Trade and Markets

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Trade and Markets


Trade may be denned as a repeated sequence of exchanges of goods; markets, as the economic institution created by regular trade between a multiplicity of traders. A looser use of the latter term is common in referring to the place or day for traders’ meetings, but this usage will be avoided.

Trade began early in human history, as evidenced by the presence of exotic materials in arche-ological deposits. Traders, regular trade, and markets figured importantly in the early documents from Near Eastern civilizations of the third millennium B.C. But price-setting or “open” markets, where large numbers of buyers and sellers establish the rate of equivalence between commodities in the course of trade, are more recent. Aristotle wrote about their beginnings in Greece; in some emerging nations of modern times market places with flexible prices have had to await the advent of centralized polities and a wider use of money; price setting outside the market is common in industrial society.

Economists traditionally focus analysis on open markets and the relation of prices to volume of trade, and treat other forms of trade as variants. Ideally, in an open market the large number of traders gives a situation of “perfect competition,” where the relations between price, supply, demand, and transactions made are worked out. In situations where exchanges occur at prices other than the competitive one, this is attributed to “imperfect competition.” Sources of imperfection may be monopolies by buyers or sellers, government intervention, cartel agreements, inadequate communication among buyers or sellers, or weak bargaining positions—for example, by sellers of perishable goods (see Robinson 1933).

In contrast, anthropologists describing trading practices outside price-setting markets have focused on the relative social positions of traders in the general social structure (e.g., Mintz 1959). Some convergence has occurred, however, since economists do analyze prices paid for services which are hidden in visible trade exchanges (good will, political support, etc.), and anthropologists have increasingly concerned themselves with prices. Anthropological studies of trading practices show an even greater convergence, in that the models of calculation used in nonindustrial societies that exist outside the open market help in understanding many trading situations in industrial societies.

Five main types of trade have been reported by ethnographers: (1) market-place trade, (2) trading partnerships between individuals, (3) intercommunity barter, (4) successive distributions within communities, and (5) ceremonial gift giving.

Market-place trade . In peasant societies with densely settled populations, market places are common when there is widespread use of money and where there are many small farmers who produce for subsistence and for exchange against goods sold by numerous small urban producers and sellers. Trading closely follows the open market model; prices vary with demand and supply but are generally uniform in any one market. Anomalies occur but are explicable. Variations in price result from the performance of economic services such as bulking of small quantities to permit uniform grading, or bulk breaking—e.g., packages of cigarettes sold by the unit. (For examples, see Dewey 1962, chapters 6 and 7.) Double pricing (e.g., one price for tourists and one for locals) reflects different degrees of knowledge of the market and of ability to bargain. When sellers and buyers have equal knowledge of the market, they interact universalistically, and not as members of social groups (Dean 1963). Each transaction is completed on the spot (i.e., caveat emptor applies). Buyers and sellers have no enduring relationship because of the sale, although general legal obligations may apply (e.g., to use fair weights and measures).

Although bargaining is not universal, it is often seen as the main price-setting mechanism in market places. Frequently, however, sellers estimate a prevailing or market price before arrival, on the basis of previous prices and known changes in supply and demand. They roughly check estimates when they arrive. Underestimators sell rapidly and disappear from the market; overestimators may eventually reduce prices but usually wait to see if all lower-priced goods sell out. Prices rarely change, and when they do, the direction is mainly downward within one market. Bargaining, when found, enables sellers to make larger profits from unskilled buyers (especially when wealthy buyers are too status-conscious to bargain). The seller’s asking price is a multiple of his estimate of market price but is lowered to that estimate if the buyer bargains well. Overeager or unskilled buyers permit sellers to sell above their estimated market price, and even to raise that estimate. Bargaining, then, facilitates upward changes in price. Prices are fixed basically by aggregate market conditions of supply and demand and by sellers’ estimates of these.

Trading partnerships between individuals . Partnerships exist when relationships between two traders persist apart from each specific transaction. They are found in peasant market places associated with open market trading (see Mintz 1961). In areas without market places (e.g., Melanesia) they are the major avenue of trade, with individuals traveling far to exchange specialty products with friends or categories of kin. Long-term credit relationships are a common form of partnership.

