Economic anthropology
Encyclopedia
Economic anthropology is a scholarly field that attempts to explain human economic behavior using the tools of both economics
and anthropology
. It is practiced by anthropologists and has a complex relationship with economics. There are three major paradigms within the field of economic anthropology: formalism, substantivism and culturalism.
is the one most closely linked to neoclassical economics
, defining economics
as the study of utility
maximisation under conditions of scarcity
. As an attempt to use neoclassical theory
to analyze
subjects outside of its traditional purview, formalist economic anthropology
can be linked with new institutional economics
. This approach usually makes the following central assumptions:
Some formalists use game theory
as a model of rational behavior
under specific cultural
or interpersonal constraints. Formalists such as Raymond Firth
and Harold K. Schneider
assert that the neoclassical model of economics can be applied to any society
if appropriate modifications are made, arguing that the principle
s outlined above have universal validity. All human
culture
s are therefore a collection of "choice making individuals whose every action involves conscious or unconscious selections among alternatives means to alternative ends" (Burling, 1962, quoted from Prattis, 1982:207), whereby the ends are culturally defined goals. Goals refer not only to economic value or financial gain but to anything that is valued by the individual, be it leisure, solidarity or prestige.
In the context of hunter-gatherer and Neolithic cultures, formalist models usually must deal with high transaction cost
s and are thus sometimes simplified to a model of bilateral monopoly
.
Since a formalist model usually states what is to be maximized in terms of preference
s, which often but not necessarily include culturally expressed value goals, it is deemed to be sufficiently abstract to be capable of explaining human behavior
in any context. A traditional assumption many formalists borrow from neoclassical economics is that the individual will make rational choices based on full information, or information that is incomplete in a specific way, in order to maximize whatever that individual considers being of value. While preferences may vary or change, and information about choices may or may not be complete, the principles of economising and maximising still apply.
The role of the anthropologist may then be to analyse each culture in regards to its culturally appropriate means of attaining culturally recognized and valued goals. Individual preferences may differ from culturally recognized goals, and under economic rationality assumptions individual decisions are guided by individual preferences in an environment constrained by culture, including the preferences of others. Such an analysis should uncover the culturally-specific principles that underlie the rational decision-making process. In this way, economic theory has been applied by anthropologists to societies without price-regulating markets (e.g. Firth, 1961; Laughlin, 1973). Besides cultural values, formalists may also use evolutionary psychology
to help model preferences.
position, first proposed by Karl Polanyi
in his work The Great Transformation, argues that the term 'economics' has two meanings: the formal meaning refers to economics as the logic of rational action and decision-making, as rational choice between the alternative uses of limited (scarce) means. The second, substantive meaning, however, presupposes neither rational decision-making nor conditions of scarcity. It simply refers to study of how humans make a living from their social and natural environment
. A society's livelihood strategy is seen as an adaptation to its environment and material conditions, a process which may or may not involve utility maximisation. The substantive meaning of 'economics' is seen in the broader sense of 'economising' or 'provisioning'. Economics is simply the way society meets their material needs.
Polanyi's term "great transformation" refers to the divide between modern, market
-dominated societies and non-Western, non-capitalist pre-industrial
societies. Polanyi argues that only the substantive meaning of economics is appropriate for analysing the latter. Without a system of price-making markets formal economic analysis does not apply, for example in centrally planned economies or preindustrial societies. Economic decision-making in such places is not so much based on individual choice, but rather on social relation
ships, cultural values
, moral
concerns, politics
, religion
or the fear instilled by authoritarian leadership. Production in most peasant
and tribal
societies is for the producers, also called 'production for use' or subsistence production, as opposed to 'production for exchange' which has profit maximisation as its chief aim. These types differ so radically that no single theory can describe them all.
According to Polanyi, in modern capitalist
economies the concepts of formalism and substantivism
coincide since people organise their livelihoods based on the principle of rational choice. However, in non-Capitalist, pre-industrial economies this assumption does not hold. Unlike their Western capitalist counterparts, they are not based on market exchange but on redistribution
and reciprocity
. Reciprocity is defined as the mutual exchange of goods or services as part of long-term relationships. Redistribution implies the existence of a strong political
centre such as kinship
-based leadership
, which receives and then redistributes subsistence goods according to culturally-specific principles. In societies that are not market-based reciprocity and redistribution usually occur together. Conversely, market
exchange is seen as the dominant mode of integration in modern industrial societies, while reciprocity may continue in family and inter-household relations, and some redistribution is undertaken by the state or by charitable
institutions. Each of these three systems of distribution requires a separate set of analytical concepts.
Another key concept in substantivism is that of 'embeddedness
'. Rather than being a separate and distinct sphere
, the economy is embedded in both economic and non-economic institutions. Exchange takes place within and is regulated by society rather than being located in a social vacuum
. For example, religion
and government
can be just as important to economics as economic institutions themselves. Socio-cultural obligations, norms and values play a significant role in people's livelihood strategies
. Consequently, any analysis of economics as an analytically distinct entity
isolated from its socio-cultural and political context is flawed from the outset. A substantivist analysis of economics will therefore focus on the study of the various social institution
s on which people's livelihoods are based. The market is only one amongst many institutions that determine the nature of economic transactions. Polanyi's central argument is that institutions are the primary organisers of economic processes. The substantive economy is an "instituted process of interaction between man and his environment, which results in a continuous supply of want satisfying material means" (1968:126).
The concept of embeddedness has been very influential in the field of economic anthropology. In his study of Chinese
ethnic business networks in Indonesia
, Granovetter found individual's economic agency embedded in networks of strong personal relations. In processes of clientelization the cultivation of personal relationships between traders and customers assumes an equal or higher importance than the economic transactions involved. Economic exchanges are not carried out between strangers but rather by individuals involved in long-term continuing relationships. Granovetter describes the neo-liberal view of economic action as separating economics from society and culture, thereby promoting an 'undersocialized account' that atomises human behavior: "Actors do not behave or decide as atom
s outside a social context, nor do they adhere slavishly to a script written for them by the particular intersection of social categories that they happen to occupy. Their attempts at purposive action are instead embedded in concrete, ongoing systems of social relations." (1985:487).
