HARRIS (1951) Veblen on Capitalism

7/29/2019 HARRIS (1951) Veblen on Capitalism

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American Economic Association

Veblen and the Social Phenomenon of CapitalismAuthor(s): Abram L. HarrisSource: The American Economic Review, Vol. 41, No. 2, Papers and Proceedings of the Sixty-third Annual Meeting of the American Economic Association (May, 1951), pp. 66-77Published by: American Economic AssociationStable URL: http://www.jstor.org/stable/1910777 .

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VEBLEN AND THE SOCIAL PHENOMENONOF CAPITALISMBy ABRAM L. HARRISUniversity of Chicago

The place of Thorstein Veblen in the history of economic thought issimilar to that of Marx, Sombart, and Max Weber. Like these writershe sought to give a genetic account of capitalism, or the enterprisesystem, as a unique mode of economic organization and, also, to setforth the motivations and institutions peculiar to this system. A com-parison of Veblen's ideas with those of the writers mentioned would beilluminating with regard to his virtues and shortcomings as an econo-mist and a historian of capitalism. Such a comparison, t is needless tosay, cannot be undertaken in a short paper. We propose simply toexamine Veblen with respect to: (1) his philosophy of history which,looking backwards, seeks to account for capitalism in terms of theinstitutionalizationof certain psychological motives or traits of humannature and which, looking forward, projects as the desirable next stepin social progress an alternative system controlled and guided byscientific experts-the engineers and highly skilled workmen; (2) histheoretical analysis, which seems to be offered as a substitute for tra-ditional economictheory on the grounds that the latter is "unscientific"and, for this reason, unable to give a realisticaccount of the motivationsand operations of the enterprise economy; (3) his conceptionof scien-tific method in economics; and (4) his program of economic reform.These four phases of Veblen's thought, though closely interrelated,deserve separate treatment, but in this paper we shall consider themmore or less together.Veblen seemed never to tire of asserting the scientifically objectivecharacter of his inquiry; and admiring students of his work, takinghis "Olympianaloofness" at face value, would perhaps deny that hehad a philosophy of history or a theory of social reform. There is ofcoursemuchguile and make-believein Veblen, and in studyinghim oneshould be alert to his tongue-in-cheekartfulness. Still this should notrenderus purblindto the fact that what he presentedas a "matter-of-fact" inquiry into "brute" causation is substantially a critique ofexisting economic institutions and theories which rests upon thinlyconcealed value judgments, assumptions, and preconceptionsconcern-ing the past and the desirable course of future progress.

Veblen seldom used the term capitalism or capitalist system. Heusually spoke of the price system or the system of business enterprise


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INSTITUTIONAL ECONOMICS 67which, of course, amounts to the same thing. The system of businessenterprise is held to operate in conjunctionwith two other institutions:the "machine process" or the "mechanical system of industry" andthe "national establishment" or the modernstate. These three institu-tions, Veblen tells us, are "the sovereign action-patterns" which'govern the secular life among the peoples of Western civilization."Christian morality seems to constitute a fourth institution, but Veblenbrings this into his analysis somewhatadventitiously. One of Veblen'smain assumptions is that the discipline of these different institutionsgenerates different social habits among the classes of persons who aremainly occupied with them in getting a livelihood. Business enterpriseis thus analyzed with respect to the harmony or conflict which isthought to exist between the habits and norms of conduct enforced,respectively, by it and the other institutions. Business enterprise is de-fined as a pecuniary organization primarilyconcerned with profits andprices. It is based upon private ownershipand, hence, fortified by thestate, since the principles of the state and, likewise, those of privateownership are grounded upon natural rights. The machine system ofindustry, however, embodies the "technologyof physics and chemistry,"and the principle of its operation is "opaque" mechanical cause andeffect. The machine process is motivated by technical efficiencyas anend. The operations of this mechanicalprocess and, in consequence,thecommunity's industrial efficiency, Veblen holds, is constantly inter-rupted, restricted, and diverted by the private owners of industry inthe quest for profits. Veblen thus thinks that as a motivation in eco-nomic life, technical efficiency is conducive to maximum material wel-fare, while the quest for pecuniary gain is incompatiblewith this end.The idea of technical efficiency plays a central role in Veblen'sphilosophy of history. It is intimately connected with the conflict insocial habits which he thinks lies, back of social change. And it isthe-basis of his evaluation of economictheories and institutions.Veblenfailed to consider the fact that even if economic life came to beorganizedunder the guidance of engineers,as he thinks desirable,thetechnically best would not always be the economicallymost feasible.Under a technocraticas under a capitalist arrangement,the efficiencyof machines as well as of human beings would have economic signifi-cance only in terms of the productionof values, and this significancewould reflect the fact that under given conditionsan increase in physi-cal output would necessarily have diminishing importance. Further-more, mere technicalefficiencycan neverbe a guideto production;thatis to say, to economic efficiency. The questions of what goods aresocially the most desired and of the order in which they shouldbe pro-duced can only be determined on the basis of the relation of input to


