The opposition between
substantivist and formalist economic models was first proposed by
Karl Polanyi
Karl Paul Polanyi (; ; 25 October 1886 – 23 April 1964)''Encyclopædia Britannica'' (Chicago: Encyclopædia Britannica Inc. 2003) vol 9. p. 554 was an Austro-Hungarian economic anthropologist, economic sociologist, and politician, best kno ...
in his work ''
The Great Transformation'' (1944).
Overview
Polanyi argued that the term ''economics'' has two meanings: the formal meaning refers to economics as the logic of rational action and decision-making, as a 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 the 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 that may or may not involve utility maximisation. The substantive meaning of ''economics'' is seen in the broader sense of ''provisioning''. Economics is simply the way society meets its material needs. Anthropologists embraced the substantive position as empirically oriented as they believed it did not impose western cultural assumptions on other societies where they might not be warranted.
The formalist vs. substantivist debate was not between anthropologists and economists, however, but a disciplinary debate largely confined to the journal ''Research in Economic Anthropology''. In many ways, it reflects the common debates between
''etic'' and ''emic'' explanations as defined by
Marvin Harris
Marvin Harris (August 18, 1927 – October 25, 2001) was an American anthropologist. He was born in Brooklyn, New York City. A prolific writer, he was highly influential in the development of cultural materialism and environmental determinis ...
in cultural anthropology of the period. The principal proponents of the substantivist model were George Dalton and
Paul Bohannan. Formalists such as
Raymond Firth
Sir Raymond William Firth (25 March 1901 – 22 February 2002) was an ethnologist from New Zealand. As a result of Firth's ethnographic work, actual behaviour of societies (social organization) is separated from the idealized rules of behavio ...
and
Harold K. Schneider asserted that the neoclassical model of economics could be applied to any society if appropriate modifications are made, arguing that its principles have universal validity.
The formalist position
The formalist model is closely linked to
neoclassical economics
Neoclassical economics is an approach to economics in which the production, consumption, and valuation (pricing) of goods and services are observed as driven by the supply and demand model. According to this line of thought, the value of a go ...
, defining
economics
Economics () is a behavioral science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services.
Economics focuses on the behaviour and interac ...
as the study of choice under conditions of
scarcity
In economics, scarcity "refers to the basic fact of life that there exists only a finite amount of human and nonhuman resources which the best technical knowledge is capable of using to produce only limited maximum amounts of each economic good. ...
. All
societies
A society () is a group of individuals involved in persistent social interaction or a large social group sharing the same spatial or social territory, typically subject to the same political authority and dominant cultural expectations. ...
are therefore a collection of "choice making individuals whose every action involves conscious or unconscious selections among alternative means to alternative ends" or culturally defined goals. (Burling, 1962, quoted from Prattis, 1982:207).
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.
Since a formalist model usually states what is to be maximized in terms of
preference
In psychology, economics and philosophy, preference is a technical term usually used in relation to choosing between alternatives. For example, someone prefers A over B if they would rather choose A than B. Preferences are central to decision the ...
s, which often but not necessarily include culturally expressed value goals, it is deemed to be sufficiently abstract to explain 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).
The substantivist position
Polanyi's term, "the great transformation," refers to the divide between modern,
market
Market is a term used to describe concepts such as:
*Market (economics), system in which parties engage in transactions according to supply and demand
*Market economy
*Marketplace, a physical marketplace or public market
*Marketing, the act of sat ...
-dominated societies and
non-Western, non-capitalist
pre-industrial
Pre-industrial society refers to social attributes and forms of political and cultural organization that were prevalent before the advent of the Industrial Revolution, which occurred from 1750 to 1850. ''Pre-industrial'' refers to a time befor ...
societies. Polanyi argues that only the substantive meaning of economics is appropriate for analysing the latter. According to Polanyi, in modern
capitalist
Capitalism is an economic system based on the private ownership of the means of production and their use for the purpose of obtaining profit. This socioeconomic system has developed historically through several stages and is defined by ...
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, their livelihoods 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
Politics () is the set of activities that are associated with decision-making, making decisions in social group, groups, or other forms of power (social and political), power relations among individuals, such as the distribution of Social sta ...
centre such as
kinship
In anthropology, kinship is the web of social relationships that form an important part of the lives of all humans in all societies, although its exact meanings even within this discipline are often debated. Anthropologist Robin Fox says that ...
-based
leadership
Leadership, is defined as the ability of an individual, group, or organization to "", influence, or guide other individuals, teams, or organizations.
"Leadership" is a contested term. Specialist literature debates various viewpoints on the co ...
, 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 is a term used to describe concepts such as:
*Market (economics), system in which parties engage in transactions according to supply and demand
*Market economy
*Marketplace, a physical marketplace or public market
*Marketing, the act of sat ...
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
Charity is the voluntary provision of assistance to those in need. It serves as a humanitarian act, and is unmotivated by self-interest. Various philosophies about charity exist, with frequent associations with religion.
Etymology
The word ...
institutions. Each of these three systems of distribution requires a separate set of analytical concepts.
