Veblen’s Radical Theory of Social Evolution

September 7, 2006

By Dugger, William M

The Red Threads in Veblen: Anarchism and Socialism

Thorstein Veblen wove two red threads into his tapestry of social theory-anarchism and socialism. They held his theoretical system- his tapestry-together. But they did not fit into the era of reformed capitalism that began a few years after his death in 1929. Veblen did not support reforming capitalism. He supported changing it into something else. The reformers that came after him, however, were not anarchists and socialists. They wanted to make capitalism good, and they wanted to use the existing state to do it. They did not want to change state-supported capitalism into anarchistic socialism. They wanted to stabilize the business cycle, humanize the workplace, and regulate the excesses of capitalism. When reforming capitalism moved to the top of the intellectual agenda, the red threads were cut out of Veblen’s thought and it started unraveling. He started resembling a backwoods eccentric. (For a full analysis of Veblen’s interpreters, reinterpreters, and critics see Tilman 1985, 1992, 1996, and 2003.) However, today (2006) the reforms of capitalism are being removed. Pure capitalism is being restored. Veblen should be, too.

This article will restore the whole Veblen. It will put the red threads back into him and turn Veblen the Eccentric back into Veblen the Red. The first step in this task involves a review of a select number of relevant Veblenians.

A Review of Selected Veblenians

In 1985 Floyd B. McFarland objected to what he termed the “bowdlerization” of Veblen by many institutionalists. Referring primarily to Clarence E. Ayres and Wendell C. Gordon, McFarland said this of the reforming institutionalists who followed Veblen:

[T]heir theory is a totally wrong-headed interpretation of Veblen that trivializes his work and simultaneously makes it virtually impossible for them to do work of genuine merit. By rejecting Veblen’s lead, they appear to have trivialized themselves. (95)

A more moderate statement from Ron Phillips emphasizes the need for the restoration of Veblen. Phillips explained how Veblen once wrote a memo that proposed using the Industrial Workers of the World (IWW) in the 1918 grain harvest. The grain was badly needed in the war effort, and the U.S. government had been repressing the anarchistic/socialistic IWW. Veblen urged a reversal of the policy. Veblen’s support for the anarchistic-socialistic IWW was embarrassing to many institutionalist reformers, who claimed Veblen as an intellectual forefather. They downplayed its importance as an argument supporting anarchism/socialism and interpreted it as merely an eccentric way to propose a more effective war effort. Phillips stated,

Institutionalists have interpreted the memorandum as merely Veblen’s contribution to “winning the war.” However, I believe that this interpretation is in direct conflict with Veblen’s published writings where he stated that “winning the war” meant making the world safe for the Vested Interests. I argue in this note that, contrary to what Institutionalists may contend, Veblen’s support of the IWW is completely consistent with his analysis of business enterprise and the demise of the Vested Interests. (1987, 98)

A few other institutionalists have shared Phillips’ views of Veblen as a radical. Some have even suggested that Veblen was a Marxist. Forest G. Hill, the very first editor of this journal, once remarked,

The way Veblen evaluated Marxian doctrines would suggest that he “revised” Marxism for his own purpose. In his own words he made it “Darwinian,” substituting cumulative causation for Hegelian dialectics in explaining economic change. He freed it from its classical, hedonistic bias and abandoned the labor theory of value and related doctrines. In a real sense, Marxism became Veblenism; Marx’s problems were given Veblen’s solutions through use of Veblen’s approach, postulates, and conclusions. (1958, 141-42)

Phillip O’Hara (2000) basically agrees with Hill, quoting and citing Hill at length in O’Hara’s masterly book-length synthesis of Veblen and Karl Marx. O’Hara shows the differences between the two, but his synthesis is virtually seamless. He uses Marx’s strengths to buttress Veblen’s weaknesses and Veblen’s strengths to do the same for Marx. In O’Hara’s synthesis, it is sometimes hard to tell where Veblen begins and Marx ends, and that is a compliment.

Lacking the benefit of the O’Hara synthesis, twelve years earlier William M. Dugger had leaned heavily on Veblen to propose the basic concepts of a “radical institutionalism.” (1988). In 1989 he edited Radical Irotitutionalism, adding two essays of his own to round out a collection of eight works of contemporary institutionalists. They explored the past and potential future of Veblen’s brand of institutionalism. Dugger claimed that “Radical institutionalism is the institutionalism of Thorstein Veblen” (1989a, 1). Dugger and Howard Sherman produced a dialogue between Marxism and institutionalism, demonstrating the great extent to which the two schools of thought fit together into a theory of social evolution (1994 and 2000; see also Dugger 1984 and Dugger and Waller 1996).

J. Ron Stanfield, Veblenian institutionalist, has suggested a synthesis in which

[c]ontemporary Marxists and institutionalists should be bent on identifying the psychocultural pathology of late capitalism by exposing the cultural hegemony by which corporate and other large vested interests dominate the mentality of social life, and the misery that this domination either causes or perpetuates. (1989, 100)

Douglas Dowd has done a great deal of work in the areas identified by Stanfield. Dowd produced a masterpiece of radical analysis entitled The Twisted Dream (1977). In it he explained how the democratic and egalitarian dreams and promises of American life’ have become twisted into militarism, imperialism, inequality, and a deteriorating quality of life. Power, not just class, is the key to understanding how such a state of affairs has come to dominate and to appear legitimate, explained Dowd. Power, he stated, “is the ability to act effectively, to make things go one’s way, or to keep them so” (271). Dowd synthesized Marx’s treatment of class with Veblen’s treatment of vested interest into a profound analysis of the coursing of power through the American experiment. (See, in particular, 271-351).

