Economy’s Tension Stephen Gudeman University of Minnesota Draft Only not for citation

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Economy’s Tension

Stephen Gudeman

University of Minnesota

Draft Only – not for citation

Chapters I. and III.

I. Models, Mutuality and Trade

Why are we obsessed with being rational and relentlessly judge ourselves by this standard? Why must we always make the “best” choice or find the most profitable way in order to feel satisfied? For many of us, being rational is practically a grammar: we speak it to form acceptable statements, and we invoke it to convince others of our projects. The symptoms of our obsession are numerous. We are attracted by deals that promise careful use of our money, feel good when “taking advantage” of them and judge our worth by the selections. We even value the act of choosing as well as a wide selection of ends, because it enhances the rational use of our resources. But why is calculated selection so important? Is it part of our genetic makeup and central in all cultures? Are we naturally avaricious or greedy so that calculated choice becomes this motive’s tool? Perhaps profit-seeing actors have deluded us into becoming ceaseless choosers of products and consumers, but if so how do we explain their unending calculations and why we accept their practices? In this essay, I shall argue that calculated choice is a cultural habit (if not an addiction) that develops and expands with competitive trade.

But on reaching that solution to the question, I soon discovered that it reflected a larger picture of economy I hold and that required elaboration. My view of economies is draws on ethnographic research, an anthropological perspective, and a mix of concepts from economics, political economy and other disciplines. I shall not review all these intellectual legacies, however a range of writers from Aristotle, to Marx, Weber, Polanyi, and Veblen, as well as neoclassical and “marginal” economists and a few philosophers, has influenced me. The issues overflow this palette and reach across the social sciences, however. In the process of putting together an overall picture, I have been freshly surprised at the wide divergence of perspectives between most anthropologists and most economists, not necessarily to the credit of either. This disciplinary disagreement was probably presaged by Malinowski’s (1961[1922]) early critique of the concept of “rational man,” which had a subterranean influence on subsequent generations of anthropologists. It surfaced in the economist Frank Knight’s quarrel with the anthropologist, Melville Herskovits (who then rescinded his position to the dismay of Karl Polanyi [Herskovits 1953(1940) 507-531; Polanyi [1968:142]). It was most clearly enunciated in the internal anthropological debate between the “formalists” and the “substantivists” in the 1960s.1 Those general issues, which are still alive and divide the more economistic from the more ethnographic types (and some of the social sciences, too), are relevant to my topic. Even if I do not recount the arguments in detail, because I offer my own formulation of them, I remain 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. As the reader will discover, I think both sides are right and wrong, because I find a dialectic in material life that reflects the differences.2

Everywhere people fact the practical choice between producing for themselves and producing for others. In the first case, which I term the “mutual” or “communal” realm of economy, material activities broadly take a reproductive form that supports group maintenance, independence and identity. In the second case, which I term the “market” or “trade” realm of economy, production is intended to provide goods for exchange with others. Both modes are coping strategies. On the one hand, people make keep or hold to themselves, sustaining their community (of whatever size) through itself. On the other, they may seek interchange with others in order to transfer, convert or substituted what they have for something else. Both modes are way to manage uncertainty. Transfer within a group has the certitude offered by social knowledge of the other and a degree of trust but which can be violated, oppressive and not fully adaptive. Trade can be a function of curiosity and imagination about the unknown as one is trying the life-world of another, and it can express power over one’s environs. Trade is part of human learning and an exploration of uncertainty, for what anchor exists for the self if others also have a viable life-world? Economies are complex, shifting combinations of the two modes, and individuals are often pulled in both directions because they live a dialectical life in which the two coping modes define and require each other.

In developing this view of economy, I have drawn on some of my earlier ideas about cultural models. What I term “local models” are ethnographic and even phenomenological formulations. They mobilize performance and are a center point for social energy. Local models are diverse and found in on the ground practices and narratives. They are unfinished as ways of constituting action and being in a manifold that always exceeds their specifications. Lacking a fixed form, they are contingent. Local models provide the necessary conditions for the development of a “universal model” that, I shall argue develops around the trade realm of economy. Self-contained and derivational in form, a universal model seemingly is complete in itself. In the Western tradition especially, with the growth of markets, and especially high market economies, universal models represent a rationalist influence that starts with on the ground practices of anonymous trade and is represented in discourse beginning perhaps with Descartes and continuing through Ricardo, the marginalists and contemporary rational actor theorists. If universal models seem to be satisfying totalities, local models are contingent. But the two are dialectically linked, because local models provide the transcendent conditions for the emergence of impersonal trade, and universal models, which require local specifications and mutuality for their inception and completion. This dialectical perspective offers a different way of thinking comparatively about the conduct of material life and rational selection. Economists sometimes ask how anthropology can contribute to their models, but this question precludes the dialectic: I think anthropology has more to contribute to our understanding of economy than prescriptions about how to increase the GNP, better satisfy consumers or improve the development process. We require a perspective and language that does not preclude the many models of markets but places them within a larger and different understanding of political economy. This essay contains an outline of my answer.

