Veblen's Contribution Veblen Summary

Veblen's Contribution, Veblen Summary

Heterodox economic theory in general, and Veblen in particular, are often omitted from books on the history of economic thought, probably because they had very little direct effect on modern orthodox economic theory. Veblen was highly critical of the orthodox economic theory that had received its most mature statement in the economics of Alfred Marshall. He wanted to scrap the system because he considered its approach wrongheaded. Veblen asserted that orthodox theory was atomistic in approach, attempting to understand the economy as a whole by proceeding from an initial analysis of its parts, the household and the firm. But the whole is different from the sum of the parts; Veblen argued that a proper approach should start at the level of the culture, society, and economy.

Some people say that Veblen was not an economist at all, but a sociologist, which to some economists simply means a fuzzy-thinking social scientist. This view of Veblen as something other than an economist is at least consistent with both his approach and his contribution. One of Veblen's theories was precisely that we cannot understand what we call the economy by isolating the economic behavior of the human race from its other activities. Veblen was, therefore, actually suggesting an amalgamation of the social sciences.

Veblen was not interested in the same set of problems as orthodox theorists. He wanted to understand the development of the institutional structure formed by the habits of thought that guide our economic activity. From this perspective, Veblen's contribution could be regarded as complementary to orthodox theory. However, Veblen would argue that once the changing institutional structure was understood, a solution of the more limited and narrow problems addressed by orthodox theory would require a different set of assumptions and tools from those currently used by the economist. He insisted that economics must use an evolutionary approach and drop its ideological notions of natural, normal, and equilibrium; must integrate with the other social sciences; must drop its unreal­istic assumptions of competitive markets and hedonistic households; must recognize that its implicit assumption of harmony in the system invalidates much of its analysis; and must supplement its sterile, deductive approach with more fact-finding and statistical work.

Veblen found many flaws in economics, but the alternatives he offered have not yet been very fruitful. He built no grand model with easily identifiable assumptions and a logical superstructure leading inexorably to unambiguous conclusions. The instinct psychology that he substituted for the hedonism of orthodox theory has subsequently been rejected by psychologists.
Orthodox theorists have responded to Veblen's criticism of their use of hedonistic concepts by substituting a less objectionable terminology, but their basic model still assumes rational, calculating households and firms. The per­fectly competitive market assumption that Veblen attacked has not been notably modified by the theories of monopolistically competitive and oligopoly markets, although Chamberlin, one of the developers of such theories, acknowledged some debt to Veblen. Theories of these markets are at present still unsatisfactory. As a result of developments in welfare economics and of the Keynesian conclu­sion that equilibrium may coincide with mass unemployment, equilibrium per se is no longer considered desirable. Veblen's attack on the concept of consumer sovereignty and his analysis of the role of emulation and advertising in the economy have been carried further in the theories of imperfect markets and in the works of J. K. Galbraith. His view of evolutionary change received some attention in the post-World War II period as concern shifted to problems of growth and development in the underdeveloped nations of the world.

Another of Veblen's contributions, though, resulted from what he sometimes preached but never practiced—namely, the scientific method, with its collection of factual material to test hypotheses. He criticized orthodox theory on the grounds that it was a wholly deductive system that failed to empirically test either its assumptions or its conclusions. Yet Veblen's own theories are not presented in a form suitable for testing, nor did he document his assertions with statistical material. Veblen's criticism of orthodox theory did, to some extent, cornpe economists to be more concerned with facts; the fantastic growth of empinca work in economics during the past sixty years may be partly explame intellectual response to Veblen's legacy. We shall shortly examine some o t e contributions of W C. Mitchell, a student of Veblen who became a pic the collection of data for analyzing the business cycle.

Finally, we must acknowledge Veblen's normative contribution to economics. Running throughout his writings is not only a scientific dissent from orthodoxy but an ethical dissent. Whereas orthodox theorists, such as Veblen's teacher J. B. Clark, were amazed at the material welfare produced by the modern industrial economy, Veblen used his satire and posture of objectivity to describe an economy shot through with illfare. Veblen became a rallying point for many who felt that government action might remedy some of the most glaring faults of a pecuniary culture.