, money
or profit
must be analyzed through the locals' ways of understanding them. Rather than devising universal models rooting in Western understandings and using Western economic terminologies
and then applying them indiscriminately to all societies, one should come to understand the 'local model'. In his work on livelihoods Gudeman seeks to present the "people's own economic construction" (1986:1); that is, not just examining the cultural construction of values as in which products people like to buy and how much they value leisure
, but people's own conceptualizations or mental maps of economics and its various aspects, i.e. their understanding of concepts such as exchange, property or profit. His description of a peasant community in Panama
reveals that the locals did not engage in exchange with each other in order to make a profit but rather viewed it as an "exchange of equivalents", with the exchange value of a good being defined by the expenses spent on producing it. Only outside merchants made profits in their dealings with the community, and it was a complete mystery to the locals how they managed to do so...
Gudeman not only rejects the formalist notion of the universal 'economic person'; he also criticizes the substantivist position for imposing their universal model of economics on all preindustrial societies and so making the same mistake as the formalists. While conceding that substantivism rightly emphasises the significance of social institutions in economic processes, Gudeman considers any derivational model that claims to be of universal nature, be it formalist, substantivist or Marxist
, to be ethnocentric and essentially tautological. In his view they all model relationships as mechanistic processes by taking the logic of natural science based on the material world
and applying it to the human
world
. Rather than to "arrogate to themselves a privileged right to model the economies of their subjects", anthropologists should seek to understand and interpret local models (1986:38). Such local models may differ radically from their Western counterparts. To quote Gudeman: "Gaining a livelihood might be modelled as a causal and instrumental act, as a natural and inevitable sequence, as a result of supernatural dispositions or as a combination of all these." (1986:47). For example, the Iban
only use hand knives to harvest
rice
. Even though the use of sickle
s would speed up the harvesting process, their concern that the spirit
of the rice may flee is greater than their desire to economize the harvesting process.
Gudeman brings post-modern cultural relativism
to its logical conclusion. Generally speaking, however, culturalism can also be seen as an extension of the substantivist view, with a stronger emphasis on cultural constructivism, a more detailed account of local understandings and metaphor
s of economic concepts, and a greater focus on socio-cultural dynamics than the latter (cf.
Hann, 2000). Culturalists also tend to be both less taxonomic and more culturally relativistic in their descriptions while critically reflecting on the power relationship between the ethnographer (or 'modeller') and the subjects of his or her research. While substantivists generally focus on institutions as their unit of analysis, culturalists lean towards detailed and comprehensive analyses of particular local communities. Both views agree in rejecting the formalist assumption that all human behaviour can be explained in terms of rational decision-making and utility maximisation.
; whatever a person does, may it be work or leisure, is declared to be utility maximization. If he or she does not maximize money then it must be pleasure or some other value. To quote: "This post hoc
reasoning back to a priori assumptions has minimal scientific value as it is not readily subject to falsification." (1989:212). For example, a person may sacrifice
his or her own time
, finance
s, or even health
to help others. Formalists would then pronounce that she or he does so due to placing a high value on helping others, and so sacrificing other goals in order to maximize this value and thereby to gain utility (e.g. meaning, satisfaction of having helped, approval from others etc.). Nevertheless, this statement is simply an assumption, the motivation of this person may or may not coincide with this inferred explanation pattern. Similarly, Gudeman argued that Western economic anthropologists will invariably "find" the people they study to behave "rationally" since that is what their model leads them to do. Conversely, formalism will consider any behavior that does not maximize utility based on available means as irrational. Nevertheless, such "non-maximising acts" may seem perfectly rational and logical for the acting individual whose actions may have been motivated by a completely different set of meanings and understandings. Finally, there is the substantivist point that both economic institutions and individual economic activities are embedded in the socio-cultural sphere and can therefore not be analysed in isolation. Social relationships play an essential role in people's livelihood strategies; consequently, a narrow focus on atomised individual behavior to the exclusion of his or her socio-cultural context is bound to be flawed.
Substantivism has not been without its critics, either. Prattis (1982) argued that the strict distinction between primitive
and modern economies in substantivism is problematic. Constraints on transactional modes are situational rather than systemic (he therefore implies that substantivism focuses on social structures at the expensive of analyzing individual agency). Non-maximizing adaptation strategies occur in all societies, not just in "primitive" ones. Similarly, Plattner (1989) posited that some generalization across different societies are still possible, meaning that Western and non-Western economics are not entirely different. In an age of globalization there are probably hardly any "pure" preindustrial societies left. Conditions of resource scarcity can be said to exist anywhere in the world. It is significant to note anthropological fieldwork that demonstrates rational behavior and complex economic choices amongst peasants (cf. Plattner, 1989:15). For example, individuals in communist societies can still engage in rational utility maximizing behavior by building relationships to bureaucrat
s who control distribution, or by using small plots of land in their garden
to supplement official food
rations. Cook observed that there are significant conceptual problems with the substantivists’ theorizing: "They define economics as an aspect of everything that provisions society but nothing that provisions society is defined as economic." (1973:809).
While market exchange is dominant in the West, redistribution can also play a very significant role particularly in the more socialist or welfare-state Western societies such as France
, Germany
or Sweden
. State
and charity or religious organizations collect donations and then distribute them to needy groups (or use the funds to offer free or inexpensive social services).
Culturalism can also be criticized from various perspectives. Marxists would argue that culturalists are too idealistic in their notion of the social construction of reality
and too weak in their analysis of external (i.e. material) constraints on individuals that affect their livelihood choices. If, as Gudeman argues, local models cannot be objectively appraised or held against a universal standard, then there is also no way of deconstructing them in terms of ideologies propagated by the powerful that serve to neutralise resistance through hegemony. This is further complicated by the fact that in an age of globalization
most cultures are being integrated into the global capitalist system and are influenced to conform to Western ways of thinking and acting. Local and global discourses are mixing and the distinctions between the two are beginning to blur. Even though people will retain aspects of their existing worldviews, universal models can be used to study the dynamics of their integration into the rest of the world.