Without a system of price-making markets formal economic analysis does not apply, as 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
A social relation is the fundamental unit of analysis within the social sciences, and describes any voluntary or involuntary interpersonal relationship between two or more conspecifics within and/or between groups. The group can be a language or ...
ships,
cultural values,
moral
A moral (from Latin ''morālis'') is a message that is 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 () is the set of activities that are associated with decision-making, making decisions in social group, groups, or other forms of power (social and political), power relations among individuals, such as the distribution of Social sta ...
,
religion
Religion is a range of social system, social-cultural systems, including designated religious behaviour, behaviors and practices, morals, beliefs, worldviews, religious text, texts, sanctified places, prophecies, ethics in religion, ethics, or ...
or the fear instilled by authoritarian leadership. Production in most
peasant
A peasant is a pre-industrial agricultural laborer or a farmer with limited land-ownership, especially one living in the Middle Ages under feudalism and paying rent, tax, fees, or services to a landlord. In Europe, three classes of peasan ...
and
tribal
The term tribe is used in many different contexts to refer to a category of human social group. The predominant worldwide use of the term in English is in the discipline of anthropology. The definition is contested, in part due to conflict ...
societies is for the producers, also called '
production for use
Production for use is a phrase referring to the principle of economic organization and production taken as a defining criterion for a socialist economy. It is held in contrast to production for profit. This criterion is used to distinguish commun ...
' or
subsistence
A subsistence economy is an economy directed to basic subsistence (the provision of food, clothing and shelter) rather than to the market.
Definition
"Subsistence" is understood as supporting oneself and family at a minimum level. Basic subsiste ...
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.
This difference in types of economy is explained by the '
embeddedness
In economics and economic sociology, embeddedness refers to the degree to which economic activity is constrained by non-economic institutions. The term was created by economic historian Karl Polanyi as part of his substantivist approach. Polanyi ...
' of economic (i.e. provisioning) activities in other social institutions such as kinship in non-market economies. 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
Religion is a range of social system, social-cultural systems, including designated religious behaviour, behaviors and practices, morals, beliefs, worldviews, religious text, texts, sanctified places, prophecies, ethics in religion, ethics, or ...
and
government
A government is the system or group of people governing an organized community, generally a State (polity), state.
In the case of its broad associative definition, government normally consists of legislature, executive (government), execu ...
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 institutions 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).
Course of the debate
Critics of the formalist position question its central assumptions, in particular that the universality of rational choice and utility maximization can be assumed across all cultures, including its reductionism to explain even modern Western economies. Prattis noted that the premise of utility maximization is
tautological; whatever a person does, may it be work or leisure, is declared to be utility maximization, a premise that can never be contradicted or disproven. If he or she does not maximize money then it must be pleasure or some other value. To quote: "This ''
post hoc
''Post hoc'' (sometimes written as ''post-hoc'') is a Latin phrase, meaning "after this" or "after the event".
''Post hoc'' may refer to:
* ''Post hoc'' analysis or ''post hoc'' test, statistical analyses that were not specified before the data w ...
'' reasoning back to ''
a priori
('from the earlier') and ('from the later') are Latin phrases used in philosophy to distinguish types of knowledge, Justification (epistemology), justification, or argument by their reliance on experience. knowledge is independent from any ...
'' assumptions has minimal scientific value as it is not readily subject to falsification." (1989:212).
For example, a person may sacrifice their own time, finances, or even health to help others. Formalists would then pronounce that they do so because they value helping others, and so sacrifice other goals in order to maximize this value (e.g. meaning, satisfaction of having helped, approval from others etc.)
Similarly, Gudeman argued that Western economic anthropologists will invariably find the people they study 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 even though such "non-maximising acts" may seem perfectly rational and logical to the 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 social and cultural institutions 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 also had its critics. Prattis (1982)
argued that the strict distinction between
primitive and modern economies in substantivism is problematic. He implies that substantivism focuses on social structures at the expense of analyzing individual agency. Non-maximizing adaptation strategies occur in all societies, not just in "primitive" ones. Similarly, Plattner (1989)
argues that generalization across different societies is still possible, meaning that Western and non-Western economics are not entirely different. In an age of globalization there are no "pure" preindustrial societies left. Conditions of resource scarcity exist everywhere in the world. Anthropological fieldwork has demonstrated rational behavior and complex economic choices amongst peasants (cf. Plattner, 1989:15).
For example, individuals in
communist
Communism () is a sociopolitical, philosophical, and economic ideology within the socialist movement, whose goal is the creation of a communist society, a socioeconomic order centered on common ownership of the means of production, di ...
societies can still engage in rational utility maximizing behavior by building relationships with
bureaucrat
A bureaucrat is a member of a bureaucracy and can compose the administration of any organization of any size, although the term usually connotes someone within an institution of government.
The term ''bureaucrat'' derives from "bureaucracy", wh ...
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 substantivists’ theories: "They define economics as an aspect of everything that provisions society but nothing that provisions society is defined as economic." (1973:809).
[Cook, S. (1973). "Economic anthropology: problems in theory, method, and analysis". ''Handbook of social and cultural anthropology'': 795-860.]
References
{{DEFAULTSORT:Formalist-substantivist debate
Economic anthropology