Joseph E. Pluta and Charles G. Leathers (1978) have also expounded on this theme of power. They began by pointing out how similar Marxian and Veblenian theories are when they are put into abstracted and simplified “short-run conflict models.” Such simplified treatments of Marx and Veblen’s thought both emphasize the basic conflicts of interests between the few and the many that is found in our economy and its immediate predecessors. Pluta and Leathers continued by fleshing out the social context and political- historical elements of the conflict as analyzed by Marxian and Veblenian theories. But when fleshed out the two theories begin to diverge. The major difference between them becomes the nature of the conflict between the few and the many. Marxian theory emphasizes the conflict between the capitalist and proletarian classes. Veblenian theory emphasizes conflict between the vested interests and the common people. In the Marxian conflict the clash is between the few who own enough property to make the many work for them. In Veblenian conflict the clash is between the few who own enough property or have enough control over markets to give them power over the few who do not. The power is used to institutionalize (vest) the claim of the few on a flow of free income, at the expense of the many. Veblen saw this conflict as one between “the controllers and the controlled” (128).

Veblen did not contradict class analysis. However, to Veblen class was just one dimension of the controllers versus the controlled. He put it very carefully like this:

The new order has brought the machine industry, corporation finance, big business, and the world market. Under this new order in business and industry, business controls industry. Invested wealth in large holdings controls the country’s industrial system, directly by ownership of the plant, as in the mechanical industries, or indirectly through the market, as in farming. So that the population of these civilized countries now falls into two main classes: those who own wealth invested in large holdings and who thereby control the conditions of life for the rest; and those who do not own wealth in sufficiently large holdings, and whose conditions of life are therefore controlled by these others. (The Vested Interests and the Common Man, 160)

J. L. Simich and Rick Tilman (1980) expounded further on differences between Marxian and Veblenian theory by looking at the critiques of Veblen made by T. W. Adorno and Herbert Marcuse, leading members of the Frankfurt School. The Simich-Tilman article exposes the wide gulf between Veblen and the Marxian Frankfurt Schoolers on the significance of conspicuous consumption. Veblen emphasized the wastefulness of it and the conservative effect it has on the common man while the Frankfurt Schoolers downplay the significance of waste in capi\talism, replacing waste with exploitation, and then entirely missing the socially conservative effect of conspicuous consumption and the accompanying emulation. The Frankfurt School is left with a Puritanical Veblen who objects to the excessive sophistication and waste of the capitalist milieu- Veblen the rustic and eccentric Protestant instead of Veblen the Red.

However, in their famous Monopoly Capital Marxian theorists Paul A. Baran and Paul M. Sweezy missed none of the implications of Veblen’s conspicuous consumption and emulation. Instead, Baran and Sweezy wove conspicuous consumption, emulation, and Veblenian waste into a sophisticated treatment of twentieth century capitalism and how absorption of the growing economic surplus is becoming increasingly problematic. In their treatment, Veblen is a social theorist of great significance, not an eccentric rustic.

For contrast with these radical interpretations, the next three interpretations emphasize other aspects of Veblen’s thought.

Karl L. Andersen’s 1933 article is sympathetic to Veblen’s pillorying of economics for being nonevolutionary, but Anderson argued that Veblen’s own attempt at evolutionary theory is rickety because it is patched up with far too much conjectural anthropology and instinct psychology. Anderson objected to Veblen’s depiction of the age of savagery as being a peaceful era compared to more recent times and to Veblen’s reliance on outmoded instinct psychology. (See also Ayres 1958.)

At least in his article, Anderson only vaguely comprehended the significance of Veblen’s radicalism. Anderson did commend Veblen’s Theory of Business Enterprise and Theory of the Leisure Class. Both books, of course, are profoundly radical in the sense that they reject the system of business enterprise and conspicuous consumption as being wasteful, inefficient, and unjust. But Anderson did not really engage this critical aspect of Veblen and ended up treating him as a mildly interesting and eccentric rustic.

The Cambridge Journal of Economics (CJE) devoted a special 1998 issue to Veblenian evolutionary economics. In her article, Anne Mayhew explained why Veblen’s thought has not been developed much further. She ignored the red thread in Veblen and argued that in social science it is difficult to incorporate time and to account for novelty. Furthermore, she argued that interest in policy and concern for social issues had led many Veblenians astray into taxonomic thinking about good versus bad behavior and belief- meaning that the Veblenian dichotomy of industrial versus pecuniary values and related inquiries into instrumental valuations have lured inquiry into normative disputes and pulled it away from more significant theoretical issues. (see Waller and Robertson 1991.)

In addition to editing the special CJE issue on Veblen, Geoffrey Hodgson contributed a thoughtful paper to it himself. Hodgson did not emphasize the red threads in Veblen. (see also Hodgson 1996 and 1999.) Instead, in his CJE article Hodgson emphasized the sophistication of Veblen’s treatment of human agency. Veblen, Hodgson explained, avoided both extremes in the methodological individualism versus methodological collectivism debate. In Veblen, the human being is a real agent, an authentic actor. Veblen’s human agent was clearly not a cultural marionette, nor an independent and totally self-generated entrepreneur. Veblen reconciled both individual agency with social influence and social influence with individual agency. In short, Hodgson explained, Veblen produced a fully articulated theory of human agency operating in social context. Hodgson’s Veblen is not a rustic eccentric.

A Radical Interpretation of Thontein Veblen

These last three-Anderson, Mayhew, and Hodgson-have all provided us with scholarly explorations of aspects of Veblen. Nevertheless, their interpretations resemble plays about Hamlet that leave out the Prince of Denmark. To find the real Veblen, scholars used to turn to Robert Dorfman. Unfortunately, Dorfman’s monumental biography of Veblen provides an accurate description of the American context within which Veblen wrote but not of Veblen himself. Dorfman, like Anderson and others, also has a vision of Veblen as a kind of eccentric rustic. Misled by his own preconceptions, also by Veblen’s embittered and unbalanced first wife and by an envious and mean- spirited nephew of Veblen, Dorfman described Veblen as some devilish character writing feverishly, playing practical jokes, chasing faculty wives through the groves of academe, and wearing a coonskin cap. (See Diggins, Edgell, Jorgensen and Jorgensen, and Tilman for more recent and accurate views that contrast with Dorftnan’s.)