German economists Gunnar Heinsohn
and Otto Steiger have acknowledged that market exchange is not universal and start from Karl Polanyi's distinction between systems based on reciprocity, redistribution and markets. However, they criticize both substantivists and formalists for being unable to provide a satisfactory explanation for market rationality and its historical origins. They developed a novel explanation for the origins of property, contracts, credit, money and markets that they term the "property theory of interest, money and markets". They apply their model to development economics
, where an understanding of dynamic markets is essential since the task is to create them where they have not existed before.
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
and anthropology
Anthropology
Anthropology is the study of humanity. It has origins in the humanities, the natural sciences, and the social sciences. The term "anthropology" is from the Greek anthrōpos , "man", understood to mean mankind or humanity, and -logia , "discourse" or "study", and was first used in 1501 by German...
. It is practiced by anthropologists and has a complex relationship with economics. There are three major paradigms within the field of economic anthropology: formalism, substantivism and culturalism.
Formalism
The formalist modelScientific modelling
Scientific modelling is the process of generating abstract, conceptual, graphical and/or mathematical models. Science offers a growing collection of methods, techniques and theory about all kinds of specialized scientific modelling...
is the one most closely linked to neoclassical economics
Neoclassical economics
Neoclassical economics is a term variously used for approaches to economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand, often mediated through a hypothesized maximization of utility by income-constrained individuals and of profits...
, defining economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
as the study of utility
Utility
In economics, utility is a measure of customer satisfaction, referring to the total satisfaction received by a consumer from consuming a good or service....
maximisation under conditions of scarcity
Scarcity
Scarcity is the fundamental economic problem of having humans who have unlimited wants and needs in a world of limited resources. It states that society has insufficient productive resources to fulfill all human wants and needs. Alternatively, scarcity implies that not all of society's goals can be...
. As an attempt to use neoclassical theory
Theory
The English word theory was derived from a technical term in Ancient Greek philosophy. The word theoria, , meant "a looking at, viewing, beholding", and referring to contemplation or speculation, as opposed to action...
to analyze
Analysis
Analysis is the process of breaking a complex topic or substance into smaller parts to gain a better understanding of it. The technique has been applied in the study of mathematics and logic since before Aristotle , though analysis as a formal concept is a relatively recent development.The word is...
subjects outside of its traditional purview, formalist economic anthropology
Anthropology
Anthropology is the study of humanity. It has origins in the humanities, the natural sciences, and the social sciences. The term "anthropology" is from the Greek anthrōpos , "man", understood to mean mankind or humanity, and -logia , "discourse" or "study", and was first used in 1501 by German...
can be linked with new institutional economics
New institutional economics
New institutional economics is an economic perspective that attempts to extend economics by focusing on the social and legal norms and rules that underlie economic activity.-Overview:...
. This approach usually makes the following central assumptions:
- Individuals pursue utility (or preferencePreference-Definitions in different disciplines:The term “preferences” is used in a variety of related, but not identical, ways in the scientific literature. This makes it necessary to make explicit the sense in which the term is used in different social sciences....
) maximisation by choosing between alternative means. They will always choose alternatives that maximise their utilityUtilityIn economics, utility is a measure of customer satisfaction, referring to the total satisfaction received by a consumer from consuming a good or service....
(or that yields a given amount of utility for the least possible amount of inputs or effort required), often within specific informational or transaction costTransaction costIn economics and related disciplines, a transaction cost is a cost incurred in making an economic exchange . For example, most people, when buying or selling a stock, must pay a commission to their broker; that commission is a transaction cost of doing the stock deal...
constraints. - Individuals will do so based on rationalityRationalityIn philosophy, rationality is the exercise of reason. It is the manner in which people derive conclusions when considering things deliberately. It also refers to the conformity of one's beliefs with one's reasons for belief, or with one's actions with one's reasons for action...
, using all available informationInformationInformation in its most restricted technical sense is a message or collection of messages that consists of an ordered sequence of symbols, or it is the meaning that can be interpreted from such a message or collection of messages. Information can be recorded or transmitted. It can be recorded as...
to measure the cost and utility of each means and considering the opportunity costOpportunity costOpportunity cost is the cost of any activity measured in terms of the value of the best alternative that is not chosen . It is the sacrifice related to the second best choice available to someone, or group, who has picked among several mutually exclusive choices. The opportunity cost is also the...
s involved compared to spending their time and effort on other utility maximising pursuits. Lack of information can be modelled as information asymmetryInformation asymmetryIn economics and contract theory, information asymmetry deals with the study of decisions in transactions where one party has more or better information than the other. This creates an imbalance of power in transactions which can sometimes cause the transactions to go awry, a kind of market failure...
or as a transaction costTransaction costIn economics and related disciplines, a transaction cost is a cost incurred in making an economic exchange . For example, most people, when buying or selling a stock, must pay a commission to their broker; that commission is a transaction cost of doing the stock deal...
. Whether by conscious forethought, instinctInstinctInstinct or innate behavior is the inherent inclination of a living organism toward a particular behavior.The simplest example of an instinctive behavior is a fixed action pattern, in which a very short to medium length sequence of actions, without variation, are carried out in response to a...
s, or traditionTraditionA tradition is a ritual, belief or object passed down within a society, still maintained in the present, with origins in the past. Common examples include holidays or impractical but socially meaningful clothes , but the idea has also been applied to social norms such as greetings...
s, individuals are able to undertake the relevant calculationCalculationA calculation is a deliberate process for transforming one or more inputs into one or more results, with variable change.The term is used in a variety of senses, from the very definite arithmetical calculation of using an algorithm to the vague heuristics of calculating a strategy in a competition...
s. In order to make rational choices individuals will seek to obtain all relevant information up to a point where the opportunity costOpportunity costOpportunity cost is the cost of any activity measured in terms of the value of the best alternative that is not chosen . It is the sacrifice related to the second best choice available to someone, or group, who has picked among several mutually exclusive choices. The opportunity cost is also the...
of information-gathering equals the additional utility gained from having been able to make better informed choices. - All individuals live under conditions of scarcity of means while at the same time having unlimited wants.
- Underlying individuals' pursuit of utility maximisation is the principle of diminishing marginal utilityMarginal valueA marginal value is#a value that holds true given particular constraints,#the change in a value associated with a specific change in some independent variable, whether it be of that variable or of a dependent variable, or...
