Economic Information: Karl Polyani's Principles Of Exchange

Ideas of transaction proposed by Karl Polyani, including market exchange, redistribution, and reciprocity. Examples of specific cultures and countries.

According to economist Karl Polanyi, the three principles of exchange are market principle, redistribution, and reciprocity. The market principle describes the buying and selling of goods and services based on the laws of supply and demand (things cost more the scarcer they are and the more people want them), and often involves bargaining. It is associated with industrial societies and involves a complex division of labor and central government.

In redistribution, products move from the local level to a hierarchical center, are reorganized, and sent back down to the local level. Redistribution is the main form of exchange in chiefdoms and some industrial states, and works with the market system. Together, the market principle dominates in the United States as well as in East Asia, but redistribution can also be seen operating. These industrialized societies show the aforementioned characteristics of both exchange principles. An example of market exchange would be the stock market which operates in both New York and East Asia, in which investors seek to maximize profit. This shows that buyer and seller do not need to meet in order to exchange. The wide variety of consumer goods available also demonstrates the market economy operating. An example of redistribution is the collection of taxes from citizens, which is then redistributed to other citizens or earmarked for designated purposes at a local level, including social services, education, Medicare, and road building. Generalized reciprocal exchanges also operate in American culture between parents and children, and that will be discussed next.

Polyani identifies reciprocity of three kinds: generalized, balanced, or negative. Generalized reciprocity involves an exchange between closely related people in which the giver expects nothing concrete or immediate in return. It is not necessarily classified as altruism, but resembles sharing by social contract. Generalized reciprocity is demonstrated by most egalitarian forager groups including the !Kung people, who do not say thank you upon receiving gifts because it is expected that at a later time, the act of goodwill will be reciprocated. It is also shown in most cases between parents and children.



Another form of reciprocity is balanced reciprocity, in which the social distance between giver and recipient increases relative to generalized reciprocity. It involves an exchange outside the immediate family, and the giver expects something in return in the future, but not immediately. If there is no reciprocation, the relationship between the two parties will be strained. The third kind of reciprocity is negative reciprocity, which is an exchange relationship in which parties do not trust each other and are strangers. The giving must be reciprocated immediately and there is very little communication, if any, between groups. Each group is trying to maximize its economic benefit, but eventually friendly relationships between the groups may develop. An example of negative reciprocity is the Mbuti Pygmy foragers of Africa, who exchange with villagers in neighboring groups in silent trade in which they place the items for exchange on the ground, then hide at a distance and wait for the other group to make an offer of their goods. Bartering may continue back and forth, but no direct contact is made between groups.

Potlatching among the Kwakitul of Washington and British Columbia can be classified in the category of redistribution. Their method of exchange is analyzed by Conrad Kottak in Mirror for Humanity. It involves a potlatch sponsor giving away food, blankets, copper pieces, and other items to other members of the community in exchange for prestige. The hunters and gatherers who participate in this form of exchange also participated in market exchange with Europeans and other capitalist economies, and thus had a wide variety of resources to contribute to the potlatch. Potlatching is seen as adaptive in cultures which experience alternating periods of local abundance and shortage because the fluctuations in available resources from year to year make some villages temporarily more economically stable than others.

Pressure to share wealth in order to gain prestige ensures the equal distribution of available resources, and the transiently needy villages are invited to feast at the expense of the new wealth of another group. This is reciprocated from season to season between groups and eliminates socioeconomic stratification. Surplus supplies are destroyed at a potlatch, so no division based on wealth could stratify the community. Rather, a regional alliance based on this redistribution has been formed for the benefit of all involved. Such competitive but adaptive feasting is characteristic of non-industrial food producers in an area with generally sufficient resources.

The method of exchange varies depending on the organization and characteristics of the groups involved, the resources available to them, and the relationship between giver and receiver. Any past interaction is also taken into consideration when new exchanges are proposed or presented, and relationships build based on different combinations of the principles of exchange identified and discussed by Karl Polyani.

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