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68 AMERICAN ECONOMIC ASSOCIATIONoutput, and the question of this relationship s essentially a value prob-lem about which technical efficiencyper se can tell us nothing.Veblen's theory of social change is based on the view: (1) thatsocial culture is shaped by material conditions, but that the changesgo forward in the form of social habits and customs that becomecrystallized into institutions in the group's repeated responses to itssurrounding environment; and (2) that institutional growth andchange take place according to neo-Darwinian canons of "selection"and "survival." We have noted that Veblen contended that the disci-pline exercised by institutions upon the persons habitually employedwith them manifests itself in the form of social habits. On the basis ofthis'contention, he attempts to account for social changes in terms of aconflict in social habits induced by the discipline of divergent institu-tions. Institutions are ultimately the result of the interaction betweenhuman nature and the material environment. Overlooking climaticand topographicalfeatures, the materialenvironment s made up of thestate of the industrial arts, comprising,on one side, natural resources,tools, and domesticated plants and animals, and, on the other side,immaterial knowledge resulting from inventions and discovery. Theirreducible elements of human nature are instincts-a term whichVeblen uses rather loosely. The five instincts or native proclivities givenby him are: the sense of workmanship, the parental bent, the self-regarding disposition, pugnacity, and idle curiosity or the dispositiontoward "aimless"impersonal inquiry.In the struggle for existence these instincts, it is held, becomeorganized nto social habits, but the extent to which any one of them en-ters into the compositionof habits is a matter of selective adaptationin-duced by changes in the material conditionsof life. Since the instinctsare held to vary with respect to their importanceto technicalefficiencyand the material welfare of the community, the habits resulting fromparticularcombinationsof instincts will vary accordingly.For example,habits which are due primarily to a combination of the instinct ofworkmanshipand the parental bent are on the whole conducive tomechanical efficiency and output, since the instinct of workmanshiptends toward an "impersonaleconomicaluse of resources"while theparentalbent expressesa "bias"for serviceability.But habits in whichpugnacious and self-regarding elements are predominant tend to beinvidious, emulative,and predatory.

Veblen thinks that in the evolution of Westerneconomic institutionstwo conflicting types of habits have been generated: the warlike,predatory, invidious or competitive, on the one hand, and the peacefuland noninvidious,on the other. Looking backward,he finds that theseconflictinghabits are represented n the early stages of Westernculture


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INSTITUTIONAL ECONOMICS 69by two opposing types of society: "the peaceable communisticregimeof primitive savagery"' and the warlike barbarian culture. In theprimitive savage community tools and implements, while not highlydeveloped, "served chiefly to shape facts and objects for use ratherthan for inflictingdamage and discomfort."The "dominanceof a senseof group solidarity"precluded self-regarding and invidious canons ofconduct and taste. There was no private property or class stratifica-tion. Rivalry existed, but the conditions favoring a predatory life wereabsent; so that the emulation between members of the group ran itscourse in terms of workmanship.With an improvement in technologyand the resultantgrowthin surplus wealth primitivesavagerygraduallyreceded before the emergingculture of the predatorybarbarian."Withthe advent of predatory life comes the practice of plundering he enemyand seizing his women and movable property." According to Veblen,when the practice of seizing women has hardened, "the captor comesto exercisea customary right to exclusive use and abuse of the womenhe has seized." Gradually, this habit of the "right to exclusive use" be-comes extended to other categories of things, and as a result ownershipresting upon tenure by prowess is established. In contrast with primi-tive savagery the barbarianculture rests upon "exploit" and invidiousdistinctions between the warrior and priestly castes, who "engross"the community's industrial efficiency, and the underlying population,whoseworkmanship uppliesthat efficiency.Now, since these behavior traits that manifested themselves in-stinctively and habitually in these early culturesmake up the spiritualinheritance of the people of Western civilization, any change in thematerial conditions of life of these people can take effect only in termsof this inheritance. But the populationof the West has resulted,Veblenthinks, from the admixtureof more than two racial stocks or mutants,which have survived because of their fitness to meet changingmaterialand cultural circumstances.Although the crossing of these stocks hasleft intact a "generichumantype," fixed by the aforementionednative

