Economic anthropology

From Academic Kids



Economic anthropology is a linking between economic and social life. Similar to evolutionary psychology in that it attempts to use one branch of scientific theory and thought to explain another. In this case, it is an attempt to describe anthropological characteristics as rooted in economic factors.

We can identify three different approaches within the field of economic anthropology: formalism, substantivism and culturalism.


The formalist model is the one that is most closely linked to neoclassical economics, defining economics as the study of utility maximisation under conditions of scarcity. The classical quote here is Robbins: "Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses" (quoted from Gudeman, 1986:31). This approach makes the following central assumptions:

a) Individuals pursue utility maximisation by choosing between alternative means. They will always choose alternatives that maximise their utility (or that yields a given amount of utility for the least possible amount of inputs or effort required).

b) Individuals will do so based on rational thought, using all available information to measure the cost and utility of each means and considering the opportunity costs involved compared to spending their time and effort on other utility maximising pursuits. Action is therefore always preceded by calculating forethought, and individuals are able to undertake the relevant calculations. In order to make rational choices individuals will seek to obtain all relevant information up to a point where the opportunity cost of information-gathering equals the additional utility gained from having been able to make better informed choices.

c) All individuals live under conditions of scarcity of means while at the same time having unlimited wants.

d) Underlying individuals' pursuit of utility maximisation is the principle of diminishing marginal value, meaning that obtaining more of a particular good or service only increases the utility (or value) derived from it up to a certain point. When this point is reached, the overall utility gained will actually diminish. A certain amount chocolate makes a good dessert, but too much will hurt the stomach. The right quantity of water can ensure a good crop, while having too much will drown it.

Formalists such as Firth and Schneider assert that the neoclassical model of economics can be applied to any society if appropriate modifications are made, arguing that the principles outlined above have universal validity. All human cultures 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.

Since the theory does not state what is to be maximised, it is deemed to be sufficiently abstract to be capable of explaining human behaviour in any context. Its central assumption is that the individual will make rational choices based on all available information in order to maximise whatever he or she considers being of value. While value parameters vary or change, the principles of economising and maximising still apply. The role of the anthropologist is then to analyse each culture in regards to its culturally appropriate means of attaining culturally recognised and valued goals. 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, first proposed by 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 preindustrial 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. Individual choice in such places is not so much based on the maximisation of economic profit but rather on social relationships, cultural values, moral concerns, politics or religion. 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 'primitive' 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 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).

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 clientelisation 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 'undersocialised account' that atomises human behaviour: “Actors do not behave or decide as atoms 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).


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. 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 exchange, money or profit must be analysed 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 conceptualisations 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 'utilitarian man'; he also criticises 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 human 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 sickles would speed up the harvesting process, their concern that the spirit of the rice may flee is greater than their desire to economise 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 metaphors 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.

Critiques of the Approaches

There have been many critiques of the formalist position. Its central assumptions about human behaviour have been questioned. In particular, it has been argued that the universality of rational choice and utility maximisation cannot be assumed across all cultures. But also with regards to modern Western societies the economic reductionism in explaining human behaviour has been critiqued. Prattis notes that the premise of utility maximisation is tautological; whatever a person does, may it be work or leisure, is declared to be utility maximisation. If he or she doesn't maximise 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, finances or even health to help others. Formalists would then pronounce that s/he does so due to placing a high value on helping others, and so sacrificing other goals in order to maximise this value and thereby to gain utility (e.g. meaning, satisfaction of having helped, approval from others etc.). But this simply an assumption, the motivation of this person may or may not coincide with this inferred explanation pattern. Similarly, Gudeman argues 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 behaviour that does not maximise utility based on available means as irrational. However, 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 behaviour 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) argues 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 analysing individual agency). Non-maximising adaptation strategies occur in all societies, not just in "primitive" ones. Similarly, Plattner (1989) argues that some generalisation across different societies are still possible, meaning that Western and non-Western economics are not entirely different. In an age of globalisation 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 behaviour and complex economic choices amongst peasants (cf. Plattner, 1989:15). Also, individuals in e.g. communist societies can still engage in rational utility maximising behaviour, e.g. by building relationships to bureaucrats who control distribution, or by using small plots of land in their garden to supplement official food rations. Cook thinks that there are significant conceptual problems with the substantivists’ theorising: "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 organisations collect donations and then distribute them to needy groups (or use the funds to offer free or inexpensive social services).

Culturalism can also be critiqued from various perspectives. Materialists, e.g. 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 globalisation 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.

The strength of the culturalist approach is their detailed analysis of the way the people themselves view their economic activities. At the same time, it seems that culturalists themselves are in danger of constructing yet another dominant discourse, albeit couched in post-modern relativistic terminology. Some culturalists will be more extreme than others when it comes to arguments about universal absolutes, but any discourse based on the proposition that it is universally true that there are no universal absolutes should be treated with caution. Simply our similar biological structure and similar needs (for food, shelter, affection etc.) create a common ground on which we build our societies.


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