We of the economic department sometimes fail to realize that human economy is not altogether a concern restricted to our own department – not even from the academic angle. No society can exist without some kind of economy, and all social sciences must include the word “economic” in their vocabulary. The sociologist, the anthropologist, the historian, the political scientist, the social psychologist – they all have to deal, each in his own way, with economic factors, economic motives, economic interests, economic classes, economic conditions and developments that involve every element of the human economy. Thus it comes to pass that all social scientists find themselves time and again in the unenviable position of having to make up their minds about the meaning of economic terms. And, in all fairness, who can blame them for their belief that the economist “knows”? And so they turn to the economist. But then the fact is in the fire. Since economics, as we know, embodies an unending but on the whole not unsuccessful attempt to disagree on all essentials, social scientists are bound to be disillusioned if they really expected to learn from us what terms such as money, capital, capitalism, saving, investment, equilibrium, and the like mean – not to mention the term “economic” itself. (Incidentally, they should not be too much amused at our expense, for they find themselves in a very similar predicament as regards their own terms.) But even this is not all. Recently they have been warned by one of our colleagues that they had better give up all hope, since, whatever definition economists decided upon, this could not and would not benefit them. Briefly, they were given to understand, openly, that the economist's definitions of economic terms were useless to them by definition. Professor Ellis at least has left no doubt on this point. “Economics,” he said in his chairman's address to the American Economic Association, “is concerned only with the processes and results of individual choice on the market.” With regard to economic analysis (though not to economic theory in the wider sense), Professor Ellis is emphatically right, and social scientists who disregard the limitation under which strictly formal or scarcity economics stands do so at their own peril. It is an application of that branch of the logic of rational action that deals with scarce means; the application is to market-organized economies.
The point deserves amplification. Neither economic history, with which I am personally connected, nor the other social sciences can avoid dealing with the economic sphere. With the anthropologist, the danger is that of an unconscious dependence on economistic prejudice: this is doubly dangerous on account of the conscious rejection of such dependence, in all its forms. Such self-delusion is perilous. Professor Melville Herskovits gave an instance of it in his controversy with Professor Knight: Herskovits, a pioneer of the anthropologists' emancipation from economic influence, nevertheless unwittingly threw the door wide open to the reception of economic analysis. Except for the business cycle, he wrote – I am quoting from memory – trade, money, markets, capital, investment, saving, and all the other phenomena of modern economic life equally occur in savage society…
Mrs. Quiggin, the Cambridge University ethnologist, author of a very useful study on “primitive money,” offers another example of the self-delusion that accompanies the anthropologist's imperfect emancipation from the economist. Wittily and aptly, her book opens on a note of defiance: “Everyone except an economist knows what money means, and even an economist can describe it in a chapter or so…”a A veritable declaration of independence, one would think. However, that did not prevent her from swallowing hook, line, and sinker a definition of money that she borrowed from the work of the anthropologist Thilenius – who in turn had lifted the definition bodily from the models of the monetary theorist Bendixen. You can imagine the consequences. What advantage can a classifier of primitive money objects derive from definitions such as Bendixen's theory of token money? “Classic” or perfect money, according to Bendixen, is “money based on bills and notes resulting from commercial transactions.”b No wonder that, under such 100 percent nominalist influence, Mrs. Quiggin decided that only token money was “true” money, and that all primitive money objects were, properly speaking, only money substitutes…
It's the same old ironical story: What starts as a declaration of independence ends up as a manifestation of dependence, all the more complete for its unconscious nature.
The sociologist is familiar with economic theory, maybe with the one exception of Herbert Spencer, whose relations with economics are especially ironical. Somehow or other Spencer managed not to write a “Principles of Economics” – nobody knows how. That didn't prevent him from enunciating the crudest views on economics and economic policy ever uttered by a scholar. Compared to him, Bastiat was a meticulous empiricist. To crown it all, he erected a truly impressive edifice of organicistic sociology, which was, however, in utter contradiction to his atomistic economic individualism – and he made no pretence of bridging or harmonizing the two. With Durkheim, Pareto, and Max Weber the position is different. These critical thinkers incorporated economic theory consciously and attempted to attune their system to its requirements. Durkheim's identification of the moral problem of society with that of the division of labor explicitly assumed that specialization was basic to human economy. Now this thesis, as Adam Smith established it, referred to the economic specialization of individuals. But, as Thurnwald has shown, conditions in early society in no way correspond to this. On the contrary, often whole villages are found to be specialized in one and the same industry, mostly producing for collective export without any internal trade being in evidence. Pareto's circulation of elites was merely an application of the law of competition to a set of power positions; not to speak of his concept of the rational, which merely reflected utilitarian market appraisal. And even Max Weber's oeuvre suffered from his attempt to fuse the Mengerian concept of rationality, as well as Mises's concept of money, with the entirely different concepts derived from Karl Marx and Carl Buecher. All this may account largely for the scant contribution made by anthropology and sociology to the problem of economic organization, a fact for which the inadequate tools put at their disposal by the economists are primarily responsible.
