Formalism, Substanivism & Culturalism | Anthropology Optional for UPSC PDF Download

Introduction

The three paradigms of Economic Anthropology are Formalism, Substantivism, and Culturalism, with Substantivism and Formalism being significant contributors to the development of this field. Economic Anthropology has often borrowed theories and concepts from economics to understand the economic relationships of non-literate societies. However, since economics primarily focuses on the allocation of scarce resources in industrial societies, there is debate on the necessary modifications for these theories to apply to non-industrial societies. The applicability of concepts such as profit motive and capital goods to non-industrial societies is also questioned. Substantivism is a perspective that argues that there is not much to learn from studying market economies driven by profit when examining societies that do not exchange goods for gain. On the other hand, Formalism is a school of thought that believes economic theory is more about how people achieve the most personal satisfaction in acquiring and distributing scarce resources. According to Formalists, this makes economic theory general enough to apply to all societies.

Formalism

In Formalist economics, the primary focus is on addressing the unlimited wants of humans with limited resources, also known as scarcity. This approach is closely related to neoclassical economics and emphasizes the efficient allocation of resources. At the core of supply and demand is the concept of utility, which represents the satisfaction a person gets from consuming a good or service.

The Formalist approach is based on several key assumptions:

• Individuals aim to maximize their utility by choosing between different options. They will always select the option that maximizes their utility, considering any constraints such as information or transaction costs.
• Individuals make these choices based on rationality, using all available information to weigh the costs and benefits of each option, as well as the opportunity costs of pursuing other utility-maximizing activities. When information is limited, it can be modeled as information asymmetry or transaction cost. Individuals can make rational decisions by gathering information up to a point where the opportunity cost of obtaining more information equals the additional utility gained from making better-informed choices.
• All individuals operate under conditions of scarcity, meaning they have limited resources while having unlimited wants.
• The principle of diminishing marginal utility underlies individuals' pursuit of utility maximization. Marginal utility refers to the additional satisfaction gained from consuming each extra unit of a good or service. While total utility typically increases as more of a good is consumed, marginal utility generally decreases with each additional increase in consumption. This decrease illustrates the law of diminishing marginal utility, which states that there is a certain threshold beyond which consumers will no longer derive the same level of pleasure from consumption.

Formalists such as Raymond Firth and Harold K. Schneider argue that the neoclassical economic model can be applied to any society with appropriate adjustments, claiming that the principles mentioned above have universal validity. In this view, every human culture consists of individuals who make conscious or unconscious choices among alternative means to achieve different ends. These ends represent culturally-defined goals, which can include not only economic value or financial gain but also leisure, solidarity, or prestige. Formalists typically assume that individuals will make rational choices based on complete or specific incomplete information to maximize whatever they value. Although preferences may vary or change, and information about choices may be complete or incomplete, the principles of economizing and maximizing still apply.

Substantivism

• The substantivism position, first introduced 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, or rational choice between alternative uses of resources. The second, substantive meaning, does not assume rational decision-making or scarcity conditions. Instead, it 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, which may or may not involve utility maximization. The substantive meaning of 'economics' is understood in the broader sense of 'economizing' or 'provisioning.' Economics, in this sense, is simply the way society meets its material needs.
• Polanyi's term "great transformation" refers to the divide between modern, market-dominated societies and non-Western, non-capitalist pre-industrial societies. He argues that only the substantive meaning of economics is suitable for analyzing the latter. In societies without a system of price-making markets, such as centrally planned economies or preindustrial societies, formal economic analysis does not apply. Individual choice in these societies is based more on social relationships, cultural values, moral concerns, politics, or religion, rather than economic profit maximization. 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 aims at profit maximization. These types of economies are so different that no single theory can describe them all.
• According to Polanyi, in modern capitalist economies, the concepts of formalism and substantivism coincide, as people organize their livelihoods based on the principle of rational choice. However, this assumption does not hold in non-capitalist, pre-industrial economies. Unlike their Western capitalist counterparts, these economies are not based on market exchange but on redistribution and reciprocity. Reciprocity is the mutual exchange of goods or services as part of long-term relationships. Redistribution involves a strong political center, such as kinship-based leadership, which receives and redistributes subsistence goods according to culturally-specific principles. Non-market-based societies typically involve both reciprocity and redistribution. In contrast, market exchange dominates modern industrial societies, while reciprocity may continue in family and inter-household relations, and some redistribution is carried out by the state or charitable institutions.
• 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 society and is regulated by it, rather than existing 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. As a result, any analysis of economics as an isolated entity, separate from its socio-cultural and political context, is inherently flawed. A substantivist analysis of economics focuses on studying the various social institutions on which people's livelihoods are based. The market is just one of many institutions that determine the nature of economic transactions. Polanyi's central argument is that institutions are the primary organizers of economic processes. The substantive economy is an instituted process of interaction between humans and their environment, resulting in a continuous supply of want-satisfying material means.
• The concept of embeddedness has been highly influential in the field of economic anthropology. In his study of Chinese ethnic business networks in Indonesia, Granovetter found individuals' economic agency embedded in networks of strong personal relationships. In processes of clientelization, the cultivation of personal relationships between traders and customers is equally or more important than the economic transactions involved. Economic exchanges are not conducted between strangers but rather by individuals involved in long-term, ongoing relationships. Granovetter criticizes the neo-liberal view of economic action for separating economics from society and culture, promoting an 'undersocialized account' that atomizes human behavior: "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."