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”: anthropologists used to term the individual who acted by its dictates, homo economicus or “economic man.”3 Almost a century ago, Max Weber ( ) 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

It 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 (Horkheimer1994: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 ( ) to Bourdieu ( ), 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’s turn briefly to calculative reason’s appearance in our own (US) practices, especially since the dominance of practical rationality varies even in high 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% profit rate. If the firm breaks even, its return is 100/100 or 0% profit. If the company takes in $90 for its $100 in costs, it has a 90/100 return or a 10% 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% and the illiteracy rate is 20%. 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 assessment of pitches. The ratio summarizes efficacy, and in effect 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.4 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 not only measure 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 yearly income or by comparing the return each produces for a money wage or the number of fee-paying students they teach. 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 against initial and subsequent costs partly figured as “opportunities foregone.” The lowest or most efficient ratio is chosen. For government budgets, we debate the proportion of income to be allocated to different expenditures. The allotment for national defense, health, welfare or fundamental research is partly figured as a ratio of a nation’s gross domestic product or overall expenditures, and as a ratio of other expenditures. All budgets, from nation to state, and from charitable organizations to home, consist of ratios; and budget decisions are usually justified in the language of rational choice as “trade-offs” even when competitive bidding does not guide the selection process.

We employ this mode of reason in our reflections on social conditions and commentaries on well being: we calculate infant mortality and incarceration rates, and judge drugs by their rate of cure. Schools may be assessed by how well their students score in relation to a state or national average.5 Such ratios embody goals (low infant mortality, high rate of cures), with the suggestion that the results could have been better if the process of reaching them had been different.

Above all, calculative reason, with its mandate to be efficient, fills a person's day in many high market societies; choosing, often rhetorically justified by the notion of individual freedom, penetrates our lives. A visit to a US drugstore, supermarket, electronics mart, or clothing store becomes an exercise in uncertainty and anxiety. We must choose among an array of soaps, toothpastes, perfumes and cold medicines. Which bread, cut of beef, or differently seasoned canned tomatoes should be selected? Which telephone company should be chosen, and should one have a cell, a cordless or a corded telephone? At what time and day of the week should one place a call, in what area code, and for how long? We feel driven to select the “best” for ourselves. With all these choices and ratios, is it a wonder that we have so many technicians of the economy including mathematical modelers, econometricians, market analysts, financial planners, accountants and friendly bankers – among whom we also must choose? We even employ choosers to choose the choosers. My awareness of this cultural injunction to choose, measure, and spend time in the effort was heightened by a year in Sweden where the range of market choices in most stores and the psychological stress of trying to be rational is lower.6 A Brazilian anthropologist has recorded his culture shock on arriving in the United States and finding that he had to choose among educational programs for his children, type of bank account, and brand of pain reliever. Americans, he concluded, “have to decide all the time” (Oliven 1998:53).

Calculative reason is not only a central component of market practices, everyday ideology, and public policy, it makes up the standard definition of neoclassical economics, according to which individuals choose rationally. (For an early exposition of this formal perspective, see Robbins 1935). By placing the rational actor in heliocentric position, and attaching appropriate definitions, conditions and constraints, many neoclassical and new institutional economists are able to derive market behavior, discuss anomalies and features of business organizations, and address market imperfections.7 Today, this powerful explanatory model is being extended to family practices, such as marriage and divorce, as well as personal habits and tastes. These uses of the discursive representation expand and recreate the “reality” from which it is drawn.8

We certainly do not lack justifications and explanations for the prominence of instrumental reason. After all, markets produce a cornucopia of goods; and market economies, we are told, out produce all other economic forms, which is a good. Many economists also claim that competitive markets yield the most efficient distribution of resources possible in conditions of scarcity. To survive in these markets, individuals and firms must fit their means to their ends, or their ends to their means, so that over time practical reason becomes their guiding hand. Even if land, labor and capital are scarce, humans uniquely possess an unlimited resource that allows them to make the best of any situation. (Of course, choosing rationally takes time, which is scarce, but that only means that we must calculate the time we wish to spend on a decision and then the time we wish to spend deciding how much time to spend on making a decision.) Some people legitimate the rational selection model by claiming that calculated choice, exercised by the most able who emerge in a competition, yields an accumulation of wealth, which through a “trickle down” effect increases the welfare of everyone. By this explanation, rational choice has survival value because efficient economies, through their better provision of nutrition, happier citizens and greater armaments, as well as their realization of the liberal ideals of freedom and choice, win in the evolutionary competition for the fittest society. In this rhetorical world, assessing a choice as rational legitimates what by a different metric might be judged as selfish and uncooperative. But since Adam Smith (1776) we have learned to accept the paradox that the exercise of self-interest leads to material benefit for all. (Even if this language seems dominant today, other voices do interject that free markets seem to produce an unequal distribution of wealth, personal distance from others, and the stunted flowering of human abilities and emotional life.)

Long before the rise of modern economics, Aristotle contrasted activities done “for the sake of” something else with activities done “for their own sake.” A practice undertaken for the sake of something else is a means to ends act, whereas actions done for their own sake, such as maintaining social relationships, are complete in themselves. They are a satisfaction that enshrines diverse actions and motives. Such actions may be pleasurable, ethical, moral, parental, or bad, immoral and ugly. For example, kinship bonds enshrine what Meyer Fortes (1969) termed the “axiom of amity” or ties of mutuality. In practice, however, the two forms of action are dialectically related. Often they are in continuous interaction in which they are not only conjoined but each may absorb features of the other and is changed, even while they are different. One may become the other as if it wore its clothing. For example, they may be so entangled that each takes on the other's image. Means to ends actions may come to be done for their own sake, whereas social relationships may become means for the accomplishment of something else; ties of mutuality may be even be created for market ends, just as efficient action may become a satisfaction. Weber captured this confounding of the two through his encompassing and shifting use of the word “rationality.” Even if he contrasted formal with substantive rationality, he well knew that formal rationality could become a personal calling or mode of substantive rationality.