In discussing my paper, Mr. Dorfman objected to this phrase, "communistic regimeof primitive savagery," and supported his objection with Veblen's statement that a stateof primitive communism is unknown in human history. But the phrase, "peaceful com-munistic regime of primitive savagery," is Veblen's, not mine. See "The Beginnings ofOwnership," Essays in Our Changing Order, by Thorstein Veblen, ed., Leon Ardzrooni(New York, 1934, p. 44). In the statement quoted by Mr. Dorfman, Veblen denied theexistence of common ownership of the means of production in primitive society. ButVeblen was referring to consumption when he characterized primitive savagery as "com-munistic." He states: "In these very rude early communities, especially in the unproper-tied hordes of peaceable savages, the rule is that the product of any member's effort isconsumed by the group to which he belongs; and it is consumed collectively or indis-criminately, without question of individual right or ownership." Idem. Veblen seems tothink that the idea of ownership is altogether foreign to primitive savagery. In "theprimitive savage horde, the population is not divided into economic classes. There is noleisure class resting its prerogative on coercion, prowess, and immemorial status; andthere is also no ownership."Ibid., p. 43.


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70 AMERICAN ECONOMIC ASSOCIATIONtraits and habits, the permutations and combinations of these nativeelements will vary endlessly among the individuals that make up thepopulation,since these individualsare hybrids. But Veblen insists that"disserviceably wide departures from the generically human andserviceable type of spiritual endowment will tend constantly to beselectively eliminatedfromthe race."The anthropology from which Veblen derived his theory of threeEuropean racial types that differ in both physical and mental charac-teristics has long been discarded. And his belief that racial typespossess "native characteristics"that are transmissible n the same waythat biological inheritance is, was arrived at by a very questionableapplication of the doctrine of biological evolution to human culture.Furthermore, here appears to be no evidence to supporthis thesis con-cerning the existence of his two prehistoric cultures. If there is any,Veblen does not supply it. His thesis seems to rest upon conjecturalhistory for the use of which he severely lampoonsclassical economics.The idea of a state of primitive savagery, like that of an instinct ofworkmanship,holds a peculiar fascination for Veblen. Its role in hisphilosophy of history and theory of social change is somewhat akinto that of the "state of nature"in the doctrine of natural rights whichVeblen criticizes. Just as the instinct of workmanshipis held to be"the more generic, more abiding trait of human nature," so likewise isthe "discipline of savage life" held to be "the most protracted andprobably the most exacting of any phase of culture of the race." ThusVeblen believes that by heredity human nature is still basically savage,and that by virtue of the biologically unstable characterof the racialstock, the chances of a reversion to savage nature are always great.Moreover, he thinks that the dispositions peculiar to savage humannature are still strong because they have been reinforced by theChristian principle of "mutual service" or "brotherly love." ThisChristian principle,Veblen holds, containsthe idea of "serviceabilitytothe common good" and in its elements is also a "deeprootedculturetrait," appearing "to be nothing else than a somewhat specializedmanifestationof the instinct of workmanship."Thus "the ancientracialbias" of the savage has come to be embodiedin the Christianprincipleof brotherhood.It is incompatiblewith the "pecuniarymorals of com--petitive business" and "should logically continue to gain groundat theexpense"of this regime.

