The Formalist vs Substantivist debate

The opposition between substantivist and formalist economic models was first proposed by Karl Polanyi in his work The Great Transformation (1944).

Polanyi argued 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 the 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. Anthropologists embraced the substantivist position as empirically oriented as it did not impose western cultural assumptions on other societies where they might not be warranted.

The formalist vs. substantivist debate was not between anthropologists and economists, however, but a disciplinary debate largely confined to the journal Research in Economic Anthropology. In many ways, it reflects the common debates between "etic" and "emic" explanations as defined by Marvin Harris in cultural anthropology of the period. The principal proponents of the substantivist model were George Dalton and Paul Bohannan. Formalists such as Raymond Firth and Harold K. Schneider asserted that the neoclassical model of economics could be applied to any society if appropriate modifications are made, arguing that its principles have universal validity.

The formalist model is closely linked to neoclassical economics, defining economics as the study of utility maximization under conditions of scarcity. All societies are therefore a collection of "choice making individuals whose every action involves conscious or unconscious selections among alternatives means to alternative ends" or culturally defined goals. (Burling, 1962, quoted from Prattis, 1982:207). Goals refer not only to economic value or financial gain but to anything that is valued by the individual, be it leisure, solidarity or prestige.

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