Formalist vs Substantive Economics

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Discussion

Sam Bliss and Megan Egler:

"Formalist economists assume that humans are innately self-regarding rational calculators, such that institutional development toward market society was a mere refining of preexisting propensities to trade in pursuit of gain. This assertion is not substantiated and its premises are faulty (Kahneman, 2011; Levine et al., 2015; Sober and Wilson, 1998; Urbina and Ruiz-Villaverde, 2019). Substantivist economists, on the other hand, hold that social organization and ecological context shape economic systems. For them, people make market (and non-market) institutions to meet their needs within, and in response to, political and biophysical processes (Kapp, 1954). Ecological economics is largely substantive economics (Gerber and Scheidel, 2018).

Those who, in this substantive tradition, trace markets' origins to the dynamics of history tend to find that elites create conditions that coerce common people to construct and participate in markets. Heinsohn (2009); Heinsohn and Steiger (2013) argues that indebtedness forces property owners, whose titles are on the line as collateral, to start selling things in order to pay back principle plus interest. Where formal property rights are absent, he notes, so are markets. David Graeber (2011) writes that markets materialized as early empires expanded. City-states would requisition grain or produce it on royal estates to feed their militaries, conscripted labor, and palace complexes (Polanyi, 2014b; Scott, 2017), but in far-flung occupied territories this became administratively difficult. So, states started paying their armies in, say, silver and then demanding that conquered subjects pay a tax in silver. This turned whole colonized economies into machines for provisioning soldiers via markets (Graeber, 2011). These accounts emphasize different parts of the same story: ordinary people, left to their own devices, do not seem to spontaneously establish or exchange in markets."

(https://www.sciencedirect.com/science/article/pii/S0921800919312868)