• Criticized Adam Smith for being too cosmopolitan, putting the interests of the world first, not the interests of the nation

  • Though Smith did argue free trade would benefit Britain (as well as the world)

• Rejected Classical economic theory, focused more on historical study

• List was concerned with national economic power, not just the increase of wealth and prosperity

“The power of producing wealth is...infinitely more important than wealth itself!”

List, Friedrich, 1841, The National System of Political Economy

• Thinks Classicals focused too much on consumption, government should focus on production

  • “[P]roduction renders consumption possible.”

• Largely endorsed mercantilist policies, privileging manufacturing

“It may be stated as a principle that a nation is richer and more powerful, in proportion as it exports more manufactured products, imports more raw materials, and consumes more tropical commodities.”

List, Friedrich, 1841, The National System of Political Economy

“It is bad policy to regulate everything and to promote everything by employing social powers, where things may better regulate themselves and can be better promoted by private exertions; but it is no less bad policy to let those things alone which can only be promoted by interfering social power.”

• This only works for specific circumstances:

“The system of protection can be justified solely and only for the purpose of the industrial development of the nation...Measures of protection are justifiable only for the purpose of furthering and protecting the internal manufacturing power, and only in the case of nations which through an extensive and compact territory, large population, possession of natural resources, far advanced agriculture, a high degree of civilization and political development, are qualified to maintain an equal rank with the principal agricultural manufacturing commercial nations.”

• List is always in favor of free trade in everything except manufactured goods

• Only thinks that large, powerful, temperate, advanced countries can extend their development by protecting manufacturing and industrializing

• Largely from his study of Britain and the United States as leading examples

• Sees the progress of great nations as a sequence from free trade to protectionism (for manufacturing), and then back to free trade

“History teaches us how nations which have been endowed by Nature with all resources which are requisite for the attainment of the highest grade of wealth and power, may and must...modify their [commercial] systems according to the measure of their own progress: in the first stage, adopting free trade with more advanced nations as a means of raising themselves from a state of barbarism, and of making advances in agriculture; in the second stage, promoting the growth of manufactures, fisheries, navigation, and foreign trade by means of commercial restrictions; and in the last stage, after reaching the highest degree of wealth and power, by gradually reverting to the principle of free trade and of unrestricted competition in the home as well as in foreign markets.”

• Classicals can preach all they want about Free Trade in the abstract, but actual British policy was still largely protectionist

• This protection is what made England wealthy

“The system of protection, inasmuch as it forms the only means of placing those nations which are far behind [dominant England]...the system of protection regarded from this point of view appears to be the most efficient means of furthering the final union of nations, and hence also of promoting true freedom of trade...In order to allow freedom of trade to operate naturally, the less advanced nations must first be raised by artificial means to that stage of cultivation to which the English nation has been artifically elevated.”

“Less well known is that a crude eugenic sorting of groups into deserving and undeserving classes crucially informed the labor and immigration reform that is the hallmark of the Progressive Era..Reform-minded economists of the Progressive Era defended exclusionary labor and immigration legislation on grounds that the labor force should be rid of unfit workers, whom they labeled “parasites,” “the unemployable,” “low-wage races” and the “industrial residuum.” Removing the unfit, went the argument, would uplift superior, deserving workers,” (pp.207-208)

• Son of Norwegian immigrants to the Midwest (WI, MN)

• Found it hard to assimilate into American mainstream economics profession

• Obtained Ph.D in philosophy from Yale

• Academic struggles, moving from college to college teaching

• AEA eventually offered him presidency, but rejected it

“He was like a man from Mars observing the absurdities of the economic and social order with satirical wit” — Landreth & Colander (p.327)

• Very idiosyncratic & penetrating writing style — people either love or hate it

• Critique of both economic theory and the instititions of capitalism

  • did not create an alternative system to rival

• Focus on institutional analysis, motivated by Darwinian scientific approach

• Critique of “neoclassical economics”

  • contemporary orthodox economic theory (Marshall, Walras, etc) had classical roots

• Veblen not interested in correcting flaws or extending previous theory (like Ricardo, Mill, Jevons, Marshall did); more interested in systematic critique striking at the root

