Thorstein Veblen: Economics "is a `Science' of Complaisant Interpretations, Apologies, and Projected Remedies" — Timothy Taylor

I always enjoy reading Thorstein Veblen, partly because his writing strays back and forth across the line between "raising questions of real interest" to "just plain old dyspeptic and cantankerous." His 1918 essay "The Higher Learning In America:A Memorandum On the Conduct of Universities By Business Men" is full of comments from both categories, often closely overlapping.

It's also the source of one of the liveliest insults to the field of economics, that economics is "a `science' of complaisant interpretations, apologies, and projected remedies." Veblen also argues that this isn't because economists and other academics have been paid off, but only because they have been selected and trained for their narrow intellectual horizons....

Compare Upton Sinclair:

"It is difficult to get a man to understand something, when his salary depends upon his not understanding it!" — I, Candidate for Governor: And How I Got Licked (1935); repr. University of California Press, 1994, p. 109.

Once an investment in education is built up providing access to academia, it is difficult to think in ways that challenge this investment.

Veblen noticed this of economists back in 1918 and called attention to it.

Conversable Economist
Thorstein Veblen: Economics "is a `Science' of Complaisant Interpretations, Apologies, and Projected Remedies"
Timothy Taylor | Managing editor of the Journal of Economic Perspectives, based at Macalester College in St. Paul, Minnesota

Ann Jones — Our Veblen Moment

The Man Who Saw Trump Coming A Century Ago: A Reader’s Guide for the Distraught

Tom Dispatch
Tomgram: Ann Jones, Our Veblen Moment

David F. Ruccio — The gilded age: a tale of today

The timing could not have been better, at least for me. It just so happens I’m teaching Thorsten Veblen’s Theory of the Leisure Class this week. It should become quickly obvious to students that, as I have argued before on this blog, we’re now in the midst of a Second Gilded Age.

This is confirmed in a new report by UBS/PwC, according to which, after a brief pause in 2015, the expansion in billionaire wealth around the world has resumed.

This is an inevitable result of a system that prioritizes growth regardless of distribution and assumes that optimal growth necessitates favoring capital formation over the other factors of production, labor and land, that is, people and the environment.

The priorities need to change and that involves changing the system in the direction of one that integrates the factors.

Failure to do is resulting in social unrest, political dysfunction, and fouling the nest. This direction is unsustainable.

Occasional Links & Commentary
The gilded age: a tale of today*
David F. Ruccio | Professor of Economics University of Notre Dame Notre Dame

Michael Hudson — Rentier Capitalism – Veblen in the 21st century

As the heirs to classical political economy and the German historical school, theAmerican institutionalists retained rent theory and its corollary idea of unearned income. More than any other institutionalist, Veblen emphasized the dynamics of banks financing real estate speculation and Wall Street maneuvering to organize monopolies and trusts. Yet despite the popularity of his writings with the reading public, his contribution has remained isolated from the academic mainstream, and he did not leave a “school.” The rentier strategy has been to make rent extraction invisible, not the center of attention it occupied in classical political economy. One barely sees today a quantification of the degree to which overhead charges for rent, insurance and interest are rising above the cost of production, even as this prices financialized economies out of world markets.

Michael Hudson
Rentier Capitalism – Veblen in the 21st century

See also


L. Randall Wray, Veblen’s Theory of Business Enterprise and Keynes’s Monetary Theory of Production, <i>Journal of Economic Issues</i>

Michael Hudson and Ahmet Öncü — The Legacy of Veblen in the Age of Post-Industrial Capitalism

An important book has just been published from a 2012 conference in Istanbul on Thorstein Veblen: Absentee Ownership and its Discontents, edited by Michael Hudson and Ahmet Öncü. It is published by ISLET and is available on Amazon.…

The present collection of essays trace how Thorstein Veblen described the way in which the mid-19th century’s industrial capitalism was becoming centered on what today is called the Finance, Insurance and Real Estate (FIRE) sector. Each author in this volume discusses the character of today’s capitalism, and how and why the capitalist class remains politically dominant despite the fact that it repeatedly fails to fulfill the requirements of economic leadership it claims to fulfill. Together, these papers contribute to a better understanding of “capital in the twenty first century,” to use the phrase that has become popular following Thomas Piketty’s best seller.…

Excellent post on Veblen's prescience about economic rent and financial rent-seeking by FIRE becoming the basis of late stage capitalism.

Counterpunch
The Legacy of Veblen in the Age of Post-Industrial Capitalism
Michael Hudson and Ahmet Öncü

Geoffrey Hodgson — Imagine Economics as an Evolutionary Science

Veblen took the view that humans were driven by habit. Habits are guided by both inherited propensities – called instincts – and existing institutions. A habit is a learned capacity to act or think in a particular way. Instead of beliefs being prime movers, they too are based on habits.

