

Polanyi's book begins in the unlikely setting of the Pelican Inn - a pub in Dorset, England's "west country", where in the 1790s agricultural labourers met to protect their living standards. It goes on to provide a compelling, if wilfully digressive, account of how modern markets work; and in particular of the inbuilt instability, and inexorable swings and oscillations, that they embody. The author challenges the idea that there is anything "natural" or universal about the modern market; Polanyi emphasises the cultural and political underpinnings of markets, and shows how this complex phenomenon - at once generating wealth and provoking instability and poverty - is the particular outcome of modern industrial society.

His conclusion is a product of the broad, social-democratic, and informed liberal opinion of the time - that is, in the aftermath of the great depression in the 1930s and during a global war: that markets are human and contingent entities that have to be regulated, and managed, by states. There is no such thing as a "hidden hand". A "pure" market unanchored to other social institutions and practices cannot exist. 

The argument that Karl Polanyi (1886-1964) makes about markets could be extended to other human practices and institutions for which the same universality and inexorable "naturalness" is sometimes claimed: belief in God, the authority and indeed desirability of monarchs, the heterosexual and nuclear family, the inevitability of empires and other forms of inter-state inequality, the violent character of particular peoples or regions of the world, and the liberal-democratic order itself.

In face of such "reification" - the resort to inevitability that defenders of all these institutions make - the prerequisite critical move is less to challenge the institutions' desirability (which may insome cases be strong) but to show how arbitrary, fragile and contingent they are. It is precisely this historicisation and demystification that critical thought is intended to achieve. 

Polanyi himself led a nomadic existence. He fled his native Hungary in 1919; worked as an economic journalist in Austria until 1933; lived in England where he taught for the Workers Educational Association through the second world war; then moved to teach at Columbia University before being obliged to move residency to Canada (as his wife Ilona Duczynska's communist affiliations meant she was denied an entry visa to the United States). Polanyi died in Canada in 1964, and is interred with his wife in his Hungarian homeland.

Thoughout his life - and in Austria as much as in the US - Polanyi criticised the lack of realism of orthodox economics. The Great Transformation has been subjected to criticism from a number of directions, while more recently the tradition that its author represented has been pushed to one side by financiers and speculators (in the world of practice) and the majority of economists (in the academic world). In the process, a raft of ubiquitous supportive words and phrases have been generated to perpetuate the idea of the naturalness of the market - among them "market adjustments", "natural self-correction", "iron laws of trade and finance", "market forces" themselves.

But the greatest myth of all is that of the "free market" itself, as if the modern market was ever free in a meaningful way- of state guarantees, of security, international law, labour control and regulation; and as if a system in which power was allocated in a grotesquely unequal and unstable manner could be said to guarantee the "freedom" of most people subject to it. For Polanyi, the market - and the economy generally - was (in the words of one of his most important papers) - an "institute process"; a perspective that opens lines of inquiry that still reverberate across several disciplines (see Ayse Bugra & Kaan Agartan, Reading Karl Polanyi for the Twenty-First Century: Market Economy as a Political Project [Palgrave, 2007]).

An intellectual fusion

The high point of such "neo-liberal" glorification of markets came in waves - with the Reagan-Thatcher years of the1980s; the fall of the socialist planned economies in the early 1990s; the IT boom and the rise of China in the 2000s. All seemed to confirm the trend. Yet thoughout these years the message of Polanyi - and of others who had insisted on the need for the state to regulate markets, such as JM Keynes in Britain and JK Galbraith in the US - continued to inspire some. 

Among them, and with a flamboyance born of her earlier years as a financial journalist on the Observer and the Economist, was my former colleague and patron, Susan Strange (1923-98). Susan was a pioneer of the reintegration of politics with economics, in the discipline named "international political economy"; together with a number of colleagues in the US, she sought to re-establish the analytic and public-policy linkage between states and markets. 

Long before most, Susan recognised that the world of finance was growing in importance on a global scale and was not merely determined by the field of production. Casino Capitalism, a book of prophetic insight written in the early 1970s, was indeed about how a new world of global finance, independent of states and of industrial production, had begun to emerge. It had been made possible by Richard Nixon's cutting the link of the dollar to gold in 1971 and by new forms of global communications technology. The "casino" in the title refers not to the role of speculation and gambling in world finance, but to the fact that, for the first time in history, global markets were open twenty-four hours a day. 

This conception of finance as an autonomous sphere of economic activity was presented alongside the argument that no economic system - industrial, financial, agricultural - could function without the active role of the state. Her theoretical aspiration was to echo the pioneering work of Adam Smith, David Ricardo and Karl Marx in bringing together the study of politics and the state with that of the economy and markets. The policy injunction that followed was that the modern state had to promote and protect markets, just as it did (for example) security of traveland transport, the stability of currencies, the promotion of education and scientific research, and other often unacknowledged but essential supports. 
Also in openDemocracy on the global financial crisis of 2007-08:

Saskia Sassen, "Globalisation,the state and the democratic deficit" (18 July 2007)

Robert Wade, "The financial crisis: burst bubble, frayed model"(1 October 2007)

Avinash D Persaud, "The dollar standard: (only the) beginning of the end"(5 December 2007)

Willem Buiter, "The end of American capitalism (as we knew it)" (17 September 2008) 

This approach was developed in Susan Strange's laterbook Mad Money: When Markets Outgrow Governments (1998). This work anticipated the current hubris of financial leaders and policy-makers - in their belief not just that one upon another set of bogus practices and inflated loan systems could be sustained, but in that what they had created somehow corresponded to a natural and hence implicitly eternal order. Such beliefs are above all rooted in ignorance of history. Now, in the dramatic days of mid-September 2008, the unprecedented intervention of the United States government and of its European counterparts in financial markets also confirms the validity of much of Karl Polanyi and Susan Strange's approach to the understanding of political-economic life and institutions. 

A reopened door

I never met Karl Polanyi, though I did meet his daughter Kari Polanyi-Levitt (professor of economics at McGill University,Montreal). I did know and admire Susan Strange, a person of indomitable optimism, humour and mordant tongue. Her favourite slogan, one that from his experienceas a financial journalist Polanyi would for sure have endorsed, was: "Always attack the economists!" I can only imagine her now, propping up a bar somewhere in southern England, a pint of beer in her hand, and a twinkle in her eye, pouring scorn on the placebo analyses of Alan Greenspan and George Soros, on the conceits of her former employer, the Economist, and on the folly of the captains of finance in the City of London and Wall Street (see Ann Pettifor, "The week that changed everything", 22 September 2008).

Yet both Susan Strange and Karl Polanyi would also affirm that if markets' equilibrium-seeking self-corrective mechanism was fictive, moments of economic crisis and transformation were a challenge to make their own ideas part of the self-understanding of the age. Perhaps then the financial sector's unfolding implosion will - as well as teaching market fetishists a sobering lesson - create further space for a revival of interest in the work of these fine, relevant thinkers. In the meantime, and with every day's news confirming the instinct, let there be no respite for the economists.