Weber not only distinguished between the two modes of rationality but also observed that the calculative one had become prominent in capitalism. He linked its emergence to the rise of ascetic Protestantism and the development of the Protestant ethic among certain sects in Europe (2002[ ]). Weber’s thesis was a principal forerunner of cultural interpretations and the analysis of the role of religion and ideology in historical change. To be certain, he did not claim to explain the rise of capitalism by a change in religious beliefs, however Weber did try to trace a link proceeding from religious ideology to everyday practice. But even if Weber’s account of the rise and spread of the Protestant ethic and the spirit of capitalism helps to illuminate the incessant calling to work in industrial societies and the reinvestment of profits in order to have success as a sign of election in the afterlife, he never explained how calculative or formal reason itself became the engine of markets and modern economics as well as a core practice in other social domains.

Weber’s insight about the centrality of calculative reason in modern life was addressed by some of his contemporaries, such as Simmel, and subsequently by the Frankfurt School, Habermas and others.9 But today, as we celebrate the continuing expansion of choice and the possibility of new combinations in global markets, the reason for practical reason and its expanding influence is seldom addressed.10

Suppose that we reverse Weber's ideological argument and cast aside assumptions about inherent self-interest, endless wants and survival value. What if calculative reason arises in practices? Could the emergence of ascetic Protestantism, as Weber portrayed it, have been a response to changing conditions and not their precursor? When the pathway to grace could no longer be bought or gained through good works, the revolutionary change was that religious success could now be known through practical activity. A religious quality, or the uncertainty of the afterlife, came to be known through a material quantity. Religious change, in contrast to Weber, did not help lead to rationalization of material behavior; instead, it represented a profound rationalization of the religious domain itself. Was the Protestant Ethic a local story or narrative we told ourselves about a world we were transforming? In contrast to Weber, Albert Hirschman (1977) suggested that a rise in trade and the market economy was presaged by a shift in written discourse from a focus on the passions to praising the interests. If passions, especially in the political domain, were seen as dangerous and uncontrollable, interests pictured as reasoned calculation in the economic realm were tame because commerce requires polished interaction. Impelled by “gentle” or “soft” commerce (le doux commerce), the trader was a peaceful, inoffensive, and calm person. Thus, Hirschman concluded that prior to Adam Smith the concept of self-interest had become a realistic, safe, and principal explanation of human action, and that the subsequent diffusion of capitalist forms “owed much to [a]…desperate search for a way of avoiding society's ruin” (1977:130).11 On his argument, a shift in political ideology accounted for the emergence of the capitalist spirit. Hirschman's account, like Weber's, starts with ideology to explain everyday acceptance.12

One novelty of this essay lies in my counter argument that calculative reason develops and expands through competitive, impersonal trade. The use of practical reason begins not in religion (such as the Protestant ethic), the loosening of production from traditional constraints (with the transformation of guilds), the creation of a free labor force and marketable land (with the demise of feudalism), the rise of individualism (as a result of ideological and political revolutions), or the changing human relationship to nature (with the growth of technology and the expansion of the forces of production) but in trade. Competitive or asocial trade induces means to ends figuring as a personal fulfillment.

By this argument, I seemingly agree with the neoclassical economists' assumption that rational choice is the centerpiece of market activity; however, neoclassical economics does not explain and account for its presupposition that rational choice is the core of all economic and social action. The discourse simply reproduces the market's apparent reality.13 As this essay unfolds, I shall argue that while the rational actor is developed through the market experience and representations of that experience, the account is incomplete. Phrasing it in a different language, self-interested choice is universal in the market for itself but not universal in itself, because competitive trade depends on local specifications from which it is abstracted. 14 Some of the recent contributions in economics revolving about bounded rationality, experimental economics, imperfect information, and the new institutionalism seem to address this issue of incompleteness. For example, it may be shown that market actors, satisfice rather than maximize, that they act with imperfect or asymmetric information, that markets performs at suboptimal levels (“X-efficiency”), that calculations of risk versus uncertainty are themselves uncertain; rational choosers also may be affected by how a choice is framed, by risk aversion, by the salience of information given by friends, by buyer or seller remorse, and by constraints on their ability to calculate.15 Other investigators may suggest that the standard model is not robust (or is incomplete) which may be why economics has at least partially shifted to a more empirical position with a focus on diverse topics, such as labor markets, industrial organization and international economics without placing them within a general theory.16 But most of these models also presume that the market actor is means to ends oriented and strives (more or less) to maximize, even if failing to do so. My dialectical argument is different, for the abstraction or reification of the rational selector is not only produced in discourse but is a result of the trading experience: competitive, anonymous trade yields a calculating actor, which – as I shall later suggest – reaches its peak in the purely financial sphere.

