TONY LAWSONHAYEK, F. A.: The FataL Conceit, London (Routledge) 1988.
HODGSON, G. M.: Economics and Utopia: Why the Learning economy is not the endof history, London (Routledge) 1999.
LAWSON, T.: "Developments in Economics as ReaList SociaL Theory", Review ofSociaL Economy, LIV(4) (1996), pp. 405-22. [Reprinted in: S. FLEETWOOD(Ed.): CriticaL Realism in Economics: DeveLopment and Debate, London (Routledge) 1999.]
LAWSON, T.: Economics and ReaLity, London (Routledge) 1997.
LAWSON, T.: "Critical Issues in Economics as ReaList SociaL Theory", Ekonomia.
[Reprinted in: S. FLEETWOOD (Ed.): CriticaL ReaLism in Economics: DeveLopment and Debate, London (Routledge) 1998.]
LAWSON, T.: "Feminism, realism and universalism", Feminist Economics 5(2)(1999), pp. 25-59.
LEAMER, E. E.: Specification Searches: Ad hoc inferences with non-experimentaL
data, New York (John Wiley and Sons) 1978.
LEONTIEF, W.: Letter in Science 217 (1982), pp. 104-7.
MARX, K.: Capital: Volume 1, ed. by Frederick Engels, London' (Lawrence andWishart) 1974.
NUSSBAUM, M. C.: "Human capabilities, female human beings", in: M. C.
NUSSBAUM, J. GLOVER (Eds.): Women, CuLture and DeveLopment: a study ofhuman capabilities, Oxford (Clarendon Press) 1995.
RUBINSTEIN, A.: "John Nash: the master of economic modelling", Scandinavian
JournaL of Economics, 97(1) (1995), pp.9-13.
SALANTI, A., SCREPANTI, E. (Eds.): PLuraLism in Economics: New Perspectives in
History and MethodoLogy, Cheltenham (Edward Elgar) 1997.
STRASSMANN, D: "Feminist Thought and Economics; Or, What do the Visigoths
Know?", American Economic Review, Papers and Proceedings (1994), pp. 153158.
STRASSMANN, D: "Editorial: Creating a Forum for Feminist Economic Inquiry",1(1), Spring (1995), pp. 1-5.

Chapter 4

Ethics in Exchange and Reciprocity*
MAKOTO NISHIBE

I.
II.

III.

I. Introduction
Economic scholarship possesses a tradition that spans more than two
centuries. Throughout this long history, -and indeed still today, there havecoexisted distinctly differing views on the essential meaning of the word
'economic.' There is what can be considered the formal meaning "scarce", and what can be called the substantive meaning - "reproductive"(Menger 1923, ch. 4; Leontief 1928; Polanyi 1957, 1971, 1977). The
economizing, or formal, meaning of 'economic', as clearly defmed by Robbins (1932), stems from the scarcity of economic resources in the formatively rational relations of ends and means. By contrast, the technical, or*

76

Introduction
Exchange and Reciprocity
1. Reproducibility and Stationarity
2. Reciprocity in a Simple Reproducible System: A Case of Two
Production Processes
3. Equivalent Exchange and Reciprocity - With and Without
Transitivity
4; Reciprocity and Imaginary Gift-Giving Network
5. The Conditions for Reproducibility - Vulnerability ofReciprocity
Conclusion

The present paper is in many ways based on my previous paper written in
Japanese (NISHffiE 1997), but it is not a translation of that Japanese work.