The often-used term “preferred customer” is inappropriate in referring to trading partnerships. Terms of trade (or prices) do not consistently favor one partner in comparison with open market prices, but for each transaction they are settled in the light of the open market price and of the value placed on continuing the relationship. Economic analysis interprets each transaction as involving payment of a price for goods and a price for services performed.

The service most commonly performed is the elimination of risk. Typically trader A accepts whatever goods trader B offers, on the understanding that trader B will either accept whatever trader A offers later or will continue to supply him when goods are scarce. Both traders insure against total failure to sell or complete cessation of supplies. Thus partnerships are found when goods fluctuate markedly in supply and demand (are perishable, produced far away or seasonally, or used irregularly in small amounts) yet are essential for the buyers or unusable by the sellers.

To eliminate risk each partner must have sanctions available to force the other to behave predictably. Disruption of the relationship may be a sufficient threat. For example, a “special customer” in a Barbadian market may count on obtaining a scarce variety of banana each week, but he must also take any other fruits offered with the comment “I saved these for you,” or else he will have his

supplies cut off. Social or physical sanctions may be invoked, however. In Melanesia a man must accept any “gift” from a partner or be publicly branded as uncivil; he must also later make an equivalent return gift of his own choice or allow the original donor to demand any of his possessions. The “court of public opinion” that often influences members of a common ethnic group may compel partners to live up to informal contracts, even at immediate personal loss. They can afford to deal in risky commodities when unpartnered traders cannot (Dewey 1962, pp. 44-51). Similar sanctions apply in inherently risky situations in industrial societies.

Long-term credit relationships are a common type of partnership, especially where a peasant producer sells his crop to a marketing agent who also supplies him with consumer goods. Without an assured market for his product—which may be quite specialized—the peasant could not risk starvation by abandoning subsistence cultivation; the agent must supply consumer goods as demanded or risk not being sold the product which provides his main income. Most cash crops are really credit crops (Ward 1960). Trade through credit relationships facilitates the risky transition from subsistence production to a cash economy.

Credit relationships also illustrate how terms of trade for each transaction are settled in partnerships. Debtors rarely quibble about prices of goods supplied on credit and frequently keep no records as long as quantities meet their needs. Popular descriptions of credit relationships stress the high prices charged (or fraudulent accounting) by expatriate credit merchants. They rarely note the merchants’ obligations to accept debtors’ produce as partial repayment, to continue supplying goods on credit as needed, and never to demand complete repayment. These obligations can be modified only slightly, and then in terms of the debtor’s credit standing, not his current ability to pay. Thus the terms for each transaction are decided by one trader alone, in the knowledge that his partner will decide for the next one. Both demand as much as possible, within the limits set by “fairness” or the long-term need to satisfy the partner. Arensberg (1937) gives a description of this system in rural Ireland; to some extent the installment system, with its reluctance to repossess goods, provides a parallel in industrial society.

Intercommunity barter . Intercommunity barter involves communities exchanging goods over a long period, at agreed or customarily fixed rates which do not vary at each transaction. “Administered trade” (Polanyi et al. 1957) is that variety in which traders are political representatives of their communities; silent trade occurs when exchanges are made without discussion at customary rates; monopolistic or oligopolistic export and import trading (see Bauer 1954) follow a similar pattern.

Goods so bartered are produced at a distance from their consumers, and demand for them is “lumpy” or widely varying, absolutely small but insistent. Examples are the demand for salt in inland continental areas, for manufactured tools and cloth by farmers, or for exotics and precious metals in early empires (Schafer 1963). In Bauer’s terms, these are “standardised staples” or “complex durable goods with a small number of buyers”; in these cases there is little need for “judicious gauging of the requirements of individual customers.”

The long-term community agreement on fixed rates despite temporary scarcities or gluts may on occasion disadvantage either party, and individuals may try to exploit the situation by open market trading. Communities act to prevent such “black market” trade by isolating potential traders. One mechanism for this is the “port of trade,” or the enclave where foreign traders freely meet appointed local representatives, but within which they are confined. This practice was common in ancient Babylon and is similar to modern governmental trading missions. Differential currency exchange rates and import licensing are legal mechanisms of isolation. Another practice has been to centrally control the production of goods for barter. Royal monopolies (through guilds) of gold, ivory, spears, and slaves were techniques used in west Africa. A further isolating mechanism is to distribute the goods received in barter by central allocation. The goods may be allocated as stipends, as rewards for political services (as when only meritorious officials receive import licenses for cars), through rationing or free distribution, or by sale at standardized prices. Such prices, and the agreed terms of barter, are often phrased as “fair prices” or “equivalences.” Alteration of them is morally condemned as “unfair.”

