The 'Evolutionary' Economics of Thorstein Veblen
Thomas Sowell
Oxford Economic Papers, New Series, Vol. 19, No. 2. (Jul., 1967), pp. 177-198.
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THE ' E V O L U T I O N A R Y ' E C O N O M I C S O P T H O R S T E I M VEBLEN By THOMAS SOWELL
M u c ~more is understood about Veblen the social satirist, the personal
eccentric, and the literary stylist than is understood about Veblen the
economist. One reason for this is the mythology which has grown up
around his economic thinking and its relationship to later 'institutionalism'. Like IIarx, TTeblen suffers from the fact that many of his most
knowledgeable interpreters are also disciples or sympathizers who do not
always sharply distinguish the words of the master from the traditions of
the followers. Areassessment of Veblenmust include (1)Veblen's methodological criticisms of traditional economics, (2) his intellectual relationship
to Karl Marx, (3) his own economic theories, and (4) the meaning of
'institutionalism' in Veblen's writings as distinguished from the meaning
i t has acquired in later years.
I. Methodology
Veblen's central, most often repeated attacks on economics in general
and marginal utility theory in particular revolved around ( a ) its 'unrealistic' assumptions as to humannature, and (b) its lack of an 'evolutionary' approach to economic phenomena. However, these two apparently
independent propositions turn out to be only different aspects of a single
underlying argument.
Veblen's understanding of the realism-of-assumptions question was
much more sophisticated than that of latter-day institutionalists. He
realized that 'assumptions' as analytical tools must be judged by their
efficacy for the purpose a t hand rather than by standards of descriptive
adequacy. He saw that to be 'serviceable' an hypothesis need 'not be
true to life'.l There was 'no call to impugn these premises of the marginal
utility economics within their field'.2 He understood that the 'economic
man' and similar conceptions were 'not intended as a competent expression of fact ', but represented an 'expedient of abstract reasoi~ing'.~
Although Veblen's viev-s on this metl~odologicalpoint were substantially
the same as those of the present-day 'Chicago school' he has been repeatedly and erroneously identified with the opposite position characteristic of later institutionali~ts.~
Veblen objected to the marginal utility theory's conception of a passive,
adaptive man as inadequate for the purpose of analysing creative change,
Thorstein Veblen, T h e Place ojScience i n M o d e r n Civilization (Kern York, 1961), p . 221.
Ibicl., p, 142.
Ibid., p. 339.
4 Cf. J. A. Schumpeter, History of Economic A n a l y s i s (New Yorlr, 1954), p. 911 n . ;
RIilton Friedman, E s s a y s in Positive Econonaics (Chicago, 1953), p. 30.
1
'EVOLUTIONARY ' ECOXO&IICS OF THORSTEIN VEBLEN
1 78
'however adequate it may be for any other'.l According to Veblen, the
marginalist theorems 'indicate the conditions of survival to which any
innovatioil is subject, supposing the innovation to have taken place, not
the conditions of variational g r o u ~ t h ' .But
~ what Veblen was seeking was
precisely a theory as to why innovations take place. 'The question . . is
not how things stabilise themselves in a "static state", but how they
endlessly grow and change.'3
The issues of unrealism and non-evolutionary viewpoint reduced to one
issue only. It was not that the 'unrealistic' aspects of the marginal utility
theory invalidated its answers to the questions to which it was directed.
I t mas that these unrealistic elements would invalidate it for explaining
what Veblen wished to explain: how men change surrounding coilditions
rather than simply adapt to them. Veblen asserted:
.
.
. . it is the characteristic of man to do something, not simply to suffer pleasures
and pains through the impact of suitable forces. He is not simply a bundle of desires
that are to be saturated by being placed in the path of the forces of the environment,
but rather a coherent structure of propensities and habits which seeks realisation
and expression in a n unfolding activity.4
This assumption was depicted as being more in line with 'later psychology' and 'modern anthropological research' but the view of the marginal
utility theory was not rejected as being necessarily wrong merely because
it was 'unrealistic'. Of course Veblen as a sardonic critic and an inconsistent human being sometimes lapsed into random disparagement of
unrealistic models, but this was not the position he took where he gave the
subject sustained attention.
Although Veblen's discussions of ecollomics abound with calls for an
evolutionary or Darwinian approach, his statements as to what this
specifically involved were sparse and sketchy. Abandoning statics for
dynamics was part of it, but only a part. Veblen defined evolutionary
economics as 'an inquiry into cultural or institutional development as
affected by economic exigencies'.5 To pursue this problem was to make
a major change of purpose in the discipline of economics. Economic processes were to be investigated not in terms of the equilibrium toward which
they t e i ~ d e d but
, ~ in terms of the cultural backgrouild from which they
had emerged, and in terms of their wider present and prospective social
conseq~ences.~
Evolutionary economics sought to understand not merely
quantitative changes but primarily 'changes in kind's-e.g., the movement from the handicraft era to that of modern factories with all its atten2 Ibid., pp. 176-7.
Thorstein Veblen, op. cit., p. 73.
Order, ecl. Leon Ardzrooni (New Yorlr, 1954),
Thorstein Veblen, Essays in Ozcr C1?~unging
p. 8.
T h e Place of Science i n M o d e m Civilization, p. 74.
Ibid., p. 173.
Ibicl., p. 165.
Ibicl., p p 241, 188.
Ibicl., p. 102.
T. SOWELL
179
dant social changes. A marginaiist frame of reference could not 'deal with
phenomena of growth except so far as growth is talien in the quantitative
sense of a variation in magnitude, bullr, mass, number, frequency'.l It
was not only, or even primarily, the increase in output from the handicraft
era to that of modern manufacturing- with ~ v l ~ i cVeblen
h
was concerlled,
but the great changes in the whole social and economic landscape which
it brought.
Another Veblenian charge against traditional economics was t h a t of
teleology. His approach, by contrast, 'seeks to know and explain the
structure and functions of economic society in terms of how and why they
have come t o be what they are, not, as so many economic m i t e r s have
explained them, in terms of what they are good for and what they ought
to be ' . 2 He objected, for example, t o the consideration of money in terms
of its useful functions as a medium of exchange or store of value,3 rather
than in terms of its historical emergence, contemporary economic effects
(beneficial or detrimental), and its impact on wider social phenomena.
The reduction of wealth to a single money measure facilitates comparisons
of persons with widsly varying liinds of wealth and life-styles, and thus,
according to Veblen, promotes emulation. Social competitiveness was thus
one by-product of money ; so were 'pecuniary canons of taste'-the habit
of judging the merits of persons and things according to their price tags.4
To investigate money from this point of view was to be 'evolutionary' ; to
investigate it in terms of its economic purpose was to be teleological.
Veblen did not deny t h a t money was a medium of exchange, etc., but
opposed the whole approach which loolied for useful purposes in a given
situation rather than factors which caused situations to metamorphose
over time.
While Veblen frequently implied that an apologetic intent underlay
teleological conceptions, his basic objection was t o teleology as such. H e
x-as opposed not only to the imputation of ' a consistent propensity tending
to some spiritually legitimate end',j but also t o concentration on the
f ~ ~ n c t i oofna n economic entity even where there was no apologetic element
of a 'meliorative trend' or of a 'harmony of interest^'.^ Even where a
teleological approach was talien with a view to improving economic f ~ ~ n c tions, Veblen was scornful of i t as unscientific:
ITllat would be the scientific rating of the work of a botanist who should spend
his energy in devising ways and means to neutralize the ecological variability of
plants, or of a plrysiologist xvho conceived it the end of his scientific endeavors to
rehabilitate the verrniform appendix or the pineal eye, or to denounce and penalize
the imitative coloring of the Viceroy butterfly ?'
Loc. cit.
2 Ibid., p. 267.
Ibid., p. 124.
Ibid., p p 2 4 6 7 ; Thorstein Voblon, T h e Theory of the Leisure Class (Kew Yorlr, 1934),
5 T h e Place of Science in Moilern Civilization, p. 61.
chapter vi.
7 Ibid., p. 189 n.
Ibid., p. 68.
