Veblen's Critique of Orthodox Economics - Book Report/Review Example

Veblen's critique of orthodox economics "The in charge of Economics at Cornell, J. Laurence Laughlin, was sitting in his study when an anemic-looking man . announced 'I am Thorstien Veblen '.Laughlin became so impressed with Veblen that he secured special University grant for him." ( The marginal academic, p.9 ) "He would come to the classroom with half a dozen books under his arm, sit down behind his desk ,and commence mumbling through his whiskers, the characteristic economic blasphemies for which he was famous. Judged by conventional standards, he was the world's worst teacher. He seldom knew at the beginning of the hour what he would say or where he would arrive at the end. I think these mumbling lectures were a good deal of bore to himand he took little interest in the question of whether his students were reading lessons or doing work in the course or not." ( A marginal academic,p.14) " For example making of beds was considered a useless ceremonial, the covers were merely turned down over the foot of the bed so they could be easily drawn up at night. Dishes were washed only when the total supply was exhausted. Veblen advocated, though he stopped short of practicing the making of clothes from discarded paper." ( The marginal academic, p.24) These three examples briefly describe the type of person Thorstein Veblen was.This paper briefly reveals my views on the radical and unconventional ideas generated by Veblen and his critique of the orthodox economics. Three articles have been referred to while preparing this presentation. They are : 1) A marginal academic. This is a brief article on Veblen, describing him as a person, than as an economist. It outlines the events of his life. 2) Post-script to neo-classical economics : This article describes the evolution of neo- classic economics and how Veblen opposed its various theories and assumptions. Its basic theory is that 'free functioning of markets would normally advance the general welfare'.(post script p 1 ). Veblen criticized the orthodox neo-classic economy by stating that ' it was too formal, too deductive and too static to provide leverage to the problems that mattered.' (post script. P 8 ) 3) Institutionalism as scientific economics : This essay by Malcom Rutherford, concentrates on Veblen's critique of the orthodox economy in his 1898 famous essay, 'Why is economics not an evolutionary science ' Here, ' Veblen's main criticism relates to adherence of concepts of natural laws or normal cases.' Veblen's Critique I know of a person who asked his school teacher , 'why is 2 + 2 = 4 , and not 5 or any other number' The teacher could not convince him or he himself had no answer to his question. This boy defied the school education system, dropped out to become a leading figure in exhibition design. A few genii are born to defy conventions, and Thorstien Veblen was one of them. The professional work or contribution of any specialist can never be viewed in isolation. His work is always connected to the way he has lived his life. Adolf Hitler would not have been what he became, had he not witnessed Germany being completely thrashed by the highly imbalanced, ' treaty of Versailles', by the Allies, mainly USA and UK, as a result of the 1st world war, in his formative young age. His life sketch reflects the mentality of this radical thinker. He lived with the tag of a 'Norwegian refugee' and had no means of income for many years in the beginning of his professional career. His personal life was also disturbed and his professional career was never static. Wherever he went, his thoughts and deeds went against him, ultimately leading to the change of place. Perhaps the best of his years were at the University of Chicago, in the last decade of the ninettenth century. This place had nurtured his thirst to express openly and freely, his opposition to the conventional theories of economics. It was from here that he published his first widely read paper, ' The theory of the leisure class' which was soon followed by, ' The theory of business class '. These two papers caught the attention of economists and historians. Veblen was now an intellectual force to reckon with. Few factors that contributed to making Veblen such a revolutionary thinker were, 1) His status of a Norwegian refugee 2) His poverty 3) His childhood as the son of a farmer, which never gave him an access to the life-style of high society, and forced him to believe that these facilities were not for him. A simile could be that before Abraham Lincoln, a Negro slave would have never thought of becoming a land owner. From his childhood, he is trained to think that he has to live as a slave only. 4) His dismissal from wherever he went to work and earn his living. He was dismissed from almost all Universities where he worked. 5) His tendency to remain aloof from the majority and mix with a very selected company.