Human Nature: No Essential Core but an Anarchist-Socialist Heart

Growing up in America, Veblen was influenced by the business myths of capital accumulation, the racist myths of white supremacy, the sexist myths of patriarchy, the jingoistic myths of manifest destiny, and the quasi-scientific myths of Social Darwinism. (Enabling myths are discussed in Dugger 2000.) He worked against these myths as he wove his own theoretical tapestry. Veblen broke with both the conservative and the liberal conventional wisdoms of his time and of ours. His break was broad and deep. It involved the application and reworking of the following elements of social evolution: human nature, communal life, economic surplus, business, the capital controversy, anarchism, predators and parasites, and progress. (Veblen’s contributions to evolutionary theory are also explored in Hodgson 1996, 37-51, and 123-38. See also Hodgson 1999, 1-154.)

Even though he used the instinct vocabulary of his day, Veblen was more a technological and cultural determinist than an instinct psychologist. When he wrote “instinct,” his meaning was much closer to “habit of thought” than “genetically determined pattern of response.” In the preface to his Instinct of Workmanship, he introduced his approach:

The following essay attempts an analysis of such correlation as is visible between industrial use and wont and those other institutional facts that go to make up any given phase of civilization. It is assumed that in the growth of culture, as in its current maintenance, the facts of technological use and wont are fundamental and definitive, in the sense that they underlie and condition the scope and method of civilization in other than the technological respect, (xi)

In the debate over what molds human behavior, Veblen emphasized nurture over nature. However, that is too simplistic. He not only developed a sophisticated theory of agency but he also produced a powerful critique of essentialism. In essentialism, the individual competitive drive of the successful businessman and his spiritual beliefs form a fixed core of human nature. According to essentialists, this biological rather than cultural core is essential to being human and biologically determined human nature is the most valuable of all human characteristics. We can construct cultures that teach us to deviate from our precious biological heritage, from our human essence, but at great peril. Edward O. Wilson explained contemporary essentialism as follows:

[T]here is a limit, perhaps closer to contemporary societies than we have had the wit to grasp, beyond which biological evolution will begin to pull cultural evolution back to itself. (1978, 80)

In his essentialist book On Human Nature, Wilson argued that the fixed core of human nature includes the enlightened pursuit of self- interest, sexual domination of women by men, aggressiveness, and religious monotheism of a distinctly Christian cast. With regard to the essential religious component of human nature that he claims is a part of the essential character of humans, Wilson said,

I am suggesting a modification of scientific humanism through the recognition that the mental processes of religious belief- consecration of personal and group identity, attention to charismatic leaders, mythopoeism, and others-represent programmed predispositions whose self-sufficient components were incorporated into the neural apparatus of the brain by thousands of generations of genetic evolution. As such, they are powerful, ineradicable, and at the center of human social existence. (1978, 206-207)

Veblen attacked essentialism in “The Mutation Theory and the Blond Race,”"The Blond Race and the Aryan Culture,” and “An Early Experiment in Trusts.” The three essays make up the last part of the Veblen collection The Place of Science in Modem Civilization and Other Essays. The three essays should be read together. They debunk the sexism, racism, and classism that can easily pass for science. The first two essays are largely neglected. Their titles are embarrassing to liberals and reformers, perhaps because die titles are vaguely reminiscent today of Nazi race propaganda. The neglect is unfortunate, because they contain a devastating attack on the foundation of Nazi race theory. The third essay contains one of Veblen’s most brutal attacks on class and race prejudices. This essay, ostensibly on trusts, should be understood in relation to the whole of the three essays. In the trust essay Veblen played the devil’s advocate role with a gleeful cunning. Veblen baited his trap for the race prejudices of his readers with false hopes of Aryan glory and then sprang an ambush. He showed that if there really were such a thing as an Aryan race, its endowments would lie in the areas of murder, pillage, and kidnap because its progenitors were bands of cutthroats, pirates, and slave raiders. He ambushed the class prejudices of his readers by showing them the original nature of “trusts” and of trust builders by pointing out that the first experiment in trust building was conducted by the Vikings. (Also see Dugger 1981.)

Veblen attacked essentialism as follows: If human behavior even had a fixed core, an essence, it was not individualistic and competit\ive. The individualistic and the competitive aspects of human behavior under the regime of business were the alien, the abnormal and superficial aspects of human behavior. They were a thin veneer of abnormality temporarily smeared over a core of much better stuff. The socialistic and anarchistic elements of human behavior that seemed abnormal to businesspeople were actually normal.

Veblen argued that the first creatures that you could call human lived peacefully in classless societies for a protracted period of time. It is only from that early period that humans could be said to have acquired a human nature, if they could be said to have acquired one at all. Only much, much later did predatory and warlike societies emerge that differentiated themselves into conflicting classes and warring dynasties. But life has gone on under this later cultural development for a very short time, relative to the earlier cultural stage. So if there were an essential core to human behavior, it had to have been forged by the long period of communal and cooperative living. Marxists refer to this long period of human existence as primitive communism-a period of time in which there was no economic surplus so class differentiation and exploitation were not possible. After all, the Agricultural Revolution and the Iron Age are only a few thousand years old, and the Industrial Revolution and the regime of business are only a few generations old. The long period of peaceful savagery, not the recent and very short period of predatory barbarism (slavery-feudalism-capitalism) had created a human nature that was peaceful and cooperative, not predatory and competitive. Therefore, the modern predatory requirements for success run against the essential grain of human nature. Veblen’s conclusion was obvious. To be successful in the modern world of business and predatory exploitation, a person must behave in a manner alien and abominable to human nature.