MAKOTO NISHIBEETHICS IN EXCHANGE AND RECIPROCITY

substantive, meaning of 'economic', as Menger in his last days endeavored
to depict, and Polanyi subsequently rediscovered 1, focuses on the reproductive properties of human economy arising from the metabolic interactions
between humans and natural environments which occur under particularsocial institutions. It is this latter meaning of 'economic' that is of concern
to classical economists such as Smith, Ricardo and Marx in their studies on
economic societies.
In modem market economies all kinds of goods and services including
labour, land and money have become commodities which are sold and exchanged for script. Exchange transactions induce individuals to rationallyselect among different commodities (Le., to maximize personal utility subject to the one's budget constraint). Scarcity of means is thus expressed in
the form of a budget constraint that forces economic agents to behave rationally. As we understand from the fact that Sraffa' s system is formallycompatible with General Equilibrium analysis, the formal meaning of 'economic' differs little from its substantive meaning in the context of a market
economy. In the context of a non-market economy, however, these twomeanings do not necessarily coincide. In a non-market economy the reproducibility of institutions (both economic and non-economic) becomes ofprimary importance, and the scarcity of resources gets relegated to a consideration of more or less secondary status (Sahlins 1972). Scarcity problems, to the extent they exist, apply only to communities and not to individuals. The formal meaning of 'economic' has fully flourished only in thecontext of capitalist market economies. In non-market societies economic
processes are not independent of non-economic processes, but are closely
linked with them. In the language of Polanyi, human economies are 'embedded' not only in economic institutions but also in the religious, politicaland cultural institutions of society. This lends structural stability and integrity to non-market economic processes (Polanyi 1957).
Polanyi defmes three different patterns of economic integration: 'reciprocity', 'redistribution', and 'exchange' (Polanyi 1957). Similarly, Lavoie

classifies three distinct modes of economic coordination: 'tradition', 'planning', and 'market' (Lavoie 1985, ch. 2). Lavoie, however, adopts a narrow view of 'economic', contending that these three principles of economic
coordination have evolved as our social ability to solve scarcity problems
has developed. It is important to understand here, though, that the threemodes serve not only to coordinate the allocation of resources in the context
of scarcity, but also to integrate economic activities for the reproduction ofsocial institutions 2 .
The Polanyi's notion of redistribution is sustainable only under hierarchical or vertical structures of society - such as in states or empires. Thereneeds to be a central authority equipped with strong power that enables theinitial collection of goods and services for reallocation. Exchange and reciprocity, on the other hand, take place within flat or horizontal structures ofsociety. Exchange is conducted spontaneously by individuals for mutual
benefit in the context of a market. Reciprocity, in contrast, is a voluntary
act occurring in the context of a non-market domain and is based on an
individual's connection within a web of symmetrically structured relationships such as kinship, friendship, and neighborhood association. Consequently, exchange and reciprocity require different types of ethics.
Exchange (or market) is based on freedom under the rule of law - lawthat is embodied in rules of conduct existing in a spontaneous economicorder (Hayek 1960, 1973, 1976, 1979). Unfairness, such as stealing andcheating, is explicitly prohibited in the general and abstract rules - nomos.
Furthermore, exchange does not require any particular social structure or
specific organizations. The market is in its nature anonymous; individuals
are totally free to engage in any economic activities with whomsoever solong as those activities are not prohibited by law. Reciprocity, on the other
hand, is sustained by conventions and traditions that are conveyed tacitly

CARL MENGER, after publication of his book, Grundsiitze der Volkswirtschaftslehre (1871), reexamined his methodological framework and endeavored towrite a new book. Unfortunately he could not finish it. The second edition of
his book was published post-mortem by his son, Karl Menger. It is based on his
previously unpublished manuscripts. K. Polanyi's last paper shed light on thetwo meanings of "economic" which were outlined in Menger's manuscripts.

78

2Austrians such as Mises, Hayek and Lavoie have criticized the centralizedsocialist economy for its attempt to replace the market with comprehensiveplanning. The criticism is based on the "knowledge problem" that all central
planners face. A central planner can gather explicit, unambiguous and objective
data, but she cannot gather the necessary knowledge that is dispersed among individuals, or that remains inarticulated and merely embodied in the various
skills and specialties of economic agents. We find real merit in this Austrian
criticism of central planning as it is registered in the Socialist Economic Calculation Debate. The problem is that these critics tend to neglect the importanceof the reproducibility of a socio-economy.

