Introduction
Throughout creation, humanity has practiced optimizing group efficiency within a cultural system. With the domestication of agricultural resources, economic strategy was the byproduct produced amongst society. This allowed for innovation of traditional values such as trade, which ultimately led to the development of various cultures simply due to economic advancement. The Formalist vs Substantivist debate in economic anthropology has been under constant scrutiny for decades. Economic anthropologists have divided themselves between both these schools of thought. They both are trying to answer the question as to what controls economic life for all mankind throughout history up until modern day. Both formalists and substantivists have contributed incredibly extensive research to provide a final answer to a very broad, but highly complex question. This paper will discuss both camps in an attempt to formulate an answer between the opposing arguments.
II. Formalist vs Substantivist Brief History
The Formalist and Substantivist economic ideologies were first proposed by Karl Polanyi with his piece The Great Transformation. This narrative covers the social and political unrest in England with the rise of the market economy. He deems economy should be understood as a market society. Within market society, economics as its own entity can be interpreted and broken down into two parts. First, the formalist ideology which states economics is the logical and rational action throughout an individual’s decision making process when they are forced to choose between alternatives during resource scarcity. However, the substantive approach does not involve a decision making process to maximize personal utility during scarce conditions. It refers to observing the cultural practices individuals as a group take living in their environment. That society does not necessary need to make decisions based on their maximum utility optimization. For instance, performing a task that is purely altruistic may not always maximize an individual’s position within society, in fact it may lower access to resources. However, there are still cases of purely altruistic behavior within societal constructs. The substantivists deem economics as a mean to produce and utilize their creation of goods. It is a separate entity from social behavior within a society. When speaking about economics from a substantivist perspective it is simply how the society matches their needs for certain material goods themselves. Throughout time, anthropologists have taken the substantivist stance since it aligns nicely with the basis of anthropological framework. Anthropologists should not observe another society using an ethnocentric mindset, on what westerners view for their own market economies, onto a completely different societal structure who do not have a non-market society.
II. Key Figure: Karl Polanyi
Karl Polanyi was born on October 25, 1886 and died on April 23, 1964. He was an Austro-Hungarian economic anthropologists and was best known for his works The Great Transformation. Even though he describes both the Formalist and Substantivist camps. His economic ideologies take a Substantivist stance. He deems economics in society is a provisioning or “embeddedness” strategy. The term refers to how in non-market societies there formal economic institutions are non-existent, therefore we can use our western ideologies on what economics means to us onto their society. Non-market societies are based on reciprocity and redistribution. Individuals within a non-market society do not behave simply to maximize their resources. They have other institutions such as kinship ties, religious values, or a certain political social system that influence their decision-making process. Polanyi states, “Choice may be induced by a preference for right against wrong (moral choice) or, at a crossroads, where two or more paths happen to lead to our destination, possessing identical advantages and disadvantages operationally induced choice” (Polanyi 1957,122). Polanyi suggests that non-economic proponents such as kinship, religious, and politics are equally are even more influential for understanding how an non-market economy functions. Thus, it is immensely important to understand the proponents of other institutions that govern a society to understand why they are making economic decisions that go against maximizing their personal gain. He notes, “The human economy, then, is embedded and enmeshed in institutions, economic and noneconomic. The inclusion of the noneconomic is vital. For religion or government may be as important for the structure and functioning of the economy as monetary institutions or the availability of tools and machines themselves that lighten the toil of labor” (Polanyi 1957, 127). Polanyi uses a Boasian approach within his fieldwork. He makes it a point to understand the cultural itself without trying to cast any western conceptions of individuals actions within the cultural. He uses an emic perspective by immersing himself within the cultural by understanding and speaking with individuals who can explain their strong moral values such as religion, kinship, and politics. Within The Great Transformation, he adds
The outstanding discovery of recent historical and anthropological research is that man’s economy, as a rule, is submerged in his social relationships. He does not act so as to safeguard his individual interest in the possession of material goods; he acts so as to safeguard his social standing, his social claims, his social assets. He values material goods only in so far as they serve this end. Neither the process of production nor that of distribution is linked to specific economic interests attached to the possession of goods; but every single step in that process is geared to a number of social interests which eventually ensure that the required step be taken. These interests will be very different in a small hunting or fishing community from those in a vast despotic society, but in either case the economic system will run on non-economic motives” (Polanyi 1944:46).