In The Nature of Peace, published in 1917, Veblen contrasted the peaceful institutions of the age of savagery and of communal living with the predatory human institutions of slavery, feudalism, and business. In this, perhaps his finest anarchist/pacifist tract, he used the contrasts to explore the institutions necessary for peace and the institutions that promoted war. The scholar will find his exploration to be surprisingly contemporary. Probably his most quotable passage on the subject is from his Theory of the Leisure Class.

The habits derived from the predatory and quasi-peaceable [Veblenese for warlike] culture are relatively ephemeral variants of certain underlying propensities and mental characteristics of the race; which it owes to the protracted discipline of the earlier, proto-anthropoid cultural stage of peaceable, relatively undifferentiated economic life carried on in contact with a relatively simple and invariable material environment. (360)

Veblen loved nothing more than hoisting racists, sexists, and essentialists by their own petards. But it gets him into trouble with many readers who come years after him. Even though the essentialism in Social Darwinism lives on in our day in sociobiology, Veblen’s use of instinct as a made-to-order petard with which to hoist essentialists is particularly troublesome today because, outside of sociobiologists, instincts no longer play a significant role in modern psychology. However, as Paul Twomey explained in his CJE special issue article, Veblen was not a simple instinct psychologist. Veblen produced a complex and hierarchical theory of human mind and human nature in which instincts, habits, volitions, and actions all played important roles in how we think and feel and believe. While he relied upon instincts in his hoisting of essentialists, he used the full range of instincts, habits of thought, and other elements of a very complex theory of human mind and human nature to criticize the hedonism and utilitarianism of neoclassical economists.

Veblen argued that within the human breast beat an ancient anarchist/socialist heart He argued that for most of the existence of humans, they had lived in “savage” bands or communities of egalitarian hunters and gatherers. These bands lived on the very edge of subsistence, without the “benefit” of state institutions. They all had to work together as a group to survive. Individuals within the band who tried to compete with other members of the band would so disrupt the band’s cooperative activities as to drive the whole band below the subsistence level. Such bands would fail to survive, so individualistic competition could not reproduce itself when humans were at the subsistence level. The more fit Homo sapiens survived as cooperative communities, not as competitive individuals. (Natural selection, to the extent that it affected human behavior, worked at the communal rather than the individual level.) Since the community did not produce a surplus, all the able-bodied members had to work. There was no slack so there were no slackers-no permanent rulers or state officials, no permanent church officials, either. Individual slackers reduced the fitness of the community, pushing its production below the subsistence level. Furthermore, one band could not conquer another band and enslave it, since the enslaved band could produce no more than was necessary for its own survival. Conquest did not pay so it did not evolve. Anarchism did, so it did evolve. (See Dugger 1984.)

During this period, the evolutionary principle was work cooperatively. There was no state so there was no war, and there were no classes so there was no exploitation. It was a time not only of primitive anarchism but also of primitive socialism. Veblen argued that if there were an essential core to human nature, then it had been acquired during this period of human existence, because the period lasted far longer than any other. The essential core would be tied directly to cooperation and serviceable work. The institutions that supported cooperation and serviceable work for the community would have influenced human nature for many generations. So the essence of human nature, to the extent that there was such a thing, was derived from cooperative work and peaceful communal living. If there were a human nature, then men and women were cooperative socialists and peaceful anarchists.

Veblen then argued that individualistic and competitive elements were introduced into human nature at a later date and were superficial attributes, when compared to the cooperative work and peaceful living elements formed in an earlier and much longer period of human evolution. The later predatory elements of human nature that showed up in the human population were accidents, mutant “sports” that could survive only at the expense of the rest of the population.

The Evolutionary Role of an Economic Surplus

Primitive communities of cooperative humans learned how to do more things and how to do things better. They passed that knowledge on to succeeding generations, forming a joint stock of accumulating knowledge. It was folk knowledge, discovered and reproduced by the members of the cooperating communities, accumulated and passed on through communal processes of work-a-day experience, not through isolated acts of individual genius.

The growing joint stock of community knowledge produced an economic surplus. The surplus made it possible for the unfit to survive along with the fit. The unfit were the individuals who insisted on disrupting the cooperation of the community through their individualistic activities involving predatory exploit (competition). The surplus changed the selection process, making the leisure class possible. With a surplus, bands could still survive in spite of the dysfunctional competitive leisure of the unfit predators spawned in their midst. These unfit predators were the warriors, slave-raiders, priests, nobility, and businesspeople-all those slackers who reaped but did not sow. The proportion of predators in the population could rise because of the rise of the surplus on which they fed. The early predators could flourish because the economic surplus allowed them to do so without destroying the underlying human populations on which they preyed. They did not create the surplus. They fed upon it.

According to Veblen’s radical theory of social evolution, state officials and businessmen share this common origin. They both arose with the economic surplus and the predation it made possible. State officials and businessmen are not community benefactors but community predators. The surplus gave rise to the possibility of predatory behavior and to the importance of human agency always within a specific social context. Human choices determined which path we took-the predatory or the serviceable.

Veblen did not view elites dialectically. They were not predators who inadvertently promoted economic progress through capital accumulation. They were predators, pure and simple. No invisible hand, no dialectical twist made their activities socially beneficial. Furthermore, any forward advance in the industrial arts occurred in spite of them not because of them.