( A marginal academic ) Veblen's stated that the neo-classical theory was 'totally oblivious to the analysis of change'.( post script para.8) He was very justified in arguing that if the creativity and the ability of man to produce was allowed to express itself, without constraint, the society will be filled with abundance. The leisure class is wasting the abundance that the human energy had produced. A highly organized market system was suppressing the power of human energy to produce in abundance, because of fears of a downfall in profits. The creative energies are thus frustrated.( post script para. 9 ) this directly implies that the leisure class works to create demand of a commodity by either wasting it or producing it at much lesser level than achievable. A perfect example could be the suggestion by the orthodox economy that goods at a lower price would find more consumers, Veblen would reject it saying that if the price of the luxury goods are less, it may sell less than at a higher price !!(Post script para 10 ) Velben's opposition in this case is very just and acceptable. Veblen also favored ' institutional ' approach to economy. Finally, Veblen refused to accept that Economics could ever become exact science. He opposes value judgments like "optimum' and ' equilibrium'. Veblen argues, and correctly so, that an ethical decision cannot be arrived at, based on scientific data. (post Script, para 11) One derivation that can be taken from this article is that the orthodox economy was unjust, and it was this injustice against which Veblen had opposed. A machine may be capable of producing 100 number products per day, but the decision makers, decide to make only 70, because the scientific data collected shows that only 70 could be sold and if 100 were produced, the inventory will unnecessarily rise, if the full capacity is utilized. The decision makers were guided by the orthodox economic principles, to which Veblen refused. He recommends free and unrestricted use of power to produce in abundance. Profits and only profits could be the operating principles of businessman and the leisure class, but it can never be the operating principle of a Economics. While framing Economic principles, a just approach is also a must. ' Why is Economics not evolutionary science " is an important contribution by Veblen, in his life-long quest against the orthodox economy. This work was published in 1898. Veblen saw science as an ' expression of idle curiosity, a disinterested inquiry, and rejected the notion that science should aim at , or be judged by practical success or application.'. ( M. Rutherford, Institutionalism, page 3) Veblen's first main criticism relates to adherence of concepts of natural laws and normal cases. ' Economics consists of the laws of 'normal case', but the 'normal case does not exist in concrete fact' so the laws of economics are ' hypothetical' and apply to concrete facts only as the fact s are interpreted and abstracted from, in the light of underlying postulates.( M.Rutherford, Institutionalism, page 3, 4 ) 'Veblen's second main second main criticism on orthodox economics concerns its reliance on hedonistic psychology. This psychology provides a view of human nature as passive, substantially inert and immutably given'(M Rutherford, Institutionalism page 5) These conceptions are outdated and not t rue. Veblen's also says that hedonism misses out on all crucial issues, because it is confined to the normal case. For example, from Hedonist point of view, money is a convenient system of exchange, and is a refined system of Barter. But, according to Veblen, ' money is a vital factor in a complex set of pecuniary practices, and phenomena that cannot be reduced to the smooth interaction of consumption preferences and production technology.' ( M. Rutherford, Institutionalism, page 6) Veblen disagreed with the preconceptions of economics, natural and human sciences. These conception cannot formulate economics which can incorporate institutions and institutional changes.( M. Rutherford, Institutionalism, page 6) Here, Veblen seriously differs with the orthodox economics in his vision. His vision about economics, its functions and its role in a society, is drastically different. Veblen, defies the very basic conceptions on which the orthodox economy is based. Veblen was a master thinker. He had the capacity to revolt against conventions and pay the price for it also. Perhaps history has not given him the credit he deserves, but in future he may be renamed as the 'Abraham Lincoln' of economics. ( word count : 1629 ) Works-cited page 1. Larry K Ridener, The Magical academician, Retrieved on 22-11-2006 < http:// ww2.Pfeiffer.edu/Iridener/DSS/veblen/VEBLENP3.HTML> 2) Post Script to neo-classical Economics , Retrieved on 22-11-2006 < http://www.wesleyan.edu/css/readings/Barber/post7.htm > 3) Malcom Rutherford, Institutionalism as 'scientific economics', University of Columbia, Retrieved on 22-11-2006, < http://web.uvic.ca/econ/ddp9901.pdf > Read More