The Work-Standard in the “Substantivist-Formalist Debate”

Is there a universal logic to Economics, a discipline related to Political Science? Is the overarching purpose of Economics the study of how humans make rational choices on the consumption and distribution of scarce resources? Or is it the study of how humans obtain their livelihoods from interacting with their environment and the social and cultural forces that govern their political-economic systems? Since many of the conclusions in Economics are mainly applicable to political-economic models of Western Civilization, can they also be reapplied to those of non-Western Civilizations, such as Greco-Roman Civilization, the Ancient Egyptian Civilization, or the Incan Civilization?

These questions form the crux of the arguments posited by Dr. Karl Polanyi in his 1944 book, The Great Transformation. In it, Dr. Polanyi insisted that Economics can be split into two very distinct interpretations. He described the mainstream understanding of Neoclassical Economics as “Formalism,” which is opposed by another concept called “Substantivism.” The two ideas are related to a “Substantivist-Formalist Debate” that took place within the discipline of Economics during the 1960s.

Formalism refers to the belief that economic life is driven by “utility maximization” and the “rational choice” associated with the “management of scarce resources.” Humanity, according to this belief, has unlimited wants but limited means to satisfy them. Scarcity arises from the fact that because there are limited means, humanity’s wants remain unlimited. These statements are to be treated as universal and applicable to all of humanity as opposed to a particular Civilization. The Formalist position adheres strongly to the paradigm shared between Production for Profit and Production for Utility.

By contrast, Substantivism challenges the belief that all economic life can be driven by the pursuit of Profit and Utility maximization. What is deemed “rational” to the average Liberal Capitalist regime, including its Market/Mixed Economy and Parliamentary Democracy, is not applicable to non-Western Civilizations and Western nations opposed to Neoliberalism. Following this line of logic, one has to arrive at the conclusion that Economics is more about how a Totality lives within their own means of production. The means of production is closely tied to the social relations and environmental conditions peculiar to specific Totalities.

What are the implications of the Substantivist-Formalist Debate?

In essence, the Liberal Capitalists are convinced that whatever applies to them must also be applicable to all conceptions of economic life. From Socialist Nations to non-Western Civilizations, every “rational choice” is predicated on maximizing one’s Profit and one’s Utility. Humanity is presumed to be incapable of knowing what it truly wants in Life. Any effort to realize those wants cannot be guaranteed to succeed in a world where resources are limited.

On the other hand, the Substantivist position argues that the economic logic of Liberal Capitalism cannot be applied to anything other than Liberal Capitalism. Non-Western Civilizations and Socialist Nations operate according to their own conceptions of economic life, which in turn implies their own economic logic. Going by the logic of the Work-Standard, we can even presuppose that non-Western Civilizations and Socialist Nations do not need to operate on notions of Kapital and Schuld, Production for Profit and Production for Utility.

In a way, the Substantivist-Formalist Debate is something that harks back to what I had discussed previously about the Work-Standard’s distinct Theories of Value and Money, the Reciprocal Theory of Value (RTV) and the Work Theory of Money (WTM). The idea that one could create a monetary system centered on Arbeit and Geld implies that there can be a different Mode of Production, a different way of economic life that does not conform to Liberal Capitalism and can be seriously entertained. It may be some conception of Socialism or Corporatism, but it could also be something entirely different insofar as is peculiar to a non-Western Civilization.

Are there any known examples of economic life that do not conform to the conventional assumptions of Liberal Capitalist ideology and unrelated to Socialism or Corporatism? A few examples do stand out to me:

  • The Ancient Spartans relied on “Iron” as their primary Medium of Exchange.
  • Ancient Egypt and the Incan Civilization have been suggested as being precursors to Planned/Command Economies.
  • I recalled writing a post for The Fourth Estate where I mentioned how Ancient Germanics living in East Prussia (or the Kaliningrad Oblast) were using “Amber” as a currency.
  • And there was a research article in the Digital Library describing how an Ancient Greek city-state employed its own economic system.

While I may have raised more questions than answers, I am convinced that the implications of the debate should be obvious to anyone familiar with the ideas addressed in The Work-Standard and The Third Place. Human ingenuity and creativity are capable of yielding alternative developments of non-Capitalist economic systems. World History has made this very clear to me.



Categories: Philosophy

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