79

MAKOTO NISHIBEETHICS IN EXCHANGE AND RECIPROCITY

and inarticulately, and which are not imposed on individuals by law orforce. Reciprocity depends on a stable structure to society with individuals
linked in a web of long-term relationships. Here trust in conventions andtraditions rather than in individuals forms an indispensable element in the
reproduction of reciprocal economic relationships. Reciprocity instantly
becomes unsustainable without this inherent trust in conventions and traditions. Reciprocity is vulnerable to changes in the behavior of individuals
that occurs when they enter into exchange.·
None of these three patterns serves as a unitary building block uponwhich any real economic society can be constituted. Market, planning andtradition are not real entities. In other words, human economic societies are
so complex that they cannot be reduced to a single mode of coordination.
They are neither simple nor pure systems but complex and intricate ones,
composed simultaneously of more or less all three modes (Polanyi 1957;
Hodgson 1988, ch. 11). It is, however, useful to the study on socioeconomy to clearly delineate these three modes or principles. How and towhat extent these three modes mix or coexist in a particular economic society informs us as to the characteristics of that society.
The present paper focuses particularly on the significance of reciprocity(or tradition) as opposed to exchange (or market). This focus arises fromthe fact that ethics plays an indispensable role in reciprocal economies,
critically serving to maintain and support these non-market systems.

that if a good is traded as a commodity with a positive market equilibrium
price then the good is scarce.
In contrast to the above, Sraffa's system model is a reproductive or stationary economic system in which the output levels and techniques of production in all sectors are fixed, and the input and output structure of all
sectors are mutually coordinated from the outset. The system reproduces
itself period by period without any changes (or with only slight fluctuations)in output levels or techniques. The analytical concern of the model is not to
fmd the existence and stability of competitive equilibrium prices used tocoordinate an efficient resource allocation, but rather to study the conditions
necessary for the reproduction or stable maintenance of the entire economic
system3 . From the neoclassical standpoint it might seem as though the system already has been coordinated by the price adjustment mechanism. To
put it more correctly, though, the efficient resource allocation coordination
function of price has been removed as a variable so that other functions ofprice can be observed. In such a system, prices represent the exchange
conditions necessary for the repeated reproduction of the system itself. In
Sraffa's economic system model, the market is regarded as one of the three
aforementioned patterns of integrating substantive economic processes. In
fact, as will be seen below, the circular process of production is repeated
not only by way of exchange in markets but also by way of the reciprocity
of products (input goods and output goods). Ultimately what Sraffa's reproducible economic system model allows is the comparison of exchange andreciprocity within the same framework.

II. Exchange and Reciprocity
2. Reciprocity in a Simple Reproducible System: A Case of Two
Production Processes

1. Reproducibility and Stationarity
In order to illuminate the different implications for ethics in systems of
exchange versus reciprocity we employ a simple model of a reproducible
economic system borrowed from Sraffa's famous book (Sraffa 1960).
In the standard neoclassical understanding, the market is above all aprice system designed to coordinate an efficient resource allocation. Prices
are signals expressing the relative scarcity or abundance of a good. If theequilibrium (i.e. no excess demand) price of a good is positive it is held tobe an 'economic' good. On the other hand, if the equilibrium price of agood is zero then it is called a 'free' good. This tautology indicates merely

We start with a self-replacing system or a simple reproduction system inwhich two commodities, wheat and iron, are produced as in chapter one of
Sraffa's Book. Suppose that the two production processes are as follows:

80

81

3

REMAK (1929), independently of SRAFFA (1960), gave a rigorous proof of theexistence of a set of non-negative prices in a 'closed system of production' withzero net products on the assumption that an exchange matrix is irreducible.
Such a system of prices, which is called a 'system of superimposed prices (superponiertes Preissystem),' is determined so as to balance income with expenseof each producer.