Veblen's theory of social habits rests upon a rather arbitrary de-terminationand classificationof instincts. After noting that the instinctconcept is shifty and lacking in precision, he proceeds to impute adefinite purposive end to each of the instincts he enumerates. It isonly by virtue of such imputationthat he is able to say what kind of


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INSTITUTIONAL ECONOMICS 71habits any given combination of instincts will produce.He does speakof a "contamination"of instincts. But he can still set up his polarityof habits simply by assigning predominanceto one or more instinctswhose value and ends he has predetermined.It is only by this teleologi-cal arrangementof habits and instincts that Veblen is able to constructtwo opposing types of prehistoricculture and two historically antago-nistic modes of economic activity: the acquisitive or predatory; theindustrial or productive. And it is clear that Veblen's evaluation andcritique of modern economic institutions and theories revolve aroundthis conception of opposingmodes of economicactivity and the habitsassociated with them. Although they rest upon a "technology" and a"systematization of knowledge" wholly different from that of anyprevious culture, the "machine process" and "business enterprise"represent n modernsociety the historicantagonismbetweenproductiveand acquisitive modes of economic activity. And the habits of "in-dustrial efficiency" and of "exploitation" associated with these re-spective types of economic activity are analogous to the habits ofthoughtwhichVeblen findscharacteristicof primitivesavageryand thebarbarianculture.Veblen's analysis of the phenomenon of capitalismwas not entirelyconfined to a psychological exposition of what he considered to bethe motivating principles and habits of the enterprise system. A con-siderable part of his investigation dealt with questions concerningthe organization and functioning of the system..His views on thesequestions were based mainly upon governmentaland other investiga-tions of corporationsandhigh financein the trust-bustingera. They areset forth in his discussionson loan-creditand overcapitalizationas fac-tors in business cycles. It is impossibleseriously to considerhis treat-ment of those subjects in this paper which is already longer than theauthor intended. But since Veblen thought that the shortcomingsoforthodoxeconomictheory are due, at least in part, to mistakenconcep-tions of business operations, some light will be cast on his view of theseoperations by a consideration of the defects of traditionaltheory as hesaw them.By Veblen's standardsof scientificmethod,classical and neoclassicaleconomics are unscientific. According to him modern science, underDarwinian influences, takes as its prime postulate "the fact of con-secutive change."Modernscience thus demands,he contends,a geneticaccount of phenomena; in other words, a "theory of a process of un-folding sequence." Scientific inquiry is essentially matter of fact. Itknows no ultimate or final term-this being ruled out by the factorof consecutive change. It is thereforecontent to formulate the processof cumulative change, mechanically, in terms of "opaque"cause and


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72 AMERICAN ECONOMIC ASSOCIATIONeffect. In economics the process of cumulativechange to be dealt withis "the sequence of change in the methodsof doing things"-a change,that is to say, in the "ways and means of turning materialobjects andcircumstances o account."If then economicsis to be scientific,it has toinvestigatethis mechanicalprocess and formulatethe movementof it inthe causal matter-of-fact manner of the physical and biological sci-ences. But this, Veblen holds, is precisely what traditional economicsis unable to do, because of the characterof its subject matter and itsmethodsof dealingwith it.In Veblen's conceptionclassical and neoclassicaltheory is concernedonly with questions relating to pecuniary transactions. In his words:"The normal economiccommunityupon which theoreticalinterest hasconverged, is a business community, which centers about the marketand whose scheme of life is a scheme of profit and loss." Thus byvirtue of its preoccuLpation ith issues connected with this businessscheme, traditionaleconomicslies outside the sweep of the disciplineofthe machine process and is unable, therefore, to formulate a theoryrelating to changes in "the methodsof dealingwith the materialmeansof life."It is not only the subject matter but also the preconceptionsandmethods of classical economics that are held to be unaffectedby thedisciplineof the machineand, accordingly,of modernscience. In classi-cal economics, the "sense of truth and substantiality is not satisfiedwith a formulationof mechanicalsequence,"because the ultimate termin its systematizationof knowledgeis "natural aw." This naturallawin the guise of "controllingprinciples"is thought to exercise "a con-straining surveillance over the trend of events." Thus the preconcep-tion of "natural law" imputes to things and events "a consistentpropensity tending to some spiritually legitimate end." Veblen holdsthat although in the later formulations of classical doctrine by suchwriters as Marshall and Clark the conception of "normal"tends tosupplantthat of natural law, the outcomeis not substantiallydifferent.These later economists not only are concerned to ascertain "what isnormal and to determine what consummationanswers to the normalbut are at pains to approvethat consummation."Thus even in the lateclassical doctrines "the normaltends unavowedly to be identifiedwiththe right,"and there persists an acceptanceof the uncriticalconvictionderivedfrom the idea of naturallaw that there is a meliorativetrendinthe course of events. The "benignorder of nature"in which this trendtends to be consummated is none other than the normal regime oflaissez faire and of "perfect competitive acquisition."Whatever may be said about the connectionbetween Adam Smith'snotion of "invisible hand" and the idea of a meliorative trend, the


