Thorstein Veblen

Thordtein Veblen (1857-1929) was an American economist famous in the History of Modern Economic Thought for developing the Institutionalist" approach to economic policy. He combined sociology with economics in his masterpiece, The Theory of the Leisure Class (1899), arguing there was a basic distinction between the productiveness of "industry," which manufactures goods, and the parasitism of "business," which exists only to make profits for a leisure class. The chief activity of the leisure class was "conspicuous consumption," and their economic contribution is "waste," activity that contributes nothing to productivity. Veblen's sweeping attack on production for profit and its relation to status in society greatly influenced liberal thinkers seeking a non-Marxist critique of capitalism.

Early career

Veblen, born on July 30, 1857, in Cato, a small town in Wisconsin to Thomas and Kari Veblen. They were farmers who emigrated from Norway in 1847. He attended Carleton College Academy (now Carleton College) in Northfield, Minnesota. He taught a year at a Lutheran academy, then attended Yale University, taking a PhD in philosophy in 1884, with a dissertation on "Ethical Grounds of a Doctrine of Retribution." He married Ellen Rolfe in 1888.

In 1891 he finally obtained his first academic appointment at thenew University of Chicago, which overnight became a world class university in many fields. He was promoted to assistant professor in 1900 and edited the prestigious Journal of Political Economy, while coneversing with such Chicagoans as John Dewey, Jane Addams. He published two of his best known books, The Theory of the Leisure Class (1899), and The Theory of Business Enterprise (1904).

A difficult colleague to get along with, in 1906 Veblen went to Stanford University and in 1910 to the University of Missouri. He published The Instinct of Workmanship (1914), Imperial Germany and the Industrial Revolution (1915), and An Inquiry into the Nature of Peace and the Terms of its Perpetuation (1917). In 1918 he served with Herbvert Hoover's Food Administration, and published The Higher Learning in America, a scathing critique of business' influences upon universities.

In 1918 and 1919 Veblen published essays and editorials in a radical weekly, The Dial, reprinted in The Vested Interests and the Common Man (1919) and The Engineers and the Price System (1921). From 1920 to 1922 he taught at the New School for Social Research in New York, and in 1923 he published his last major work, Absentee Ownership. He spent his retirement in a cabin in the California hills.

Contributions to Economics

Veblen was an early exponent of institutionalism--the approach to economics that places prime emphasis on historically specific patterns of social behavior, or institutions. Thus, in The Theory of the Leisure Class, he contended that under the unequal social structure created by capitalism, consumer behavior was not based, as neoclassical theory assumed, from atomistically individual valuations of available goods ranked in terms of the "utility" to be derived from their consumption. Rather, he argued that the wealthy, (the "leisure class") were primarily motivated by the drive to flaunt their privileged status through "conspicuous consumption" and "conspicuous waste." The valuations thus established, filtered down to the middle class and the working class through imitation.

Veblen's fundamental criticism of what he called the "received economics" was that it concerned itself only with the commercial side of the modern economy and neglected its industrial and technological foundation. Arguing that monopolistic control of production greatly reduced output, he foresaw the possibility of enormous increases in production when unused resources were set to work. Believing that an artificial inflation of values was characteristic of American capitalism, he predicted a collapse similar to that which occurred in 1929.

In Veblen's worldview, both private property and the nation-state were institutions that not only obstructed technological advance but in modern times also threatened mankind with reversion to a second Dark Ages. Veblen was a socialist in believing that a modern industrial economy requires unified, public control. But his skepticism of political authority made him something of an anarchist as well. Indeed, he considered that human nature had been biologically fixed in small quasianarchistic cooperative communities.

Veblen's influence was due partly to his inimitable literary style. He made such phrases as "conspicuous consumption" and "cultural lag" a part of the common vocabulary. Wesley Clair Mitchell, Walton Hamilton, and Stuart Chase were among the economists who considered themselves Veblen's disciples. His influence reached its peak during the New Deal, through such policy makers as Rexford Guy Tugwell and Jerome Frank. His witty critiques of capitalism later inspired John Kenneth Galbraith.

Bibliography

• Diggins, John Patrick. Thorstein Veblen (1999) excerpt and text search
• Dorfman, Joseph. Thorstein Veblen and His America (1934),

By Veblen

• The Theory of the Leisure Class excerpt and text search
• The Theory of Business Enterprise excerpt and text search
• The Engineers and the Price System excerpt and text search
• The Higher Learning in America excerpt and text search

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