Historians often exclude non-economic institutions from their analysis of historical economies. A non-economic institution is defined here as internal or external organising and correcting factors that provide order to the market and other societal institutions so that they may function efficiently and effectively. In this essay, I argue that the inclusion of non-economic institutions is vital when analysing historical economies. Allocative and social organisations have a considerable affect on the workings of a society that are often missed by Marxian and neo-classical economics. I will use the examples of trust, reciprocity, household, gift-giving and ideology to illustrate the line of thinking that whilst current economic theory may suit many situations this is a simplification of the broader picture. It is thus important to take into account other factors, or it is possible that details and important explanations within an analysis will be missed.
Polanyi’s argument is formed around the thesis that one of the defining features of modernity has been the emergence of a self-regulating market, and that thorough analysis of history must take into account that the market economy is neither ‘natural’ nor ‘universal’. An argument from Polanyi’s point of view shows that before the market economy dominated there were other allocative systems that characterised economic organisation that didn’t solely focus on economising behaviour - it is, in light of this, inappropriate for past societies to be viewed using the new tools of neo-classical and Marxian economics. Taking into account the fact that an economic institution as strong and dominating as the self-regulating market is only recent, it is ‘vital’ to put an analysis of non-economic institutions at the forefront of an assessment of historical economies.
Furthermore, Polanyi (1957) argues that in non-capitalist, pre-industrial economies their livelihoods were not based on market exchange but on a system of redistribution and reciprocity. Reciprocity involves the ‘exchange of goods between people who are bound in a non-market, non-hierarchical relationships to one another. The exchange does not create the relationship, but rather is part of the behaviour that gives it context.’ Moreover, Polanyi defines redistribution as ‘a systematic movement of goods towards an administrative centre and their reallotment by the authorities at the centre’. Polanyi uses these principles to explain the workings of the non-economic institution of exchange within the tribe of the Trobriand Islanders of Western Melanesia who illustrate that without an analysis of non-economic motivations behaviour can be unexplainable. ‘Reciprocity is enormously facilitated by the institutional pattern of symmetry, a frequent feature of social organisation among non-literate peoples.’ Polanyi argues that as long as social organisation runs in it’s normal pattern, no individual economic motives need come into play and that division of labour will ‘automatically be ensured’. The idea of reciprocal relationships within a community means there is no requirement for economic institutions to facilitate trade and agreements. Social organisation will be ensured by a collective social adherence to the rules, and the threat of being outcast from society for focussing on personal gain. The allocative ‘institutions’ in this example were not based on economising behaviour and thus it is vital that they should be included in historical analysis as separate to economic institutions.
North (1977) argues that one of Polanyi’s failures is that the evidence he makes use of from the ancient world is ‘highly selective’ and that ‘reciprocity and redistribution are everywhere today as in the past, in resource allocation within households, voluntary organisation and in government’. However the implication by North for my argument is that, as throughout history, there are still non-economic institutions in place today. Whilst the analysis of the Trobriand Islanders and their willingly non-economic characteristic is highly specific, it gives an example of how ingrained the ideas of reciprocity and redistribution are in society even today - it is, therefore, ‘vital’ to include non-economic institutions when analysing historical economies, and if they are excluded economic historians face the risk of missing a confounder in the data.
The idea of substantivism as proposed by Polanyi is continued by Offer (1997) in his paper ‘Between the gift and the market: the economy of regard’. ‘Reciprocal exchange has been preferred when trade involves a personal interaction, and when goods or services are unique, expensive, or have dimensions of quality.’ Whereas neoclassical economics posits that actions, behaviours and trades are only made with the prospect of gain Offer clearly acknowledges the satisfaction of ‘regard’ as an alternative to profit. Offer suggests that goods are devalued if paid for in cash, using the examples of ‘devotion and companionship’ and says that goods are enhanced if given voluntarily: ‘a temporary loan, expert opinion, cooked meal, used clothing’. Furthermore, the Offer suggests, as did North, that goods and services continue to be transferred without the benefits of the market system through gifts. These gifts that reciprocate regard may be rational in that it enhances social relationships and adheres to social convention allowing the continuing participation within an economy, however the trade of regard is often left out of historical analysis as it is not an economic institution. When the ‘economy of regard’ is such a vital aspect of society, it is ‘vital’ to include it as an social institution in historical analysis. It may not be accounted for in historic economic accounts but is and always has been a necessary component of trade - its practicality within ‘unique’ or ‘personal’ economic interactions make it essential to analysis.
In their article in The American Historical Review, Hoffman, Postel-Vinay and Rosenthal (1999) analyse ‘How the Credit Market in Old Regime Paris Forces Us to Rethink the Transition to Capitalism’. They argue that ‘while economic theory may suit the capitalist world, it is not at all appropriate for pre-transition societies’ and that whilst studying the origins of growth historians have studied the financial practices that survived the transition rather than all of there accounts. They state that ‘before modern economic growth - financial dealings were usually personal, with most loans supporting non-productive activities’, this portrays that although there is currently and impersonal and capitalist credit market until this transition occurred financial dealings were less economic and more personal. Hoffman, Vinay and Rosenthal show the importance of including irrational and personal transactions when analysing historical economies - and in this sense ‘the historian is better off seeking guidance from disciplines such as anthropology’.