But if I diverge from a neoclassical analysis, I also part from a Marxist interpretation, for I do not argue that the exploitation and appropriation of labor, as well as the class struggle define high market society. I depart as well from a classical Marxist interpretation of alienation in which the laborer through the sale of his exchange-value is separated from his productive powers and the product of his activity, because it is not only the laborer who is objectified and turned into a “thing” or reified.17 Rather, trade objectifies all market participants who become separated from their mutual relationships, from goods and services that mediate and maintain social relations, and from other subjectivities. In Collingwood's succinct characterization of market trade, “each party is using the other as means to his own ends by permitting the other to use him in the same way” (1989:65). This unraveling of sociality through trade, however, does not result in a once-and-for-all change as suggested by phrases such as “The Great Transformation” or the disembedding of markets (Polanyi 1944), because everywhere both impersonal trade and sociality are found in an uneasy conjunction.

The continued persistence of people making “economic” connections outside markets provides the critical edge. If, in high market society, we exalt impersonal trade and extol rational choice, we also rely on mutuality. In ethnographic contexts as well, economic practices combine mutuality with trade. I do not advocate “returning to” small communities as in some of the ethnographic cases, or to replacing market arrangements with large communities operating by different distribution rules as in centrally planned socialism. Drawing on ethnographic reports and examples from market societies, I argue that economy consists of two value realms, mutuality (or community) and trade (or market), and two ways of modeling the world, local and universal. Economy contains a tension and sometimes a breach between two value realms and ways of modeling the world. In the market we value efficiency, whereas mutuality encompasses diverse, locally defined values, such as equity, equality and merit. These social values are incommensurate, and we cannot choose between them on basis of a cost/benefit analysis, or reduce and abstract them to a scale of preferences in the individual, to labor, or to money, because choosing in this way adopts the standpoint of the market with its assumption of commensurability and its value of calculated efficiency. Instead they are the outcome of a shifting, long, social conversation.

Rationality, when understood as reason in a broad sense, has plural meanings. I employ an expanded notion of reason that includes calculated selection as well as other forms that set it in context. Stephen Toulmin has argued that

The Dream of a Rational Method, that of an Exact Language, and that of a Unified Science form a single project designed to purify the operations of the Human Reason by desituating them: that is, divorcing them from the compromising association of their cultural contexts. (Toulmin 2001:78)18

By reason we sometimes mean calculative rationality, which is foregrounded in anonymous trade. But reason can refer to deduction, induction or dialectical figuring. We also use figurative reason, including metaphor and synecdoche, even to formulate material practices. Pragmatic practices, or trial-and-error action, might be counted as a combination of reasoned processes, while the ability to disconnect and join, to fragment and combine, is also a form of human rationality as Locke ( ) and Diderot (1751), among others, observed. In an echo of Diderot’s article on “art” and Locke’s desciption of “complex ideas,” Simmel referred to the “connections with which, separating and connecting, we descend beneath the phenomenal side” of facts (1997:233). Such analytical and combinatorial capacities facilitate creativity and innovation, and help build new connections between means and ends that are used in calculated selection. The pervasive but often unrecognized use of these other forms of reason suggests that calculative reason is not complete in itself.19

But there is another reasoned practice that especially marks the limits of rational choice and the realm of market exchange: being thrifty. Making savings or true economizing frames a means to ends act; however, it is not focused on the relation or difference between ends and means, or “profitability” but on the means themselves with the object of preserving them as leftovers for another day. Thrift is an economic form of reason that keeps things for preserving relationships, sustainability and as a precaution against uncertainty. Parsimony in consumption and production marks the limits of rational choice in exchange, because it means withholding from investments in production and expenditure in consumption. Economizing is a key practice and explanation in communal modes of economy. Dominant in competitive exchange and the market, rational choice encounters limits in moments of thriftiness that preserve communal relations, which is also why its expansion into that realm “debases” it. Parsimony, I am inclined to suggest, corresponds closely to what Keynes called the “precautionary motive” as part of liquidity-preference in the market realm (1964[1936]:166ff.). In my use, however, a precautionary motive is found “outside” the market as part of a precaution against uncertainty in the mutual realm. As Keynes himself observed, “In the absence of an organized market, liquidity-preference due to the precautionary-motive would be greatly increased” (1964[1936]:170).

Finally, we use the word, reason, to justify and explain actions. We give our reasons and tell stories to persuade others and ourselves of our projects. For example, according to Weber, the Protestant ethic charters and justifies the use of calculative reason as a personal commitment. (We might also say that Weber presents a narrative about this narrative to convince us of the connection between religious ideology and practice.) Hirschman offers another story (both his and Enlightenment thinkers) that justifies the same action on different grounds. Similarly, in our narratives about the need for environmental restoration or development aid we may draw on persuasions other than efficiency, such as the value of redressing the past or protecting future generations. These narratives or rhetorical uses of reason contain present value commitments and exemplify what Weber meant by substantive rationality. Likewise, when we tell ourselves that our actions were justified because they were calculated, we invoke a substantive commitment to formal rationality, and when we disparage non instrumental reason we adhere to the same value. I doubt that we can or would want to escape from the use of stories, but we need to recognize the narrative or cultural basis of economy.

Mutuality, Trade and Models

I frame this view of calculative reason within my larger view of economy. A local model of economy includes two interpenetrating ways of making a livelihood, as I have briefly suggested. In part, individuals do live from the trade of goods and services that are separated, parted or alienated from enduring relationships, which I term, impersonal trade or market.20 For example, 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. Through competition, the central value in this realm is now said to be efficiency in exchange and consequently in production and consumption where rational choice is exercised to be efficient. 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 through continuing ties: by means of taxation and redistribution within associations; by cooperation in kinship groups, households and other associations; through bridewealth, indenture, and reciprocity; and by self-sufficient activities, such as agriculture, pastoralism, foraging, gardening, and keeping house.