Veblen argued that business elites did not accumulate things that enlarged the ability to produce. They wasted things. Veblen never referred to them as capitalists and never implied that they accumulated something valuable to the community that should properly be called capital Nor did they enlarge upon the community’s ability to know and to do. In fact, they did the opposite. Aided by the state, they sequestered knowledge with patents and all manner of legal footwork (sabotage-the profession of business). They acquired a vested interest in human abilities to do things and then went to great lengths to stop others from doing them, too. In this way they created scarcity and profit, calling them utility and productivity. As Veblen put it,

The commonplace knowledge of ways andmeans, the accumulated experience of mankind, is still transmitted in and by the body of the community at large; but, for practical purposes, the advanced “state of the industrial arts” has enabled the owners of goods to corner the wisdom of the ancients and the accumulated experience of the race. (“Professor dark’s Economics,” 186)

Veblen and Capitalism

Veblen’s view of the surplus is unique. He laid out his thoughts in three related essays, all collected in The Place of Science in Modern Civilization: “Professor dark’s Economics,” Limitations of Marginal Utility,” and “On the Nature of Capital.” In successful communities, according to Veblen, the economic surplus was generated by the accumulated joint stock of communal knowledge. It took concrete form in the tools and skills used by members of the community as they worked together. Predatory individuals within the communities claimed ownership of those tools and skills. They used their usurpation of ownership to demand payment of income. What non- Veblenians have come to call capital accumulation was begun and continues in this way.

This point is important to understanding how Veblen built on but also went beyond classical Marxism. Veblen argued that capital accumulation was made possible by the growing productivity of the community; it was not responsible for that growing productivity. Quite the contrary, in Veblen’s view capital accumulation subtracted from group welfare. He always referred to capital accumulation as the acquisition of a vested interest. That was the theme of his Theory of Business Enterprise. Businesspeople did not build up the tools and skills required by the new age of machine production. They knew nothing of the technology of production. They specialized in legal seizure, not industrial production. They seized the surplus income flow, the usufruct of the industrial community, and capitalized it in the concrete form of saleable corporate securities. This capitalized value then found its way into the bank accounts and all the other forms of wealth held by successful businesspeople. Since the joint stock of knowledge (technology) handed on by the group-in spite, not because of the actions of elites working to usurp the surplus for themselves-generated such a large and growing surplus, the subtraction of income in the form of profits by predatory businesspeople did not threaten survival of the community. Veblen always viewed businesspeople as predators. To him they were a predatory class and, in Theory of the Leisure Class, he explicitly compared them to criminals: “The only class which could at all dispute with the hereditary leisure class the honour of an habitual bellicose frame of mind is that of the lower-class delinquents” (247). To Veblen they had no redeeming features, dialectical, invisible hand, or otherwise.

The following delightful little doggerel from the Texas oral tradition explains the Veblenian view of capital accumulation and the fabled abstinence of capitalists that financed it. When presented with the latest wrinkle on the neoclassical theory of saving and investing by a soundly conservative student from the business school, Clarence Ayres would say, “But young man, you cannot excrete steel rails by skipping lunch.”

When accumulation is dialectical, instead of neoclassical, it is based on surplus value and exploitation of the working class. Nevertheless, the capital accumulation it finances is viewed also as responsible for the growth of productive potential. Capitalists are predators rather than savers, but their predation inadvertently- behind their backs, as it were-provides more tools and skills (capital) for the community to work with. The capitalist in Marxist theory excretes steel rails by making the worker skip lunch. The difference is, in the neoclassical story, the capitalist excretes steel rails by skipping lunch himself. In state capitalism, it is the state that forces the workers to skip lunch in order to excrete the steel rails. An excellent recent essay by John E. Elliott and another by James Devine provide modern explanations and lively defenses of the Marxist position. (Both are in Dugger 1996.)

Veblen disagreed with this treatment of businesspeople and their profits and with the emphasis given capital accumulation as the cause of economic growth. His disagreement is central to his intellectual contribution to the development of a radical institutionalist critique of capitalism. (Further discussion of radical institutionalism is in Dugger 1988. Further Veblenian discussion of saving, investing, and wealth/capital accumulation is in Neale 1991.)

The Capital(ist) Controversy

The following section draws heavily from Veblen’s Theory of Business Enterprise ([ 1904] 1975). To both Veblen and Marx, the so- called capitalist had no right to any part of the product, but Veblen went further. To him, no individual person or class had a separate right to any part of the product because the community itself was the source of productivity, not any one individual person within it and not even any one particular class. As Veblen put it, goods and services are produced in common, not in severally. Veblen did not believe in a neoclassical three-factorsof-production theory of productivity, nor did he believe in a Marxist labor theory of value. To Veblen, this productivity aspect of the Marxist critique of the status quo did not go far enough because it accepted one of the ideological supports of the status quo-the contribution to future production of the capitalist class that was supposed to come in the form of capital accumulation. Veblen rejected both the capital (accumulation) theory of value and the labor (work) theory of value. In one of his extremely infrequent notes to his text, Veblen explained in instinct of Workmanship ([1914] 1964),

[T]he productivity of labor, or of any other conceivable factor in industry, is an imputed productivity-imputed on grounds of convention afforded by institutions that have grown up in the course of technological development and that have consequently only such validity as attaches to habits of thought induced by any given phase of collective life. (146n)

To understand Veblen on productivity, first imagine four great theories of value: (1) land and aristocracy, (2) capital and capitalism, (3) labor and Marxism, and (4) the Black Box Production Function and calculus. Then imagine that Veblen is proposing a fifth theory: (5) knowledge and community. The first three theories correspond to one of the so-called factors of production: land, capital, and labor. Each of the three has an ideological taproot that goes deep into a specific social formation. Rent is the source of value according to the landlords and their economist supporters, Malthus most prominently. The Malthusians argue that value is due to land and the scarcity of its produce. Feudal aristocracy is their taproot. Theirs is a land theory of value. Capital is the source of value according to the capitalists and their economist supporters, Friedrich von Hayek most prominently. The Hayekians argue that value is due to capital. Industrial capitalism is their taproot. Labor is the source of value according to the proletarians and their economist supporters, Marx most prominently. The Marxists argue that value is due to labor. The labor movement is their taproot. The neoclassicals, afraid to take an obvious stand, try to put all three of the other theories of value together-land, capital, and labor- using mathematical magic. Theirs is the marginal productivity theory. The calculus is their taproot, instead of a social formation- hence the magical nature of their theory. It is not based on any real social relation. The neoclassicals use the calculus, literally and figuratively, to integrate the three factors of production, hidden in their black box production function. The free market is the source of value according to them. Veblen, however, disagreed with them all. He proposed a fifth theory of value-the communal theory of value. Communal anarchism was his taproot. The community through its joint stock of knowledge was the source of value, according to Veblen.