Last, not least, it is the historian who is forced to borrow his economic concepts from wherever he can find them. These giants of economic historiography – Boeckh on ancient Greece, Cunningham on England, and Schmoller on Germany – produced their work before the authority of economics had made itself fully felt. Fortunate men. With them economy history was still following in the footsteps of Montesquieu and Adam Smith. In effect both Cunningham and Schmoller rejected Ricardian economism – an act of insubordination for which they were rigorously ignored by economists. But with the turn of the century the intellectual climate changed. Economism swept the board; it became axiomatic. Economic history was the victim. Though the release of Babylonian and Egyptian sources, the triumphs of archeology and numismatics, enlarged our historical knowledge enormously, not even an Eduard Meyer was able to glean economic history from the rich new fields. More than a hundred years after the excavation of Niniveh and of the places of Senacherib and Sargon, almost fifty years after the discovery of Hammurabi's Code in Susa, with several hundred thousand private documents to boot, no economic history of the cuneiform civilization has been as yet attempted. In 1910c Weber wrote that the time for it had not yet come. And Rostovtzeff, in his latest masterpiece, still restricted himself to the brief comment that Mesopotamia offered a very mixed spectacle…Instead of contributing to the strength of historiography, the economic aspect of history worked out as its weakness. The more business documents of ancient Mesopotamia were revealed, and the more assiduously contemporary thought was infused into the material, the more confused, admittedly, the picture of her economic file became. Economic history, maybe more than any social science, was dependent for its terms on the professional economist, and perhaps nowhere has formal economics as conspicuously failed to enlighten as in this case.
It may be now time for me to elucidate somewhat the title of my talk, which I elliptically called “The Contribution of Institutional Analysis to the Social Sciences.” Institutional analysis stands here as an abbreviation for a more definite approach to the economic aspects of human society in general than formal or scarcity economics could provide. Essentially, it is that variant of institutional economics that represents a shift back from the formal to the more popular substantive meaning of “economic.” It insists that the substantive meaning should be consistently adhered to throughout the social sciences, with the single exception of market phenomena, where the formal or scarcity definition alone can lead to an effective theory.
My main purpose tonight is to outline the characteristics of such an approach, especially as applied to economic history. It will then be easy to see what kind of contribution itd may be expected to make to other social sciences, notably anthropology and sociology.
Its main characteristic is, as I have just said, its sole reference to the substantive meaning of economic. With this goes its second characteristic: that it is free of the economistic or modernizing associations that accompany the formal meaning. Let me briefly define my terms.
“Economic” in the substantive sense means here “with reference to material want satisfaction,” the adjective “material” adhering primarily to the means employed, and only in a subsidiary fashion to aims and ends – that is, to a definite group of physical wants.
The economy is defined as an aggregate of economic elements embodied in institutions, these elements being listed as needs and wants, material resources, services, the activity of production, transportation and consumption of goods, and so on. The list can, if necessary, be lengthened or shortened. But scarcity is not among these elements.
Economic institutions are institutions comprising a concentration of economic elements. Economic institutions do not consist of economic elements only, nor are economic elements found only in economic institutions.
Economic motive is a phrase the definition of which is mainly pragmatic, since it is doubtful whether such a motive really exists. The term “economic” in “economic motive” is therefore made to follow common usage and to designate three kinds of motives:
It should be noted that an “economic institution,” in so far as its economic character is concerned, is a matter of degree, and it should not therefore be assumed that the mere presence of economic elements is sufficient to transform an institution into an economic one. This is important, since the substantive definition of “economic” includes almost everything and economic elements are present almost everywhere. However, the economy is an aggregate of elements embodied in economic institutions, and institutions are not economic unless they comprise a concentration of such elements.e It is in this sense that we may describe a factory or a granary as an economic institution, while Christmas or Congress are not economic institutions, in spite of their economic importance in the substantive sense.
At this point it may be called to the attention of the sociologist, the anthropologist, the political scientist, that these definitions of economic institutions and motives allow questions of the following form to be put: What is the relation of economic to noneconomic institutions in a definite society? And to what extent are economic institutions in a definite case run on economic motives?
These may be only alternative ways of approaching the problem of the place occupied by the economy in human societies. All social sciences may be thus in a position to contribute to the clarification of this central problem of general economic history.
Now, having briefly dealt with the definitional system that is based on the substantive meaning of “economic,” let us see in what manner this definition can rid us of the incubus of an economistic or modernizing misinterpretation of the past.
