Chapter 73: Thorstein Veblen
William Waller Introduction Thorstein Veblen (1857–1929) is the most original economic thinker that the United States has produced. He co-founded the original institutional economics with John Rogers Commons. His work was intended as a complete reconstruction of economic theory along evolutionary and cultural lines. In the 1890s Veblen published a series of articles criticizing neoclassical economics. His criticisms focused on two main areas of disagreement with the mainstream. The first was that the economists of his day had not followed the lead of Darwin and others and transformed their discipline into an evolutionary science. Second, he criticized neoclassical economics’ outdated preconceptions, which he claimed were based on natural law and animistic modes of thought. These essays were republished as a collection entitled The Place of Science in Modern Civilization in 1919. However Veblen is best known for his classic work on consumption theory, set out in The Theory of the Leisure Class (1899). In this book Veblen introduced his theory of economic evolution based on the transformation of institutions. He also developed a cultural theory of consumption based on pecuniary emulation and conspicuous leisure and consumption. Veblen then turned his attention to the conduct of business in the United States economy. Employing data from the reports of the Industrial Commission (1898–1902), Veblen wrote a comprehensive study of the conduct of business enterprise and its methods of finance in his book The Theory of Business Enterprise ( 1978). In this work Veblen introduced his distinction between the business activities...
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