The two economic realms of mutuality and market are intermixed in many ways, because impersonal trade is framed by mutuality, as Rousseau (1913[1762]) among many others observed. Trade occupies an arena within a constituted form of mutuality, beginning with the sociality of communication and continuing with formal rules and informal protocols about it. Regular trade requires shared, political agreements from peace pacts to written laws enforced by commissions. The mutual arena for trade has many changing forms and scales from a political order and laws to civic associations, family ties, ethnic identity, friendship and fictive kinship. Impersonal trade is played out against a constitution and the “non contractual,” or local models. Conversely, communal allocations are not the whole of material life, because a degree of impersonal trade and alienation of things is always encountered. The scale and combination of mutuality and trade shifts, as I shall later consider, but both realms make up economy.

We have models of these two modes as well, but they are very different. Some economists (and a considerable number of anthropologists) cling to a questionable and dated epistemology. Most are unaware of the infection. Every disease needs a name, so let’s identify this epistemological malady as the search for certainty; its most resilient form is essentialism or foundationalism. In many cases, these practitioners adopt an older “science” view of the non-human world. Nature consists of separate levels to be analyzed by an appropriate discipline. The layers compose a hierarchy of knowledge, such as physics, chemistry, biology, and their subdivisions. This Comtean image is projected on society, which is also seen to consist of separate self-organizing levels, such as the “individual” and “institutions,” or the “symbolic” and the “material.” Sometimes, the levels are considered to be independent but usually they are said to be “causally” connected. Ontological angst is banished by positing an independent bottom level (such as the self-interested individual) from which the remaining “facts,” “variables” or institutions of social life can be derived. But there are many variations of this layer cake view. Talcott Parsons famously divided the social world into four functions (or cells) and institutional orders, such as behavioral organism, personality, society, and culture.21 Each cell contained four more divisions, and then more in a descending and increasingly specialized order. Parsons claimed the different sectors of society were functionally related through input/output connections. One contemporary version presents society and economy as consisting of discrete sectors with continuous feedback among them (Ruttan 2003).22

In contrast to the layer cake view, I do not presume that society or economy is organized in levels, each of which is self-contained or self-organizing (essentialism) or all of which are tied to a final level (foundationalism). In place of assuming that we live in a coherent and systematic economy, that is causally, functionally or deductively organized, I hold that we find contingent and mixed constructions.

Through economic anthropology I have been offering the perspective of local models, which I contrast to a universal model (Gudeman and Penn 1982; Gudeman 1986). A universal model is both essentialist and foundationalist. Coherent, consistent and replicable, it has a bounded structure. In the universal model some knowledge is considered to be non-inferential or self-contained; requiring no further justification, this knowledge provides the foundation for the remainder. With its levels, the universal model has rules of formation or derivation such as causality, induction and deduction. Each level of economy or society is tied to the final one (foundationalism) that is self-organized or self-sufficient (essentialism). Euclidean geometry, with its axioms and derivations, offers a mathematical example of the consistency that makes universal models persuasive.

In economics, I suggest, the first universal model was offered by David Ricardo. In his 1815 Essay, which was written to convince Parliament to lift the Corn Laws, Ricardo tried to show how the laws prohibiting entry of foreign grains benefited landowners by providing them with increased rents, while costing industrialists who received decreased profits due to the higher rents. His argument was derivational: as cultivated land expanded to poorer soil, rents on better land – being determined by the last or marginal piece - rose, which meant that profits on each plot fell. The argument was derivational and the foundational variable was land fertility, which determined rent and hence the rate of profit and the growth of capital. Two years after, in his Principles, Ricardo replaced land with labor at the foundation. Only toward the end of the 19th century was a more complete marginalist analysis applied to land, labor and capital all as scarce means; the marginalist approach calculates the relation between the last means added to a process and the last end received to derive a point of equilibrium where the cost of the last input equals the revenue of the last input.23 Thus, today, in most economic models, means to ends calculation provides the non-inferential basis or foundation. Making up the subjectivity of homo economicus and running through the derived domains of production, trade and consumption, calculative reason makes and unites economy through the image of the efficient allocation of resources. Rational choice theory, with its reliance on instrumental calculation, represents a refined development of this model; and in the new institutionalist economics rational choice provides the foundation from which associations, rules, norms and social relationships are derived.

Universal models are thought to be general and objective, however the modeler positions them. For example, Marx offered a finely honed (and layered) model of capitalism that circles around the expenditure of labor: some might argue that it is positioned from the perspective of an industrial laborer (Gregory). Physiocracy was a school of modelers, with somewhat divergent visions, who focused on the land. The Physiocrats offered a layered view of economy through their understanding that natural law, given by God, set the productive returns that accrued to landowners and should determine moral law, which framed the political order. Their model was positioned from the landowners’ standpoint in pre-Revolutionary France. Neoclassical economists are positioned by their focus on choice in competitive exchanges, which is a trader’s perspective. These standpoints have moral implications even if presented as objective, “God’s eye” (Rorty) or universal views.