1
180
'EVOLUTIONARY ' ECONOBlICS OF THORSTEIN VEBLEN
There has been widespread misunderstanding of Veblen's attacks on
what he regarded as the teleological conceptions of the classical econonlists.
It was not simply a case of a critic of the existing order opposing its
defenders. It was their approach even more than their results or their
sympathies which were under fire. Veblen likewise opposed what he conceived to be reform-oriented teleology underlying the 'grievances and
remedies '1 in John Bates Clark's economic writings. He similarly opposed
what he conceived to be revolution-oriented teleology in Karl N a ~ x . ~
Veblen's detached and essentially anti-Pragmatic philosophy3 contrasts
sharply with the outlooli of the institutionalist school, as later discussion
will shorn. It will not be surprising to discover that the grafting of institutionalist practices on to Veblenian philosophy produced some interesting
contradictions.
It should be noted, however, that Veblen's harshest criticisms on this
and other points were directed to early, even pre-classical economic^,^ and
that he recognized the historical movement of the discipline away from
such metaphysical notions, though with surviving remnants of the earlier
thought still in evidence in his own time.5 He observed, for example, that
'it can no longer be said that the concept of normality implies approval
of the phenomena to which it is applied'.6 He spoke of the 'quasi-erolutionary tone of neo-classical economics'7 and praised the 'dispassionateness' of such contemporaries as Alfred Marshall and Edwin Cannan.8
Much of Veblen's colourful mockery, ~vhichhas frequently been quoted
against theoretical refinements in general, mas in fact directed against
practices which l ~ recognized
e
as past or passing in his own day.
It might be said of Veblen, as he said of Marx, that critics 'have i10t
sufficiently appreciated the radical character of his departure'vn the
questions he asked, atid hence have tended to misunderstand the answers
he gave. Had economics followed Veblen, it would have become a fundamentally different kind of inquiry. His sustained attacks on the 'pseconceptilo~isof economic science'lo were not attacks on the validity of
particular doctrines but attacks on the general outlook which gave rise
to such a line of (to him) meaningless inquiry into economic statics, while
Ibid., p. 436.
T h e Place of Science i n M o d e r ~ tC i v i l i z a f i o ~ tp.
, 188.
Veblen wrote when the Pragmatism of William James and John Dex%-ey
was a t its peak.
However, he rejected its assumption that knowledge 1%-as
sought exclusively for instrumental
purposes and ignored its methodological insistence on the importance of making hypotheses
testable. I n addition to explicit arguments against it (ibid., pp. 7, 8, 1 0 ; Thorstein Veblen,
T h e Higher Learning in America, [Xew York, 19571 p. 4 ) he made repented satiric use of
William James's phrase, 'the 1%-ill
to believe'. For example, Thoistein Veblen, T h e X a t u ~ c
of Peace (Xew York, 1945), pp. 67, 3 6 4 ; Thorstein Veblen, Tibe Instinct of Ti'orkn~ansl~ip
(New York, 1964), p. 333.
T h e Place of Science in M o r l e ~ nCivilization, pp. 82-147.
Ibid., pp. 68-60, 83-84.
Ibid., p. 178.
' LOC.cit.
Ibid., p. 178 n.
"bid., p. 409.
0 Ibid., pp. 82-170.
T. SOWELL
181
leaving the glaring fact of qualitative economic and social change largely
unexplored. Veblen attacked the questions of traditional economics rather
than the answers. 'The postulates of marginal utility' were criticized
because 'they confine the attention' to a narrow range of phenomena and
thereby tend to 'exclude from theoretical inquiry . . . the facts of cultural
growth . . . ' , I They took as given the individual tastes which Veblen
wished to investigate as by-products of the evolution of social conventions
under economic stress. Traditional economic laws 'are theorems as to the
limits wl~ichthe economic (commonly the pecuniary) interest imposes
upon the range of activities to which the other life interests of men incite,
rather than theorems as to the manner and degree in which the economic
interest creatively shapes the general scheme of life'.2
Just as it is easy to understate the differences in purposes between
Veblen and traditional economics, it is easy to overstate their substantive
differences in the areas of overlapping interest. Veblen's praise of 'Professor Marshall's great ~ i r o r k was
' ~ but one indication of this. Veblen's
lengthy explorations of the methodological ruins of early economics were
designed to show the genesis of certain key preconceptions, of which
current disserviceable i~otionscould be regarded as atrophied survivals.
A complicating factor in any attempt to understand Veblen's position
vis-ci-visother economists is his frequent lapse into reckless misinterpretation of their views. Thus, for example, he would have Adam Smith a
defender of the doctrine that profits were wages of superintendence, when
in fact Smith had argued against this c ~ n c e p t i o n .Similarly,
~
Ricardo was
blamed for importing Benthamite utilitarianism into economics,5 though
it mould be difficult to find a more uncompromising opponent of utility in
value theory. Veblen's misunderstandings of hlarx were too numerous to
cite.6 The general effect was to force Marxian economics into the preconceived mould of ultra-rationalistic, hedonistic Hegelianism required by
Veblen's theory of the effect of ideology on analysis. I n viewing both Marx
and traditional economists, Veblen never distinguished between their
seeing rationality in the economic process and their assuming similar
rationality in the participants.
Ibid., p. 409.
Ibid., p. 177.
Ibid., p. 173.
Ibid., p. 140; Adam Smith, An I n q u i ~ yi n t o the X a t u r e and Causes of the W e a l t h of
A7ations (New York, 1937), p. 48.
T h e Place of Science in M o d e r n Civilization, pp. 131 n., 422-3.
I n fairness it must be pointed out that Veblen also saw things in Jfarx which were overloolred or misunderstood by others, such as the democratic nature of the society vhich Marx
envisioned (ibid., p. 452), the fact that Narxian labour 'value' was not a price theory
(pp. 419-20, 422) and that there was no underconsumptlonist 'brealrdown' theory in
Jlarxian economics (pp. 426-7). See my 'Iiarl Jlarx and the freedom of the individual',
Ethics, vol. lxxiii,no. 2 (Jan. 1963),pp. 119-25 and 'hlarxlan value reconsidered', Economica,
vol. xxx, no. 119 (Aug. 1963), pp. 297-308.
182
'EVOLUTIOA-ARP' ECOKO3IICS O F THORSTEIK VEBLEN
11. Veblen and Marx
I n his critique of economics, as in other areas, Veblen had a large,
unackno~vledgeddebt to Karl RIarx. Veblen's teleology-apologetics charge
was a n echo of Marx's claim that ' bozc~geois' economists were incapable of
distinguishing a general economic function from its particular manifestation under capitalism. RIarx objected to thus spuriously legitimizing and
eternalizing capitalist institutions through innocence-by-association with
enduring economic necessities. For example, capital in the sense of a n
instrument of production is an economic necessity, but capital in the sense
of a legal entity causing income t o flow t o its owners was a n artifact of
existing arrangement^.^ Following Narx, Veblen sharply distinguished a n
essential activity from its particular cultural expression, not oilly with his
well-known dicliotomy between 'industry ' and 'business ', but also with
his distirictions between 'clothing ' and 'dress ',2 'learning ' and 'education ',3 and between the ' citizen ' and the 'patriot '.4
I n his inetl~odologicaldiscussion, Veblen's distinction between 'taxonomic' and 'evolutionary' analysis was operationally identical with the
Marxian distinction betmeen 'metaphysical' and 'dialectical' thinking,
which Engels had illustrated with the contrast between the taxonomist
L i n n ~ u sa nd the evolutionist D a r ~ i n .I ~
t mas essentially the distinction
between studying the nature of a thing and studying its processes of
development. Veblen's claim that his own 'Darwinian' approach to
economics differed in substance from Marx's 'Hegelian' approacli was
groundless, though it has been uncritically repeated by ~ o m m e n t a t o r s . ~
The difference between Darwin and Hegel, according to Veblen, was that
the latter's evolutionary theory was teleological. But, as Engels had
pointed out long before, it was a 'blunder' t o completely identify the
'Marxian dialectics with the Hegelian'.' Teleology was precisely what
Marx and Engels had rejected in Hegel. Engels had criticized Hegel on
the ground of teleology in his Dialectics of Xatwes and Marx had hailed
Darwin's blow a t teleological thinking as his major accornpli~hment.~
Karl Marx, A Contrzbution to the Critzpue of Polztzcal Econonzg (Chicago, 1904), pp. 26970. Cf. T h e Place of Science in AUoder~aCzvzlizatzon, p. 141.