In economic terms, maintaining a regular flow of such goods entails many fixed costs for transport facilities, storage, and the training of technicians to produce and service goods. Guaranteeing demand and spreading it over a long period permit an even allocation of such costs.

Barter agreements have some flexibility. Quantities may be defined flexibly (e.g., as all output greater than home consumption). New Guinea villages which annually barter surplus nuts for oil threaten to break relations only when quantities depart too radically from a “fair equivalent.” Agreements then are renegotiated, or a new agreement is made with a different village. Alternatively, a limited free or black market may be tolerated to relieve temporary short-run disadvantages. If black markets persist and grow, it indicates that the conditions for community barter no longer apply.

Successive distributions within communities . Successive distributions within communities are made by individuals to all members of a community, with the expectation of being recipients of equivalent goods in later distributions. Most often involving food, they constitute trade because an individual receives goods different from those he supplies, and he trades a current surplus for a guaranteed future return when it is needed. Contributory insurance and taxation coupled with welfare payments are monetary forms of successive distribution.

Such systems have sometimes been described as “primitive communalism.” The label is inaccurate. Only basic necessities are usually so traded, but they are also distributed through other channels— people retain quantities sufficient for household consumption, and they may also exchange some surpluses in market places or with trade partners. Individual property rights prevail but are surrendered in exchange for a generalized claim against a community, not for specific claims over any one individual.

Distributions are found, not under conditions of extreme or persistent shortage (during a famine the Eskimo abrogate the normal rule of distributing a hunting catch) but, rather, when it is reasonable to expect that everyone may distribute in turn. Given relative affluence, individuals may insure against temporary shortages or fortuitous disasters. Distributions also solve storage problems, especially when preservation techniques are inadequate. Detailed accounting for every transaction between individuals would be invidious, difficult, and time-consuming.

This type of trade requires an approximate balance between what one supplies and what one receives, but the actual balance is never exact (Henry 1951). Productive people give more on balance than they receive; a few needy people are net receivers. All people keep a rough account of net balances, with creditors being judged as generous and socially responsible; debtors, as improvident and shiftless.

Unless social esteem ceases to be an incentive, the effect of such distributions is not inefficient production or reduced effort. Consistent under-produces are scorned, but average producers, free from threats of starvation, can neglect extreme risks and gear production to over-all needs. Where possible, a farmer plants slightly more than his family needs in an average year, not twice as much. He harvests in bulk, rather than in inefficient small amounts, and relies on others for daily needs between harvests. Overproducers need not fear inability to dispose of surpluses or depression of prices, for distributions convert surpluses into prestige. There is a continual slight pressure to increase aggregate consumption and to reward industry by esteem.

Overproduction may then occur and successive distributions may lose their function. Alternatively, periodic large accumulations may be channeled through political authorities and “redistributed” (Polanyi et al. 1957, p. vii) to finance public works.

Ceremonial gift giving. Gifts presented in public on ceremonial occasions constitute trade insofar as they tend to be reciprocated. Mauss (1925) analyzed the pressures on recipients to reciprocate, the major one being that the recipient is minister to the magister donor until he does so. Economically, it is easier to see each gift as a two-sided transaction in which the donor gives goods and the recipient performs services. For example, the services are those of a bride when the goods form bridewealth, of immunity from revenge at peacemakings, or of providing an audience for boasting. Return gifts are, then, repurchases of the right to services. Thus ceremonial gifts allocate and distribute political rights where legal jurisdictions do not apply.

Goods presented, or “valuables,” are usually non-utilitarian or of primarily ritual significance (e.g., cattle in southeast Africa), but they may be decorative (e.g., shells in Melanesia) or utilitarian goods in quantities far greater than can be used (e.g., blankets among the Kwakiutl). Aboriginal Australia illustrates the extensiveness of such trade, for there varieties of stone, ocher, and resin and wood from special trees were found hundreds of miles from their provenience, passed from hand to hand in innumerable ceremonial presentations.

