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The vibrant academic activities of the Association of Evolutionary Economists and the European Association for Evolutionary Political Economy, and the interest shown in Thorstein Veblen’s contributions by even some neo-Marxist and orthodox economists, testify to not only Veblen’s  widespread popularity and contemporary relevance but also the rise of neo-Veblenian political economy as part and parcel of heterodox economics in tug of war with  mainstream economics. Moreover, keeping in tune with Veblen’s interdisciplinarity spirit, the Veblen Institute for Economic Reforms is working towards a sustainable society. On this institute’s website, there is a brief and yet very nice biographical sketch of Veblen (1857-1929) along with the trajectory of his intellectual development (Dostaler, Undated). Furthermore, in so far as Veblen wanted economists to try to understand the social and cultural causes and effects of economic changes, he was the harbinger of modern day Social Economics or Economic Sociology. He is also taken as the first important male feminist economist!

The core of Veblen’s thinking, popularly known as institutional-evolutionary economics, is based on his  interconnected theorisation of instincts, institutions and change.

Consider  instincts, which are the ‘propensities’ or ‘bents’ or ‘impulses’ of individuals that are the product of the interaction of biological, psychological and cultural factors. They are the basis for the activation of certain aims or objectives of individuals. Emulation, acquisitiveness, constructiveness or workmanship, curiosity, and parental love are specific instincts.

Workmanship or industry which is the source of productive efficiency and whatever is of human use,  idle curiosity which is the source of systematized knowledge and quasi-knowledge of things,  and parental bent, the source of people caring for one another,  are positive instincts that promote common good.

Negative instincts are emulative, emulative predatory and pecuniary or acquisitive that promote individual interests.  Emulation arises in the modern business world in pecuniary emulation. The emulative predatory instinct relates to various tendencies such as war and plunder, prize-fighting and addiction to sport. The pecuniary instinct relates to the valuation of things on the basis of money and price and the desire to enhance individual profit and wealth.

Positive and negative instincts influence and conflict with each other, thereby providing an important source of human action, change and motion.  In general, when the positive dominate the negative instincts, cultural development or the interest of the community or collective life process or the quality of life of the community is enhanced; when the negative dominate the positive, cultural decline is in order; and when the two are temporarily in an uneasy balance, the status quo prevails. The evolution of economic life historically till now conveys that the interest of the community no longer coincides with the emulative interests of the individual. As such, Veblen saw the need to moderate the instincts that promote individual interests, and on this count, he is still relevant for our troubled times of social divides and disintegration now.

Consider institutions, which Veblen had multifariously viewed as an established social practice or a habit of thought, or a form of organization. While instincts provide the potentiality for human beings to engage in social action, social habits structure the thinking and behavior of individuals; and institutions are those social patterns of regularity that establish a set of clustered norms and mores often within an organizational setting such as a firm or a family or the community. There are institutions associated with the ‘leisure class’, ‘ownership’, ‘industry’, ‘business’, ‘personal service’ and so forth. Institutions include certain attitudes, aptitudes, methods of life and human relations. They also include business principles and vested interests as well as production and technological systems.  Economic institutions are divided into those of acquisition or business or pecuniary and those of production or industry. The former serve invidious economic interest and the latter non-invidious economic interest. The invidious institutions associated with conspicuous consumption, speculative bubbles, warfare, and the like are especially influenced by the negative instincts. The non-invidious institutions such as industry, purely scholarly endeavours and bringing up children are dominated by the positive instincts.

Veblen had advocated institutional holism. Which means the need to study the interplay of social, political and psychological factors in the determination of economic processes. Economic institutions, including firms and markets, are permeated with social relationships, values, organization and active beings situated in a natural environment, and to abstract from these aspects is to ignore the dynamic functioning of economies. Veblen had ridiculed the notion of ‘homo economicus’—integral to mainstream neoclassical economics—for ignoring the institutional and specific characteristics of human beings in a social setting. This notion seeks to reduce humanity to abstract commonalities and ultra-rational qualities that are devoid of heterogeneity and difference. While individuals often make conscious plans and work on specific objectives, they are affected by social habits and conventions. We need to comprehend the historically specific conditions and situations that fundamentally influence the behavior and thoughts of human beings.