Ibid., p. 395.
T h e I3zgher Learning zn A?nerzca, pp. 45, 149, 164 n.
T h e ATature of Peace, p. 34; T h e Instinct of W o l k n ~ a n s h z pp.
, 161.
"rledrich
Engels, 'Sociallsm: Utopian and scientific ', Narx and Engels, Baszc TPrztzngs
o n Polztzcs & Phzlosophg, ed. L e ~ i l sS. Feuer (Garden City, 1959), pp. 85, 87.
Abram L. Hams, Econon~zcsa n d Social R e f o r m (New Yorlr, 1958), p. 165; Abram L.
Harrls, 'Economic evolution: cllalectlcal and Darwmian', J o u r n a l of Polztzcal Econo?ng,
Feb. 1034, p. 70; F. G. H111, 'Veblen and &Iarx', Thorstezn Veblen. A Crztzcal Reappvaisnl,
ed. D. F. Dowcl (Ithaca, 1958), p. 147 ; Max Lerner, 'Edltor's lntroductlon', T h e Poltable
Veblen (New Yorlr, 1958), p. 35.
Fredericli Engels, Herr E u g e n Dzthrzng's Revolutzon in Sczence (New York, 1939), p. 136.
8 F. Engels, Dzalectzcs of X a t u r e , chapter 111.
Karl Marx and Frederick Engels, Selected Correspondence (New Porli, 1942), p. 125.
The idea t h a t Marx eilvisioiled communism teleologically as the ultimate
consummation of history, as Veblen charged,l was contrary t o both the
general trend of his thinking and to his specific proiioun~ements.~
If the
charge of teleology ivere reduced to mean simply producing a model whose
outcome was a change of which the author approred, then VeLlen would be
equally guilty with Mars. The 'Soviet of Engineers ' which TTeblen foresaw
mas obviously preferable to capitalism in his eyes.
To Veblen's credit it must be observed that, unlilie hlarx, he had g r a ~ - e
reservations as to the progressive nat,ure of historical c l ~ a n g c and
, ~ as to
11-hether social necessity would produce a change a t all:
.
. . history records more frequent a n d inore spectacular instances of t h e triumph of
iinbeeile institutions over life a n d culture t h a n of peoples wllo have b y force of
instinctive insight saved themselves alive out of a desperately prcca,rious institutional situation, sucli, for instance, a s now faces t h e peoples of Clulisten~iom.~
While TTeblenwas a socialist, he was a n unorthodox one. The common
man was never for Veblcn the earnest stalwart of socialist literature, nor
lvas he prepared to believe t h a t workers became increasiilgly destitute
under capitalism. The idea that the rich were growing richer and the poor
poorer was dismissed as 'farcical'. Capitalism had produced 'an amelioration of the lot of the less favored in a relatively greater degree than t h a t
of those economically more f ~ r t u n a t e ' .The
~ facile suggestion has somctimes been made that Veblen was simply trimming his sails on this controversial subject out of concern for his precarious academic career, especially
a t the time of his early writings on socialism.6 But where he differed from
orthodox socialists Veblen's views remained substantially unchanged
throughout his career, even in his later, more radical (or outspoken)
period. Bforeover, his reason for favouring socialism-waste under capitalism-remained unchanged, though his emphasis shifted from waste in
consumption to waste in production.
While his Theory of the Leisure Class dealt with waste by the wealthy,
Veblen found the poor equally vain and wasteful. A 'not inconsiderable
T h e Place of Science i n Modern Civilization, p p 416-17.
For Marx the epochal significance of the society he envisioned was not that it marked
the end of historical evolution, but that it would facilitate further development. Henceforth social evolution could take place without armed revolution (final paragraph, T h e
Poverty of Philosophy). Engels was shoclred by socialists who conceived of socialist society
as ' a stable affair fixed once and for all' (Marx and Engols, Selected Correspondence, p. 473).
I n an unpublished manuscript JIarx declared that 'communism is not itself the aim of
human development or the final form of human society '. Karl Narx, Selected Writings i t z
Sociology aand Social Philosophy, ed. T. B. Bottomore and Maximilien Hubel (London, 195G),
p. 246.
Ibid., p. 25.
T h e Instinct of TVorkmclnsltip, p. 19.
T h e Place of Science i n Modern Civilization, p. 391.
Max Lerner, Ideas are ll'eapons (Sew York, 1940), p. 131 ; rlrthur K . Davis, 'Thorstein
Veblen reconsidered', Science & Society, vol. xxi, no. 1 (Winter, 1957), pp. 54-53.
1
2
184
'EVOLUTIONARY' ECONO3IICS OF THORSTEIN VEBLEN
amount of physical privation' was suffered because 'what might be the
means of comfort is diverted to the purpose of maintaining a decent
appearance or even a show of luxury'.l This was charged to the capitalist
economy's emphasis on money, which produced a race for 'pecuniary
emulation' which 'no advance in the average well-being of the community
can end . . . '.2 Veblen estimated waste to account for one-half the economic
activity of the country, so that even if socialism 'should prove less effective
for the production of goods' it would still represent economic p r ~ g r e s s . ~
I n later years, with his emphasis now on waste in production, Veblen
decided that under socialism production would 'exceed the current output
by several hundred per cent'.*
Greater efficiency rationality and material output had also been pictured
by Marx among the incidental benefits of socialism, but only as minor byproducts. It was capitalism's 'historic mission' to have already created
these things ; socialism's mission was to turn them to better human use.
Marx's criticism of capitalism was precisely that it was a system 'in which
the labourer exists to satisfy the needs of self-expansion of existing values,
instead of on the contrary, material wealth existing to satisfy the needs of
development on the part of the labourer '.5 The worker's developmei~tas
a human being was more important to Dfarx than his more effective use as
a factor of production. On this ground he criticized modern industrial
occupations as crippling6 whereas Veblen regarded them as enhancing
the worker's intelligence-in the sense that he became ' a more efficient
~ o r k r n a n ' . ~Veblen's view was more narrowly confined to economic
efficiency.
Veblen and Marx differed not only as to what they expected socialism
to accomplish, but also as to how they expected it to come about. Veblen
saw engineers, rather than Marx's proletarians, as the instruments of
revolution. This was not a chance difference of assumptions, but reflected
a more basic difference between them concerning the derivation of ideas.
According to Veblen's theory, the kind of intellectual activity involved in
an individual's daily work determined his intellectual frame of reference,
his canons of evidence, lines of inquiry, etc. : '. . . the scope and method
of linomledge and belief which is forced on men in their everyday material
concerns will nnavoidably, by habitual use, extend to other matters as
well . . .'.8 While the Veblenian distinction between 'industrial' occupa-
1
2
4
5
7
8
T h e Place of Science i n Modern Civilization, p. 392.
Ibid., pp. 396-7; Theory of the Leisure Class, p. 32.
TJle Place of Science i n X o d e r n Civilization, p. 400.
Thorstein Veblen, l'he Engineers and the Price System (New Yorlt, 1954), p. 121.
Karl Jlarx, Capital (Chicago, 1906), vol. i, pp. 680-1.