Local models are worlds apart. They constitute a world of relationships, objects and beings, however they are unfinished as ways of knowing and experiencing the world, and do not exhaust the potentiality for reinterpretation, invention and aspirations. Local models are incomplete even as they make a necessary life world. Contingent and mixed constructions, local models have no given structure and draw on many rhetorical forms, such as similarity, analogy, contrast, identity, metaphor and synecdoche, plus critical, dialectical, causal and reflexive reason, as well as means-to-ends calculation. They are heterogeneous: malleable and without limits, in the sense of being bounded by rules of inclusion, local models are a creative mix of voices, tropes, images, and ways of doing. For example, the Physiocratic model combines metaphors of the human to build a picture of the functioning economy (Gudeman 1986). They overlapped three body metaphors – circulation, reproduction and mind –to build their model. The image of circulation was drawn from the blood, that of reproduction from the female body, and that of mind from Locke according to whom external sensation precedes internal operations. The point of overlap was the land which was considered to be uniquely productive, because it was reproductive, supported the circulatory system of agricultural products and was external to the social world (Gudeman 1986). In this respect, Physiocracy was a local model. But it was also a levels model, for the Physiocrats asserted that humans as natural beings had three material needs: to subsist, to preserve themselves and to continue (Turgot (1898[1770]:7; Mirabeau and Quesnay (1973[1763]:106). Material subsistence, obtained through a self-sustaining cycle, that was exemplified by Quesnay’s Tableau économique, was supported by the land, which provided the foundation of their model. In Rural Philosophy, for example, Mirabeau and Quesnay (1973[1763]:104-5) proclaimed,

We must consider the common weal in terms of its essence, and humanity as a whole in terms of its root, subsistence. All the moral and physical parts of which society is constituted derive from this and are subordinate to it. It is upon subsistence, upon the means of subsistence, that all the branches of the political order depend. Religion, in a sense, is purely and simply spiritual, but natural law inspires us and also tells us about duties relative to our needs; the civil laws, which originally are nothing more than rules for the allocation of subsistence; virtues and vices, which are only obedience to or revolt against natural or civil law; agriculture, trade, industry – all are subordinate to the means of subsistence. This is the fundamental force.

Thus, Physiocracy was a malleable, partly unbounded model formed through the use of three body metaphors, but it brought into play the notion of a self-sustaining essence, which provided the foundation for a model that had levels and derivations running from a material base to civil law, the polity and religion. Even if the Physiocrats invoked God as the final guarantor and justification for their model, it was formed within a post Newtonian world in which the forces of nature were independent and prior to the organization of society.

I once drew on a “dependency” model of economy to help illuminate ethnography from Panama, partly because that model was originally forged in the context of Latin American conditions; it employs a mix of images, such as “poles” and “peripheries,” as well as “dependency” (Gudeman 1978). Ethnographically, I have found local models presented in discourse, myths and rituals. Consisting of practices and narratives, they may be written, verbal or sketched in the earth. For example, a colleague and I once presented our ethnography from the highlands of Colombia by means of the people’s “house” model of the economy. These farmers use the image or metaphor of the house to talk about and partly guide their economic practices (Gudeman and Rivera 1990). Like universal models, local models are situated, but the same or different people may deploy several in a context; and if they have diverse justifications or local claims to legitimacy – expressed through narratives - that range from invoking the gods or God, to the ancestors and nature, their construction is a transcendent necessity.

But what is the relation between universal and local models? Is one superior to the other, as logic supposedly stands to narrative, or prose to poetry? Is each appropriate for different contexts, or are they equal and opposite? In my view, a local model of economy provides the transcendent or necessary conditions for the emergence of the universal form. Universal models are abstractions: they constitute relations and entities removed from any local situation. For example, in discourse the universal modeler abstracts levels (such as individuals and institutions), posits a self-contained foundation (such as the rational chooser), derives the levels (such as prices or institutions) from this core, and re-presents the result as a totality: poof, the economy is created. This reliance on a culturally familiar way of arranging knowledge is a persuasive rhetorical device, however it makes local models disappear.

In discourse and everyday practice, universal models create a distinction between the relationships they formulate and describe, and the remainder of the economy. The difference between them constitutes economy’s breach. Their dialectic constitutes economy’s tension, because universal models are incomplete without local specifications such as assessments of risk, innovations, shared knowledge and practices, and social relationships from which they are abstracted; more important, they are incomplete as representations of an unachievable totality, for local models also are incomplete as renderings of the world. In contrast to my dialectical view of economy, modern economics imagines material life only through the perspective of prices or trade-offs that are reached through impersonal exchange and lead to equilibrium and completion. In contrast also to the formulation of Polanyi, who distinguished between embedded and disembedded economies, I hold that economies are both, which is the dialectic and political economy of material life.

