Economy's Tension

The Dialectics of Community and Market

Stephen Gudeman

• Publisher: Berghahn Books
• Year: 2008
• ISBN:
  9780857451316
• Edition: 1
• Topic: Ciencias sociales
• Subtopic: Antropología cultural y social

Why are we obsessed with calculating our selections? The author argues that competitive trade nurtures calculative reason, which provides the ground for most discourses on economy. But market descriptions of economy are incomplete. Drawing on a range of materials from small ethnographic contexts to global financial markets, the author shows that economy is dialectically made up of two value realms, termed mutuality and impersonal trade. One or the other may be dominant; however, market reason usually cascades into and debases the mutuality on which it depends. Using this cross-cultural model, the author explores mystifications of economic life, and explains how capital and derivatives can control an economy. The book offers a different conception of economic welfare, development, and freedom; it presents an approach for dealing with environmental devastation, and explains the growing inequalities of wealth within and between nations.

1

MODELS, MUTUALITY, AND TRADE

Why are we obsessed with calculating our selections? Why must we always make the “best” choice to feel satisfied? For many of us, rational selection is like a grammar: we use it to form acceptable statements and actions, and we invoke it to persuade others. We even value the act of choosing itself. But why does calculative reason dominate the lives of many in market economies, especially in the United States? Is it part of our genetic inheritance? Are we naturally avaricious? Have profit-seeing producers drawn us into their way of life? If so, how do we explain their calculated cravings and understand cross-cultural differences in the prominence of profit making? In this essay, I argue that calculative reason develops and expands with competitive trade.

If this answer to a complex question seems brief, it had a long birth. My puzzlement about the salience of calculated choice began during my initial fieldwork in Panama, but I did not frame it as a puzzle until I left the country and undertook more field studies. In Panama I lived with my wife in a small village where the people were shifting from the subsistence farming of rice, maize, and beans to cash cropping sugar cane. I wanted to study this transition and began by sketching decision-trees that captured their flow of choices and by soliciting their subjective probabilities for the outcomes in order to understand their crop selections. I quickly found that my questions about rational choice did not resonate with them, nor did the concept explain the social and economic conditions in which they were living. I dropped that analysis to study their material life ethnographically as well as other aspects of the culture. But I was puzzled about the gap in our reasoning.

After this work, I realized that my puzzle about the prominence of calculated choice lies at the heart of a disagreement in economic anthropology, evokes a difference between anthropology and economics, and often separates the social sciences, if not the social sciences and the humanities. In anthropology, Bronislaw Malinowski's (1961 [1922]) early critique of the concept of “rational man” had a subterranean influence on subsequent generations of anthropologists. Were the Trobriand Islanders, whom he so carefully studied, self-interested choosers, or were they acting according to other modes of reason, such as reciprocity? Two of his students burned the candle at both ends. In the style of Malinowski, Raymond Firth provided innumerable contextual studies of the Pacific island of Tikopia, but with his early training in economics Firth emphasized how the people chose to their advantage within constraints (1951, 1964, 1965 [1939]). Edmund Leach, in a famous study of politics in Highland Burma (1954), explicitly presumed that the actors were choosing and maximizing political rewards even as he presented a cultural, structural, and contextual analysis of their polity. The issue was most clearly revealed in the internal anthropological debate during the 1960s between the “formalists,” who followed a neoclassical, deductive line that centers on the supposed universality of “economic man,” and the “substantivists,” who were developing an institutional and inductive perspective based on Karl Polanyi's work.¹ As for the difference between anthropology and economics, the question of calculated choice surfaced in the economist Frank Knight's quarrel with the anthropologist Melville Herskovits, who then rescinded his anthropological position, to the dismay of Karl Polanyi (Herskovits 1953 [1940] 507–531; Polanyi 1968:142).²