Ibid., p. 396. Thorstein Veblen, T h e Theory of Business Enterprise (New Yorli, 1988), p. 147. Idem., The Vestecl Interests and the Co?nmon M a n (Kew York, 1946), p. 9. tions and 'pecuniary' ('business') occupations was in part a distinction
between what Veblen conceived to be useful and wasteful activities, it
was primarily important because of 'the training and selective stress to
which the character of these employments subjects the persons employed '.I
Business occupations involved personal competition and tended to produce
or emphasize ar~thropomorphicand invidious concepts-merit,
status,
ability, natural rights, etc.-which were among the intellectual bulwarks
of a class society. Industrial occupations, dealing with inanimate objects
and the impersonal laws of science, tended to produce narrower notions
of cause-and-effect, the 'submergence of the personal e q u a t i ~ n ' and
,~ a
general outlook to which the concepts of the business class appeared not
so much wrong as meaningless and irrelevant. Whereas Schumpeter
argued that the entrepreneur lacked the necessary romantic appeal to
perpetuate his dominance, Vebleil argued that the sense of romanticism
itself had atrophied in a machine age.
Though Veblen granted, a t least in his earlier work, that considerable
economic progress had been made under capitalism, he nevertheless made
the crucial assumption that capitalism's justification in the public mind
rested not on this pragmatic basis, but on the intellectual tradition of
natural (property) rights, on awe of great men, etc. It followed logically,
on this assumption, that those whose mental processes were least receptive
to this line of thought were therefore most prone to disenchantment with
capitalism. The 'classes immediately in contact with the mechanical
occupations ' experience ' an ever-weakening sense of conviction, allegiance
or piety toward the received institution^'.^
Though Veblen's thinly veiled advocacy of a general strike of engineers
and of a 'Soviet of technicians' were products of his later years, the idea
that belief in socialism was concentrated in scientific and technical personnel appeared in his earliest writings and persisted throughout his career.
Like other theories in which economic factors shape thought and action,
it did not imply that rational calculation of individual or class interest
was the prime motivation of men. Like the 'economic determinism' in the
theories of Marx or of Schumpeter, it implied only that the social scene
was differentially perceived by persons in different objective positions in
the social organization of production, and that the conflict of differentially
conditioned men would eventuate in a drastic reordering of society. The
idealism or sincerity of the actors in the drama was not in questione4
Essnys i n Our Changing Order, p. 25. T h e Vested Interests and the Common M a n , p. 40. T h e Theory of Business Enterprise, p. 134. Thomas Sowell, 'Iiarl Marx and the freedom of the individual', Ethics, vol. lsxiii, no. 2 (Jan. 1063), p. 121 ; J. A. Schumpeter, Essays of J . A. Schumpeter, ed. R . V. Clemenco
(Cambridge, Mass., 1931), p. 171.
4620.2
0
186
'EVOLUTIOSAI3Y ' ECONOBlICS OF THORSTEIN PEBLEN
111. Economic doctrines
Despite Veblen's calls for a n expansive conceptioil of ecoilomics t h a t
would range into sociology, psychology, history, and anthropology, there
were Veblenian doctrines which were narrowly economic in the traditional
sense. Some of these were passing ad hoc pronouncenlents but others
represented sustained analysis along purely econoinic lines. niajor attention was given to monetary and business cycle theory, with lesser attention
being devoted to price theory, and largely descriptive coverage of unions,
corporations, and natural resources.
I n business-cycle theory, Veblen rejected the notion of a true cycle with
p e r i ~ d i c i t y ,calling
~
it an 'ecoilomic dogma' rather than a theory, 'since
it is not held on reasoned g r o u i ~ d s ' . ~
H e thought periodicity possibly
characteristic of the period from the post-Xapoleonic depression to the
'great depression' of 1873, but not later. Jforeover, the character of the
downswing was regarded as being now a chronic recession intermittently
relieved by prosperity, rather than a series of sharp contractions as in the
earlier period. This estimate was remarkably similar to one introduced by
Engels in a footnote in the third volume of C ~ p i t a l .But
~ Veblen's tlzeo~y
of the business cycle-as distinguished from his characterizations of itwere entirely non-Marxian and distinctly his osm.
According to Veblen, a monetary crisis was brought on by the forced
liquidation of over-capitalized corporate assets. Corporate assets tended
t o be over-capitalized both in terms of historical cost and prospective
earning pourer. The divergence of asset valuation from actual cost was
insistently repeated by Veblen as a n illustration of the effect of the habit
of pecuniary thinking by businessmeil in contrast to the more 'realistic'
thinking of scientists, engineers, etc. But this kind of over-capitalization
played no active role in his theory of the business cycle. Over-capitalization relative t o earning power was what precipitated a monetary crisis
when creditors realized t h a t this situation e x i ~ t e d . Banliruptcy
~
and
chain-reactions of credit defaults brought on deflation, which was largely
synonymous with depression in Veblen's view. Real output was not conceived to vary much between prosperity and depressions; the major
variation was in the price level.5 For both businessmen and workers
'the distress which dull times brings is in some part a spiritual, emotional
rnatter',6 based on falling prices and money wages.
For Veblen depression was a result of the declining profitability of older
capital with its high fixed charges based on its prospective earning power
as of the time of its original investment. It was not the Keynesian decline
1
T h e Theory of Business Enterprise, p. 117.
Loo. cit.
Karl Bfarx, Capital (Chicago, 1909), vol. iii, pp. 574 n.-575 n.
T h e Theory of Business Enterprise, p. 99.
Ibid., p. 114.
Ibid., p. 115; Essays in Our Cl~angingOrder, pp. 112-13.
in the marginal eEciency of new capital relative to the interest rate, but
the decline in the prospective earnings of older capital relative t o the
interest rate, that was i1nportant.l However there is not here a conflict
between Keynesian and Veblenian theories, but rather a diilFerence of
emphasis. Veblen's theory attempted to explain h o ~ vthe economy got
into a depression; Keynes's theory attempted to explain why i t did not
get out. Veblen, like Keynes. was uiliinpressed by Say's Lam, which he
treated as a n identity .2
Despite the fact that business fluctuetions recur 'constantly '3 according
to Veblen, there is 'no provisioil for a shrinliage of assets, and but slight
and d o u b t f ~ provision
~l
for a shrinliage of earnings' so that corporations
are some~rhat'helpless in the face of a d ~ e r s i t y ' . Businessmen
~
simply
lack foresight : ' . . . short-sightedness and lack of insight beyond the conventional routine seem to be fairly universal traits of the class of men who
engage in the larger business activities. '5
As for the long-range or ultimate consequences of business cycles,
Vebien's views shifted over the years. I n 1904 in The T l z c o ~ yof Business
E n t e ~ p ~ i she
e depicted depressions as groning 'more frequent and prolonged, if not more pronounced'.e The economy beconles progressively
more prone to depressioizs, requiring less aiid less of a disturbance to set
off liquidation.7 This is because the various parts of the credit economy
are more comprehensively l i n l ~ e d . The
~
remedies for depression-aside
froin revolntionary abolition of capitalism-include waste by the government on armaments, public edifices, aiid imperialistic adventure^,^ and
a more monopolistic restriction of output along lines suggesting the
N.I.R.A.1° A somewhat fascist-like war-oriented statell is depicted as an
expedient to ~vlmiclibusiness may be driven in response to the economic
pressures of depressions and the growing 'materialistic scepticism' toward
the rights of propertyx2-both being results of the 'machine civilization '.
d remarkable reversal had taken place by the time Veblen's last major
work, Absevtee Ownersl~ip,appeared in 1923. EIe now regarded the 'collusive regulation' of business and banliing as suffkient t o prevent any major
upsetting of equilibrium,l3 particularly when 'helped out by the good offices
of the Federal Reserve . . . '.1q7erry uncharacteristically, Veblen's faith in
the Federal Reserve's ability to forestall deflation was complete, blind,
and unquestioning. I t was perhaps symptomatic of the mood of the times
that even an arch-critic of tile society was convinced that it had become
Essays i n Our Chungi?zg Order, p. 110.
2 Ibid., p. 104.
Thorstein Veblen, Absentee Ownership ( S e w York, 1964), p. 92.
" Ibid., p. 93.
l'he Theory of Business Ente~prise,p. 100.
' Ibid., p. 90.
Ibid., p. 119.
8 Ibid., pp. 117, 126.
"bid., pp. 126, 136, 188.
Ibid., pp. 123-4.
11 Ibid., chapter x.
Ibid., p. 185.
l 3 Absentee O ~ ~ ? ~ e r s lp~p
. i p349,
, 363.
l4 Ibid., p. 369.
