Theorizing the “Third Sphere”: A Critique of the Persistence of the “Economistic Fallacy” Fikret Adaman and Yahya M. Madra As long as social organization runs in its ruts, no individual economic motives need come into play; no shirking of personal effort need be feared; division of labor will automati- cally be ensured; economic obligations will be duly discharged; and, above all, the mate- rial means for an exuberant display of abundance at all public festivals will be provided. In such a community the idea of profit is barred; higgling and haggling is decried; giving freely is acclaimed as a virtue; the supposed propensity to barter, truck, and exchange does not appear. The economic system is, in effect, a mere function of social organization. —Karl Polanyi This is a methodological essay on the different ways of theorizing the set of activities that can be captured by neither the price mechanism of the markets nor by governmental transactions. As did Arjo Klamer and Peter-Wim Zuidhof (1998), we adopt the term third sphere when referring to this set of activities, one that includes, inter alia, voluntary con- tributions to charities, services donated to self-help organizations, gifts and counter-gifts, inheritance, domestic work, childcare, and intra-community support networks. In terms 1045 JOURNAL OF ECONOMIC ISSUES Vol. XXXVI No. 4 December 2002 Fikret Adaman is a Professor in the Economics Department, Bogazici University, and Economics Department, University of Utah. Yahya M. Madra is a Ph.D. candidate in the Economics Department, University of Massachusetts Amherst. Ear- lier versions of this paper were presented at the EAEPE Lisbon Conference, 1998, the Economics Seminar of the University of Manchester, 2000, and the HESA Seminar of the University of Utah, 2001. Jack L. Amariglio, Antonino Callari, George DeMartino, Pat Devine, Kenan Ercel, Nancy Folbre, Ahmet Insel, Stavros Ioannides, Philip Kozel, Timur Kuran, Erik Olsen, Ceren Ozselcuk, Eyup Ozveren, Sevket Pamuk, Helen Smith, Tansel Yilmazer, Marjolein van der Veen, Rich- ard Wolff, and Unal Zenginobuz have all made valuable contributions, for which the authors are very grateful. The authors would like to thank as well the editor and three anonymous referees of this journal for their very constructive criticisms. The usual caveat applies. Jei