If a market’s borders look firm at a particular time, cascading continuously expands them. Local models provide a necessary world for a universal model, but the latter often silences, invades, or mystifies them to be complete in discourse and realize itself on the ground. Cascading occurs when market participants through the search for profit extend their reach to non commoditized things and services, such as forest preserves and domestic work, as anthropologists and feminist economists have observed. When markets expand, local constructions of economy are fragmented as calculated relationships replace mutuality. In discourse as well, universal modelers try to create a seamless economic totality by cascading the limits of their model. For example, exogenous variables not included in the model are separated from endogenous ones that are: social events, such as unpredicted innovations that drive change may be excluded from the model (Solow 19). In addition, externalities are separated from internalities. Externalities are effects of market acts that fall outside the calculations of profit and loss: they are not priced, as in the case of pollution, whereas internalities are transacted. But events and acts categorized as externalities or exogenous variables do not make up a local model, because they are constituted as remainders in relation to the universal model rather than as parts of local constructions. To encompass these remainders, universal modelers extend the borders of their model to commensurate and commoditize externalities, and to encompass exogenous variables, so explaining a larger range of behaviors. In the process, they hide or derive local models as products of a universal form. I call this process “debasement,” because it converts shared benefits and social relationships to market transactions.

The concept and “reality” of the rational actor, which posits the individual as an autonomous unit who makes and orders preferences and chooses independently of others, is an abstraction from human qualities and relationships. As this presentation of human action is increasingly enacted and enforced through market activity, it debases or subsumes mutual relations, and it often mystifies them as if they were calculated selections. For example, reciprocity and gifting may be interpreted as aggrandizement or in this dialectical process mutual ties may used to dress up or cloak calculative reason. This appropriation of mutuality for instrumental purposes occurs in formal models, as in some cases of the new institutionalism, and it happens on the ground when corporations – as one example – represent themselves as solidary groups (a family) yet layoff workers when needed. In such cases the more powerful appropriates the features of the less powerful as it dresses itself in those clothes to claim legitimacy. Veblen termed this sort of appropriation, “derangement,” but we can also view it as a dialectical relation by which the qualities of one thing or category are mystified as those of another for material and control purposes.

The tension of the two realms manifests itself as well in our dominant notions of freedom. Isaiah Berlin describes them as “positive” and “negative” freedom, while Amartya Sen labels them “opportunity” and “procedural” freedom. Broadly, positive or opportunity freedom refers to the individual who selects as he wishes; negative or procedural freedom, which has multiple sides, sets the space for this personal choice. If Berlin would emphasize the importance of negative freedom, Sen principally favors a commitment to opportunity freedom. In a later section, I shall argue that local mutuality sets the necessary negative arena within which positive, universal freedom is exercised. In public discourse, however, we equate and reduce freedom to the individual form as an expansive metaphor of market choice and we elide the need to frame it. By silencing the communal realm and value of procedural freedom, we have reached the point where making a choice or exercising positive freedom has become a subjective compulsion or need (which is Weber’s Iron Cage). My own recommendations follow from the necessity to debate this balance in society and seek new accommodations between the incommensurate value realms of economy.

But now we must reverse the labels of the two models. A universal model, with its derivational form, is actually a “local,” historically situated, Western way of arranging things that is legitimated by stories about its universal presence and completeness. Conversely, local models are unfinished, because they do not and can never fully describe the plenum within which we live, but they are “universal” or transcendent in the sense of being necessary for experience.

Thus, what began as an ethnographic inquiry about the salience of means to ends calculation in high market economies expanded into a larger question about the nature of economy. One part of ours has become fragmented through the dominance of calculative reason and hidden from view in everyday practices and formal discourse. Ethnography illuminates the other economic world that is part of us. In the remainder of the essay, I shall show how this breach in economy is revealed in standard accounts of property, in modes of exchange, in money forms, and in some of today’s problematic issues. With its effects on markets, the environment and mutuality, we experience economy’s breach and tension as a conflict of values: he subjective growth of calculative reason turns others into instruments as it creates divided subjectivities and a deep alienation in economy.

The argument is developed in the following sections:

II. The Realm of Mutuality – focuses on one value domain of economy

III. Impersonal Trade - suggests how calculative reason emerges through trade

These initial sections treat the value domains of economy separately but only to set forth the succeeding argument that they are dialectically linked.

IV. The Persuasions of Property – illustrates the limits of universal models when explaining rights to property, which is the substance of trade.

V. Money – shows that money is a combination of mutuality and calculation but a growing abstraction.

VI. Contingencies of Markets, the Necessity of Community– explores the mix of mutuality and calculation in practices.

VII. Seeking a Balance - returns to the problem of reconciling mutuality and market, and the divergent notions of freedom, as well as their implications for rethinking development and environmental protection.

III. Impersonal Trade and Calculative Reason: from practice to theory

Calculative reason expands through impersonal exchange. Instrumental practices become prominent not through changes in beliefs and ideologies, economic scarcity, or the influence of economic theories but by competitive exchange. Of course, anonymous trade seldom consists solely of calculated choice: it may be interlaced with social and personal ties, and affected by emotions and cognitive limits..24 Trades also may take place under conditions of imperfect information and draw on forms of bounded rationality; for example, one party to an exchange may have greater information about market trades and values than another, which can happen in trades between high market participants and “Third World” poor. Traders also arrive with different resources or endowments, such as withholding and monopolistic power or differential capacities in language and trading skills: in financial and commodity markets, floor traders develop styles of work, and are affected by their local technologies (Zaloom 2003). Calculative reason has diverse local appearances. But impersonal trade necessarily generates calculated selection, and as this practice expands, space for the expression of other forms of reason and ties of mutuality narrows.

