… what is called, by distinction, society....
If you say it with pauses, it makes sense. Compare the structure with, ... what is called, by error, society, .....
I think what Emerson means is, "...what is called (in order to distinguish it from other things) 'society'"
BUT IT WOULD HELP TO HAVE THE WHOLE PARAGRAPH TO SEE WHAT POINT EMERSON IS MAKING. It sounds as if he is not a fan of society, or does not agree with any standard definition of 'society' - but more context is needed.
Actually, this way of saying things has fallen out of fashion: popular 200 years ago, but not common now. Examples: "The legal power of officers, called by distinction the Executive power, is extensive." and ""Hence the word constitution is applied by disctinction to the English form of government."
It comes with or without commas.
Be careful not to confuse it with, "Her work is marked by distinction, integrity, and profundity." This would be the use of the word distinction to mean superior, excellent, worthy, or accomplished.
Emerson, I'm sure is using distinction in its meaning of distinguishing, separating, defining.