With the exception of the neoclassicals, whose theory relates to mathematical formulations instead of social formations, these views correspond very roughly to the habits of thought conducive to feudalism (land and Malthus), capitalism (capital and Hayek), socialism (labor and Marx), and anarchism (community joint stock of knowledge and Veblen). Neoclassicism does not relate to anything real at all.

According to Veblen, individual accumulation of money capital did not increase the productivity of the economy. Neither individual work effort nor individual managerial diligence nor individual creative genius was the font of increased productivity. The community’s growing joint stock of knowledge was the source of growing production-not capitalists who skip lunch and excrete steel rails, and not capitalists who make the workers skip lunch to finance the excretion of steel rails. (Steel rails are capital.) Veblen was pleased that his neoclassical colleagues had been able to learn the calculus, but he rejected their amalgamated theory of value which threw everything into a big black box called a production function and then used the calculus to magically differentiate between the marginal products of land, labor, and capital. He also rejected the associated capital metaphysic (capitalists are entitled to their profits because they individually, or as a class, produced them) and the dialectically opposed labor metaphysic (laborers are entitled to their wages because they individually, or as a class, produced them). He did not bother much with the Malthusien theory of scarcity and its accompanying aristocratic metaphysic. The three factors of production theory were based on assumption, according to Veblen.

The reason for this threefold scheme o\f factors in production is that there have been three recognized classes of income: rent, wages, and profits; and it has been assumed that whatever yields an income is a productive factor. (The Engineers and the Price System, 25)

Veblen did not treat the current economy as if it were a coherent system based on capital accumulation. He did not use the term “capitalism” to describe the present economic situation. He used the term “business.” The term capitalism implies the existence of a coherent economic system in which the dynamic factor is capital. To Veblen, the current economy was the product of the blind drift that resulted as growing community knowledge pushed one way while business predation pushed another.

Veblen did not deny class struggle, but he did deal with it differently from the way Marx did (Hill 1958). In particular, Veblen analyzed the struggle between owners and workers in terms of conflicting habits of thought rather than conflicting economic interests. He realized the importance of the calculation of conflicting economic interests. However, according to Veblen, the differences that moved people were conflicts in the habits of thought they learned when they acted upon the world around them. If they continually acted differently, they would learn different habits of thought. So folks who spent their active life trying to make things came into conflict, via their habits of thought, with other folks who spent their active life trying to make money. Making money taught one set of habits of thought-that learned by businesspeople. Businesspeople shared certain class interests, true enough, but more importantly, argued Veblen, businesspeople shared certain habits of thought. Making goods taught another set of habits of thought-that learned by people Veblen called the engineers. Engineers shared certain class interests as well, but more importantly, argued Veblen, engineers shared certain habits of thought. The different habits of thought learned by the different groups came into conflict. The conflict between the engineers and the businesspeople was the subject of Veblen’s famous Engineers and the Price System. (These and related points are discussed in Tilman 1992, 234-51, O’Hara 2000, 19-97, and O’Hara and Sherman 2004.)

Veblen argued that the current situation was not a coherent economic system. It was not an orderly stage of development on the road to a higher stage, nor was it the end stage of such a road. It was chaos, mere evolutionary happenstance, an unordered result of blind drift. What human productivity was there arose in spite of the economic “system,” not because of it. So the title to his first serious attempt at an explanation of the economic “system” was quite specific: The Theory of Business Enterprise. The human productivity we enjoyed was due to the accumulating joint stock of knowledge held and enlarged and passed on by the community itself. The current economic situation was productive in spite of its chaotic nature and in spite of the predatory raids made upon it by the captains of finance-by the leading businesspeople who Veblen called the kept class, not the capitalist class. The goose that laid the golden eggs of productivity was the accumulating joint stock of knowledge of the community as a whole, not the accumulating money capital of certain self-selected individuals supponed by the community.

The free income which is capitalized in the intangible assets of the vested interests goes to support the well-to-do investors who are for this reason called the kept classes, and whose keep consists in an indefinitely extensible consumption of superfluities. (The Vested Interests, 112)

Veblen showed that the money value of the businessperson’s capital was simply the present value of the income stream it provides the owner. And that income stream, Veblen explained, was “the usufruct of the state of the industrial arts.” And the state of the industrial arts, Veblen went on,

continues to be a joint stock of industrial knowledge and proficiency accumulated, held, exercised, increased and transmitted by the community at large; and all the while the owner of the equipment is some person who has contributed no more than his per- capita quota to this state of the industrial arts out of which his earnings arise. Indeed the chances are that the owner has contributed less than his per-capita quota, if anything, to that common fund of knowledge on the product of which he draws by virtue of his ownership, because he is likely to be fully occupied with other things,-such things as lucrative business transactions, e.g., or the decent consumption of superfluities. (The Vested Interests, 69)

Anarchism and the Business-State

Veblen was an anarchist. He placed the locus of value and of productivity in the community, not in the absentee owner and not in the existing state. He made no proposals for state intervention into the economy. He demonstrated no faith in the ability of the current businesspeople’s state to reform the economy along lines he supported. For greater precision, call Veblen’s state the business- state rather than the nation-state. (Further discussion of Veblen and the state is in Tilman 1992, 274-76.)