As the pragmatist philosopher John Dewey argued eloquently in his 1922 book Human Nature and Conduct, deliberate choices occur when our habitual propensities clash and we are forced to make a decision between them. Generally, habit drives reason and choice, rather than the other way round.

This way of putting instinct first, habit second, and reason third is consistent with our understanding of human evolution. The instinct-habit-reason ordering is consistent with the sequence in which these emerged long ago in the evolution of our species. It is also consistent with the way in which they develop in each human individual, from infanthood to adulthood.

This evolutionary perspective on human agency is very different from the mind-first, or beliefs-first, perspectives that still dominate economics and much of social science.…

As George Lakoff frequently points out, mind-first is so 18th century.

Evonomics
Imagine Economics as an Evolutionary Science

Geoffrey M. Hodgson is research professor at Hertfordshire Business School, University of Hertfordshire, England

David F. Ruccio — Sanders and Veblen

David Ruccio schools Adam Davidson, following Bill Black.

Occasional Links & Commentary
Sanders and Veblen
David F. Ruccio | Professor of Economics, University of Notre Dame

David Sloan Wilson — Love Hayek, Love Darwin

It is not an exaggeration to say that as far as his premises are concerned, Hayek is one of the fathers of Evonomics. So is Thorstein Veblen, who titled an 1898 article “Why is Economics Not an Evolutionary Science?”

The conclusions that Hayek draws from his premises are another matter. In my humble opinion, they require updating. But there’s no point discussing the conclusions that follow from a set of premises unless the premises are first accepted. Discussions centered on Hayek are therefore discussions centered on economics from an evolutionary perspective.…

A different view of Hayek. To be continued.

Evonomics
Love Hayek, Love Darwin

David Sloan Wilson | Distinguished Professor of Biology and Anthropology at Binghamton University and Arne Næss Chair in Global Justice and the Environment at the University of Oslo

See also

Why Darwinian Economics Is so Threatening to Libertarians

George Cooper

What’s the Secret to Joining the “Rich-Country” Club?

Steve Roth

John F. Henry — Fred Lee, the Industrial Workers of the World, and Heterodox Economics

Paper presented at the 15th World Congress of Social Economics. Brock University, St. Catharines, ON, Canada. 

June 22-24, 2015
Dr. Fred S Lee
Fred Lee, the Industrial Workers of the World, and Heterodox Economics (by John F. Henry)

David F. Ruccio — Capital in the 18th, 19th, 20th, and 21st centuries

Reading list.

Once again, this coming fall, I’ll be teaching Karl Polanyi’s The Great Transformation in my Topics in Political Economy course.

It’s a course based entirely on books (plus a few political economy films, starting with Charlie Chaplin’s Modern Times). I teach four classic texts of political economy, starting with Adam Smith’s Wealth of Nations and then moving on to different responses to Smith’s theory of capitalism: by Karl Marx (volume 1 of Capital), Thorstein Veblen (The Theory of the Leisure Class), and finally Polanyi.

I match each classic text with a contemporary one: for example, Deirdre McCloskey’s Bourgeois Virtues with Smith, Stephen Resnick and Richard Wolff’s Knowledge and Class with Marx, and Joseph Stiglitz’s The Price of Inequality with Veblen. Next time, I’m planning to teach Thomas Piketty’s Capital in the Twenty-First Century as the follow-up to Polanyi.

Occasional Links & Commentary
Capital in the 18th, 19th, 20th, and 21st centuries
David F. Ruccio | Professor of Economics University of Notre Dame Notre Dame

Sandwichman — Inequality and Sabotage: Piketty, Veblen and Kalecki (for anne at Economist's View)

Veblen and Kalecki explain Piketty a century ago (Veblen) and a half century ago (Kalecki). Great quotes.

EconoSpeak
Inequality and Sabotage: Piketty, Veblen and Kalecki (for anne at Economist's View)
Sandwichman

For some reason, the page is now not available. Here are the quotes.

UPDATE: link is now working. I'll leave the quotes up anyway.