• Believed that neoclassical economics (and Marxian & Historical school for that matter) was unscientific

• From Smith through Marshall, preconceived idea of social harmony via the Invisible Hand

  • self-interest leads to social benefit
  • before Smith, people believed that God ordered economy; seems to similar faith in Invisible Hand (Veblen was in/famously atheist)
  • Marshal, Clark, etc. belief in competitive markets efficiency in long-run equilibrium

• Veblen: equilibrium as used by orthodox theorists is an unproved normative claim (that it is good)

• Veblen: orthodox theory is teleogical: oriented towards a clear end (long-run equilibrium)

  • this is assumed in advance, and not empirically verified that it is attained (or desirable)

• This is pre-Darwinian science!

  • Darwin showed how evolution is non-teleological, a purely mechanical process without an end-goal

• Veblen: a scientific approach to economics would be dynamic, Darwinian analysis of evolution of society (its institutions, culture, etc.)

• Neoclassical economics is merely taxonomic: classifying parts of economy, but no theory of the evolution of institutions

  • Focus on price theory assumes many things given & fixed (preferences, technology, institutions) to focus on prices & allocation of resources
  • Veblen: we need to investigate the very things neoclassical theory holds constant, and explain how they change!

• Veblen: producing goods & services, and earning profit (as a manager/capitalist) are two different things

  • pursuit of profit comes from reduction of output, hurts society

• Progressive Era view of Big Business: larger corporations aren’t aiming to improve efficiency, but to restrict output, raise prices, and profits to shareholders

  • monopolization, trusts
  • rise of anti-trust laws and regulations

• Veblen: neoclassical economics has ignored developments in biology, psychology, sociology, built a mechanistic model of human behavior
  • the logic is correct, but the premises are wrong

• Individuals brought up in a culture act in accordance with established norms (which emerged from previous interactions)

• “Instincts”: relatively-fixed constraints & motivations of human behavior

  • parental, workmanship, curiosity, acquisitiveness instincts
  • partially determined by culture

• Instinctual drives create tensions

  • i.e. self-interested acquisitiveness can harm society
  • Economic analysis must address this basic tension

• “Industrial/technological employments”: activities flowing from parenthood, workmanship, and curiosity

  • Involve causal, factual, relationships

• “Ceremonial behavior”: previously people explained these with religion or supernatural forces, but now science can explain them

  • rooted in the past, an appeal to authority, cultural taboos, etc.

• The more we advance science, the more we can explain without ceremonial behavior

• This major dichotomy echoes throughout Veblen’s writings

• Ceremonial behavior in modern business: “pecuniary/business employments”

• In pre-modern societies, workers owned own tools, produced via expression of workmaship instincts

  • Income from these activities roughly measures effort exerted (Smithean labor theory of value)

• In modern societies, workers and capitalists separate: acquisitiveness instinct dominates workmanship instinct

  • Captains of industry, moneylenders, “get something for nothing”

• Big Business of early 20^th century Progressive Era

• Veblen thought they were not promoting the public good, but were amassing monopoly power

  • “Advised idleness”: restrict output to raise prices & profits
  • “Capitalization of inefficiency”

“Industry is carried on for the sake of business, but not conversely.”

• Interestingly, criticizes Marxist approach to economics

• Probably best known for Theory of the Leisure Class

• Used dichotomy to discuss consumption

• Ceremonial instincts lead people to revere wealth and power, in modern society $⟹$ wealthiest captains of industry

  • Must display their wealth in order to be recognized
  • People emulate wealth-displaying activity: “conspicuous consumption” of fancy clothing, cars, houses, jewelry, private jets, etc.

• Sometimes economists discuss “Veblen goods”: quantity demanded increases as price increases (i.e. upward-sloping demand)

• In general, Veblen saw ongoing struggle between industrial & pecuniary employments, and between ceremonial instincts vs. scientific/technological improvement

• Rejected Marxist view that proletariat would become more miserable, and revolt to overthrow ruling class

  • Though it may be that working classes may perceive to be relatively poorer than richest
  • More about envy of relative wealth than about actual level of absolute wealth of poor

• Future is uncertain, the only certainty is change & evolution