, meaning that additional resources allocated towards a particular end will tend to achieve that end less and less efficiently. Rational actorActorAn actor is a person who acts in a dramatic production and who works in film, television, theatre, or radio in that capacity...
s will allocate their resources first towards those opportunities that provide the greatest payoff for them, and as opportunities get used up, allocate them towards progressively less efficient ends.by krishnakumar 9944192156
Some formalists use game theory
Game theory
Game theory is a mathematical method for analyzing calculated circumstances, such as in games, where a person’s success is based upon the choices of others...
as a model of rational behavior
Behavior
Behavior or behaviour refers to the actions and mannerisms made by organisms, systems, or artificial entities in conjunction with its environment, which includes the other systems or organisms around as well as the physical environment...
under specific cultural
Culture
Culture is a term that has many different inter-related meanings. For example, in 1952, Alfred Kroeber and Clyde Kluckhohn compiled a list of 164 definitions of "culture" in Culture: A Critical Review of Concepts and Definitions...
or interpersonal constraints. Formalists such as Raymond Firth
Raymond Firth
Sir Raymond William Firth, CNZM, FBA, was an ethnologist from New Zealand. As a result of Firth's ethnographic work, actual behaviour of societies is separated from the idealized rules of behaviour within the particular society...
and Harold K. Schneider
Harold K. Schneider
Harold K. Schneider , a seminal figure in economic anthropology, was born in 1925, in Aberdeen, South Dakota. He attended elementary and secondary school in St. Paul, Minnesota, and did his undergraduate work at Macalester College and Seabury-Western Theological Seminary, receiving a bachelor's...
assert that the neoclassical model of economics can be applied to any society
Society
A society, or a human society, is a group of people related to each other through persistent relations, or a large social grouping sharing the same geographical or virtual territory, subject to the same political authority and dominant cultural expectations...
if appropriate modifications are made, arguing that the principle
Principle
A principle is a law or rule that has to be, or usually is to be followed, or can be desirably followed, or is an inevitable consequence of something, such as the laws observed in nature or the way that a system is constructed...
s outlined above have universal validity. All human
Human
Humans are the only living species in the Homo genus...
culture
Culture
Culture is a term that has many different inter-related meanings. For example, in 1952, Alfred Kroeber and Clyde Kluckhohn compiled a list of 164 definitions of "culture" in Culture: A Critical Review of Concepts and Definitions...
s are therefore a collection of "choice making individuals whose every action involves conscious or unconscious selections among alternatives means to alternative ends" (Burling, 1962, quoted from Prattis, 1982:207), whereby the ends are culturally defined goals. Goals refer not only to economic value or financial gain but to anything that is valued by the individual, be it leisure, solidarity or prestige.
In the context of hunter-gatherer and Neolithic cultures, formalist models usually must deal with high transaction cost
Transaction cost
In economics and related disciplines, a transaction cost is a cost incurred in making an economic exchange . For example, most people, when buying or selling a stock, must pay a commission to their broker; that commission is a transaction cost of doing the stock deal...
s and are thus sometimes simplified to a model of bilateral monopoly
Bilateral monopoly
In a bilateral monopoly there is both a monopoly and monopsony in the same market.In such, market price and output will be determined by forces like bargaining power of both buyer and seller...
.
Since a formalist model usually states what is to be maximized in terms of preference
Preference
-Definitions in different disciplines:The term “preferences” is used in a variety of related, but not identical, ways in the scientific literature. This makes it necessary to make explicit the sense in which the term is used in different social sciences....
s, which often but not necessarily include culturally expressed value goals, it is deemed to be sufficiently abstract to be capable of explaining human behavior
Human behavior
Human behavior refers to the range of behaviors exhibited by humans and which are influenced by culture, attitudes, emotions, values, ethics, authority, rapport, hypnosis, persuasion, coercion and/or genetics....
in any context. A traditional assumption many formalists borrow from neoclassical economics is that the individual will make rational choices based on full information, or information that is incomplete in a specific way, in order to maximize whatever that individual considers being of value. While preferences may vary or change, and information about choices may or may not be complete, the principles of economising and maximising still apply.
The role of the anthropologist may then be to analyse each culture in regards to its culturally appropriate means of attaining culturally recognized and valued goals. Individual preferences may differ from culturally recognized goals, and under economic rationality assumptions individual decisions are guided by individual preferences in an environment constrained by culture, including the preferences of others. Such an analysis should uncover the culturally-specific principles that underlie the rational decision-making process. In this way, economic theory has been applied by anthropologists to societies without price-regulating markets (e.g. Firth, 1961; Laughlin, 1973). Besides cultural values, formalists may also use evolutionary psychology
Evolutionary psychology
Evolutionary psychology is an approach in the social and natural sciences that examines psychological traits such as memory, perception, and language from a modern evolutionary perspective. It seeks to identify which human psychological traits are evolved adaptations, that is, the functional...
to help model preferences.
Substantivism
The substantivistSubstantivism
Substantivism is a position, first proposed by Karl Polanyi in his work The Great Transformation, which argues that the term 'economics' has two meanings...
position, first proposed by Karl Polanyi
Karl Polanyi
Karl Paul Polanyi was a Hungarian philosopher, political economist and economic anthropologist known for his opposition to traditional economic thought and his book The Great Transformation...
in his work The Great Transformation, argues that the term 'economics' has two meanings: the formal meaning refers to economics as the logic of rational action and decision-making, as rational choice between the alternative uses of limited (scarce) means. The second, substantive meaning, however, presupposes neither rational decision-making nor conditions of scarcity. It simply refers to study of how humans make a living from their social and natural environment
Natural environment
The natural environment encompasses all living and non-living things occurring naturally on Earth or some region thereof. It is an environment that encompasses the interaction of all living species....
. A society's livelihood strategy is seen as an adaptation to its environment and material conditions, a process which may or may not involve utility maximisation. The substantive meaning of 'economics' is seen in the broader sense of 'economising' or 'provisioning'. Economics is simply the way society meets their material needs.
Polanyi's term "great transformation" refers to the divide between modern, market
Market
A market is one of many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers...