The idea of a credit market differing to our own that should be accounted for in economic analysis is also conveyed by Dermineur (2014) in her analysis of the ‘Rural Credit Market in Eighteenth-Century France’. Dermineur’s article explores the lack of attention women have received in economic analysis, it examines the ‘involvement of single women in the credit market as creditors, its consequences on economic fabric and in relation to meaning of community and norms of cooperation’. Although largely ignored women often acted as creditors. They accounted for 16% of moneylenders in 14th century Ghent and in early-modern Paris 23% of female lenders provided 20% of the credit. Dermineur points out that rural exchanges were different and that ‘monetisation of exchange’ was slow to enter into the mechanisms of the local economy. ‘Single women often lent money to their friends, neighbours or family members through unofficial means, not registering their loans with the notary.’ Although women often did register their extended loans, credit was often lent based on trust and through blood ties only to reduce risk - registering when they did not know the person well. It is, therefore, vital when analysing historical economies to take into account that many transactions were dealt with via trust and reciprocal relationships that were not necessarily recorded, if historians do not take into account non-economic institutions such as those built on regard, trust, and reciprocity they may miss information that is vital to a thorough understanding.
Women are often left out of historical analysis of economies, as they were not allowed to contribute to many forms of economic institution and their access to the markets was ‘heavily restricted’ . Ogilvie (2003) discusses the exclusion of women from having full membership of communities and guilds, they were ‘excluded from public decision making, and legally prevented from engaging in many forms of production and consumption’. This exclusion often leads to the disregard of women from the analysis of economies. However, women were active in the household and out, using the Beckerian model of labour division the contribution to the economy and society is clear. Ogilvie argues that women were very active outside of the household, and that ‘housework didn't dominate women’s activities’ they should therefore be accounted for in historic analyses of economies. Householding, as proposed by Polanyi, refers to economies where production is centred around individual households. Family units produce food, textile goods, and tools for their own use and consumption. It is important to include the household as an non-economic institution, that women often played a vital role in, when analysing historical economies, as there was no transaction or production costs within the household but was often built upon ‘reciprocity’ and ‘redistribution’ and the economy of regard. It is impossible to analyse the past without taking into account the exclusion of women from many historical sources and the affect of the household in the economy.
Max Weber (1991) was one of the first to protest against ignoring primitive economics as irrelevant to questions of motives and mechanisms of civilised societies.(polanyi as source) Whilst Becker (1986) believes he can explain the whole world through neo-classical economics, whereas one of Weber’s distinctions it that there is more to the world than economics. Weber argues that three things constitute the social order - and they are ‘power, economic systems and honour’. It is argued that the social order and the economic order are not identical. Weber argues that there is more to power than money, and that social honour needs to be taken into account when analysing historical economies. When assessing the ways of life of historical economies it is essential to look at class and the social order as well as economic aspects to get a best indicator of the lifestyle. ‘status honour is linked to a way of life. A cultural and social set of behaviours are expected of members of a given class.’ it is, therefore, essential to historical analysis to include the institution of class. Without the inclusion of factors such as these, economic models will show a warped view of the past.
The use of anthropology within economic history to take into account non-economic institutions is vital as an addition to economic analysis. In ‘Bourgeois dignity : why economics can't explain the modern world’ by McCloskey (2010), it is shown that the ‘explosion in economic growth’ is proof that ‘economic change depends less on foreign trade, investment, or material causes, and a whole lot more on ideas and what people believe’. McCloskey claims that the North Sea economy, and then the world economy ‘grew because of changing forms of speech about the markets and enterprise and invention’ and that ‘valuations, opinions, talk on the street, imagination, expectations, hope are what drive an economy’. This view point shows the importance, not just of the classic economic institutions, but of social ideas and imagined future in economic growth. Without such drivers, or the thought about future possibilities, economic growth may never have taken place. It is then vital to analyse the unquantifiable changing of ideas when assessing historical economies, what made them grow, and what made them change.
To conclude, in the sense of the institutions I have included in my analysis here it is vital to include any non-economic institutions to get a full picture of historical economies. Marxian and neo-classical outlooks do not go far enough to arrive at a conclusive view of an economy, it is therefore vital that other allocative and social organisations are included in any discussion.
Bibliography
Karl Polanyi, Great Transformation: The Political and Economic Origins of Our Time, (Beacon Press 2001)
Karl Polanyi, The Economy as an Instituted Process, (Free Press 1957)
Douglass North, Markets and Other Allocation Systems in History: The Challenge of Karl Polanyi, (Journal of European Economic History 1977)
Avner Offer, Between the Gift and the Market: The Economy of Regard, (The Economic History Review 1997)
Philip T. Hoffman, Gilles Postel-Vinay and Jean-Laurent Rosenthal, Information and Economic History: How the Credit Market in Old Regime Paris Forces Us to Rethink the Transition to Capitalism, (Oxford University Press 1999)
Elise M. Dermineur, Single Women and the Rural Credit Market in Eighteenth-Century France, (Journal of Social History 2014)
Sheilagh C. Ogilvie, A Bitter Living: women, markets, and social capital in early modern Germany, (Oxford University 2003)
Gary S. Becker, A treatise on the family, (Harvard University Press 1991)
Max Weber, Essays in sociology, (Routledge 1991)
Deirdre McCloskey, Bourgeois dignity: why economics can’t explain the modern world (University of Chicago Press 2010)
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