These controversies reflect a larger issue in the social sciences: whether to adopt an individualistic or a relational understanding of society, a debate that might be encapsulated as the difference between Adam Smith's The Wealth of Nations (1976 [1776]), and Emile Durkheim's The Division of Labor in Society (1933 [1893]) and The Elementary Forms of Religious Life (1995 [1912]). Leaving aside his earlier work The Theory of Moral Sentiments (1976 [1759]), Smith is often seen as the founder of modern economics and is famous for his pithy statement that places self-interest with its benefits at the center of markets:

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. (1976 [1776]: 18)

In contrast, Durkheim claimed that society is held together not only by a general division of labor but a sharing that he often labeled the “conscience collective.” To Adam Smith he might have replied, “If interest relates men, it is never for more than some few moments” (1933:203) and added, “a contract…is possible only thanks to a regulation of the contract which is originally social” (1933:215). But influenced by Rousseau (Durkheim 1960), Durkheim struggled to explain the “origin” of this collective sense. From his earlier to his later work, Durkheim suggested that it arose as the social, moral, and demographic density of society increased. (In a strange twist, I shall return to Durkheim at the end of my story to suggest that he may provide hints for contemporary economists who try to explain the social context of innovations that lead to economic growth and profits.)

One hardly finds echoes of this explanatory struggle in standard economics. Some economists (such as Gary Becker) use the notion of calculative reason to fashion a general explanation of market and nonmarket behavior. Other economists depart from this view by arguing that rational choice is “bounded,” that information is imperfect, or that human cognitive processes sometimes lead us astray. But in these cases, the idea of calculated selection provides the lodestone or foundation for the interpretations, as if it were the gold standard. I shall even locate the “New Institutional Economics” as a form of standard economics, because it draws on the idea of the rational chooser to help explain the development of social institutions. (This part of the argument will not sit well with many economists and some anthropologists who think the New Institutional Economics is the “path” of the future, because it draws on the ideas of “path dependence” and culture.)

My view concerning the prominence of calculated selection in many Western societies grew slowly and was marked by abrupt shifts. A few years after I tried to use rational choice theory and Monte Carlo simulations in Panama, I returned to the ethnography that I had collected about material life and drew on classical economics, post-Ricardian theory, and dependency theory to understand the economic change I had witnessed, especially since I became interested in whether the subsistence crop yielded a surplus that was extracted by the unrestrained expansion or cascading of the market crop (Gudeman 1976, 1978). With this more critical perspective, I became increasingly concerned about the unrestrained effects of market economies. Competitive markets do provide goods and services in unforeseen quantities, but through them we are altering other economic formations, amplifying income disparities at home and abroad, destroying the ambient, and adopting a form of reason that increasingly shapes our identities and relations to others.

During fieldwork I recorded the people's voices about their economy with its changes, but this ethnography did not mesh well with any standard economic theory—from classical, to neoclassical, to Keynesian, to rational choice—with which I had some acquaintance. So, I asked, what would a cultural or anthropological economics look like? This question led me to explore local models and metaphors of livelihood as reported in ethnographies and reflected in some Western constructions of economy (Gudeman 1986; Gudeman and Penn 1982). Because I found that the ethnographic descriptions were sketchy, I undertook more fieldwork in the Andean highlands of Colombia, which stretch from the extreme north to the south of the country. My collaborator and I discovered that the people employ a house model of economy: they use the image or metaphor of a house to arrange, talk about, and make sense of their subsistence practices. The highland folk do trade in markets but see themselves at the periphery of the larger economy (Gudeman and Rivera 1990).

After this second field study was completed, I realized that such an oikos or house form of economy is one example of a communal or mutual economy, which is found around the world, and I turned to developing a comparative view of this mode of economic life (Gudeman 2001). But I knew that it, too, was only one part of economic life for which a larger model was required. And, of course, my puzzlement about the varying prominence of calculative reason across economies remained. As I worked out the larger model, however, the solution to my long-time query emerged. Economy, I find, contains both a mutual and a market realm. These two value domains are dialectically connected: they often conflict and resist each other, and their relations shift over time. I call this model the tension in economy, and I try to show how calculative reason emerges through repetitive transactions between suppliers and buyers to become the central force in economy's dialectic.