188
'EVOLUTIOSARY ' ECONO?IIICS OF 'I'1-I ORSTEIN VEBLEN
depression-proof, Accordiiig to Veblen, the business and banking community's ' outstanding liabilities ' were ' shielded from any ordinary hazard
of liquidation '.I No such 'sinister eventuality' as deflation 'need be apprehended '.2 The 'increasing stability of the credit system '3 mas repeatedly
taken for granted4-and all this just a few years before 1929.
However. despite his belief that a deprcssion-proof economy had been
achieved, Veblen was not optimistic as to the economic future. He regarded the intervention of the Federal Reserve as tending to produce
secular i n f l a t i ~ n~vit11
, ~ the result that money output would rise while real
output declined,6 under the combined 'sabotage' of business cartels and
labour unions.' The time in which he wrote was considered to be the
'critical point' beyond which there would be 110 real increase in output.
Absentee Ow7~ershipclosed with the fantastic prediction of ' a progressive
shrinkage of the available means of life'.8 Only socialism could save the
sit~ation.~
Veblen's other economic theories did not rise appreciably above the
level of his business-cycle theories, either in terms of inner logic or correspondence with external results. Indeed, the business-cycle theories were
on a higher analytical plane than most of his other theories, in that they
were in principle falsifiable by facts (and in practice grotesquely a t variance
with actual results).lO Some errors were as elementary as arguing in effect
that businesses maximize total revenue rather than profits.11 Others were
simple ad hoc predictions, e.g. that bankers would increasingly control
industry12-a prediction falsified by the growth of internal corporate
financing. Pivotal doctrines in the Veblenian scheme were left in completely unverifiable form. For example, the supposed secular growth in
'business' sabotage of 'industry'-a key doctrine in his over-all picture
of the developmei~t of capitalism-was not conceived to produce an
empirically observable decline in the growth rate ; it was supposed to be
overbalanced by the progressivelymore rapid improvement of te~hnology.~"
Veblen's treatment of the role of prices in resource allocation--or rather
his lack of treatment of i t - t v a s remarkable in view of the relevance of
this to his arguments against 'the price system '. Allocation was repeatedly
depicted as a mere engineering problem. I n the aftermath of Veblen's
Absefitee Ownersl~ip,p. 169.
Ibid., p. 371.
Ibid., p. 403.
Ibid., p. 177.
6 Ibid., pp. 422 n., 424.
Ibid., pp. 390, 391 n., 400.
' Ibid., p. 423.
Ibid., p. 445.
Ibid., p. 425.
lo Sympathetic interpretations have partly obscured this fact. For example, while Paul &I.
Sweezy acl~nowledgesthat none of the 'developments of the succeeding decades fit into the
Veblenian frameworli' and that 'much that has happened in the last thirty years escapes
the net of Veblen's theory ', nevertheless this theory somehow remains 'fresh and relevant '.
Paul &I.Sweezy, 'Veblen's critique of the American economy ', American Econonaic Review,
Papers a d Proceeclings, vol. xlviii, no. 2 (&lay1958), p. 27.
l2 Ibid., p. 362.
l1 Absentee Ownership, p. 388 n.
l 3 T h e Instinct of Work~lzc~nship,
p. 362.
projected techniciaiis' revolution, a directorate would take care of the 'due
allocatioli of resources', provide 'an equitable and sufficient supply of
goods ', and avoid 'waste and duplicatioii'.l The ,zaivete'of these questionbegging assertions places them well below tlie level reached by Marx and
Engels in the nineteenth century. Marx had repeatedly dellouiiced
socialists who envisioned governizlent fiat prices,%allcl Engels had argued
strongly the need for free inarket price-deterniinatio under socialism in
order to avoid sirnulta~ieoussliortages and surpluses.Vlie point is not
that Veblen did not agree with such arguments but that lie proceeded as
if such arguments did not exist or need not be taken account of.
Veblen's colisideratioii of' the link between utility and the price system
was similarly slipshod. 'Usefulness' slid 'TT-astefulness'\:-ere usefuhesa
and wastefulness as judged by Veblcn, not by the econoinic agents iiiT-olved. He spolie of 'material serviceability '4 and ' brute serviceability5
simply' as if these Tvere objectively given and readily ascertainable. Yet
this line of argumerit was ndvallced as one invalidating the theories of
John Bates Clark, which were based on traditional subjective utility.6
IV. Institutions and institutionalism
The most important thing to be understood about Vebleii's discussioiis
of 'institutions' is the special definition which he gave to the term.
liistitutions were patterns of ideas, not organizational entities. Veblen
defined institutions as 'settled habits of thought common to the generality
of men'.' These included 'usage, customs, caiiolis of conduct, principles
of right and p r ~ p r i e t y ' .T'cblen
~
was concerned to explain the evolution
of these social habits and custoiils in response to economic and other
changes. He differed fundamentally from later institutionalism (a term
he did not use) in that he was concerned to analyse the derivation of ideas,
not to describe the mechanics of institutions in the sense of orgailizational
entities.
Veblen was not engaged in amassing 'facts ' about things but in evolving
theories about ideas. He attempted, for exainple, to explain the reasons
for the disproportionate representation of Jews among Western intell e c t u a l ~ .Similarly,
~
his well-knonrn distinction between 'business ' and
T h e Enqineevs and the Price S y s t e m , p. 142.
Karl Marx, Critique of Politicccl E c o n o m y , pp. 103-6 ; Iclem., T h e P o v e r t ? ~oJ Philosophy (hioscom~,n.d.), pp. 84-87.
qF.
Engels, 'Preface', Karl Mars, l ' l ~ ePoverty of Philosophy.
" h e Place of Science in Llfodern Ciuilizntiota, pp. 309, 353, 354.
Ibid., p. 367.
T h e T h e o r y of Business Enterprise, p. 195.
7 T h e Place of Science i n Modoil; Cicili:ution, p. 231). Sce also T h e Bigher Learning in
America, pp. 25, 131 ; T h e Instinct of FVorkmnnsl~zp,p. 146 n. ; T h e T h e o r y of the Leisure
Class, p. 191 ; Absentee Ownership, p. 101 11. ; T h e A'atu1.e of Peace, p. 166.
T h e Instinct of W o r k m a n s h i p , p. 40.
O Essags in Our C'hanging Order, pp. 219-31.
190
'ET;OLUTIOSARP'
ECONOMICS OF THORSTEIS VEBLEX
'industry' involved an analysis of the ways in which different Binda of
work give rise to different kinds of ideas. His most celebrated work, The
Theory of the Leisure Class, was a theory of the derivation of certain consumptive ideas and practices or, as Veblen himself put it, 'an inquiry as
to ~ v h yand how the habits of life and of thought of the individual come
to be modified'.l It was not merely a static recital of 'facts' in satirical
style, but an attempt to trace the development of collspicuous consumption, conspicuous waste, etc., from barbarian ages. This purpose is not
one which must be ingeniously read into Veblen, but one which was explicitly stated in the ~vorliitself:
The situation of today shapes the institutiorls of tomorrow through a selective,
coercive process, by acting upon men's habitual view of things, and so altering or
fortifying a point of view or a mental attitude handed down from the past. The
institutions-that is to say the habits of thought-under tlie guidance of which men
live are in this way received from an earlier time, inore or less remotely earlier, but
in any event they have been elaborated in and received from the past.2
Despite the anti-theoretical bent of later institutionalists, it is clear from
Veblen's criticisnl of 6he Historical School that he appreciated the value
of theory. These criticisms would apply equally to much of modern
institutionalism. Veblen argued that 'the historical school can scarcely
be mid to cultivate a science a t all, their aim being not theoretical work'.3
Their work 'bears the character of eclecticism rather than that of a constructive advance '.4 When Vebleii criticized traditional economics for not
being 'an evolutionary s ~ i e n c eit' ~was not on the familiar grounds used
by institutionalists (and others) that economics could not be a science
because of the absence of controlled experiments, the unpredictability of
human nature, etc. To Veblen it was not a science simply because economists did not follo~vwhat he regarded as scientific methods. The scientific
nature of a discipline turned on its methods rather than its subject-matter.