In light of this, in Veblen’s analysis, we find (a) active human beings operating in an ecological and social environment with certain instincts and characteristics that make them both similar and different to other species; (b) importance of cultural evolution in terms of race, ethnicity and nationality in his discussion of the transition from ‘peaceable savagery’ (primitive communism) to ‘barbarian culture’ (feudalism) to capitalism; (c) importance of gender. Women have historically been more in tune with the positive rather than negative instincts. They have tended to engage in workmanship, and they have been inculcated more with the parental instinct of love and affection. By contrast, men, at least since the first historical creation of an economic surplus, have engaged in wasteful forms of combat, warfare and conspicuous use of property including women; (d) significance of class. As capitalism evolved, the pecuniary instinct (business) began to infect and eventually dominate workmanship (industry). The capitalist class sought pecuniary wealth and prestige while the working and technical classes were left to work and promote industry as the foundation of their survival. The working class usually only had labour power to sell, and therefore if they did not work they would find it difficult to survive. The capitalist class as well as other propertied classes—the leisure class–in contrast, could benefit from the fruits of the collectively generated wealth not only in relation to money and property, but also in terms of status, prestige and power. Class, defined by way of inherited social position and background, is a critical factor affecting production, distribution and exchange. Social position is affected significantly by birth, upbringing, occupation and mentality. Such class relationships were seen as heavily institutionalized. But the leisure class inhibits collective interests through inertia, conspicuous waste, and the unequal distribution of wealth.

Consider change. Veblen had integrated his analysis of instincts and institutions into his analysis of the dynamic evolution and instability tendencies of whole economies, especially capitalism. According to him, the mainstream economics of his time was concerned with the ‘normal equilibrium case’ and comparative static framework, based on short-term logical time rather than longer run change and motion. The equilibrium case tended to assume diminishing returns, short periods, independence of supply and demand, Say’s Law, and the conformity of micro with macro laws. By contrast, Veblen was more keen about modern corporate capitalism characterized by oligopoly corporations, path dependence, increasing returns to scale, the introduction of new methods and means of production and possible schisms between micro and macro processes. Interdependence of supply and demand, for example, means that an increase in consumer demand could manifest itself in higher investment, innovation, lower prices, expansion on the world scale. This is what is meant by a cirucular and cumulative influence on production and development. This could lead to a cyclical or wave-like expansion. However, an expansion of large-scale industry without a suitable expansion of the wage-goods sector or the state or the world market could promote generalized overproduction. In this analysis of long term evolution, institutions tend to move in a fashion of ‘blind drift’ with no end-in-view, and this usually happens in a cumulative fashion through business cycles and longer-term dynamics. Thus, his analysis merges with the Post-Keynesian economics about economic growth  and economies of scale. We are, thus, into some real complicated and yet fascinating discussion of the real world dynamics.

In appreciating his indeterminate evolutionary analysis, noteworthy are his points that the leisure class reaps a huge reward, a ‘free income’, and thereby retards investment and consumption in productive and reproductive activities.  Similarly, absentee owners obstruct industrial change through protected profits in the form of monopolies, restrictive output to maximize capitalized income, and business decisions being made by the privileged few rather than being based on merit. Financial wheeling and dealing obstructs the industrial system through unsustainable share returns, short-run rather than longer-run investment horizons and a class system that inhibits the full realization of potential of the common people. Such a business system has inherent contradictions and instabilities that cannot be adequately analysed through the equilibrium methodology of the neoclassical economics.

This prescient analysis of Veblen is very much relevant for our troubled times now. But the fact that most mainstream economists do not even mention him in a footnote in their textbooks reflects the pathetic and bogus state of their love affairs with economics. As Skidelsky recently ridiculed their philistine banalities like Veblen had done, they are incapable of having an economics of love that matters for the bountiful common people.




By Annavajhula J.C. Bose

Department of Economics, Shri Ram College of Commerce





Dostaler, Gilles. Undated. Have Read Veblen?

O’Hara, Phillip Anthony. 2002. The Contemporary Relevance of Thorstein Veblen’s Institutional-Evolutionary Political Economy. History of Economics Review. Vol. 35. Issue 1.

Skidelsky, Robert. 2014. The Economics of Love: Following the Heart, not the Head. NewStatesmanAmerica. January 15.


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