-dominated societies and non-Western, non-capitalist pre-industrial
Pre-industrial society
Pre-industrial society refers to specific social attributes and forms of political and cultural organization that were prevalent before the advent of the Industrial Revolution. It is followed by the industrial society....
societies. Polanyi argues that only the substantive meaning of economics is appropriate for analysing the latter. Without a system of price-making markets formal economic analysis does not apply, for example in centrally planned economies or preindustrial societies. Economic decision-making in such places is not so much based on individual choice, but rather on social relation
Social relation
In social science, a social relation or social interaction refers to a relationship between two , three or more individuals . Social relations, derived from individual agency, form the basis of the social structure. To this extent social relations are always the basic object of analysis for social...
ships, cultural values
Value (personal and cultural)
A personal or cultural value is an absolute or relative ethical value, the assumption of which can be the basis for ethical action. A value system is a set of consistent values and measures. A principle value is a foundation upon which other values and measures of integrity are based...
, moral
Moral
A moral is a message conveyed or a lesson to be learned from a story or event. The moral may be left to the hearer, reader or viewer to determine for themselves, or may be explicitly encapsulated in a maxim...
concerns, politics
Politics
Politics is a process by which groups of people make collective decisions. The term is generally applied to the art or science of running governmental or state affairs, including behavior within civil governments, but also applies to institutions, fields, and special interest groups such as the...
, religion
Religion
Religion is a collection of cultural systems, belief systems, and worldviews that establishes symbols that relate humanity to spirituality and, sometimes, to moral values. Many religions have narratives, symbols, traditions and sacred histories that are intended to give meaning to life or to...
or the fear instilled by authoritarian leadership. Production in most peasant
Peasant
A peasant is an agricultural worker who generally tend to be poor and homeless-Etymology:The word is derived from 15th century French païsant meaning one from the pays, or countryside, ultimately from the Latin pagus, or outlying administrative district.- Position in society :Peasants typically...
and tribal
Tribe
A tribe, viewed historically or developmentally, consists of a social group existing before the development of, or outside of, states.Many anthropologists use the term tribal society to refer to societies organized largely on the basis of kinship, especially corporate descent groups .Some theorists...
societies is for the producers, also called 'production for use' or subsistence production, as opposed to 'production for exchange' which has profit maximisation as its chief aim. These types differ so radically that no single theory can describe them all.
According to Polanyi, in modern capitalist
Capitalism
Capitalism is an economic system that became dominant in the Western world following the demise of feudalism. There is no consensus on the precise definition nor on how the term should be used as a historical category...
economies the concepts of formalism and substantivism
Substantivism
Substantivism is a position, first proposed by Karl Polanyi in his work The Great Transformation, which argues that the term 'economics' has two meanings...
coincide since people organise their livelihoods based on the principle of rational choice. However, in non-Capitalist, pre-industrial economies this assumption does not hold. Unlike their Western capitalist counterparts, they are not based on market exchange but on redistribution
Redistribution (economics)
Redistribution of wealth is the transfer of income, wealth or property from some individuals to others caused by a social mechanism such as taxation, monetary policies, welfare, nationalization, charity, divorce or tort law. Most often it refers to progressive redistribution, from the rich to the...
and reciprocity
Reciprocity (cultural anthropology)
In cultural anthropology and sociology, reciprocity is a way of defining people's informal exchange of goods and labour; that is, people's informal economic systems. It is the basis of most non-market economies. Since virtually all humans live in some kind of society and have at least a few...
. Reciprocity is defined as the mutual exchange of goods or services as part of long-term relationships. Redistribution implies the existence of a strong political
Politics
Politics is a process by which groups of people make collective decisions. The term is generally applied to the art or science of running governmental or state affairs, including behavior within civil governments, but also applies to institutions, fields, and special interest groups such as the...
centre such as kinship
Kinship
Kinship is a relationship between any entities that share a genealogical origin, through either biological, cultural, or historical descent. And descent groups, lineages, etc. are treated in their own subsections....
-based leadership
Leadership
Leadership has been described as the “process of social influence in which one person can enlist the aid and support of others in the accomplishment of a common task". Other in-depth definitions of leadership have also emerged.-Theories:...
, which receives and then redistributes subsistence goods according to culturally-specific principles. In societies that are not market-based reciprocity and redistribution usually occur together. Conversely, market
Market
A market is one of many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers...
exchange is seen as the dominant mode of integration in modern industrial societies, while reciprocity may continue in family and inter-household relations, and some redistribution is undertaken by the state or by charitable
Charitable organization
A charitable organization is a type of non-profit organization . It differs from other types of NPOs in that it centers on philanthropic goals A charitable organization is a type of non-profit organization (NPO). It differs from other types of NPOs in that it centers on philanthropic goals A...
institutions. Each of these three systems of distribution requires a separate set of analytical concepts.
Another key concept in substantivism is that of 'embeddedness
Embeddedness
Embeddedness is the degree to which individuals or firms are enmeshed in a social network. The concept was introduced by sociologist Mark Granovetter; the term embeddedness involves the overlap between social & economic ties within and between organizations .The term embeddedness makes reference...
'. Rather than being a separate and distinct sphere
Sphere
A sphere is a perfectly round geometrical object in three-dimensional space, such as the shape of a round ball. Like a circle in two dimensions, a perfect sphere is completely symmetrical around its center, with all points on the surface lying the same distance r from the center point...
, the economy is embedded in both economic and non-economic institutions. Exchange takes place within and is regulated by society rather than being located in a social vacuum
Vacuum
In everyday usage, vacuum is a volume of space that is essentially empty of matter, such that its gaseous pressure is much less than atmospheric pressure. The word comes from the Latin term for "empty". A perfect vacuum would be one with no particles in it at all, which is impossible to achieve in...