The opposite view of the iastitutio:ialists, that economics was intrinsically
not a science, was more in keeping with Malthus's methodological criticisms of Ricardo6 than with anything found in Veblen. Veblen spoke of
other ' sciences that deal with human nature ' and denied 'the sole efficacy
of data' or of 'realism'.' He added:
The insistence on data could scarcely be carried to a higher pitch than it mas
carried by the first generation of the Historical School; and yet no economics is
farther froin being a n evolutionary science than the received economics of the
Historical Scl~ool.~
1
6
7
Essays i71,Our Cl~uagingO t c l e ~p.
, 22.
T h e Theory of the Lezszcre C'lnss, pp. 190-1.
T h e Place of Science i n AVfodern Civilization, p. 254.
Ibid., p. 255.
Ibid., pp. 56-81.
T. R . lZalthus, Principles of Political Eco)aovzy, 2nd edition (Xew York, 1951), p. 1.
T h e Place of Science i n ATfodern Civilzzntion, p. 5s.
Loc, c l t .
T. SOWELL
191
Veblen hiinself was by no means reluctant to theorize, or even-in one
instance, a t least-to express his ideas in equati0ns.l The highly speculative character of most of his work was partly obscured by its commonsense categories (captain of industry, leisure class, etc.), whereas a more
empirical work dealing with abstract categories (monetary velocity,
balance of payments, etc.) might give the appearance of being more
theoretical. Of course Veblen was not a theorist in the crucial sense of
systenznticully theorizing. He showed no concern for internal logic or for
the difficult process of consistently rendering his hypotheses in testable
form. Facts mere used for illustrating rather than testing theories. I n all
these slipshod practices he set the pattern for the non-theoretical (though
not the anti-theoretical) aspects of modern institutionali~m.~
For example, Veblen argued that the entrepreneur or 'captain of
iiidustry' resisted rather than promoted innovations3-and yet he also
said that illnovations had become more frequent after the ascendai~cyof
the entrepreneur than before.4 Similarly he argued that the machine age
produced rationalistic, sceptical, democratic, and pacific ideas, but characterized Germany-in the forefront of technology-as ' a drunken savage
11-it11a machine gun'.5 He explained this contradiction by Germany's late
entry into the industrial age.6 A generation later-after still more technological progress-Veblen's characterization would become even more apte7
The point here is not simply that Veblen was wrong, but that he applied
no empirical test to his hypotheses and made no effort to state these hypotheses in such form as to permit others to do so. Nor did he evidence any
awareness of the importance of this. Even obtrusive facts to the contrary
mere either ignored or were casually explained away.
Veblen was not policy-oriented, as so many modern institutionalists
tended to be. This was not accidental, but followed from his conception
of economics and of intellectual activity in general. The kind of discipline
which Veblen wished economics t o become mould have had little value as
a guide to practical economic policy-nor did this matter from his point
of view. I n contrast to 'teleological' economics, economics of an evolutionary or 'genetic' character 'comprises nothing in the way of advice or
T h e Theory of Business Enterprise, pp. 198, 199, 203, 205, 210, 211, 212.
I t has been claimed that it is wrong to say that institutionalists were not theorists
(Douglas D o ~ dThorstein
,
Veblen, [New Yorlr, 19641 p. 55). Of course everyone is a theorist
in the sense of having hypotheses. By this standard anyone who can write a t all could be
said to be a writer.
T h e Theory of Business Enterprise, p. 27 ; T h e Instinct of TPorlcmansl~ip,p. 173. T h e Instinct of Il'orb?iaa?aship, p. 194; Absentee O m e r s h i p , p. 419. T h e A-nture of Peace, p . 235. Thorstein Veblen, I ? n p e ~ i a Germany
l
and the Industrial Revolution (Kew York, 1939), p. 280.
Yet a sympathetic interpreter regarded the rise of Nazi Germany as a vil~dicntionof
Veblen's theory. Joseph Dorfman, 'Introduction', ibid., p. xii.
2
192
'EVOLUTIOSAXY' EC'ONOIIICS O F T H O R S T E I N T'EBLEN
admonition, no maxims of expediency, and no economic, political, or
cultural creed'.l Veblen mas consistently opposed t o the Pragmatists'
belief that lmomledge was sought as a guide t o action. What 'urges men
to the pursuit of knowledge is their native bent of curiosity-an impulsive
proclivity to master the logic of facts . . . ' . 2 Xccordiiig to Veblen, ' a
knomledge of things is sought, apart from ally ulterior use of the knowledge
so g a i n e d ' . V h i s is 'the idle curiosity' whicl~Vebleil refers to throughout
his svribings, and which was regarded as a basic humnil trait as n-ell as the
motive force behind mankind's 'continucd advance toward a more and
iiiore compreheiisive system of k n ~ w l e d g e ' . ~Significantly, Vebleil regarded Malthus's ' humanitarian bias ' and 'his meakncss for consideratioils
of expediency' as 'the great blemish of his scientific s ~ o r k ' .This
~ view of'
linosvledge as an end in itself may help explain Veblen's lion-involvement
in any movement for reform or revolution, despite his unsparing criticisin
of the existing order. His celebrated detachment need not have been
altogether a lsose or literary device.
The differences between Veblen and later institutioilalists n-ere real and
fundamental, but there were obviously important similarities as well. It
is a difficult question to what extent the range of similarities represents the
coincidences of isolated opinions, t o what extent the connexioil between
a basic conception and its corollaries, and t o what extent the personal
influence of Veblen's range of views on leading iilstitutionalists who mere
his students or his students' students. The presence of ailother independent element of institutionalisin deriving from John R . Commons is a
further complicating factor.
Veblen shared with later institutionalism a n impressionistic approacb
to economics, a hostility t o intellectual 'symmetry and system-building ' 6
and an emphasis on the noa-rational sources of ideas and behaviour.
These tendencies are still very much in evidence in coiltemporary writings
but how much they owe to Veblen is problematical. The same tendencies
can be found in Malthus, which suggests that they may be offshoots of
a similar underlying conceptioi~. For example, emphasis on the nonrational element in economics undermines elaborate logical constructioils
and also tempts the economist to substitute his judgement for the judgeT h e Place of Science in M o d e r n Civilization, p. 268.
T h e Higher Leurning i n A m e r i c u , p. 148.
lbid., p. 4.
* T h e Place of Science i n M o d e r n Civilization, p. 9.
5 Ibid., p. 131. Nalthus, for his part, argued that economics should be 'practically useful'
and not 'merely gratify curiosity' ( T h e W o r k s and Correspondence of David Ricardo, ed.
Piero Sraffa, [Cambridge, 19521vol. viii, p. 286). Yet characteristically Rfalthus contradicted
himself elsewhere by pointing out the practical advances that had grown out of idle curiosity
(Thomas Robert Rfalthus, Principles of Political Z c o n o m y , 2nd edition, pp. 12-13). He was
not, hovever, referring specifically to economics in the latter instance.
6 T h e Place of Science i n M o d e r n Civilization, p. 68.
ineilt of the iildividuals concerned. This substitution was made freely with
no evidence of embarrassment by Veblen, 8Ialthus, the inst~it~ut~ioiialists,
aiid a considerable coiltemporary literature on 'n-aste-makers' and the
spending habits of a n 'afRuent society'. If it is possible for third parties
to determine ~vliatis 'really' useful, then government economic p1annir;y
of various sorts becomes not only feasible but often a~lvisable.~
Veblen's evolutionary approach to ideas, treating them as 'modern '
or 'outmoded' rather than in terms of systeniaticallg tested validity, survives in full force in a wide range of literature, but particularly in thosc
nrritiilgs ~vliichliave other iico-institutionalist earmarlis. Frequently this
tendency iiivolves a certain recklessness with the facts of history, in order
to show t h a t a particular idea was all right a t one time, but is now obsoletr
l~ecauseof intervening economic c h a i ~ g e s . ~
If ideas are conceived to age and decay like natural organisms, then
obviously it is pedantic to devote great effort to techniques of deternliniag
their logical and empirical validity. The systeniatic theoretical apparatus
of ecoi~omics(including rigorous logic, mathenlatics, and statistical techniques) are thus either dismissed entirely or greatly de-emphasized.3 This
particular set of attitudes and practices-of which Veblen was ecjually
guilty with his follo~~ers-cannot be said t o follow logically from the
evolutionary approach t o ideas. 3Iarx had the same approach and yet
applied his doctrines with a sophistication t h a t put him much closcr
methodically to moderii marginalist economics than to Veblen.4 More
1 Even Malthus, whose socio-political views ranged from conservative to reactionary,
accepted this line of reasoning. For example, he had no qualms about recommending schemes
designed to cause people to u-ork beyond the point where their own perception of the utility
of output and the disutility of labour u-ould have caused them to cease (T. R. Malthus,
Principles of Political Econonby, 2nd ed., pp. 374, 353, 401).