What is the modernizing or economistic attitude?
Superficially, it may seem as if it consisted merely in hypostatizing a gainful, profit-seeking, selfish, competitive, and combative nature of man in economic matters. If this were so, the rectifying of the position would be outside the competence of the economist, for such motivations or behavior patterns are a matter for cultural anthropology, and it is for the cultural anthropologist to decide about their presence or absence. Whether someone misreads a savage society as a modern chrematistic one or, as Veblen ironically preferred to do, misreads modern capitalism as a prestige-haunted savage society, it makes no difference on this point: in either case the statement turns on merely motivational and valuational facts, that is, it remains within the purview of cultural anthropology.
Fortunately the matter does not stop here. The gainful, chrematistic, and so on attitudes that we feel to be “modern” wherever and in whatever surroundings we meet them are nothing but traits of a culture complex that accompanies the market institution. To the extent that market elements are present in the economy, the society strikes us as modern. Therefore all we need to guard against is to hypostatize the presence of market elements when such are not present. And this, precisely, is what the substantive definition of “economic” can do for us. For it permits a redefinition of the main economic institutions that does not take as its frame of reference the market.
In formal economics, trade, money and markets are elevated into economic institutions kat'exochen – but one of the three, the market, is pivotal to the system. The other two are mere aspects of the process implied in the market system. Once a market, in other words an institution embodying a supply–demand–price system, is assumed, trade is merely the physical aspect of the goods moving through the market, and money a device employed to facilitate the transit; or, even more simply, if market is the locus of organized exchange, money is the means of exchange, and trade the movement of goods exchanged. It follows that, where trade is in evidence, markets can be assumed, and where money use is in evidence, trade – and consequently markets – can be assumed. No wonder that nonmarket trade is overlooked, or at least minimized, and that the nonexchange uses of money are regarded as a bastard development. It demands a veritable conceptual wrench to realize that the assumed logical triad of trade, money, and markets is a mere arbitrary construct, that they may have independent institutional origins, and indeed that the various money uses and the different factors that subsequently congealed into trade may have originally been institutionalized separately from one another. The substantive meaning of “economic” thus opens up the road to an institutional analysis that eliminates the market assumption from the picture – and therewith also its modernizing and economistic associations.
Take the origin of money institutions. Under the influence of marketing habits it was assumed that money is a means of exchange, which, once established in this capacity, can also be used for the purposes of payment, standard, and hoarding. Professor Raymond Firth, Malinowski's successor at the London School of Economics, still defined primitive currency in the Encyclopaedia Britannica, 14th edition, as follows:
In any economic system, however primitive, an article can be only regarded as true money when it acts as a definite and common medium of exchange, as a convenient stepping stone in obtaining one type of goods for another. Moreover, in so doing, it serves as a measure of value, allowing the worth of all other articles to be expressed in terms of itself. Again, it is a standard of value, with reference to past or future payments, while as a store of value it allows wealth to be condensed and held in reserve.
As a matter of fact, the true characteristic of primitive currency is almost the opposite. Far from being all-purpose money, as currency in the nineteenth century tended to become and as Ricardian economics assumed all commodity money to be, primitive money is special purpose money, employing often different money objects for different uses. By such “uses” we mean operations performed on, or with a reference to, quantifiable objects in a sociologically defined situation.
This permits a partial answer approach to the question of institutional origins; for the different uses were largely institutionalized independently of one another. Some objects were used for payment while others might be used as a standard and still others might be used as a medium of exchange, if exchange existed. The “if” is significant. For such an exchange use need not have existed, and as a matter of fact it usually did not exist.
Again, some definitions are unavoidable. For the purposes of the social sciences in general, money should be defined as a semantic system roughly analogous to language, writing, or weights and measures. In a narrower sense it means quantifiable objects used for payment, standard, hoarding, exchange.
Now let me illustrate this from Hammurabi's Babylonia. Broadly, taxes, rents, wages were paid in barley; the standard in which equivalents were expressed was silver; as to a means of exchange, it appears that no single object had preferential status – barley, oil, wool, silver, dates, and suchlike being equally popular, none of them being much employed. Everything centered on the vast storage system of temple and palace, with its staple finance. No markets ‡…‡f any consequence are in evidence. All transactions were “in kind” (as we would say), and the administratively established equivalencies between the main staples were maintained stable over centuries (over the third millennium according to Father Deimel, who transliterated the Sumerian temple material). This was achieved by changing measures over longer periods such as reigns, and thereby adjusting the published equivalencies to the supply. (The latter corresponded closely, in alluvial soil, to the amount of water available – which, again, was mostly a direct result of the extent of irrigational works undertaken by the king.) Some of the most baffling features of Babylonian economy thus fall into place. The amazing stability of prices and of the basic measure of volume (the latter literally over millennia) was achieved by changing periodically the unit content of larger units without, however, disrupting the metrological system – that is, the rough proportions of the consecutive units of measurement. Taxes and rents automatically increased with the larger volume of measures, the tax of the unit of land being fixed at 1 shekel of silver = 1 gur of barley. In times of large crops the unit content of the gur was greater. But the financial system continued to calculate revenue and expenditure in shekels of silver, unaffected by the increased equivalent in kind. In other words, budget figures, if they had a budget, remained unchanged.