My view draws on ethnography, anthropology, and a range of concepts from economics and other disciplines. I shall not review all the legacies on which I draw, but a series of writers from Aristotle to Marx, Weber, Veblen, Polanyi, and Braudel, as well as neoclassical, Austrian, and “marginal” economists plus a few philosophers, have influenced me. In the process of putting the model together, I have been continually surprised at the wide divergence of perspectives between most anthropologists and most economists, not necessarily to the credit of either. I am impressed by how little each side—within anthropology and between the disciplines—understands the other: anthropologists often speak without exactly understanding what economists are saying, and the same is true of economists who rarely integrate the findings of anthropology into their work. I think both sides are right and wrong, because I find a dialectic in material life, which the discursive differences reflect.

Economy is made up of a contradiction. We live in a double, conflicting world, which is economy's tension. Shot through with practices and ideologies, with competition and mutuality, with antagonism and community, economy encompasses more than most economists and everyday dogmas allow, and it is more complex than most anthropologists realize. My aim is to provide a model for realizing this complexity, for opening a conversation about other ways of conducting our material lives that will lead to less damaging results for ourselves and the environment, and for taking greater account of what we owe to the future as part of our inheritance from the past.

Everywhere people deploy the two coping strategies of producing for themselves and trading with others. In part, individuals live from the competitive trade of goods, services, and money that are separated or alienated from enduring relationships. People exchange with others to transform or substitute what they have for something else. I term this mode impersonal trade or market.³ I use the word trade for anonymous, competitive interchanges in which market participants exchange or barter goods, labor, money, or ideas. The term covers the notion of middlemen as well as any market consumer or producer who exchanges one thing for another in competitive conditions. But people also live from goods and services that make, mediate, and maintain social relationships. Through mutuality or community things and services are secured and allocated, by means of continuing ties, such as taxation and redistribution; through cooperation in kinship groups, households, and other groupings; by bridewealth, indenture, and reciprocity; and by self-sufficient activities, such as agriculture, gardening, or keeping house.

Trade in which goods are parted from their holders and impersonally exchanged with others occurs in all historical and ethnographic situations, though varying in importance. It may be a function of curiosity and imagination about the unknown as one tries out the life-world of another, or it may express power over the material and social environs in the attempt to reduce uncertainty. Through the force of competition, the central value in this realm comes to be efficiency in exchange and consequently in production and consumption, where rational choice is exercised to be efficient. But people also keep what they produce and transfer it through mutual relationships. Such transfers, guided by heterogeneous values and lasting social connections, offer temporal certitude but can be violated or turn oppressive. Each mode has a spectrum of appearances, for communities and markets can be large or small, and cover a varying extent of material life. Economies are shifting combinations of the two, and individuals are pulled in both directions, which they modulate, hide, disguise, and veil in practices and discourse.

The Spread of Calculative Reason

We know the act of rational choice by many labels. Sometimes it is called “being efficient” or is implied when we ask, “What's the bottom line?” and evaluate “by the numbers.” We also know this practice as “calculative” or “practical reason”(Sahlins 1976): anthropologists used to term the individual who acted by its dictates homo economicus or “economic man.”⁴ Almost a century ago, Max Weber (1978 [1956]: 85–86) labeled this reason “formal rationality,” which he distinguished from “substantive rationality” that refers to a value commitment. In a subsequent generation, Max Horkheimer employed the telling phrase “instrumental reason.” Recognizing its centrality, the passion with which we are committed to it, and the difficulty of escaping it, he observed that “[i]t is not only the business but the essential work of reason to find means for the goals one adopts at any given time…. And…goals once achieved…become means to some new goal” (Horkheimer 1994:vii). Today, the concept of rational choice in its many versions provides the foundation for standard theories in economics from the neoclassical to new institutionalist versions. The calculative approach is also found in a range of sociological theories from Coleman (1994) to Bourdieu (1990), and it is central in “formalist” economic anthropology. Whatever label is used, this mode of reason has a linear form in which means and ends are linked with the means selected for the ends, or the ends chosen in light of the means, usually according to a standard of maximization or optimization.