2 Thus Adam Smith's laissez-faire was once all right because the real world did 'really
~vorlrthis way . in the days of Adam Smith' (Robert L. Heilbroner, The ~T'orldlyPhilosophers, [New Yorlr, 19611p. 42). I n reality, of course, The TBenlth of Nntions was a sustained
attack on the way things 'really' worked in Adam Smith's time.
With the inner core of analytical principles gone, economics is reduced from a discipline
to merely a subject-matter, and one now only arbitrarily demarcated from other subjectmatters (similarly reduced from disciplines) such ax sociology, history, etc. The appeal of the
'interdisciplinary approach' to non-analytical minds is apparent. I t might better bo callcd
t,he non-disciplinary approach, since it usually involves ranging over facts (or simple analysis)
common to a number of disciplines with little use of the analytic tools developed in any.
The explicit urging of this approach is later than Veblen, and again is especially prevalent
in morlrs having other institutionalist earmarks, but Veblen's own casual amalgamation of
economics, anthropology, and psychology suggests a common basis for this tendency.
To say that more than one discipline is needed for dealing with a particular set of practical problems is a far cry from saying that an interdisciplinary approach is needed. For
example, a mathenlat,ician who wishes to work in France might well need an understanding
of the principles of the French language as well as the principles of mathematics-but he
does not need an amalgam of the two (perhaps called 'mench' or 'frath').
4 Schumpeter argued that familiarity with the underlying methods of ilIarxian economics
nlalzes it easier to grasp the underlying methods of modern theory (Joseph A. Schumpeter,
Economic Doctrine aqzd lllethod, [New York, 19541 p. 121). An obvious example is Marx's
use of systematic abstraction and successive approximations in the three volumes of Capitrrl,
. .
194
' ETTOLUTIOXARY' ECONOBIICS O F THORSTEIN VEBLEN
specifically, Marx avoided the fatal step of treating the age of an idea as
something which would put it beyond a hearing.
Veblen's repeated assertions that economics should deal ~ v i t h'things as
they are' implies considerably more than is immediately apparent in this
simple common-sense formulation. Any discipline which means to be
instrumental, and not merely to satisfy 'the idle curiosity', cannot be content to analyse things as they are. Veblen's position mas consistent for
Veblen, but not for later, policy-oriented institutionalists. An inshrumental discipline must be teleological a t least in the sense that it examines
economic variables fiom the point of view of the degree to which they concluce to some desired end, and the principles on which they can be made
to serve these ends more effectively under other (moderately or radically)
different circumstances. An instrumental discipline must abstract from
things-as-they-are those elements-principles-1~11ich
will be broadly
applicable to other situations. Conversely, the most obtrusive features of
a particular sitnation as it is may need to be disregarded in favour of an
underlying principle common to a range of situations-even if these principles are not decisive in any particular sitnation.
Even from a purely cognitive, rather than an instrumental, point of
view, concentration on things as they are increases the dangers of obsolescence and superficiality. Things as they are quickly become things as
they were ; theoretical principles endure longer than hard facts. Moreover,
this down-to-earth approach readily degenerates into naIve reliance on the
perceptions of the economic agents themselves as a substitute for the
economist's systematic analysis. The businessmen-don't-think-that-way
objection to various economic theories has been one product of this
approach. Veblen himself repeatedly advanced this kind of argument,l
though in other contexts he noted in passing that the subjects' perception
of a situation need not reveal the true relationship^.^
so that it is only in the third volume that the analysis begins to 'approach step by step ' the
conditions visible in the real world (Iiarl Marx, Capital, vol. iii, p. 38). A less obvious but
no less pertinent example is the Marxian theory of history. Here in sharp contrast to the
non-theoretical approach of Veblen, Malthus, and the institutionalists, he does not seek the
element which best explains 'things as they are' but the element which explains changes.
This he regarded-wrongly or correctly is irrelevant for this argument-as the economic
element. This did not say, as so many interpreters have misunderstood, that the economic
element best explains why things have come to be what they are. I t says rather that the
economic element is a 'leading indicator' of change. I n parallel fashion, modern marginalist
change' (Milton
economics is intended to make 'predictions about the consequences o f .
Friedman, Essays in Positive Economics, p. 4 ) . I t might well be that a businessman does not
maximize profits-he may employ incompetent relatives in preference to more efficient
strangers-but the practical question which the economist asks is, what will be his reactions
to a change in the data, e.g. a large increase in wage rates. There is nothing mysterious in the
belief that an employer with a front office filled with his relatives will nevertheless automate
the production line when assemblers' wages pass a certain point.
1 For example, T h e Place of Science i n ,Tfoclern Civilization, p, 178. Theory of the Leisure Class, pp. 47, 1 1 4 ; Abse~zteeOwnership, pp. 114, 130. ..
Again Veblen went beyond what mras logically required by his basic
premiss, and latter-day institutionalism followed him. JIarx once more
serves as a convenient benchmark, for though he was also a critic of both
capitalist society and orthodox economics, he tooli no such anti-theoretical
position against conceptions which ran counter to the economic subject's
o v n perceptions. For Marx abstraction was the essence of science : ' . . . all
science would be superfluous, if the appearance, the form and the nature of
things were wholly i d e n t i ~ a l ' .It
~ was not merely pointless but misleading
to concentrate on the individual agent's modus operandi: 'For what each
individual wills is obstructed by everyone else, and what emerges is something that no one m~illed.'~
Since an instrumeiltal theory is meant to predict 'what emerges ', it cannot proceed simply by aggregating or averaging
the perceptions of the actors in the drama, but only by seeking to construct the constraining relationships which lead their mutual pulling and
tugging to produce one result rather than another. I n short, the institutionalist position seems less traceable to their role of iconoclasts than to
methodological naivete'. Malthus, who mas not an iconoclast or critic of the
established order, but who shared many of the institutionalists' methoclological confusions, also argued for an approach mrllich would 'account for
things as they are '.3
Among the positive accomplishments of the institutionalists must be
counted much empirical work in a variety of fields. Some of it may have
been an aimless agglomeration of facts, serving merely as a stage backdrop for ad hoc assertions, but a t its b e s t i n some of the works of Wesley
Mitchell and J. X. Clark-important empirical generalizations were established which were valuable in themselves as well as providing the building
blocks for more elaborate or systematic theories. While this aspect of
institutionalisvn is considerably removed from Veblen's usual practices,
his role in it cannot be assumed to have been negligible. Veblen argued the
need for such work as a necessary preliminary to the theoretical advancement of economics, in terms surprisingly similar to those later used by
Milton Priedman.4 He saw the immediate advance of economics to lie
along the lines of 'i~ionographic' work rather than a 'compendious system
of economic theory a t large'.5 An early empirical study by Veblen may
even have pointed the way ; it was a model of the approach and style that
1 Karl Jlarx, Capital, vol. iii, p. 951; also Xarx and Engrls, Selected Correspondence,
p. 247.
Ibid., p. 4'76.