Even if the business-state did begin to assume some responsibility for maintaining buoyancy in the overall state of business, Veblen had little faith that the resulting stabilization policies would benefit the community. In a passage that sounds remarkably like a critique of the contemporary goal of stabilization policy-the maintenance of a “natural” rate or “full” employment rate of unemployment-Veblen said,

The needed sabotage can best be administered on a comprehensive plan and by a central authority, since the country’s industry is of the nature of a comprehensive interlocking system, whereas the business concerns which are called on to control the motions of this industrial system will necessarily work piecemeal, in severally and at cross-purposes. (The Engineers and the Price System, 18)

The businesspeople aided by the business-state took credit for the undeniable dynamism of the modern economy. They turned communal knowledge to their own individual benefit in the concrete form of accumulated monetary claims on the community-the true meaning of capital. Using the power of the state to support them, businesspeople turned community heritage into private property. The monetary value they extracted from the community is their so-called capital. Veblen called it their vested interest. Once having acquired a vested interest, they pursued their own profit by working at cross-purposes with the interests of the community.

The common good, so far as it is a question of material welfare, is evidently best served by an unhampered working of the industrial system at its full capacity, without interruption or dislocation. But it is equally evident that the owner or manager of any given concern or section of this industrial system may be in a position to gain something for himself at the cost of the rest by obstructing, retarding, or dislocating this working system at some critical point in such a way as will enable him to get the best of the bargain in his dealings with the rest. (The Vested Interests, 93)

Vested interest has a value, a price. The present value of the income stream gained by working at cross-purposes to the interests of the community is the value of the businessperson’s capital. Veblen argued that modern predators used the institutions of business to acquire vested interests that sabotaged the industrial economy but made them rich. The cost to the community was greater than the gain to the saboteurs.

[T]he loss suffered by the rest of the community is necessarily larger than the total gains which these manoeuvres bring to the business concerns; inasmuch as the friction, obstruction and retardation of the moving equilibrium of production involved in this businesslike sabotage necessarily entails a disproportionate curtailment of output. (The Vested Interests, 94)

Veblen argued that the business-state was not an impartial referee or umpire but was itself a product of the business regime. Its courts and other bodies acted in such a way as to defend the vested interests of business against the common good of the community.

To such effect have commonly been the findings of courts and boards of inquiry, of Public Utility Commissions, of such bodies as the Interstate Commerce Commission, the Federal Trade Commission, and latterly of divers recently installed agencies for the control of prices and output in behalf of the public interest; so, for instance, right lately [1919], certain decisions and recommendations of the War Labor Board. (The Vested Interests, 103-104)

Use the national sovereignty to protect and create vested interest. That was the domestic policy of the established state, according to Veblen. Protect and expand the national sovereignty. That was the foreign policy of the established state, according to Veblen. In neither case was any direct attention paid by the state to the common good of the community of individuals in the domestic sphere or to the common good of the community of nations in the foreign sphere (Lutz 1999 discusses the common good at more length.) Instead, Veblen argued that primacy was always given in government policy to the extension of individual ambition at the domestic level and to the expansion of national ambition at the foreign level. Both government policies led to conflict and mutual harm for the many but also to individual enrichment and national aggrandizement for the few. Under the guise of defending the nation, foreign policy had a number of bogus objectives, according to Veblen.

There are foreign investments and concessions to be procured and safeguarded for the nation’s business men by moral suasion backed with warlike force, and the common man pays the cost; there is discrimination to be exerc\ised and perhaps subsidies and credits to be accorded those of the nation’s business men who derive a profit from shipping, for the discomfiture of alien competitors, and the common man pays the cost; there are colonies to be procured and administered at the public expense for the private gain of certain traders, concessionaires and administrative office-holders, and the common man pays the cost (The Vested Interests, 136)

Predators and Parasites

Veblen was a sophisticate, not a rustic. He replaced the dialectical view of elites with a parasitical view. According to Veblen, not only do the common people pay the cost for all the foreign acquisitions of the business-state, they also “swell with pride.” (The Vested Interests, 137). The businesspeople and their business-state are a source of great pride to the common people. With the common people deluded by their national pretensions, the economic usurpers of the community’s surplus can make good their claim to be community benefactors and no longer appear to be community predators. They accumulated capital and helped develop the underdeveloped countries, such was the contribution to the community that they claimed to make. Blinded by the conservative effects of emulation, the underlying population accepted the claim.

Veblen argued that their claims should be disallowed because they were predators trying to become parasites. The distinction is emphasized in Theory of Business Enterprise. A predator can be recognized as such by its prey and then be resisted or avoided. However, a parasite can live off its host without being recognized, so it is not resisted or avoided. It may even be aided by its host. Better to be a parasite than a predator. Better to have a gullible host than a wary prey. Better to be a wolf in sheep’s clothing than a wolf openly on the prowl. Veblen believed that business profit was seized from the community’s joint production. However, businesspeople claimed that they did not seize their profit. They claimed to earn it.

Profit was their just price, they claimed. If they were to make good their evolution from free-booting predator to free-riding parasite, they had to make good their claim to profit as their just price. They had to be accepted by their prey as community benefactors. Acceptance would allow them to appear to be productive members of the community, to appear to be a new and higher form of worker-a manager, an entrepreneur, an abstainer. At first some of the experts in religion supported them in their claim to legitimacy with the concept of the just price; later some of the experts in economics did so with the concept of competitive market. But at the turn of the last century, Veblen saw through all their ruses and he cried out the alarm to the community. He identified the captains of finance as alien to the community, as members of a leisure class, not a capitalist class. Their activities were detrimental, not beneficial. Neither the invisible hand of Adam Smith nor the dialectic of Georg Hegel would reverse things and turn community predators into benefactors.