MAKOTO NISHIBE
280 qr. wheat + 12 t. iron ----- > 400 qr. wheat
120 qr. wheat +8 t. iron ----- >20 t. iron

These production processes express material transformations of inputs
into outputs in one production period. Both commodities are used as inputs
for production at period t and are produced as outputs at period t + 1. The
sum of wheat or iron used up in the production processes at period t isequal to the total quantity of wheat or iron product produced at period t + 1.
If 120 qr. of wheat out of the 400 qr. of wheat output at period t+ 1 aretransferred from wheat production to iron production, and 12 t. of iron outof the 20 t. of iron output at period t+ 1 are transferred from iron production to wheat production, then the same ratio of product which exists atperiod t is restored at period t + 1 and the production process can thus berepeated. If we use the symbol '< --- >' to represent such a mutual transfer
between production processes, this transaction can be written as:

ETHICS IN EXCHANGE AND RECIPROCITY

Please note that we define reciprocity only in the context of a 'selfreplacing' economic system. This definition does not apply in the context ofother systems 5 . The condition necessary for the simple reproducibility of an
economic system is also a necessary condition for reciprocity. If the simple
reproducibility condition is not satisfied then any mutual output trading between production processes would lose clear meaning.

3. Equivalent Exchange and Reciprocity - With and Without
Transitivity
We shall next consider a system with three commodities. A third product, pig, is now added to the system as follows:
240 qr. wheat
90 qr. wheat
120 qr. wheat

120 qr. wheat in wheat production process <---> 121. iron in iron production process
When, as in this case, the input vector of the whole system at period t is
identical to the output vector at period t+ 1, the original disposition of inputs can be restored by mutual transfers of net outputs between production
processes. Let us call such an economic system 'self-replacing' or 'simple
reproduction', and let us call this mutual transfer of products 'reciprocity '4.
The reason we call it reciprocity is because we want to emphasize that thisis not an exchange of products of 'equal value' but merely a mutual transferof two 'heterogeneous products'. As will be clearer in the case of a systemof three commodities, exchange presupposes an equivalence relationshipbetween two commodities while reciprocity does not.

4

We may also call the mutual transfer of net products "reciprocal exchange"
instead of "reciprocity" if we are conscious of the fact that exchange in thissense does not mean equivalence of products. In fact, in my previous paper(NISHIBE 1997) I used the terms "reciprocal exchange" and "equivalent exchange" in place of the words "reciprocity" and "exchange" employed in thepresent paper. I rather prefer to use reciprocity and exchange here because I
want to make a clear connection between these concepts and Polanyi' s three
integrating principles of socio-economy.

82

+
+
+

12 t. iron
6 t. iron
3 t. iron+ 18 pigs ----- >+ 12 pigs ----- >+ 30 pigs ----- >450 qr. wheat
21 t. iron
60 pigs

This also is a self-replacing system where the following three reciprocaltransactions of net product between each pair of production processes makepossible reproduction of the system period by period.
90 qr. wheat in wheat production process < --- > 12 t. iron in ironproduction process
3 t. iron in iron production process < --- > 12 pigs in pig production
process
18 pigs in pig production process < --- > 120 qr. wheat in wheat
production process

Clearly, these bilateral reciprocity arrangements are not equivalent (=)
exchanges because they do not satisfy the principal of transitivity6. A binomial relation R on a set M is an equivalency relation if, for any three elements a, b, c on M, three conditions hold for R: reflexivity (aRa), symme56Although reciprocity is also applicable to an expanding economy that has auniform growth rate, as discussed in NISHIBE (1997), here we confine our argument to a simple reproducible economy.
For more on the transitivity problem, see KRAUSE (1979).

83

MAKOTO NISHIBEETHICS IN EXCHANGE AND RECIPROCITY

try (aRb ~ bRa), and transitivity (aRb, bRc ~ aRc). For instance, equality (=) and inequality (>, <) satisfy transitivity. If reciprocity « --- > )was an equivalency relation (=), then by transitivity 90 qr. wheat == 12 t.
iron = 48 pigs would hold from the fIrst and second relationships of reciprocity. However, this in fact contradicts the third relationship of reciprocity: 120 qr. wheat = 18 pigs. Sraffa surely noticed this fact and he gave
caution to his readers: "It may be noticed that, while in the two-industry
system the amount of iron used in wheat-growing was necessarily of thesame value as the amount of wheat used in iron-making, this, when there
are three or more products, is no longer necessarily true of any pair ofthem. Thus in the last example there is no such equality and replacement
can only be effected through triangular trade" (Sraffa 1960, p. 4).
Sraffa here points out the difference between exchange and replacement(reciprocity). Strangely enough, though, he swiftly skips from the point
without any more consideration and concentrates on exchange-values or
prices. This is probably because his concern is with exchange in market
economies not reciprocity in non-market economies. Nevertheless, we mustacknowledge that indeed he has missed an important implication of thedifference between exchange and reciprocity in a self-replacing system.
Sraffa implicitly presupposes the existence of a market at the center ofmultilateral exchanges, as is depicted in <Fig. 1>. Such a setting inhibits the
direct mutual transfer of net products between production processes and renders all transactions indirect via the central market. The market value of the
supply of net products is thus supposed to equal the market value of the demand for the necessary inputs for each production process. Assume that theunit prices or values of the three commodities (wheat, ironand pig) are pw, pi
and pp, respectively. Then we obtain the following simultaneous equations
with three unknowns if we omit the dimensions of the commodities:

Sraffa calls the rates that ensure replacement "all round exchangevalues". The transactions using exchange-values are equivalent exchanges
that satisfy transitivity.

12pi

+

18pp

210pw

90pw

+

12pp

15 pi

120pw

+

3 pi

30pp

Because two of the three equations are independent, only the relative
prices of wheat, iron and pigs (Le., the exchange rate for each commoditypair) can be determined:

10 pw = pi = 2 pp , or, pi = 10 pw, pp = 5 pw
84

Figure 1
Multilateral Equivalent Exchange Through a Central Market

P. P. = Production Process

210 qr. wheat

121. iron + 18 pigs

The simultaneous equations implicitly seem to be obtained directly fromtechnological input-output relations, but, in fact, they assume the existenceof a central market that mediates all transactions 7 . Here the market functions differently than the Walras' auctioneer market which coordinates resource allocation through price adjustment. Because an auctioneer shows all
agents a single vector of prices for commodities that are in the process of

7

The central market in a sense symbolizes the mediating function of money as
the means of exchange in indirect interchange. But it also embodies the functionof making indirect exchange transitive. Money itself does not have such a function. An auctioneer or arbitrageur makes it possible. In Sraffa's system thepresence of either is implicitly assumed. This is the reason we proceed without
money in this paper.

85

MAKOTO NISHIBE
price adjustment, transitivity always holds. The market in question here isthe centralized apparatus designed to determine a consistent price systemthat ensures equivalent exchanges and equality of the values for demand andsupply in each production process.
Is it truly necessary to assume that equivalent exchange is a necessary
condition for a system to reproduce itself? Is it possible to rely on reciprocity, without a notion of equivalence or a consistent price system, to accomplish system self-replacement? Many economists have answered negatively,
citing the possibility of arbitrage. But we disagree; we think it possible if
certain conditions are fulfilled.

ETHICS IN EXCHANGE AND RECIPROCITY
Figure 2
Reciprocity System with Gift-Giving Circular Flow

P. P. = Production Process

4. Reciprocity and Imaginary Gift-Giving Network< Fig. 2> depicts an imaginary gift-giving circular and reciprocal flow
in a reproducible economic system consisting of three products. Solid arrows indicate reciprocity of products and dotted arrows indicate imaginary
gift-giving. We have not yet presupposed any human agents in our models.
This is because Sraffa's model was originally designed with methodologicalobjectivity in mind and it needed no assumptions about agents to achievethis. However, in order to consider the different implications of exchange
and reciprocity we must introduce agents.
Now let us assume that each production process is operated by a single
human agent, say, a wheat person, an iron person, and a pig person. Eachagent only engages in direct reciprocity, having no access to reciprocalinteractions that can take place between the other two agents. This assumption means that each agent should confine himself to conducting reciprocalinteractions only for his own needs (i.e., only for repeating his production
activities) and he should not try to obtain economic gain or profit throughbuying and selling. In other words, we regard production and the reciprocalinteraction of agents in a reproducible system as routinized, or traditional,
conduct that is determined by the structural positions occupied by agents.
We call this assumption "the normative demand for reciprocity". It may
sound quite restrictive and ethical, but it is indispensable to reproduction of
the system. The implications of this assumption will be elaborated in moredetail below.