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INSTITUTIONAL ECONOMICS 73theme underlyingRicardo'srent theory and Malthus' populationthesisis obviouslypessimistic.And, when we come to the classicaleconomistsin the late nineteenth century, it is difficult to find anything in theirwritings suggestive of a belief in a meliorativetrend. Under the influ-ence of Ricardo and Malthus, J. S. Mill was constantly urging thatthought be taken to abort the evils of overpopulationand the stationarystate. And Marshall, viewing history in the perspective of a law ofdiminishingreturns, was haunted by the specter of the dire effects ofthis law upon humanprogress. It is of course true that the writings ofMarshall, Clark, and, to some extent, Mill contain not merely a scien-tific explanation of the working of capitalism but also statementsjusti-fying the system. But none of these writers consideredthat the organi-zation of economic activities by means of the market and enterprisesconducted for profit was the definitively adequate mode of economiclife. All three of them consideredfuture economicprogress to involveconscious co-operation in the form of industrialcopartnership,supple-menting and even taking precedenceover the unconsciousco-operationeffectedby enterprisecompetition.Accordingto Veblen, this "belief in a meliorativetrend"or a "benignorder of nature" is closely connected with the classical school'shedonistic conception of human nature. He states that the notion of ameliorative trend and the hedonistic psychology "are so related as tostand or fall together."Thus "given an indefeasible meliorativetrendin events, man is but a mechanicalintermediary n the sequence. It isas such a mechanical intermediate term that the stricter hedonismconstrues human nature." Veblen of course had no great difficulty inmaking short shrift of hedonism as a psychologicaltheoryand in settingforth its limitations as an ethical doctrine. In his day psychologicalresearch had shown that human nature is far too complexand uncon-scious in its motivations to be explained in terms of a calculus ofpleasures and pains. Moreover, economists had themselves come toquestion the ethical dogma that freedom to pursue one's self-interestnecessarilycoincideswith the collective interests of society. But despiteits erroneouspsychology and the confusion in its reasoningon ethicalquestions, hedonism sought to supply an argument in defense of indi-vidual freedom.The exponentsof hedonismthought of freedom not asa good in itself, as they should have, but rather as instrumental topleasureand thus to be contended for on the groundthat the individualis a better judge of the means to his own happiness than are govern-ment officials or other individuals. The merits of this argumentare notdiscussed by Veblen, but from his remarkson laissez faire one gathersthat he attached little weight to it. The essential content of laissez faireis contained in the principle that the individual should within limits


