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Thorstein Veblen is the founder of institutional economics, a unique American contribution to social theory. Institutional economists contributed significantly to FDR’s New Deal and remained active in government service and the academy through WWII and beyond. By the early 1950s the red threads woven throughout Veblen’s thought began embarrassing established institutionalists. Paul Sweezy, C. Wright Mills, and Douglas Dowd kept the red threads in Veblen, but most institutionalists did not. Without the crucial red threads to hold it together, his thought quickly unraveled, leaving little more than a series of humorous diatribes against stuffed shirts and greedy businessmen. Even his revolutionary book, The Engineers and the Price System, was reinterpreted as a tongue-in-cheek economic farce.
Then along came Vietnam. The Vietnam generation saw red, including Veblen the Red. He taught us a lot, and none of it was humorous. He made us smile, though, because he also taught us that all this would change. The real Thorstein Veblen was not a humorist. He was a radical and a Marxist. Like any good Marxist he did not follow his intellectual mentor slavishly, but studied his mentor critically. So just like Marx critiqued Hegel in order to use him as a foundation to go further, Veblen critiqued Marx. Revisionist institutionalists argue that he was an anti-Marxist. Nothing could be further from the truth. Of course there are significant differences between Veblen and Marx, but the similarities run deeper.
Similarities with Marx
Both Marx and Veblen believed that the social system of which they were part was unjust and wasteful. So they set out to critique everything that existed, including the leading intellectual of their day. Marx, of course, started out with his critique of Hegelian thinking, turning Hegel into a sturdy foundation for further thought. Veblen did the same thing, only the leading intellectual of his day was Marx, not Hegel.
Both Marx and Veblen sought to explain how a minority of people could get away with taking advantage of the vast majority. The details of their explanations were not the same, but both Marx and Veblen knew that the minority enriched itself at the majority’s expense, and both also knew that the minority was neither a group of simple thieves nor a group of simple robbers. If they did not steal it and did not rob it, how did they get the wealth? How could we get it back? What a puzzle! Neither Marx nor Veblen was so simple as to think that there was a deus ex machina to fall back on as a theoretical explanation or as a policy solution. Therefore, each of them developed a theory in which the unjust enrichment was inherent in the operation of the economy. It could not be stopped just by stopping theft and robbery. Nor would it be stopped if every individual in society were honest and trustworthy and kept their hands in their own pockets. It could only be stopped by reconstructing the social system. Another way of putting it is that each called for social reconstruction, not individual salvation.
Differences with Marx
Much is often made of the dialectics of Marx versus the opaque cause and effect of Veblen, but I think the principal difference between Marx and Veblen is that Marx constructed a labor theory of value to explain how capitalists grew rich through exploiting the workers while Veblen constructed a theory of business enterprise to show how business people grew rich at the expense of the underlying population. Their theories do not contradict each other but focus on different aspects of the same problem. Marx emphasized the exploitation of the working class through the capitalist class’s control of the production process; while Veblen emphasized the exploitation of the underlying population through the control of the market system by big business and big government. There is a difference, but no contradiction between the two. In fact, when combined, Marx and Veblen yield a more complete explanation of how the minority grow rich at the expense of the majority and how they get away with it even under modern conditions of science and enlightenment.
We should not pick between Marx or Veblen. We should construct a vibrant radicalism out of them both. We should become simple Marxists, along with C. Wright Mills. We should also become Veblenians, along with Paul Sweezy and Douglas Dowd.
William M. Dugger is Professor of Economics at the University of Tulsa.