Thorstein Veblen (1857-1929) remains poorly known in the French speaking world, though there has been, over the past decade, a renewal of interest in his thought and work. Even in the United States, where he lived his whole life, he is one of those famous people that one doesn’t know. Economic history textbooks refer to him somewhat perfunctorily as the founder of institutional economics. He is best known for his Theory of the Leisure Class (1899), his critique of neoclassical economics, and his thoughts on the role of institutions.
Veblen was a sociologist as much as he was an economist : he believed that the economy was embedded in social institutions, thus disagreeing with his contemporaries, who were busy building fences around “pure” economics to protect it from other social sciences. It is this intellectual stance, which is both critical and interdisciplinary, to which we feel indebted and that which we wish to honor. It does not lock us into a school of thought or rigid tradition.
Beyond his work, there is, moreover, Veblen the man : an eternal outsider, an American son of Norwegian immigrants, torn between the small Lutheran farming community where he grew up and American society at large, from which he felt alienated. This “iconoclast par excellence” (as Gilles Dostaler puts it in the article below), who lived “on the margins of both the academic world and ‘high society,’” according to Raymond Aron [1], would not have wanted tributes or hagiographies written in his honor. The most fitting tribute would be to honor his iconoclastic mind, which is acknowledged even by those who are only vaguely familiar with his work.

The Institute

“Thorstein Veblen, Pioneer of Institutionalism”

Gilles Dostaler

This article originally appeared in the French monthly Alternatives Economiques n° 215 (June 2003). Reproduced with the kind permission of the editors and the author.

Veblen, a merciless detractor of his own society, laid the groundwork for an unorthodox critique of neoclassical thought.

Thorstein Veblen was an iconoclast par excellence. Both his life and work are noteworthy for their anti-conformism and dissidence. Born in 1857, he was raised an isolated Norwegian immigrant community in the United States. After defending a doctoral thesis inspired by Kant and Spencer, he retreated for seven years to the family farm, where he plunged into a sea of books that he devoured at a prodigious rate. Only at the age of 34 did he begin to earn his own living. His unusual behavior, his style of dress, his unorthodox teaching methods, his stormy relationships, and his overt hostility to religion complicated his academic career, which was punctuated by non-renewed contracts and stints of unemployment.

And yet even so, his colleagues recognized the value of an oeuvre that brilliantly combined trenchant sarcasm with original analysis while straddling economics, sociology, and history. In 1925, as he was nearing seventy, Veblen was offered the prestigious position of president of the American Economic Association—on the condition, that is, that he agreed to become a member ! True to himself, he declined the honor, adding that the offer should have been made when he needed it. The following year, he retired to a rustic cabin, full of furniture of his own making, on a hill along the Californian coast.

A Critic of Economic Theory

Veblen was not only a merciless and cutting critic of the society in which he lived, but also of the theories that claimed to explain this society, particularly economic theory. It was Veblen who coined the term “neoclassical economics” to emphasize that there was more continuity than discontinuity between classical political economic and the new school of marginalism. Veblen believed that, as often occurs with social thought, neoclassical theory had been outpaced by the society that it sought to explain. Abstract, deductive, and static, it was incapable of explaining economic growth and crises. It had closed itself off from other disciplines, like sociology and history, at the very moment when an interdisciplinary approach was needed to understand the evolution of society and its institutions. Neoclassical economics endorses a restrictive conception of human beings that is contradicted by biology, ethnology, and psychology. Homo economicus is a passive atom, a calculator of pleasure and pain, a “bundle of desires” that refers to no actual desire.

A critic of neoclassical economics, Veblen was equally opposed to Marxism, despite his apparent closeness to it. He reproached Marx, like his inspirer Hegel, for his deterministic conception of history. He considered the labor theory of value and the theory of surplus value to be inadequate for understanding industrial society in which machinery was playing an increasingly dominant role. Nor did he believe in class struggle as Marx conceived of it. He viewed the proletariat not as revolutionary, but as corrupted by the upper classes, whose values it assimilated and sought to imitate.