Veblen in The Engineers and the Price System:

The mechanical industry of the new order is inordinately productive. So the rate and volume of output have to be regulated with a view to what the traffic will bear — that is to say,what will yield the largest net return in terms of price to the business men who manage the country's industrial system. Otherwise there will be “overproduction,” business depression, and consequent hard times all around. Overproduction means production in excess of what the market will carry off at a sufficiently profitable price. So it appears that the continued prosperity of the country from day to day hangs on a “conscientious withdrawal of efficiency” by the business men who control the country's industrial output. They control it all for their own use, of course, and their own use means always a profitable price. In any community that is organized on the price system, with investment and business enterprise, habitual unemployment of the available industrial plant and workmen, in whole or in part, appears to be the indispensable condition without which tolerable conditions of life cannot be maintained. That is to say, in no such community can the industrial system be allowed to work at full capacity for any appreciable interval of time, on pain of business stagnation and consequent privation for all classes and conditions of men. The requirements of profitable business will not tolerate it. So the rate and volume of output must be adjusted to the needs of the market, not to the working capacity of the available resources, equipment and man power, nor to the community's need of consumable goods. Therefore there must always be a certain variable margin of unemployment of plant and man power. Rate and volume of output can, of course, not be adjusted by exceeding the productive capacity of the industrial system. So it has to be regulated by keeping short of maximum production by more or less as the condition of the market may require. It is always a question of more or less unemployment of plant and man power, and a shrewd moderation in the unemployment of these available resources, a “conscientious withdrawal of efficiency,” therefore, is the beginning of wisdom in all sound workday business enterprise that has to do with industry. [emphasis added]

********

Should the business men in charge, by any chance aberration, stray from this straight and narrow path of business integrity, and allow the community's needs unduly to influence their management of the community's industry, they would presently find themselves discredited and would probably face insolvency. Their only salvation is a conscientious withdrawal of efficiency.

Kalecki in "The Political Aspects of Full Employment":

Clearly, higher output and employment benefit not only workers but entrepreneurs as well, because the latter's profits rise. And the policy of full employment outlined above does not encroach upon profits because it does not involve any additional taxation. The entrepreneurs in the slump are longing for a boom; why do they not gladly accept the synthetic boom which the government is able to offer them?

****************

Under a laissez-faire system the level of employment depends to a great extent on the so-called state of confidence. If this deteriorates, private investment declines, which results in a fall of output and employment (both directly and through the secondary effect of the fall in incomes upon consumption and investment). This gives the capitalists a powerful indirect control over government policy: everything which may shake the state of confidence must be carefully avoided because it would cause an economic crisis. But once the government learns the trick of increasing employment by its own purchases, this powerful controlling device loses its effectiveness. Hence budget deficits necessary to carry out government intervention must be regarded as perilous. The social function of the doctrine of 'sound finance' is to make the level of employment dependent on the state of confidence.

Merijn Knibbe — Climbing the shoulders of a giant, Veblen edition

Whoever reads modern neoclassical models will notice that “It is one of the commonplaces of the received economic theory that work is irksome.” As Thorstein Veblen wrote 115 years ago. This idea is even one of the cornerstones of DSGE-models. But is work really always irksome? Below, the rest of the Veblen article which boils down to the idea that disliking all work is in fact, in modern terminology, characteristic of a state of clinical psychological depression: “Man’s life is activity.”And as man is a social animal, at least part of that activity had to be oriented at longer term goals in the interest of the group and man has evolved to like such activities: work. But if that’s part of our true nature, why does our society give so many people the idea that work is irksome?

Real-World Economics Review Blog

Climbing the shoulders of a giant, Veblen edition
Merijn Knibbe

Should be that exploitive work is irksome. A few years ago a couple living across the street from a friend won the lottery that netted them about 20 million, which they choose to take in a lump sum. The wife, who was employed as a nurse, quit immediately using profuse expletives. The husband, a tradesman who loved his work and working with his buddies, kept his job. He did buy a bit fancier boat for fishing on weekends, but that was the extent of what changed visibly. They are still living in the same modest house.

Similarly, I was in Iowa in the Eighties during the massive switch from the family farm to agribusiness. The small farmers that were displaced, many of whom had to move to cities to take work, were devastated. They worked hard on the land and they loved the life and the land as well. Some small farmers survived by adapting, switching from corn and soybeans to some high-value low-yield production that needed more tending than was worth it at the time for agribusiness to mess with.

Daniel Little — Thorstein Veblen's critique of the American system of business

Thorstein Veblen was certainly a heterodox observer of modern capitalism. He was trained in the late nineteenth-century iteration of neoclassical economics, but he was more impressed by the irrationality of what he observed than the optimizing rationality that is postulated by the neoclassicals. He was also an intelligent observer and analyst of contemporary economic and sociological trends — not in theory but in the concrete forms that turn-of-the-century capitalism was taking in the United States and Europe. It is interesting, therefore, to examine his analysis of the business firm in The Theory of Business Enterprise, published in 1904. (I examined his critique of American universities in The Higher Learning in America in an earlierpost.) ...