. For example, religion
Religion
Religion is a collection of cultural systems, belief systems, and worldviews that establishes symbols that relate humanity to spirituality and, sometimes, to moral values. Many religions have narratives, symbols, traditions and sacred histories that are intended to give meaning to life or to...
and government
Government
Government refers to the legislators, administrators, and arbitrators in the administrative bureaucracy who control a state at a given time, and to the system of government by which they are organized...
can be just as important to economics as economic institutions themselves. Socio-cultural obligations, norms and values play a significant role in people's livelihood strategies
Strategy
Strategy, a word of military origin, refers to a plan of action designed to achieve a particular goal. In military usage strategy is distinct from tactics, which are concerned with the conduct of an engagement, while strategy is concerned with how different engagements are linked...
. Consequently, any analysis of economics as an analytically distinct entity
Entity
An entity is something that has a distinct, separate existence, although it need not be a material existence. In particular, abstractions and legal fictions are usually regarded as entities. In general, there is also no presumption that an entity is animate.An entity could be viewed as a set...
isolated from its socio-cultural and political context is flawed from the outset. A substantivist analysis of economics will therefore focus on the study of the various social institution
Institution
An institution is any structure or mechanism of social order and cooperation governing the behavior of a set of individuals within a given human community...
s on which people's livelihoods are based. The market is only one amongst many institutions that determine the nature of economic transactions. Polanyi's central argument is that institutions are the primary organisers of economic processes. The substantive economy is an "instituted process of interaction between man and his environment, which results in a continuous supply of want satisfying material means" (1968:126).
The concept of embeddedness has been very influential in the field of economic anthropology. In his study of Chinese
China
Chinese civilization may refer to:* China for more general discussion of the country.* Chinese culture* Greater China, the transnational community of ethnic Chinese.* History of China* Sinosphere, the area historically affected by Chinese culture...
ethnic business networks in Indonesia
Indonesia
Indonesia , officially the Republic of Indonesia , is a country in Southeast Asia and Oceania. Indonesia is an archipelago comprising approximately 13,000 islands. It has 33 provinces with over 238 million people, and is the world's fourth most populous country. Indonesia is a republic, with an...
, Granovetter found individual's economic agency embedded in networks of strong personal relations. In processes of clientelization the cultivation of personal relationships between traders and customers assumes an equal or higher importance than the economic transactions involved. Economic exchanges are not carried out between strangers but rather by individuals involved in long-term continuing relationships. Granovetter describes the neo-liberal view of economic action as separating economics from society and culture, thereby promoting an 'undersocialized account' that atomises human behavior: "Actors do not behave or decide as atom
Atom
The atom is a basic unit of matter that consists of a dense central nucleus surrounded by a cloud of negatively charged electrons. The atomic nucleus contains a mix of positively charged protons and electrically neutral neutrons...
s outside a social context, nor do they adhere slavishly to a script written for them by the particular intersection of social categories that they happen to occupy. Their attempts at purposive action are instead embedded in concrete, ongoing systems of social relations." (1985:487).
Culturalism
For some anthropologists the substantivist position does not go far enough in its criticism of the universal application of Western economic models on societies all around the globe. Stephen Gudeman, for example, argues that the central processes of making a livelihood are culturally constructed. Therefore, models of livelihoods and related economic concepts such as exchangeTrade
Trade is the transfer of ownership of goods and services from one person or entity to another. Trade is sometimes loosely called commerce or financial transaction or barter. A network that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and...
, money
Money
Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past,...
or profit
Profit (economics)
In economics, the term profit has two related but distinct meanings. Normal profit represents the total opportunity costs of a venture to an entrepreneur or investor, whilst economic profit In economics, the term profit has two related but distinct meanings. Normal profit represents the total...
must be analyzed through the locals' ways of understanding them. Rather than devising universal models rooting in Western understandings and using Western economic terminologies
Terminology
Terminology is the study of terms and their use. Terms are words and compound words that in specific contexts are given specific meanings, meanings that may deviate from the meaning the same words have in other contexts and in everyday language. The discipline Terminology studies among other...
and then applying them indiscriminately to all societies, one should come to understand the 'local model'. In his work on livelihoods Gudeman seeks to present the "people's own economic construction" (1986:1); that is, not just examining the cultural construction of values as in which products people like to buy and how much they value leisure
Leisure
Leisure, or free time, is time spent away from business, work, and domestic chores. It is also the periods of time before or after necessary activities such as eating, sleeping and, where it is compulsory, education....
, but people's own conceptualizations or mental maps of economics and its various aspects, i.e. their understanding of concepts such as exchange, property or profit. His description of a peasant community in Panama
Panama
Panama , officially the Republic of Panama , is the southernmost country of Central America. Situated on the isthmus connecting North and South America, it is bordered by Costa Rica to the northwest, Colombia to the southeast, the Caribbean Sea to the north and the Pacific Ocean to the south. The...
reveals that the locals did not engage in exchange with each other in order to make a profit but rather viewed it as an "exchange of equivalents", with the exchange value of a good being defined by the expenses spent on producing it. Only outside merchants made profits in their dealings with the community, and it was a complete mystery to the locals how they managed to do so...
Gudeman not only rejects the formalist notion of the universal 'economic person'; he also criticizes the substantivist position for imposing their universal model of economics on all preindustrial societies and so making the same mistake as the formalists. While conceding that substantivism rightly emphasises the significance of social institutions in economic processes, Gudeman considers any derivational model that claims to be of universal nature, be it formalist, substantivist or Marxist
Marxism
Marxism is an economic and sociopolitical worldview and method of socioeconomic inquiry that centers upon a materialist interpretation of history, a dialectical view of social change, and an analysis and critique of the development of capitalism. Marxism was pioneered in the early to mid 19th...
, to be ethnocentric and essentially tautological. In his view they all model relationships as mechanistic processes by taking the logic of natural science based on the material world
Nature
Nature, in the broadest sense, is equivalent to the natural world, physical world, or material world. "Nature" refers to the phenomena of the physical world, and also to life in general...
and applying it to the human
Human
Humans are the only living species in the Homo genus...
world
World
World is a common name for the whole of human civilization, specifically human experience, history, or the human condition in general, worldwide, i.e. anywhere on Earth....