But let us turn briefly to calculative reason's appearance in our own (US) practices, especially since the dominance of practical rationality varies even in highly developed market economies. Consider our widespread use of ratios. As the word rationality suggests, calculative reason frequently involves ratio thinking, and ratios—often combined one within another within another—usually signal means-to-ends thinking. They bring together a temporal unfolding from means to outcome, and quantify their relation. The prime example is a profit calculation. A firm begins, let us say, with $100 worth of materials, and it manufactures and sells a product for $110. Its ratio return is 110/100, which we summarize as a 10 percent profit rate. If the firm breaks even, its return is 100/100 or 0 percent profit. If the company takes in $90 for its $100 in costs, it has a 90/100 return or a 10 percent loss. Consider a literacy rate. If a teacher begins with 100 illiterate students and after a specified period 80 students can read, the literacy rate is 80 percent and the illiteracy rate is 20 percent. Consider a baseball player who comes to bat 100 times and has 38 hits. His ratio return is 38/100, which in common parlance is a 380 batting average. In each case, we start with a means, such as times at bat, and observe the result, such as the number of baseball hits. We use the ratio to judge the outcome and consider the choices, such as the batter's swing or ability to assess pitches. The ratio summarizes efficacy, and is a price: the cost of obtaining 38 hits is 100 at bats, the cost of having 80 readers is teaching 100 pupils, the cost of securing $10 in profit is a $100 investment. But a ratio is selective: we do not use it to judge the morality of the business firm, the friendliness of the teacher, or the grace of the batter, unless we think these factors influence the outcome.

The use of ratios has a special place in economic talk. We compare national economies by gross domestic product per capita, rate of growth per annum, or output per labor hour. Some assess the flow of income and holdings of assets by different strata (or ratios) of the population. Marx, highlighting the place of the laborer, argued that the rate of exploitation (in simplified form, profit divided by wages) is a key figure in capitalism, because it reflects the class struggle between capitalists and workers. At the global level ratio calculations, such as GNP per capita and growth rates, are used to judge economic success and failure.⁵ The International Monetary Fund “scrutinizes” its borrowers by the numbers, such as their rate of inflation, rate of loan repayment, government expenditure in relation to national income, currency exchange rate, and export to import balance. Whether these ratios, and the structural adjustment programs that promise to produce the right numbers (also known as “getting the incentives right”), have much to do with actual practices in a national economy or with development is problematic, as Stiglitz has observed (2002).

Within an economy, industrial firms measure not only their profit rate but their return on investment, and to achieve profits most companies carefully monitor their inventory turnover per quarter or per annum. These and similar calculations, such as dividend rate and cash flow per year, are made public so that investors (and some regulators) can judge a firm's progress and monetary value. Financial markets are keenly attuned to price/earnings ratios, although in times of “fuzzy” accounting they may turn to share price divided by sales as a proxy. Of course, the price/earnings ratio itself is composed of two ratios—price per share and earnings per share. In agriculture, farmers assess their crop return per land area, and by volume of seed, but landowners are interested in the rent they can secure per hectare in relation to its market price. For individuals, we compute relative worth by comparing their yearly income, the return each produces for a money wage, or the number of fee-paying students a professor has. In all these instances an outcome, such as a harvest or salary, is measured against a means, such as a volume of labor, to assess and guide decisions, and to reward people.

The use of ratios has spread far outside the market realm. Selection among public goods may be guided by cost/benefit ratios in which prices (which are ratios) are assigned to a yearly flow of benefits that are discounted to the present (at a specified rate of interest), and then ranged agains...