Chapter 3. Simple circulation: surplus activity and exchange value

1. The origin of exchange value and money

Cooperative, administrative and competitive circulation

At the Paleolithic site, appropriation was inextricably linked to consumption: hunters and gatherers consumed where and when they derived their livelihood from nature. In the Neolithic village, agricultural production was isolated in space and time from the consumption of agricultural products: cultivated fields were located away from housing, harvests were stored to be consumed throughout the year. With the growth of crafts unrelated to agriculture, production became further separated from consumption. Production separated from consumption gave rise to circulation. Circulation is the direct or indirect exchange of actions and their results between economic units in the form of a gift, tribute or exchange of goods.

As long as the subjects of production and consumption coincide, there is no circulation. It arises where the subject of production is separated from the subject of consumption. Economic theorists usually link the separation of the subject of consumption and the subject of production with the emergence of exchange:

“As long as the development of a people is so retarded economically that there is no significant amount of trade and the requirements of the various families for goods must be met directly from their own production, goods obviously have value to economizing individuals only if the goods are themselves capable of satisfying the needs of the isolated economizing individuals or their families directly. But when men become increasingly more aware of their economic interests, enter into trading relationships with one another, and begin to exchange goods for goods, a situation finally develops in which possession of economic goods gives the possessors the power to obtain goods of other kinds by means of exchange” (Menger 2007, pp. 226-227).

But in reality, the division between producing and consuming subjects did not come about through exchange. Circulation arose through production in excess of necessary consumption, that is, through the production of goods to be given away as voluntary gifts or forced tribute. The emergence of chiefdoms and states obviously preceded the emergence of markets, and production for giving preceded production for exchange. Production for exchange arose from production for self-consumption (i.e. household or subsistence economy) via production for giving.

Every economy combines three forms of relations between its participants. There is cooperation based on reciprocity (that is, on morality and gifts as a means of maintaining reputation), administration based on a plan, and competition based on conflict. Accordingly, the three main types of circulation are (1) cooperative circulation based on the exchange of gifts, (2) administrative circulation based on redistribution, and (3) competitive circulation based on the market (or occasionally on barter).

“Karl Polanyi analyzes the diversity of economic systems and identifies three logics of exchange: reciprocity or exchange through gifts; redistribution, which presupposes the existence of a center where goods are stored before being distributed; and market exchange. He notes that these logics of exchange most often coexist with what he calls householding, which consists of production for one’s own use” (Aglietta and Orléan 2002, p. 39).

Householding has always functioned on a social, not an individual level. In subsistence economy, the economic unit was the entire community (originally the extended family), which produced and (re)distributed products. The small family, separated from the extended family, is a later product of cultural evolution:

“The individualistic savage collecting food and hunting on his own or for his family has never existed. Indeed, the practice of catering for the needs of one’s household becomes a feature of economic life only on a more advanced level of agriculture; however, even then it has nothing in common either with the motive of gain or with the institution of markets. Its pattern is the closed group. Whether the very different entities of the family or the settlement or the manor formed the self-sufficient unit, the principle was invariably the same, namely, that of producing and storing for the satisfaction of the wants of the members of the group” (Polanyi 2001, pp. 55-56).

The development of the competitive circulation has economic and political conditions. The economic condition is the division of activities. When economic units specialize, they compete with each other and move from internal to external exchange. The political condition is the autonomy of economic units. When they become more independent of the community and more sovereign in their choices, the circulation of gifts and tributes turns into the circulation of goods produced for exchange. As economic units specialize and become independent, they require a neutral place for a more or less regular exchange of goods.

“A market is a meeting place for the purpose of barter or buying and selling. Unless such a pattern is present, at least in patches, the propensity to barter will find but insufficient scope: it cannot produce prices. For just as reciprocity is aided by a symmetrical pattern of organization, as redistribution is made easier by some measure of centralization, and householding must be based on autarchy, so also the principle of barter depends for its effectiveness on the market pattern” (Polanyi 2001, p. 59).

Circulation is “embedded” in production, and production is “embedded” in consumption. As the division of meanings advances, circulation becomes detached from production. At what point can we speak of production for circulation, that is, for giving or exchange, rather than for self-consumption? This is the moment when circulation becomes so different from production that it is considered its opposite. Historically, this moment can be described as the moment of the written record of gifts and tributes. Money is, in fact, also a form of record.

When production for giving passes into production for exchange, products become commodities. Simple commodity production develops from householding or self-consumption through various forms of production for giving. It presupposes the division, addition and multiplication of meanings: the development of agriculture, writing, cities, crafts and trade. Within commodity production, circulation forms a separate process, it is an intermediary between consumption (consumer choice) on the one hand, and production (producer choice) on the other.

Utility and use value

Neoclassical economic theory reduced the purpose of all human activity to consumption, and the means and methods of satisfying needs to utility. Originally, it defined utility as a measure of pleasure or happiness and later as an order of preferences between alternative consumption options. However, meanings are not limited to utility—whether it is understood as pleasure, happiness or ordered preferences. Moreover, utility is not the same as pleasure: through the process of socialization, people learn to find pleasure in things that would otherwise disgust them (cf. Henrich 2016, pp. 112, 143, 345). Pleasure itself is the result of socio-cultural evolution: people form their “concept of pleasure” as they learn meanings.