In trade, unlike things are made quantitatively equal in a seductive and unpredictable substitution. Exchange by pricing has the remarkable power of allowing one thing to be changed into another without physical transformation. But market prices, the ratio of ends to means, are detached from relationships between people, and between them and things. They seem to have a life of their own. A trader does not control them, except when holding a monopoly. I term this seemingly independent and uncontrolled power the fetishism of prices.25 We attend to prices, talk about them, and are obsessed by their influence over our lives.

When exchange rates shift, which they do for many reasons, market participants must respond in a calculated way if they are to continue trading in the market. Their response, induced by shifting terms of trade, reverberates, or draws a reaction in other trades because it changes their payoffs; the practice cascades, or draws in sectors of mutuality; and it turns reflexive as it repeats and becomes a conscious and satisfying action itself. Induced by the practice of impersonal trade, price formation and competition, practical reason takes on a life of its own; it is reified or becomes an autonomous activity, although its entrenchment or subjective realization varies by market, local context and individual. Continual market participation and success lies in the repeated use of calculative reason, which constitutes the motor, the “spirit,” and the “calling” of high market economies. This addiction to calculative reason, or measuring ends against means, leads to endless attempts at profit making. Accumulations of wealth in money and goods signal its effective use, while its continual emergence reifies the rational actor, who constitutes the foundation for derivational models in economics.26

My use of the terms fetishism and reification differs from the traditional ones. Marx developed the concept of the “fetishism of commodities” in the first volume of Capital (1967[1867]), although the basis for his argument was laid in the Economic and Philosophical Manuscripts (1988) and the Grundrisse (1973). By fetishism Marx referred to the special hold that things and money, or commodities, have on us in capitalism. We treat them as animate or lifelike. Marx explained that labor is always expended in production as humans produce and reproduce themselves and their means of existence. In capitalism the worker’s objectified or embodied labor is appropriated through the exchange that precedes production. Following Aristotle, Marx distinguished the use-value of an object, such as the nourishment it provides or the warmth it offers, from its exchange-value or the number of other commodities it can fetch in trade. Use-value is principally a qualitative determination, whereas exchange-value refers to a quantity. Marx argued that in the market commodities trade (more or less) in accord with the labor they embody, which is their exchange-value. Commodity trade appears to be just. The exchange of labor for a wage is different, however, for the laborer trades to the capitalist his use-value, which is his potential power or ability to labor and in return receives a wage, which is his exchange-value. The worker’s wage (his exchange-value) pays for the labor value of the goods that sustain him and his family so that his use-value can be reproduced and once again exchanged. Through this exchange, the laborer fairly receives the value he embodies, which is his use-value. The capitalist obtains something different. By payment of the wage (or exchange-value of the laborer) he secures use of the worker’s labor, and labor in action can be made to yield more value than is required to sustain it. Through the exercise or expenditure of his use-value, the laborer both reproduces the value of his wage and a surplus of labor that is embodied in commodities, which the capitalist now holds. The surplus falls into the capitalist's hands because he purchased and owns the worker’s labor capacity or use-value. The capitalist realizes this surplus as money profit when the commodities are sold. But this overall process, by which profits arise and are extracted in production, remains hidden because in exchange all commodities – including labor - trade at their values. The underlying reality that commodities are congealed labor is veiled by market exchange. Commodities, thus, seem to have an independent, objective and almost active life of their own. For Marx, this animation of commodities in exchange constitutes their fetishism: it is the other side of the draining of labor in production. The fetishism of commodities is a symbolic re-presentation of the human labor they embody just as their real life remains hidden.

After Marx, Georg Lukács extended the notion of fetishism and reformulated it as reification. Broadly, reification means to make something into a thing or to “thingify” a concept that denotes a process, relationship or object. The two notions of fetishism and reification are related to what Alfred North Whitehead called “the fallacy of misplaced concreteness” in which the abstract is mistaken for the concrete (Whitehead 1925:52). But Lukács’ reformulation takes it some distance from Marx’s original idea, for Marx had distinguished objectification and thingification from fetishism. For Marx, in all economies (from slavery to communism), humans objectify themselves by laboring and producing objects. Only in capitalism is this objectification and alienation systematically exploited: commodity fetishism is specific to capitalism. In contrast, Lukács equated fetishism with the objectification of labor and with reification, and then expanded the latter idea to cover all of bourgeois thought, as well as philosophical issues, and the consciousness of the proletariat who must finally “see through the reified objectivity of the given world” (1971[1922]:193), if they are to liberate themselves. By this interpretation all of bourgeois civilization and culture may be seen as a reification, which may be why the subsequent Frankfurt School could never overcome its pessimistic view of society. In recent years, the use and meaning of the terms “fetishism” and “reification” have grown even more convoluted as anthropologists, particularly those examining native monies and transgressive objects, have adopted and employed the word “fetishism” to designate the ambivalent and tangled relationships in which these entities are embedded.27

In contrast to Lukács I distinguish reification from fetishism; and unlike Marx and many others, I do not refer to the fetishism of commodities but argue that prices are the fetishism of the market. The construction of prices in impersonal trade not only transforms different qualities to a quantitative equivalence, or the incommensurate to the commensurate, it inscribes calculative reason as the subjectivity of traders. This reified and reflexive notion expands its hold as individuals increasingly live by trade. At the extreme, as one bond trader said, "Whatever money you make is what you're worth" (Abolafia 1996:30), meaning that his identity was defined by the cumulative efficacy of his calculative reasoning. He priced his “worth,” which was a reification of his qualities.

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