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 tautological; 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, finances, 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 bureaucrats 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 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.
Read more about this topic: Economic Anthropology
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