Evolution Is Not Progress

By arguing that the survival of the fittest reversed itself after the rise of an economic surplus (the fittest in terms of promoting the cooperative survival of the group), Veblen the devil’s advocate had turned the conventional wisdom of the Social Darwinists on its head. In the absence of a surplus, the fittest were the most serviceable to the group and they survived with their group. Only with the emergence of a surplus could survival of the most unfit individual-the predator who gained at the expense of the group- become possible. The surplus provided the wherewithal for the mutant predators to survive at the expense of the community upon which they preyed. This was particularly true of the industrial community. Even after paying the costs of the vested interests, according to Veblen the industrial community,

still has something to go on. The available margin of free income- that is to say, the margin of production over cost-is still wide; so that it allows a large latitude for playing fast and loose with the community’s livelihood. (The Vested Interests, 94)

Once this margin has been achieved through the advance of the industrial arts, the survival of the unfittest becomes possible. The (unfit) predators have gained continually at the expense of the underlying community. Jean-Jacques Rousseau’s noble savage and Veblen’s peaceful savage have steadily lost out to mutant competitors and the degenerate institutions that support them. Before the margin emerged, fit humans survived through community cooperation while unfit ones now survive through individual com’ petition (business) and through war (dynastic politics). And, on the verge of the First World War, Veblen feared that the unfit had come to dominate the human population.

Veblen argued that weakened by generations of regress into individual competition, the cooperative aspect of human nature would be unable “to save the peoples of Christendom” from their precarious institutional situation. He was correct. Capitalism, nationalism, sexism, and racism plunged them into the world wars that marked the twentieth century with so much blood and fire. Let Veblen introduce the twentieth century himself:

History records more frequent and more spectacular instances of the triumph of imbecile institutions over life and culture than of peoples who have by force of instinctive insight saved themselves alive out of a desperately precarious institutional situation, such as now (1913) faces the peoples of Christendom. (The Instinct of Workmanship and the Industrial Arts, 25)

Evolution is Open Ended

In spite of his pessimistic assessment of the incoming century, Veblen did not close out his thought on this note of despair. The community and its growing stock of knowledge were still there and still growing. In a thinly disguised call for syndicalism or guild socialism, Veblen argued that a new social group was carrying the knowledge forward. He called these folks “production engineers” (The Engineers and the Price System, 52). The vested interests owned the community’s industrial system, but these engineers were the people who understood and guided it. The vested interests profited from it, but the engineers made the industrial system work.

This industrial system runs on as an inclusive organization of many and diverse interlocking mechanical processes, interdependent and balanced among themselves in such a way that the due working of any part of it is conditioned on the working of all the rest. Therefore it will work at its best only on condition that these industrial experts, production engineers, will work together on a common understanding; and more particularly on condition that they must not work at cross purposes. (52-53)

Veblen argued that the industrial system had become global: “all the civilized peoples have been drawn together by the state of the industrial arts into a single going concern” (The Engineers and the Price System, 53). Unfortunately for the industrial system, the vested interests of the business regime were constantly working at cross-purposes in order to enlarge their own vested interests by holding out for a better bargain.

The production engineers were not necessarily the formally trained graduates of engineering schools. But if their influence grew sufficiently, and if they gathered themselves together to pursue their common industrial purpose, they might just be able to throw out the predatory institutions of business and replace them with the community service institutions of some kind of syndicalism/ socialism. Veblen speculated,

[T]here is a growing conviction among them that they together constitute the sufficient and indispensable general staff of the mechanical industries, on whose unhindered team-work depends the due working of the industrial system and therefore also the material welfare of the civilized peoples…. [T]hey are accordingly coming to understand that the whole fabric of credit and corporation finance is a tissue of make-believe. (The Engineers and the Price System, 75)

Only more time will tell if Veblen’s Engineers and the Price System was prophetic. On that point, let me close with one last quotation, one that is quite apropos for our time (2006). It is almost as if old Veblen were looking over our shoulders right now when he says,

[B]usiness interests coalesce with the national integrity in such a way as to make the safe-keeping of business-as-usual the first and constant care of the official establishment. So that any conjunction of circumstances which may threaten to encroach on the accomplished facts of … capitalized overhead charges at any point will forthwith be rated as a menace to the national integrity and a call for official measures of repression to guard the public’s safety. (Absentee Ownership, 429)


Veblen’s break with the conventional wisdom was unique, deep, and broad. He makes the most sense as himself-as a radical who dared to battle with American conformism, with the conservatism of conventional economics, and with the prejudices of Social Darwinism. He differentiated his social theory from Marxism. He created his own analytical structure and analytical concepts, and they still make great sense when used as instruments of social criticism. Although parts of his system have become dated-rickety-his combined critiques of modern business, the modem state, modern culture, and modern economics are still relevant to theories of liberalism, anarchism, socialism, critical Marxism, capitalism, pacificism, feminism, and social evolution. He is an enduring radical with something significant to say to us and to succeeding generations. Take away his radicalism, and he becomes an interesting footnote to the intellectual history of America, a mere rustic eccentric.

Special Comments on Citations

Augustus M\. Kelley reprinted all of Veblen’s works except for The Place of Science in Modem Civilization and Other Essays. Scholars are in his debt. Nevertheless, Kelley reprinted Veblen’s works at what turned out to be confusingly similar dates. Therefore, Veblen’s works are cited in the text by title instead of by date to avoid mix-ups. Furthermore, simple titles and names sometimes are used instead of the usual abbreviated citations when it facilitates the conversation.


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