Culturalism

• For some anthropologists, the substantivist position does not sufficiently critique the global application of Western economic models to various societies. Stephen Gudeman, for instance, believes that the core aspects of making a livelihood are culturally constructed. As a result, he argues that concepts such as exchange, money, and profit should be analyzed through local understandings and perspectives.
• Instead of developing universal models based on Western concepts and terminologies and applying them to all societies, Gudeman suggests understanding the 'local model.' In his work on livelihoods, he aims to present the "people's own economic construction." This means examining not only the cultural construction of values, such as product preferences and leisure value, but also people's conceptualizations of economics and its various aspects, including their understanding of exchange, property, and profit.
• Gudeman's study of a peasant community in Panama shows that locals did not engage in exchange to make a profit. Instead, they saw it as an "exchange of equivalents," with the exchange value of a good being determined by the costs of its production. Only outside merchants made profits in their dealings with the community, and the locals were baffled by how this was possible.
• Gudeman criticizes both the formalist concept of the universal 'economic person' and the substantivist position for imposing a universal economic model on all preindustrial societies, which he believes is ethnocentric and tautological. He advocates for post-modern cultural relativism as a logical conclusion to this debate.

Conclusion

Economic Anthropology consists of three main paradigms: Formalism, Substantivism, and Culturalism. Formalism focuses on individuals maximizing their utility with limited resources, applying neoclassical economic principles to all societies. Substantivism, introduced by Karl Polanyi, highlights the differences between market-driven societies and those that do not rely on market exchange, arguing that formal economic analysis does not apply to non-market-based societies. It emphasizes the importance of socio-cultural factors in economic transactions. Culturalism, on the other hand, critiques the global application of Western economic models and advocates for understanding economics through local cultural perspectives. Each paradigm offers distinct insights and approaches to understanding economic relationships in various societies, emphasizing the need for a comprehensive and culturally-sensitive analysis of economic behavior.

Frequently Asked Questions (FAQs) for Formalism, Substanivism & Culturalism

What are the key differences between Formalism and Substantivism in Economic Anthropology?

Formalism emphasizes the efficient allocation of resources and is based on the assumption that individuals maximize their utility by making rational choices. It argues that neoclassical economic models can be applied to any society with appropriate adjustments. Substantivism, on the other hand, argues that economic analysis should focus on how humans make a living from their social and natural environment. It emphasizes the importance of reciprocity, redistribution, and embeddedness in non-market-based societies and claims that formal economic analysis does not apply to such societies.

How does Culturalism differ from Formalism and Substantivism?

Culturalism argues that the core aspects of making a livelihood are culturally constructed and that local understandings and perspectives should be analyzed instead of applying universal models based on Western concepts. It criticizes both formalism and substantivism for imposing a universal economic model on all societies and advocates for post-modern cultural relativism as a logical conclusion to the debate.

What is the concept of embeddedness in Substantivist thought?

Embeddedness refers to the idea that the economy is not a separate and distinct sphere but is embedded in both economic and non-economic institutions. Exchange takes place within society and is regulated by it, rather than existing in a social vacuum. Socio-cultural obligations, norms, and values play a significant role in people's livelihood strategies, and any analysis of economics as an isolated entity, separate from its socio-cultural and political context, is inherently flawed.

How does Gudeman's approach to Culturalism differ from other perspectives in Economic Anthropology?

Gudeman suggests understanding the 'local model' instead of developing universal models based on Western concepts and terminologies and applying them to all societies. He emphasizes examining not only the cultural construction of values but also people's conceptualizations of economics and its various aspects, including their understanding of exchange, property, and profit. This approach diverges from both formalism and substantivism by advocating for a more culturally relativistic viewpoint.