. Rather than to "arrogate to themselves a privileged right to model the economies of their subjects", anthropologists should seek to understand and interpret local models (1986:38). Such local models may differ radically from their Western counterparts. To quote Gudeman: "Gaining a livelihood might be modelled as a causal and instrumental act, as a natural and inevitable sequence, as a result of supernatural dispositions or as a combination of all these." (1986:47). For example, the Iban
Iban people
The Ibans are a branch of the Dayak peoples of Borneo. In Malaysia, most Ibans are located in Sarawak, a small portion in Sabah and some in west Malaysia. They were formerly known during the colonial period by the British as Sea Dayaks. Ibans were renowned for practising headhunting and...
only use hand knives to harvest
Harvest
Harvest is the process of gathering mature crops from the fields. Reaping is the cutting of grain or pulse for harvest, typically using a scythe, sickle, or reaper...
rice
Rice
Rice is the seed of the monocot plants Oryza sativa or Oryza glaberrima . As a cereal grain, it is the most important staple food for a large part of the world's human population, especially in East Asia, Southeast Asia, South Asia, the Middle East, and the West Indies...
. Even though the use of sickle
Sickle
A sickle is a hand-held agricultural tool with a variously curved blade typically used for harvesting grain crops or cutting succulent forage chiefly for feeding livestock . Sickles have also been used as weapons, either in their original form or in various derivations.The diversity of sickles that...
s would speed up the harvesting process, their concern that the spirit
Spirit
The English word spirit has many differing meanings and connotations, most of them relating to a non-corporeal substance contrasted with the material body.The spirit of a living thing usually refers to or explains its consciousness.The notions of a person's "spirit" and "soul" often also overlap,...
of the rice may flee is greater than their desire to economize the harvesting process.
Gudeman brings post-modern cultural relativism
Cultural relativism
Cultural relativism is the principle that an individual human's beliefs and activities should be understood by others in terms of that individual's own culture. This principle was established as axiomatic in anthropological research by Franz Boas in the first few decades of the 20th century and...
to its logical conclusion. Generally speaking, however, culturalism can also be seen as an extension of the substantivist view, with a stronger emphasis on cultural constructivism, a more detailed account of local understandings and metaphor
Metaphor
A metaphor is a literary figure of speech that uses an image, story or tangible thing to represent a less tangible thing or some intangible quality or idea; e.g., "Her eyes were glistening jewels." Metaphor may also be used for any rhetorical figures of speech that achieve their effects via...
s of economic concepts, and a greater focus on socio-cultural dynamics than the latter (cf.
Cf.
cf., an abbreviation for the Latin word confer , literally meaning "bring together", is used to refer to other material or ideas which may provide similar or different information or arguments. It is mainly used in scholarly contexts, such as in academic or legal texts...
Hann, 2000). Culturalists also tend to be both less taxonomic and more culturally relativistic in their descriptions while critically reflecting on the power relationship between the ethnographer (or 'modeller') and the subjects of his or her research. While substantivists generally focus on institutions as their unit of analysis, culturalists lean towards detailed and comprehensive analyses of particular local communities. Both views agree in rejecting the formalist assumption that all human behaviour can be explained in terms of rational decision-making and utility maximisation.
Critics of the Approaches
There have been many critics of the formalist position. Its central assumptions about human behavior have been questioned, in particular it has been argued that the universality of rational choice and utility maximization cannot be assumed across all cultures, but also with regards to modern Western societies the economic reductionism in explaining human behaviour. Prattis noted that the premise of utility maximization is tautologicalTautology (rhetoric)
Tautology is an unnecessary or unessential repetition of meaning, using different and dissimilar words that effectively say the same thing...
; whatever a person does, may it be work or leisure, is declared to be utility maximization. If he or she does not maximize money then it must be pleasure or some other value. To quote: "This post hoc
Post hoc ergo propter hoc
Post hoc ergo propter hoc, Latin for "after this, therefore because of this," is a logical fallacy that states, "Since that event followed this one, that event must have been caused by this one." It is often shortened to simply post hoc and is also sometimes referred to as false cause,...
reasoning back to a priori assumptions has minimal scientific value as it is not readily subject to falsification." (1989:212). For example, a person may sacrifice
Sacrifice
Sacrifice is the offering of food, objects or the lives of animals or people to God or the gods as an act of propitiation or worship.While sacrifice often implies ritual killing, the term offering can be used for bloodless sacrifices of cereal food or artifacts...
his or her own time
Time
Time is a part of the measuring system used to sequence events, to compare the durations of events and the intervals between them, and to quantify rates of change such as the motions of objects....
, finance
Finance
"Finance" is often defined simply as the management of money or “funds” management Modern finance, however, is a family of business activity that includes the origination, marketing, and management of cash and money surrogates through a variety of capital accounts, instruments, and markets created...
s, or even health
Health
Health is the level of functional or metabolic efficiency of a living being. In humans, it is the general condition of a person's mind, body and spirit, usually meaning to be free from illness, injury or pain...
to help others. Formalists would then pronounce that she or he does so due to placing a high value on helping others, and so sacrificing other goals in order to maximize this value and thereby to gain utility (e.g. meaning, satisfaction of having helped, approval from others etc.). Nevertheless, this statement is simply an assumption, the motivation of this person may or may not coincide with this inferred explanation pattern. Similarly, Gudeman argued that Western economic anthropologists will invariably "find" the people they study to behave "rationally" since that is what their model leads them to do. Conversely, formalism will consider any behavior that does not maximize utility based on available means as irrational. Nevertheless, such "non-maximising acts" may seem perfectly rational and logical for the acting individual whose actions may have been motivated by a completely different set of meanings and understandings. Finally, there is the substantivist point that both economic institutions and individual economic activities are embedded in the socio-cultural sphere and can therefore not be analysed in isolation. Social relationships play an essential role in people's livelihood strategies; consequently, a narrow focus on atomised individual behavior to the exclusion of his or her socio-cultural context is bound to be flawed.