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74 AMERICAN ECONOMIC ASSOCIATIONmake his own decisions and abide by the consequencesof them. Butthe validity of this principle has no necessary connection with thetenability of hedonismas an ethical doctrine. If freedomis considereda social value, as it should be, it must be prized as a good in itself andnot simply as an instrument to pleasure. There is nothing in Veblen'sremarkson hedonismto indicate that he considered ndividualfreedomsuch a value, and one is rather perplexed by his failure to discuss inany place the conditions necessary for the realization of freedom ineconomic life.The two specific theories of traditional economics against whichVeblen directed his fire are marginalutility and the marginalproduc-tivity explanationof distribution.When his essay on "The Limitationsof Marginal Utility" is read in conjunctionwith his book, The Theoryof the Leisure Class, the gist of his argumentruns somewhatas follows.As a motivation in consumptionthe principle of utility assumes thatchoices are consistently made with a view to some tangible or concreteresult which is intendedor desiredfor its own sake. That humanbeingsmay sometimesact in this manneris undeniable,but the idea that theynormally do so is unsupportedby modernpsychology. The student ofmodernpsychology takes the view that the concreteaims of action arevalued and desired as symbols of prestige and social status. Thus inconsumption, goods and services are generally valued, not for theirown sake, but for what they signify in social relations.In utility theorythe stress is upon the rational element in human behavior, whereasmodern psychology emphasizes habits and customs in unconsciousmotivationsand caprice in conscious motivations.Veblen would there-fore say that in both consumption and production there is a largeelement of emulationand sportsmanship.In entertaining this view hecertainly anticipates the idea that economicmotivations are to a greatextent analogousto those of a game in which the aim of the participantsis "to win" rather than to achieve some concrete tangible result. Allof which is logical and not at all inconsistentwith views presently heldby most theoretical economists. But the same cannot be said forVeblen's criticism of the classical distributiontheory.In his criticisms of the productivity theory of distribution, Veblentook as the special object of his attack the ideas expressed by JohnBates Clark. But his criticismsare so couchedthat they must be takenas applying to anyone who holds to the marginalproductivity theory,wholly irrespective of the manner in which he may formulate thetheory. Any theory which imputes to the so-called "factors of pro-duction"relative contributionsto output, and which on this basis seeksto determinethe shares of income earnedby the factors, is repugnantto Veblen's scheme of values. Veblen contends that since the output


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INSTITUTIONAL ECONOMICS 75to which the factors are said to contribute must consist of exchangevalues and is therefore intangible in character, a "quantitative" de-termination of a factor's contribution is scientifically impossible. Hecontends further that if it is argued that a quantitative determinationof exchange values is not impossible, the validity of the postulate thatcompetition effects an equivalence between the contributions of and thereturns to the factors "cannot be demonstratedin any terms that willnot reduce the whole proposition to an aimless fatuity."Veblen's criterion of productivity is of course mechanical efficiencyor tangible performance. This criterion is the basis of his contentionthat the "productive contributions" that economic theory seeks todetermine are quantitatively immeasurable. He, accordingly, holdsthat since "productivity," in the classical meaning of the term, canonly refer to pecuniary transactions of the market, a productivitytheory, for example, of wages simply states that the value of labor isfixed by the individual employer in terms of the "vendibility" of hisproduct. Veblen seems to think that in large-scale industry, the indi-vidual employer is generally a monopolist in the sale of products anda monopsonist in the hire of labor. According to this viewpoint theindividual businessmanis held to possess, therefore, a large amount ofdiscretion in fixing his prices and wage rates. Veblen attempts noserious analysis of the extent of competition or of its limitations as asocial institution. His view of business operationsis simply a sophisti-cated version of the popular or, perhaps one should say, the populist,conviction that in buying and selling the businessmanpays and charges"whatthe trafficwill bear."The businessman, as Veblen describes him, is neither an innovatoras in Schumpeter'smeaning nor the bearer of enterprise uncertaintyas in Knight's analysis. The businessmanhas becomean absenteeownerwho is no longer engaged in the managementof industrial operations.He is typically a "Captain of Industry" concernedmainly with ques-tions relating to bargain and sale. And, since, in Veblen's definition,"bargainand sale" contribute very little to "production,"there is noway of determining the businessman's income on the basis of his"productivity."The fact that the outcome of all business undertakingsand operations is frought with uncertainty and, also, the fact that theassumption by the businessmanof this uncertainty makes him uniqueamong productiveagents, find no place in Veblen's discussion. In otherwords, Veblen has no theory of entrepreneurshipand, for all of hisanimadversionsagainst classical doctrines, his theory of profit is castin terms of the classicalwages of management."Profit"when conceivedin the form of the wages of management is perfectly acceptable toVeblen, since he can justify it as payment for a "tangible" and, there-