Eventually utilitarianism may result from the aggregate flow of goods. But for donors unable to use valuables in personal consumption, the problem is to find recipients who will surrender political rights for goods. They try to speed purchases and to increase the size of gifts. Thus, if a standard bridewealth of 20 shells buys rights to a bride and some prestige, a gift of 25 shells should buy more prestige. Recipients may refuse 25 shells as “ostentatious” and more than they could pay in future bridewealths; they may accept 21 as “reasonable.” The next bridal payment may be 22 shells. The continual pressure for this sort of price inflation is held in check only by the scarcity of valuables.

Scarcity means that donors can usually recover valuables only by surrendering rights, and so they can gain only small net balances of power. Political differentiation is limited (Salisbury 1963), unless some individuals consent to become politically inferior in exchange for a net flow of valuables. But politically powerful men may then recoup their valuables through taxation or enforced contributions. Alternatively, while donors stress the political claims symbolized by their gifts, recipients may try to ignore the political claims and stress utilitarian aspects. Donors may call gifts (or foreign aid) “charity” or “enlightened generosity” and expect gratitude; recipients may talk of the donors’ need to dispose of surpluses and to encourage trade. In the classic description of ceremonial gifts—the Trobriand kula (Malinowski 1922)—both attitudes occur together. Various commentators wrongly assume that one or the other aspect of gift giving is primary.

Moderate increases in the supply of valuables mean rapid increases in the size of ceremonial gifts (as in the examples of bridewealth inflation and of the trade in Hudson Bay blankets among the Kwakiutl [Codere 1950] and in shells in New Guinea [Salisbury 1962]). Increased leisure may also increase the frequency of ceremonials and gifts and, thus, the velocity of circulation. This alters the balance of political rights which ceremonial gifts regulate, by increasing social mobility or by enabling financiers to consolidate empires. During early periods of prosperity in industrial societies, the increase in philanthropy, conspicuous consumption, and extravagant entertaining and gift giving has a similar function.

A permanent imbalance in access to valuables, despite speedier distribution through gifts, may cause a permanent imbalance in political rights, perpetuated by gifts. Recipients may then persistently refuse to recognize the symbolism of gifts, so that donors grow tired of presenting, or they may find other valuables to use in achieving a balance of “trade, not aid.” Often valuables become so common as to lose their symbolism and are replaced by money. This may happen after ceremonial gift giving has provided some of the initial incentive for accumulation, entrepreneurship, and even cash-crop production. (The use of money to purchase political rights in times of affluence needs additional analysis.)

Many authors have tried to arrange the above mechanisms of trade as an evolutionary progression (see Herskovits [1940] 1952, p. 183; Pearson 1957; Polanyi 1957), using trading as an index for the level of whole societies. This is inadmissible and is the result of inadequate functional descriptions of total societies. A single trading mechanism can never be the only form of distribution. All can occur together when different market conditions apply to different commodities or at different stages of distribution. Regularity of the market, the risks involved, and the relative power positions of traders are major determinants of the pattern of trade found.

Nevertheless, in the course of world history there has been an increase of population, technological complexity, ease of communication and transport, and the size of domains of uniform law and order. Market conditions have changed accordingly. For long-distance trade, progressively wider and more regular markets, in which risk can be treated probabilistically and the power positions of buyers and sellers are equal, indicate a sequence of ceremonial gifts, intercommunity barter, trading partnerships, and market-place trade. In local trade the change from self-sufficiency to specialization demands more exact accounting and a change from successive distributions to partnerships and market places.

Yet specialization creates new risks, and new goods and services for which the immediate market is limited. Bulk-breaking, futures, credit, and money itself are ways of adapting to new conditions. Political integration, fostering security within borders, creates new risks for external trade. Reactions to state control, vertical or monopoly integration of industry, subsidies, etc., do not fit theories of unilinear evolution, but can be analyzed in terms similar to those used to analyze trade and markets in the nonindustrial world.

Richard F. Salisbury

[See alsoeconomic anthropology; economy and society; and the biography ofpolanyi.]


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