Substantivism has not been without its critics, either. Prattis (1982) argued that the strict distinction between primitive
Primitive culture
In older anthropology texts and discussions, the term "primitive culture" is used to refer to a society that is believed to lack cultural, technological, or economic sophistication/development...
and modern economies in substantivism is problematic. Constraints on transactional modes are situational rather than systemic (he therefore implies that substantivism focuses on social structures at the expensive of analyzing individual agency). Non-maximizing adaptation strategies occur in all societies, not just in "primitive" ones. Similarly, Plattner (1989) posited that some generalization across different societies are still possible, meaning that Western and non-Western economics are not entirely different. In an age of globalization there are probably hardly any "pure" preindustrial societies left. Conditions of resource scarcity can be said to exist anywhere in the world. It is significant to note anthropological fieldwork that demonstrates rational behavior and complex economic choices amongst peasants (cf. Plattner, 1989:15). For example, individuals in communist societies can still engage in rational utility maximizing behavior by building relationships to bureaucrat
Bureaucrat
A bureaucrat is a member of a bureaucracy and can comprise the administration of any organization of any size, though the term usually connotes someone within an institution of a government or corporation...
s who control distribution, or by using small plots of land in their garden
Garden
A garden is a planned space, usually outdoors, set aside for the display, cultivation, and enjoyment of plants and other forms of nature. The garden can incorporate both natural and man-made materials. The most common form today is known as a residential garden, but the term garden has...
to supplement official food
Food
Food is any substance consumed to provide nutritional support for the body. It is usually of plant or animal origin, and contains essential nutrients, such as carbohydrates, fats, proteins, vitamins, or minerals...
rations. Cook observed that there are significant conceptual problems with the substantivists’ theorizing: "They define economics as an aspect of everything that provisions society but nothing that provisions society is defined as economic." (1973:809).
While market exchange is dominant in the West, redistribution can also play a very significant role particularly in the more socialist or welfare-state Western societies such as France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
, Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
or Sweden
Sweden
Sweden , officially the Kingdom of Sweden , is a Nordic country on the Scandinavian Peninsula in Northern Europe. Sweden borders with Norway and Finland and is connected to Denmark by a bridge-tunnel across the Öresund....
. State
State (polity)
A state is an organized political community, living under a government. States may be sovereign and may enjoy a monopoly on the legal initiation of force and are not dependent on, or subject to any other power or state. Many states are federated states which participate in a federal union...
and charity or religious organizations collect donations and then distribute them to needy groups (or use the funds to offer free or inexpensive social services).
Culturalism can also be criticized from various perspectives. Marxists would argue that culturalists are too idealistic in their notion of the social construction of reality
Reality
In philosophy, reality is the state of things as they actually exist, rather than as they may appear or might be imagined. In a wider definition, reality includes everything that is and has been, whether or not it is observable or comprehensible...
and too weak in their analysis of external (i.e. material) constraints on individuals that affect their livelihood choices. If, as Gudeman argues, local models cannot be objectively appraised or held against a universal standard, then there is also no way of deconstructing them in terms of ideologies propagated by the powerful that serve to neutralise resistance through hegemony. This is further complicated by the fact that in an age of globalization
Globalization
Globalization refers to the increasingly global relationships of culture, people and economic activity. Most often, it refers to economics: the global distribution of the production of goods and services, through reduction of barriers to international trade such as tariffs, export fees, and import...
most cultures are being integrated into the global capitalist system and are influenced to conform to Western ways of thinking and acting. Local and global discourses are mixing and the distinctions between the two are beginning to blur. Even though people will retain aspects of their existing worldviews, universal models can be used to study the dynamics of their integration into the rest of the world.
German economists Gunnar Heinsohn
Gunnar Heinsohn
Gunnar Heinsohn is a German sociologist and economist. He was born in Gdynia, Poland, under German occupation used as Kriegsmarine-Arsenal and named Gotenhafen, on November 21, 1943 to Roswitha Heinsohn, née Maurer and the late Kapitänleutnant Heinrich Heinsohn, last serving on U-438...
and Otto Steiger have acknowledged that market exchange is not universal and start from Karl Polanyi's distinction between systems based on reciprocity, redistribution and markets. However, they criticize both substantivists and formalists for being unable to provide a satisfactory explanation for market rationality and its historical origins. They developed a novel explanation for the origins of property, contracts, credit, money and markets that they term the "property theory of interest, money and markets". They apply their model to development economics
Development economics
Development Economics is a branch of economics which deals with economic aspects of the development process in low-income countries. Its focus is not only on methods of promoting economic growth and structural change but also on improving the potential for the mass of the population, for example,...
, where an understanding of dynamic markets is essential since the task is to create them where they have not existed before.
Further reading
- Earle, Timothy (2008). "economic anthropology," The New Palgrave Dictionary of EconomicsThe New Palgrave Dictionary of EconomicsThe New Palgrave Dictionary of Economics , 2nd Edition, is an eight-volume reference work, edited by Steven N. Durlauf and Lawrence E. Blume. It contains 5.8 million words and spans 7,680 pages with 1,872 articles. Included are 1057 new articles and, from earlier, 80 essays that are designated as...
, 2nd Edition. Abstract. - Halperin, Rhoda H. "New and Old in Economic Anthropology" American Anthropologist 84(2): 339-349. 1982 http://www3.interscience.wiley.com/journal/122472629/abstract
See also
- Anthropological theories of valueAnthropological theories of valueAnthropological theories of value attempt to expand on the traditional theories of value used by economists or ethicists. They are often broader in scope than the theories of value of Adam Smith, David Ricardo, John Stuart Mill, Karl Marx, etc. usually including sociological, political,...
- Cultural economicsCultural economicsCultural economics is the branch of economics that studies the relation of culture to economic outcomes. Here, 'culture' is defined by shared beliefs and preferences of respective groups. Programmatic issues include whether and how much culture matters as to economic outcomes and what its relation...
- Economic sociologyEconomic sociologyEconomic sociology studies both the social effects and the social causes of various economic phenomena. The field can be broadly divided into a classical period and a contemporary one. The classical period was concerned particularly with modernity and its constituent aspects...
- HypergamyHypergamyHypergamy is the act or practice of seeking a spouse of higher socioeconomic status, or caste status than oneself....
- MoneyMoneyMoney is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past,...
- Wealth#The Anthropological view of Wealth
- Non-market economics
- Society for Economic AnthropologySociety for economic anthropologyThe Society for Economic Anthropology is a group of anthropologists, archaeologists, economists, geographers and other scholars interested in the connections between economics and social life. Its members take a variety of approaches to economics: some have a substantivist perspective, while...