With regard to Babylonia, it is a precarious matter to advance such interpretations for those who may be restrictedg by their ignorance to the use of translations of the cuneiform scripts.
We can still study redistributive archaic economies in West Africa in a close-up. Measures that are changing according to season or social status are quite frequent there. Stabilization of prices is generally the aim. In one case the retail span is organized into the wholesale retail price system with the help of a monetary device. In the Niger Bend, the cowrie shell currency has two numerations. Of the four brackets between 1 and 100,000, the double numeration is restricted to the lowest and the highest brackets. Thus, in the one numeration,
In the other, the normal decimal system runs. Now the wholesaler receives on 100,000 only the lower amount, while the retailer collects from the ultimate consumer the larger amount. Thus, if he buys for a nominal 100,000, he only pays 64,000, while he collects from the consumer the full 100,000. It is noticeable that the middleman is discouraged: there's no span for him.
This kind of device explains how in the Niger region an elaborate market system is built into the redistributive system without danger of disorganization.
Such inconspicuous devices may offer a key to much larger problems – such as the stabilization of social classes with the help of objects circulating as elite money only. Gold, except for gold dust, circulated in archaic Greece only among kings, chiefs, and gods. Horses, an elite good, could be bought only for slaves; ivory for slaves. Evidence has been found for different sizes of copper wires used as money, the one buying millet, the other wheat. In these cases money served as a device for the maintaining of class standards of nutrition.
With regard to trade, the substantive definition of “economic” shifts the emphasis away from gain toward the acquisition of goods from outside the community. Since the external origin of trade is hardly in dispute, this results in a surprising new light on price fixing. Moreover, it appears that the main history of foreign trade runs along the lines of conventional rates of exchange, as practiced in primitive society (e.g. with the Tikopia). Since archaic trade consists in the exchange of a very small number of trade goods, this happens in “ports of trade” – administrative centers of foreign trade. Trade is in principle 1:1, a unit of one trade good against a unit of the other.
The problem of economic history is to trace the ways in which fluctuating prices came into being – whether they were what we would call genuine fluctuating prices, that is, market prices, or pseudo-fluctuating prices, that is, institutional prices smoothly adjusted to the supply situation and other factors of the administrative price.
Haggling in such markets is no proof of fluctuating prices. Everything is being haggled about, except prices: measures; quality of goods; rates in which different goods are to be taken in payment; the assortments, in other words the conventional mixture of various trade goods; and, ultimately – profits. If prices are fixed, the question remains whether there should be change from the 1:1 relationship for the benefit of either party, in what direction, and how much. I first came across this in a passage of Cadamosto (1455), a Venetian in the Portuguese service and a prolific writer on early African West Coast trade. He says: “…”h
Clapperton and Denham, writing about the neighboring Central Sudan in the first quarter of the nineteenth century, complained of the women of Kano. The caravan needed dates and millet in an out-of-the-way place. The women thronged the camp but were prepared to sell for Toba only at 10 percent profit. In another instance he mentioned 15 percent. I still didn't understand. However, he mentioned the prices of the sheep, goats, and so on. Clearly the price in Toba was put up to 2½ times the standard conventional price.
In the seventeenth century, Tavernier, the French diamonds merchant, sold jewels to the Shah of Persia in Ispahan. “At last the king said: I'll take all your jewels at 25 percent profit, but you sell your pearls in India where you'll get more.”
To cut it short: The traditional long-distance trade was carried on traditional prices – like the 150 shekels for a horse of Salomon.
In concluding, let me remind you of the meaning of modernizing in this context. It is a reference to nineteenth-century conditions, in other words to conditions obtaining approximately up to World War I. The modern times have passed. No one knows that better than the economist. The traditional definitions of trade and so on have become inapplicable. Once trade was a gainful, two-sided, peaceful exchange of goods. Today we speak of an international trade organization even if it is not conspicuously gainful, only moderately two-sided, and only prospectively peaceful. In the same line of thought, almost all economic problems have suffered a see change. Money, trade, markets are offering today problems of a nonmodern type. Last but not least, it may be economic theory that will benefit most from the contributions of institutional analysis.