86

If the relative prices determined in an equivalent exchange system are applied to this system, each act of reciprocity would appear to be an unequal
exchange and thus all reciprocal transactions would form a circuit of giftgiving as depicted in <Fig. 2>. If we take wheat as numeraire , the iron person receives 90 qr. wheat while giving in return 121. iron (12 1. iron = 120 qr.
wheat). Thus the value of 30 qr. wheat is given, in essence, as a gift from theiron person to the wheat person. Similarly, a gift of the same value is further
given from the wheat person to the pig person, and from the pig person to theiron person. The whole process forms a clockwise circular flow of gifts. If wetake iron or pig, instead of wheat, as numeraire, the gift becomes 3 1. iron or
6 pigs, respectively. The "gift" is not in the form of an actual physical commodity, but rather exists in the abstract as a value. The gift-giving is therefore"imaginary" to the agents. There are other reasons as well why we call thisgift-giving "imaginary."
The situation of gift-giving is recognizable to inner agents only if they
can know the whole structure of production and reciprocity, can understandthe notion of equivalence (or transitivity), and can calculate a particular setof relative prices. In the case of a system with many products, the structure87

MAKOTO NISHIBEETHICS IN EXCHANGE AND RECIPROCITY

of production processes and gift-giving networks are enormously complex.
Then it is even more difficult for each agent to obtain information on otheragents' production and reciprocity activity. If the whole structure is invisible to each agent, it will be impossible for him to recognize the connections
and the directions of circular gift flow. Even though an agent mightrecognize the whole structure of the system, he will be unable, under "the normative demand for reciprocity", to make use of the situation to reap any
gain from commercial activities.
In order to view a more complicated structure of the gift-giving network, we shall examine the case of a reproducible system with four products (wheat, iron, pigs and silk). Let us assume that the reproducible system
is composed of the following four production processes:

48.70 qr. wheat (the sum value of gifts received) to the pig person. Likewisewith all the other agents, each receives gifts the sum value of which equals
the sum value of the gifts which they give. The network of gift-giving iscomposed of three entangled circular flows: wheat --+ pig --+ iron --+ wheat,
wheat --+ pig --+ silk --+ wheat, and wheat --+ pig --+ silk --+ iron --+ wheat.
Since every circuit is closed no agent experiences gift loss or gift gain and thelaw of reflux holds. In this case reciprocity continually renders the system
reproducible. In the more general case of a system with n products, the number of exchanges is n, but the number of reciprocal interactions is n (n-l) / 2.
As n gets larger, the number of reciprocal interactions tends to increase in ageometric progression and the network of gift-giving becomes increasingly
complex and composed of an ever greater number of entangled circular
flows.

240 qr. wheat
qr. wheat+ 12 1. iron + 18 pigs + 10 1. silk ----- > 500

90 qr. wheat + 6 1. iron + 12 pigs + 6 1. silk ----- > 25 1. ironFigure 3
Reciprocity System with Gift-Giving Circular Flow (4 Products)

120 qr. wheat + 3 1. iron + 30 pigs + 41. silk ----- > 75 pigs
50 qr. wheat + 41. iron + 15 pigs + 5 1. silk ----- > 25 1. silk
A set of relative prices (exchange-values) in a multilateral equivalent exchange is determined by the following four simultaneous equations (theprice of silk is denoted as ps:
12 pi + 18 pp + 10 ps = 260 pw
90 pw + 12 pp+ 6 ps19 pi

120 pw +3 pi+ 4 ps45pp

50 pw +

4 pi

+ 15 pp

20 ps

Solving these equations using wheat as numeraire, we get the following
prices for iron, pig, and silk:pi= 9.571 pw, pp = 3.961 pw, ps = 7.385 pw

As is shown in Fig. 3, the wheat person receives a gift valued at 24.85 qr.
wheat from the iron person and a gift valued at 23.85 qr. wheat from the silk
person. On the other side of the ledger, the wheat person gives a gift valued at