T. K . 17lalthus, Principles of Polztzcal Eco?zosny, p. 8 .
4 The Place of Science t n ATlodern Ctczlzzntzon, pp. 263-4. Cf. 311lton Friedman, 'TiT'esley C.
Mltchell as an economic theonst', Journal of Polttical Econonzy, vol. lviil, no. 6 (Dec. 1950),
p. 469.
Essays zn Our Changing Order, p. 8.
196
'ET'OLh;TIOhTARY' ECONOAIICS OF THORSTEIN TTEBLEN
mere t o become cllsracteristic of the National Burcaul-and of course very
different from what is normally associated with Veblen.
Perhaps the greatest negative effect of institutionalism was its view of
theory as a collection of suppositions rather than a set of analytical techaiques. Mere disagreellient \vith particular theories or opposition t o theory
in general ~ ~ o uhave
l d done far less damage than their misco~lstruingthe
purpose of theory. Again, Malthus anticipated this t e n d e i ~ c y . ~
I n assessing Veblen's role and impact as a n economist, i t is ~lecessaryto
note, in addition to his onrn developed thcories and his influence via the
institutional school, the enibryonic anticipations of later economic doctrines which are scattered throngh his writings. While some of these
Teblenite beginnings were later elaborated by economists ~ v i t hinstitutionalist leanings, it would be futile t o t r y to determine whether they
were inspired directly b y Vebleii or developed such notions independently.
Anlong the latter concepts found in Veblen are the uncertainty theory of
profits,3 the separation of corporate ot~nershipand control (with its behavioural consequei~ces),~
the concept (or clich6) of 'conventional wisdon^',^ and the nionopolistic competition situation of above-competitive
prices but only normal profits in markets served by excessive numbers of
I11 the latter case, he was explicitly conscious of breaking nem7
ground :
Neither t h e causes nor t h e effects of this s t a t e of things have been expounded by
t h e economists, nor h a s i t found a place i n t h e m a n y fomlulations of theory t h a t
have t o do mit'h ret'ail trade
.7
..
V. Summary a ~ conclusions
~ d
Veblen's attacks on orthodox econoinic theory were attacks on ~ v h a t
these theories were trying to do, not on how well they did it. The methods
of bhese theories-particularly
their 'unrealistic' assumptions about
human motivations-were rejected as unsuitable for what Veblen ~vislied
to do, not as defective for their own purposes. While what was attacked
was a limitation rather than a defect's Veblen saxr that theories can confine
men's efforts to problems lying within their scope-or as 3Parx had said
earlier, t h a t men only ask themselves such questions as they are prepared
to answereg The importance of this point has been amply demonstrated
Thorstein Veblen, 'The price of wheat since 1867', Journal of Political Econorny, vol. i,
no. 1 (Dec. 1892), pp. 68-103.
For example his criticism of Ricardo's 'natural' rate of wages. Sce my 'The general
glut controversy reco~lsidered',Orcford Economic Papers, vol. 15, no. 3 (Nov. 1963), p. 194.
T h e Place of Science i n Jfodern Civilizatio?~,
p. 227.
5 Instinct of I V o ~ E n ~ a n s h ip.
p , 39.
Ibid., p. 219,
7 Ibid., p. 146.
Absentee Ownership, pp. 141, 146, 150.
8 'The Limitations of Marginal Utility', T h e Placa of Science in Modern Civilizatio?~,
pp. 231-51.
I<ai-1 Marx, Critique of Political Economy, p. 12.
T. SOWELL
197
by some mathematical economists who ignore factors which do not lend
themselves to mathematical treatment, even where these factors ]nay be
decisive for the problem a t hand.
Veblen differed from later institutionalists in trying to explain the
development of social ideas under changing economic conditions, rather
than describe the mechanics of eco~iomicorganizations or amass facts
about economy. R e differed from them also in rejecting the concept of
a policy-oriented economics. Veblen and the later institutionalists were
similar in proceeding intuitively and with little regard to making their
theories empirically verifiable. It was not that he or they did not have the
facts, but that they simply did not use the facts in this way. They similarly
judged others' ideas in terms of plausibility or as being 'modern' or 'outmoded'. Perhaps more than aiiytlring else, they spread the misconception that traditional econoniic theory was a collection of ready-made
answers rather than a method by which relevant questiorls could be aslied
and the results systematically tested.
fiIalthus and Marx serve as coiivenient benchmarks for judging whether
particular institutionalist doctrines seem to derive more from their social
philosophy or tlreir methodological premisses. While Malthus did not
share the Veblenian hostility to capitalism and laissez-faire economics, he
was in agreement with the institutionalists repeatedly on points where
Marx was opposed. These mere almost invariably points involviirg theoyetical insight and analytical grasp. IIaltlius was more institutionalist
than Veblen in judging the scientific nature of economics by tlre certainty
of its results rather than the logic of its methoc1s.l
It is difficult to assess the impact of Veblen either on institutionalism
or on the development of economics in general. The diffuseness of postVeblenian institutionalism has frequently been commented upon : ' . . .
everyone who participated in the "revolt" . . . filled in the blanks left by
its essentially negative criticism with a positive program of his own'.2
There have been no Veblenians in tlre sense in which there have been
Ileynesians or IIarshallians. Yet many of the attitudes, conceptions, and
tactics of Veblen-whether they originated ~ ~ ~ him
i t l ior not-have persisted and persist still.
I t would be clraritable to believe that the development of niodern economic theory v a s improved by the need to meet the running criticism it
T. R. Malthus, Pvinciples of Political Econon~y,pp. 432, 434, Ricardo saw nIalthusls
plono~ncementthat economics was not an exact science as an excuse for intellectual sloppiness: ' . . . Political Economy he says is not a strict science like the mathematics, and thercfore he thinks he may use words in a vague way, sometimes attaching one meaning to them,
sometimes another . . . ' ( T h e TPorks nncl Cowespondence of Dncicl Kzcardo, ed. Piero Sraffa,
vol. vlli, p. 331).
Joseph A. Schumpetcr, 'Wesley Clair DIitchell (1Si4-1948)', Quu~tovlyJou~nctlof
Economics, vol. lxiv, no. 1 (Feb. 1950), p. 142.
198
'EVOLUTIONARY' ECONOJIICS OF THORSTEIN VEBLEK
faced from institutionalism. B u t i t seems a t least equally liliely t h a t
theorists were made more heedless of all criticism by the puerility of much
criticism which came from the institutionalist quarter. Nor can i t even
be claimed that institutionalists made economics more consciously or
explicitly aware of its unrealistic abstractions. John Bates Clark, ~ v h o
epitomized the neociassical approach so hated b y institutionalists, had
pointed out the unrealism of his own assumptiou before Veblen's first bocjli
appeared,l and even Ricardo had distinguished the analytically 'normal '
from the enipirically usual in an earlier era.2 Veblen a t least saw that unrealism alone was not enough to discredit a theory ; later institiltiolzalists
seemed to thinli their work co~iipletedwhen they had showed empirical
exceptions to theoretical premisses.
Veblen's ventures into technical econolnics added little to liis stature,
though he made some suggestive beginning anticipating later work by
others.
However one might weigh his positive and negative elements, it is clear
that Veblen can neither be dismissed nor classed among the immortals.
Perhaps the niost enduring claim that can be made for him is that hc n-as
one of the pioneering minds who questioned the accepted methods and
explored new pathways. Since new truths and insights, like precious
metals, are products of a process wliich necessarily includes many fruitless
searches, the valuable discoveries which are made cannot be ascribed solely
to those n-ho actually malie them but must in some uiicertain degree bo
attributed also to those who pour their efforts into the search. As Veblen
himself said :
The woll-worn paths are easy to follow and lead into good company. Aclvanctt
along them visibly furthers the accredited work w-hich the science has in hand.
Divergence from the paths means tentative work, which is necessarily slou~and frngmentary and of uncertain value.3
2
John Rates Clark, T h e D i s t ~ i b u t i o nof TVealth (New York, 1956 [originally ISDS]), p. '77.
T h e W o r k s a n d Correspondence of D a v i d Ricardo, vol. ii, p. 227 ; ibid., vol. i, pp. 94--95.
T h e Place of Sciance in M o d e r n Ciailization, p. 79.