Meaning can be both useful and harmful; it does not necessarily have to be associated with usefulness. Objects of needs can be useless meanings: beauty, love, justice, wisdom and many others. Meanings often are not ordered by preferences. When choosing, people take into account opportunities, risks, ethical and aesthetic norms and other meanings that are not ordered among themselves. Moreover, people do not just choose between existing alternatives. The choice process creates alternatives—counterfacts. Counterfacts are formed not only in the space of consumption options, but also in the space of consumption criteria. This means that a person not only chooses what he consumes, but the person himself is also an object of choice: rivalry of needs creates choice, rivalry of people creates selection.

We said in Chapter 1 that the three types of needs (i.e. needs of subsistence, sociality, and self-expression) did not emerge simultaneously. Perhaps it would be possible to establish an evolutionary sequence of their emergence. However, such a sequence does not mean that a person has a respective hierarchy of needs. Clayton Alderfer identified three groups of needs that have no fixed order of preference or hierarchy between them:

“…A human being has three core needs that he strives to meet. They include obtaining his material existence needs, maintaining his interpersonal relatedness with significant other people, and seeking opportunities for his unique personal development and growth” (Alderfer 1969, p. 145).

We develop Alderfer’s approach further and apply it to values as cognitive representations of needs. We identify three groups of values: existence values, communication values and self-expression values. A preference order can be found between values within these groups, but not between the groups.

Existence values are meanings that are ordered among themselves according to preferences, in which the material or utilitarian aspect dominates over social and abstract ones. For example, social status is an existence value insofar as it depends on material wealth, and not on the qualities of a person. The luxurious meal of a medieval monarch was no different from a piece of stale bread in the hands of his last subject, since it served the same purpose—the prolongation of his material, social and psychological existence. In his material existence, man is moved by the consequences of his actions, that is, by effect or utility. The animal principle in man speaks the language of efficiency.

Communication values are meanings ordered among themselves according to preferences, in which the social aspect dominates the material and abstract—for example, friendship or justice. In his social relationships, man is guided by norms, or δέοντα. The sum of the norms is a socio-cultural order. The social principle in man speaks the language of justice.

Self-expression values are meanings ordered by preferences, in which the abstract aspect dominates over the social and material—for example, dreams, fears, hopes and other creative values. In his personal development, man is guided by virtues and ideals. The cultural principle in man speaks the language of freedom.

Human action is the result not only of individual but also of social choice. A person not only pursues benefits, but also follows his duty and strives for virtues:

“To live is for man the outcome of a choice, of a judgment of value. It is the same with the desire to live in affluence. The very existence of ascetics and of men who renounce material gains for the sake of clinging to their convictions and of preserving their dignity and self-respect is evidence that the striving after more tangible amenities is not inevitable but rather the result of a choice” (Mises 1996, p. 20).

A situation in which a person must choose between utility and morality, between morality and ideal, between ideal and utility, is a situation of existential choice, a choice between conflicting groups of values. People do not maximize utility—they make individual and social choice, and in making choice they create meaning.

Illustration 3. Structure of values

It is difficult to say where cultural selection ends and social choice begins. In many cases it can be the same thing. Social choice is determined not only by the coordination of individual choices, which is often impossible in the absence of a “dictator,” but also by the presence of impersonal norms and ideals. Society is impossible without morality and sublime feelings; it is equally the result of the actions of materialists, utilitarians and pragmatists, as well as idealists, moralists and romantics. People are not reduced to identifying preferences and maximizing utility, they are not “economic” but “socio-cultural” people. Their actions are based not only on calculation, but also on mutual likes and dislikes, on duty and obligations arising from reciprocity. “Morality stems from our sentiments, not our reason” (Collier 2018, p. 35). Human actions cannot be reduced to consumption, human values cannot be reduced to utility.

If utility is an individually necessary set of existence values, then use value is a socially necessary set of these values. Utility arises from the needs and desires of individuals, use value from socio-cultural norms:

“René Girard’s hypothesis is crucial for understanding the nature of human institutions and the logic of their functioning. According to this hypothesis, institutions arise from the violence of human desire and their normalizing effect on it arises from their external relationship to the clash of conflicting desires” (Aglietta and Orléan 2002, p. 15).

Utility and use value are two complementary processes: utility is the process of individual calculation that creates culture-society, and use value is the process of social choice that creates the active power of the individual.

“…An order arising from the separate decisions of many individuals on the basis of different information cannot be determined by a common scale of the relative importance of different ends. … Order is desirable not for keeping everything in place but for generating new powers that would otherwise not exist” (Hayek 1988-2022, vol. 1, p. 79).

Use value is not a sum of occasional utilities; it is the socially necessary set of existence values. The history of production and exchange has consisted of the normalization or averaging of utilities, their transformation into socially necessary use values. In order for grain, cattle, precious metals, etc. to be transformed into use values, they had to become abstractions of utility. The end point of this process of social abstraction is commodities, exchange values, and money.