88

p. p. =production process

89

MAKOTO NISHIBEETHICS IN EXCHANGE AND RECIPROCITY

Sraffa's prices in a simple reproducible system, which we call 'reproducible prices,' thus reflect two meanings. On the one hand, they are theprices that equalize the value of outputs and the value of inputs in eachproduction process. Put another way, they are prices that satisfy the principle of adding costs. On the other hand, they are the prices, when applied tothe concept of reciprocity, that equalize the value of gifts given to the valueof gifts received. In other words, they are prices that satisfy the law of
reflux. Reproducible prices are considered as a condition necessary for thetransformation of a non-market economy into a market economy. In short,the significance of reproducible prices to any comparative analysis of market and non-market economies is great indeed. < Fig. 3 >on the part of the agent. The criticism which Mises and Hayek level at
central planners in a socialist economy applies to the present discussion(Mises 1920; Hayek 1935, 1948). There is no frame of reference (such as aprevailing set of prices) in the system that an agent can utilize to find opportunity for arbitrage. The inner agents have no concept of equivalence.
The agents thus have to obtain complete information regarding the entire 'structure of production and reciprocal interaction and then calculate a set of
relative values. The ability to collect all of the necessary information andthen use it to calculate relative prices is far beyond the scope of humanability. Thus, as far as inner agents are concerned, they tend to be ignorantand prone to behave in conventional or traditional ways. The reproducible
system is robust in this sense. However, it is not so sturdy in the case forinvasion from outsiders.
Gift-giving is transparent to a stranger or a merchant who already understands relative values from knowledge of a price system in a market
which lies outside the system. Gift-giving is also visible to an analyst who
can closely observe the whole system structure from a vantage point outsideof the system or who can construct a kind of model of the system for study.
This is probably the main reason why most economists tend to presuppose
the existence of arbitrage. A merchant can surely source and sell items thatare cheap outside but expensive inside if he enjoys access to a set of prices
established in a market outside of the reproducible system. Such profittaking arbitrage, if it is possible, easily destroys the reproducibility of thesystem. The reproducible system of reciprocity is vulnerable to the interference of outside arbitrageurs. Presumably, because of this, members ofprimitive non-market societies generally avoid open contact with outsiders
while often engaging in "silent trade" at the border. In order to protect a
reproducible economic system from the decay brought on by exposure todestructive outside influences, the strict prohibition of trade between community members and outsiders must be maintained. Those who deviate fromthese conventionally preserved norms, or ethics, of the community faceostracism. Of course, this type of social sanction has no effective powerover those who do not belong to the system. We call such norms and sanctions "the condition for closure of the system". The most crucial norm isthe prevention of the notion of equivalence from intruding into the community.
In sum, the reproducible economic system can continue to be reproduced through reciprocity if "the normative demand for reciprocity" and5. The Conditions for Reproducibility - Vulnerability of Reciprocity
The fact that gift-giving is imaginary and abstract is actually what renders an economic system reproducible 8 . Many economists including Walras, Sraffa and Morishima have never given credence to the concept that an
economic system becomes reproducible because of reciprocal transactions.
They maintain that agents can arbitrage and gain profit from buying andselling when transitivity does not hold for direct exchanges (Walras 187477; Sraffa 1960; Morishima 1977, ch. 1). If arbitrage is possible for an
agent then this reality surely alters the initial disposition of products andmakes their reproduction unsustainable. In their assumptions, however, allof these economists take it as given that the agents are "rational" homooeconomicus, just like any arbitrageurs or merchants. Such a presumption,
however, becomes untenable if we can regard a reproducible economic
system as non-market economy that demands of its agents behavior that isconventional or traditional.
Even when we remove the assumption of "the normative demand forreciprocity", we should still not require a prohibitive degree of rationality
8

According to critical realism, reality is composed of three distinguished domains, namely the empirical (experience and impression), the actual (actual
events and"suites of affairs in addition to the empirical) and the real (structures,
powers, mechanisms and tendencies, in addition to the actual events and theempirical) (LAWSON 1997, ch. 2). The gift-giving network represented in thispaper stands for an invisible deep structure of inner agents and it is real in thissense. The statement of reciprocity in gift-giving is thus imaginary.