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76 AMERICAN ECONOMIC ASSOCIATIONfore, a "productive"service. He does not take into account: (1) thathowever economic life is organized, a determinationmust be made ofthe value of the contribution of the various resources to production;(2) that such a determinationcan never be made in terms of physicalunits, either of human energyor mechanicalpower; and (3) that valueswill in any case be assigned to the productive contributionof the re-sources, either on the basis of market competition, by political au-thority, by the pressure of organized bargaining groups, or by somecombinationof these three.Veblen's adherence to a physical approach to production preventshim from carrying some of his otherwise penetrating insights to theirlogical conclusions. For example, in calling attention to the nature ofcapital goods, he notes that these goods are the embodiment of theimmaterial wealth of society; in other words, of knowledge of waysand means resulting from education, discovery, and invention. If thisidea of the nature of capital goods is consistently adhered to, theclassical distinctionbetween land, labor, and capital, and thus betweenrent, wages, and interest, would in principle have to be somewhatmodified. For it would be evident: (1) that the productivepower asso-ciated with any one of the factors would, in final analysis, representknowledge, discovery, and invention; and (2) that the productivepower of capital goods (including land) and, likewise, that of humanbeings results from saving and investment which make possible themaintenance and replacementof existing material equipment and thecreation of new equipment, in one case, and the rearing and trainingof humanbeings, in the other.Still, in any attemptrationallyto allocateresources,there would remain the necessity of estimating the value ofthe productive powerwhich any so-called "factor"representsrelativelyto the others. The true value of the productive power of any factorwould be expressed by a cost representing the value of the timeor the waiting involved in bringing this productive power to fruition.Veblen, however, is not interested in the question of investment costsince this must relate to economic values.2In his analysis of capitalgoods he seeks to demonstratea thesis reminiscent of Marx's dogmaof capitalist exploitation; viz., that capital goods are productive onlybecause they are made so by the engineer'sand the skilled workman'sknowledgeof ways and means, and that the private ownershipof these

2As proof of Veblen's interest in the problem of investment, Mr. Dorfman citesVeblen's idea of "serviceability over cost." All investment (and saving) is the meanswhereby new productive power is created and transferred to those who desire to use it.It necessitates "abstinence" by society as a whole, the exchange by the members of societyof present for future incomes and, hence, an evaluation by them of present in relationto future income. How Veblen's idea of "serviceability over cost" could bear in any mean-ingful way upon the investment problem as stated is a question on which Mr. Dorfman,I hope, will enlighten us.


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INSTITUTIONAL ECONOMICS 77goods enables the owners to extract wealth from the real producers.

In conclusion it will be possible to comment only briefly uponVeblen's conception of scientific method and his program of eco-nomic reconstruction. Veblen insists that to be scientific, one mustthink of human events as a process of cumulativechange and in termsof mechanicalcause and effect. From this it would seem to follow thata scientific study of social problemsmust considerhumanlife as con-sisting simply of mechanical responses to external stimuli. Whenviewed in this mannerhuman life is robbed of all meaningful contentand we are forced to the absurdposition of assumingthat merephysio-logical processes have some sort of "survival value."3Veblen's ideathat productionis a question of material usefulness and technical effi-ciency carries this behavioristic approach over into economics. Heholds that materialwelfare would be greatly improved if the manage-ment of industry were placed in the hands of engineers and other tech-nical experts; but if, as he thinks, the operationof industryhas alreadybeen reduced to bureaucraticroutine, managementby engineers andscientificexpertswould only accentuatethis state of affairs.Veblendoesnot tell us how and on what basis his "Soviet of Technicians" wouldmake its decisions, nor does he state how this control by technicianscould be prevented from becoming despotic power over the rest ofsociety.

Veblen does not strictly adhere to this mechanistic approach. For he thinks that the"survival value" of economic institutions depends upon their contribution to "fulness oflife." Although the meaning of the term is left somewhat vague, "fulness of life" seemsto consist of something more than material comforts. "'Livelihood' is, of course, heretaken in a loose sense, not as denoting the means of subsistence simply or even the meansof physical comfort. . . ." Veblen, The Place of Science in Modern Civilization (NewYork, 1930, fn. 9, p. 371).

HARRIS (1951) Veblen on Capitalism

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