Veblen is sometimes credited with being one of the originators of institutional economics. This is due, in large part, to his effort to discover some of the institutional dynamics created for the modern industrial system by the incentives and constraints created for the owners and managers of firms.

Understanding Society
Thorstein Veblen's critique of the American system of business
Daniel Little | Chancellor, University of Michigan at Dearborn

Peter Radford — Simple model mania

...The point being that the obsession to reduce everything to simple ideas that can be put into simple models, condemns economics to misunderstand, and therefore not explain, reality. People are far too nuanced and unpredictable to be shoved completely into either PIH or RIH. They bounce about. The truth is that there are likely plenty more explanations as well. Perhaps there are twenty hypotheses each explaining a little bit. But, since that makes modeling complicated, economists stay well away from reality.

BTW, this is an underlying message of Ludwig Wittgenstein's investigation of the logic of ordinary language in his later work. Thinkers typically go awry in over-generalizing. This is the informal fallacy of hasty generalization, and it includes composition fallacies as well.

Economics is particularly susceptible of fallacies of composition in the chief methodological assumption of liberal economics is a representative individual acting in the vacuum of rational free choice, "rational" being defined as pursuit of maximum utility in making choices, presumed to be fully informed, and "free" meaning independent of external influences such as culture, institutions, affiliations, and personal relationships. The problem with this is that homo economicus is not homo sapiens sapientis, but rather an methodological and ideological construct that is non-representational in spite being asserted to be representative. Examining the logic of conventional economics, it cannot be correct.

Real-World Economics Review Blog

Simple model mania

Peter Radford

Jonathan Larson — Status emulation as a change agent

Status emulation as a driving force in modern capitalism. Looks to be the harnessing of an evolutionary trait, although Veblen saw it as not only powerful but often also nutty.

Real Economics

Status emulation as a change agent

Jonathan Larson

Daniel Little — Veblen on universities

Veblen got it right a century ago. The trend has been downhill since then. The institution itself stands in the way of learning. Of course, the problem of education begins much earlier than the university, like in kindergarten. It's not that we don't know how to do this much better. The institutional structure gets in the way of our doing it. Why are we institutionalizing children from an early age?

Understanding Society
Veblen on universities
Daniel Little | Chancellor, University of Michigan at Dearborn

Michael Hudson — Veblen’s Institutionalist Elaboration of Rent Theory

Simon Patten recalled in 1912 that his generation of American economists – most of whom studied in Germany in the 1870s – were taught that John Stuart Mill’s 1848 Principles of Political Economy was the high-water mark of classical thought. However, Mill’s reformist philosophy turned out to be “not a goal but a half-way house” toward the Progressive Era’s reforms. Mill was “a thinker becoming a socialist without seeing what the change really meant,” Patten concluded. “The Nineteenth Century epoch ends not with the theories of Mill but with the more logical systems of Karl Marx and Henry George.[1] But the classical approach to political economy continued to evolve, above all through Thorstein Veblen.

Like Marx and George, Veblen’s ideas threatened what he called the “vested interests.” What made his analysis so disturbing was what he retained from the past. Classical political economy had used the labor theory of value to isolate the elements of price that had no counterpart in necessary costs of production. Economic rent – the excess of price over this “real cost” – is unearned income. It is an overhead charge for access to land, minerals or other natural resources, bank credit or other basic needs that are monopolized.

This concept of unearned income as an unnecessary element of price led Veblen to focus on what now is called financial engineering, speculation and debt leveraging. The perception that a rising proportion of income and wealth is an unearned “free lunch” formed the take-off point for Veblen to put real estate and financial scheming at the center of his analysis, at a time when mainstream economists were dropping these areas of concern.

Veblen’s exclusion from today’s curriculum is part of the reaction against classical political economy’s program of social reform. By the time he began to publish in the 1890s, academic economics was in the throes of a counter-revolution sponsored by large landholders, bankers and monopolists denying that there was any such thing as unearned income.[2] The new post-classical mainstream accepted existing property rights and privileges as a “given.” In contrast to Veblen’s argument that the economy was all about organizing predatory schemes, this approach culminated in Milton Friedman’s Chicago School defense the pro-rentier argument: “There is no such thing as a free lunch.”

Read it at Michael Hudson
Veblen’s Institutionalist Elaboration of Rent Theory
Presented at the Veblen, Capitalism and Possibilities for a Rational Economic Order Conference, Istanbul, Turkey, June 6th, 2012
Michael Hudson

This illumines J. M. Keynes call to "euthanize the rentier," which many consider to be outrageous. Hudson shows how mainstream economics is propaganda for rent-seeking and rentierism disguised as "growth."