Instincts, Evolution, and Institutions

Far from being harmonious and balanced, society has, since its origins, been a site of conflict and domination. Human beings are not hedonistic and rational calculators but creatures of instinct and irrational impulses. These instincts evolve along with the changes that, beginning with primitive communities, ultimately lead to modern industrial society. One of the most important primitive impulses is the predatory instinct, which leads idle minorities to appropriate economic surpluses for themselves. It first appears in relations between men and women. Next, it pits a “leisure class,” dedicated to sport, religion, war, and government, against a laboring class. The predatory instinct is accompanied, in these instances, by a propensity for physical exploits and by a taste for war and sport. In modern society, this takes the form of financial competition, revealing itself in conspicuous consumption, leisure, and ostentatious waste. The higher one’s social rank, the less one consumes in order to satisfy one’s needs, and the more one consumes to display one’s status, power, and wealth. These nefarious impulses are opposed the artisanal instinct or workmanship, a taste for gratuitous curiosity, and the parental instinct. The latter are the motors of economic, social, and scientific progress.

Veblen does not believe that these instincts are the exclusive property of a single social class. One finds them, in varying degrees, in all human beings. Even the poor, influenced by advertising and the example of their social superiors, indulge in leisure and conspicuous consumption.
As an admirer of Darwin, Veblen attributes a central place, in addition to instincts, to evolution and institutions in his vision of society. He defines institutions not as organizations, but as “prevalent habits of thought with respect to particular relations and particular functions of the individual and of the community” (Theory of the Leisure Class). They are customs, practices, rules of behavior, or juridical principles. Institutions thus have an important cultural dimension. They evolve by adapting to changing environments. But they lag, most of the time, behind scientific and technological progress. This lag is the primary cause of economic and social crises.

A Critic of Modern Economics

Veblen applies his dualistic approach to the study of the modern economy. The equivalent of the instinct of workmanship in the modern economy is industry. The modern equivalent of the predatory impulse is the business world. Industrial progress is tied to advances in science and technology. Modern industry is characterized in particular by the predominant role given to machinery. The purpose of industrial activity is to manufacture products that improve the population’s wellbeing. In modern capitalism, however, production is organized by companies. The reason companies invest is financial gain, i.e. to make a profit. In other words, their goal is make money, not things.

Nothing guarantees that the interests of industry and business will coincide—quite the contrary. It can be just as profitable—even if it is antisocial—for a company to slow down production, to raise prices unnecessarily, to waste resources, or to produce useless or harmful products. There was a time, when capitalism was first emerging, when companies were run by genuine industrialists driven by workmen’s instincts. Now, economic power is in the hands of a modern predator : the captains of industry and finance. Veblen is one of the first thinkers to describe the consequences of the separation of ownership and production in companies and the emergence of the “absentee ownership” that has emerged as the dominant form of postwar capitalism. Economic crises and unemployment are the result of the slowing-down of industry that capital ownership imposes on the price system. The expansion of credit and excessive stock-market capitalization create increasing discrepancies between capital that is real, productive, and tangible, and capital that is purely monetary and intangible.

The way out of this impasse, according to Veblen, is for the carriers of the instinct of workmanship, technicians and engineers, to seize control of industry in alliance with manual laborers. Yet he offered no explanation of such a “technicians’ soviet” might work in practice. In the final years of his life, he grew more and more bitter and pessimistic about what he saw as the growing collusion between business, religion, and war. Were he to come back to life at present, he would, no doubt, feel completely at home !

Though relatively isolated at the time of his death, Veblen had two disciples, John R. Commons and Wesley C. Mitchell, who were the real founders of the institutionalist school of which he is considered the father. As the primary heretical opponents to neoclassical hegemony in the United States, institutionalism has assumed a variety of forms, some of them quite distinct from Veblen’s own ideas. After having inspired Franklin Roosevelt’s New Deal, Veblen’s ideas went, during the postwar year, on a long journey through the wilderness. During the sixties, there was a major resurgence of interest in his thought, notably with the foundation of the Association for Evolutionary Economics.

Gilles DOSTALER
Translated from French by Michael C. Behrent