Economic anthropology

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Economic anthropology is a scholarly field that attempts to explain human economic behavior using the tools of both economics and anthropology. It is practiced by anthropologists and has a complex relationship with economics. There are three major paradigms within the field of economic anthropology: formalism, substantivism and culturalism.

Formalism

The formalist model is the one most closely linked to neoclassical economics, defining economics as the study of utility maximisation under conditions of scarcity. As an attempt to use neoclassical theory to analyze subjects outside of its traditional purview, formalist economic anthropology can be linked with new institutional economics. This approach usually makes the following central assumptions:

* Individuals pursue utility (or preference) 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), often within specific informational or transaction cost constraints.

* 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 maximising 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.

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

* Underlying individuals' pursuit of utility maximisation is the principle of diminishing marginal utility, meaning that additional resources allocated towards a particular end will tend to achieve that end less and less efficiently. Rational actors will allocate their resources first towards those opportunities that provide the greatest payoff for them, and as opportunities get used up, allocate them towards progressively less efficient ends.

Substantivism

The substantivist position, first proposed 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, 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.

Culturalism
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. Stephen 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 analyzed 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);[4] 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 conceptualizations 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...