90

91

MAKOTO NISHIBEETHICS IN EXCHANGE AND RECIPROCITY"the condition for closure of the system" are imposed on the agents of thesystem.
The implications that we have highlighted above seem to be consistent
with the knowledge derived from anthropological studies on gift-giving in
non-market economies. For instance, we can provide a reciprocal interpretation to the mutual gift-giving behavior found in the primitive societies
described in Mauss' "The Gift" (1968). People in a primitive society believe that a supernatural and magical power (value) called "hau" resides ina gift or "mana". It is thought that the receiver of a gift who does not returnthe gesture will be killed by the power residing in the gift. Of course thissounds absurd and superstitious, but it is actually quite 'rational' whenthought of on a system level. This supernatural power "hau" is an idealized
embodiment, or a means of unconscious acceptance, of social norms andthe rule that violation of th~se norms should go punished. The result is theformation of a gift-giving network based on the law of gift reflux and reciprocity which, in turn, serve as the pillars sustaining economic reproduction
in a primitive non-market society. As Levi-Strauss put it, "hau" is not theultimate cause of exchange but a conscious form in which people in a particular society articulate their unconscious needs (Introduction to Mauss[1968]).
Reciprocity as a principle for integrating an economy is valid when all
inner agents are made to believe, despite general ignorance of the structureof reciprocity and the network of gift-giving, in the law of gift reflux.
While in the market "the invisible hand" functions so that the rational pursuit of self-interest unknowingly results in the enhancement of public welfare, in the case of reciprocity "the invisible gift" functions so that irrational belief or trust in the reproducibility of economic and non-economic
systems (including norms, conventions and sanctions) unknowingly resultsin the actual reproducibility of the systems.
A Japanese proverb, "NASAKE WA HITO NO TAME NARAZU"(Benevolence is not for others), seems to express succinctly the implicationof reciprocity. Moralizing to others that compassion should be avoided
because it spoils people is not the point of the proverb. Nor is the point tobe found in the idea that being kind to others in trouble is good because
they will return the kindness to you. The latter interpretation supposes theconcept of equivalence and promotes the loss/gain calculus of self-interested
behavior. The real essence of the proverb, as we have discussed above, canbe found in terms of the concept of gift reflux in reciprocity. Where andhow a gift will be returned is utterly unknown to an ignorant human agent.
Nevertheless, if she trusts in the reproducibility of the world, that reproducibility is in fact self-fulfilled.

9293

III. Conclusion
The exchange of commodities emerges at the boundary of communities
and reflectively permeate the inside of communities. Exchange, through thearbitrage activities of merchants, universalizes the concept of equivalence inproduct transactions and hinders the reproduction of a reciprocal economy.
Consequently, the market effectively dissolves the communicative relationships of agents and thereafter reintegrates the economy through exchange(Marx 1962, ch. 2; Polanyi 1944). The market possesses an inherent potential power to prevent other integrative principles from functioning and thus
the market becomes self-expansive. The market, in essence, enjoys therobust propagation powers of a virus.
This does not mean, however, that systems based on reciprocity cannot
exist and survive within a market economy. As a matter of fact, various
non-market organizations (e.g. families, firms, cooperatives and NGOs)
have always existed amidst the workings of a market economy. In order toprotect non-market systems from decay and to maintain them in their operational territory, ethics other than liberty and fairness must be at workwithin the market.
We have seen that, from an analytical viewpoint, the reproducible economic . system can be self-sustained through reciprocity if "the normative
demand for reciprocity" is forced on age~s operating in the system. But wealso could regard this situation the other way around. In other words, if, outof ignorance, agents cannot help but to trust in their social institutions thenthey will spontaneously follow established norms and conventions like "thenormative demand for reciprocity". This behavior will result in the reproduction of institutions, norms and conventions. Indeed, this reproduction becomes a self-intensifying process, resulting in the establishment of stability inthe reproducible system. However, such an inwardly stable system still remains vulnerable to the intrusion of outside market economy forces. This is
why the system ultimately requires additional ethics and norms such as "the

MAKOTO NISHIBEETHICS IN EXCHANGE AND RECIPROCITY

condition for closure of the system" which effectively restrict the liberty ofhuman agents.

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