Here Polanyi exposes non-western economic strategy it is not in an individual’s best interest to act selfishly within the group. The individual must decide what is best for the group, rather than themself.
III. Substantivist Position
The Substantivist Position studies the daily transactions of individuals within society while also trying to understand how they get what they need or desire in a non-market society. The various transactions can be bartering, stealing, trading, gift-giving etc. it is simply the actions an individual takes within society to gain a material good. The essential component to the substantivist position is the concept of ‘embeddedness’. Embeddedness means non-economic aspects of the culture play an equally important role as the economic institution. For example, in the Kula society gift-giving relationships are valued as extremely important in their social system. These social obligations to gift exchanges between societies are extremely significant in the Kula social system and construct of people’s day to day life strategy. Substantivists take a relativistic stance by trying to understand a society’s unique social institutions that favor strong customs such as kinship or religion, to understand the economy one must understand the culture’s social system in order to understand the culture’s economic system. It is evolutionary because it focuses on how economics changed over time, since societal norms and customs are forever changing. Finally, they are societally-focused; substantivists focus on the whole society and the institutions that influence their decision-making process rather than an individual's behaviors or actions. According to Polanyi, a substantivist economy is an "instituted process of interaction between man and his environment, which results in a continuous supply of want satisfying material means" (Polany 1968, 126). Reflecting on the Kula society their economy is based off their gift-giving relationship, where there is a continuous transaction between material goods.
IV. Formalist Position
The formalist model is linked to neoclassical economics. Formalists deem individuals value maximization of utility under scarce conditions. However, this maximization does not limit to strictly material resources, it covers widespread aspects of a society such as maximizing relationships between community members. Formalism take an individualistic stance, stating that members pursue utility maximization by constantly deciding between alternatives. Ultimately, individuals always end up choosing the alternative that will maximize their utility or yield the greatest utility with the least amount of input required. People within the community make these choices upon rational thought and logical reasoning. Originally, formalists had difficulty applying their ideologies to non-western societies. This was due to the fact non-western societies value non-traditional economic institutions over, classical economic institutions that are familiar in the west. However, formalists realized that their economic institutions are deeply embedded within their social values. Formalists had to modify their traditional definition, to make it all encompassing to non-western societies. For formalists, anything can be maximized to benefit the individual. In terms of the previous example of the Kula’s gift-giving relationships. The Kula is rational maximizing their utility by gift-giving to the other communities. Their gift-giving relationships ensures a positive interaction with others, in order for them to gain whatever material need they desire in the future. Secondly, formalists methodology works in non-western societies because within their cultural context they are behaving in a rational, logical manner to attain goods in a scarce environment. Like substantivists, they also have an evolutionary approach about them stating that formalist methodology is constantly changing because societies are changing contexts overtime.
In order to take a full formalist position one but believe in the three basic components that construct the formalist argument. The first is, “Individuals pursue utility (or preference) maximization by choosing between alternative means. They will always choose alternatives that maximize their utility (or that yields a given amount of utility for the least possible amount of inputs or effort required), often within specific informational or transaction cost constraints” (Kredgie 2013, 1). The second is,
Individuals will do so based on rationality, 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 maximizing pursuits. Lack of information can be modelled as information asymmetry or as a transaction cost. Whether by conscious forethought, instincts, or traditions, 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 (Kredgie 2013,1)
The final proponent is “All individuals live under conditions of scarcity of means while at the same time having unlimited wants.This implies that no goods are freely available in unlimited quantities forever” (Kredgie 2013, 1). These three assumptions are reflect a economic universality across cultures, that will be further discussed later on in this paper.
V. Criticisms by the Substantivists
VI. Criticisms by the Formalists
VII. Formalism as Universalism
VIII. Substantivist as Cultural Relativism