Abstract
The theory of consumption, within the institutionalist conception of the economy, is inseparable from the general theory of cultural and economic evolution. The earliest coherent treatment of consumer behavior within this holistic and evolutionary perspective was that of Veblen in his first book, The Theory of the Leisure Class.1
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Endnotes
Thorstein Veblen, The Theory of the Leisure Class (1899; New York: Random House, Modern Library, 1934 ).
A leading contributor to this line of development was Clarence E. Ayres, The Theory of Economic Progress, 2d ed. (New York: Schocken Books, 1962). See also Allan G. Gruchy, Contemporary Economic Thought: The Contribution of Neo-Institutional Economics (Clifton, N. J.: Augustus M. Kelley, 1972 ), pp. 89–132.
See David Kaplan, “The Formal-Substantive Controversy in Economic Anthropology: Reflections on Its Wider Implications,” Southern Journal of Anthropology 24 (Autumn 1968): 228–51. See also James H. Street, “The Latin American Structuralists and the Institutionalists: Convergence in Development Theory,” Journal of Economic Issues 1 (June 1967): 44–62.
Allan G. Gruchy, Modern Economic Thought: The American Contribution (New York: Prentice-Hall, 1947); and Gruchy, Contemporary Economic Thought.
Karl Polanyi, The Great Transformation, Part 2 (Boston: Beacon Press, 1957 ), pp. 33–219.
“Now the money economy, seen from the new viewpoint, is in fact one of the most potent institutions in our whole culture.” Wesley C. Mitchell, “The Prospects of Economics,” in The Backward Art of Spending Money and Other Essays ( New York: Augustus M. Kelley, 1950 ), p. 371.
Thorstein Veblen, “The Preconceptions of Economic Science (I, II, and III),” in The Place of Science in Modern Civilization and Other Essays ( 1919; New York: Russell and Russell, 1961 ), pp. 82–149.
Gunnar Myrdal, in making a plea for an “institutional” alternative in development theory, notes that “the very theories and concepts utilized in (conventional) analysis guide it away from those ‘non-economic’ factors.” Thus, “what is needed is a different framework of theories that is more realistic.… In this situation even the negative accomplishment of demonstrating the inadequacy of our inherited economic theories and concepts is worthwhile.” Gunnar Myrdal, Asian Drama: An Inquiry into the Poverty of Nations, 3 vols. (New York: Twentieth Century Fund, 1968), 1:27.
See Thorstein Veblen, “The Evolution of the Scientific Point of View,” in The Place of Science, p. 53n.
Veblen has an extremely interesting discussion of this Smithian preconception as deriving from his “normalising the chief causal factor engaged in the process (which) affects also his arguments from cause to effect.” Of particular interest “is the fact that his successors carried this normalization farther....” Veblen, “The Preconceptions of Economic Science,” in The Place of Science, pp. 128–30.
David Ricardo, On the Principles of Political Economy and Taxation, vol. I of The Works and Correspondence of David Ricardo, Piero Sraffa and M. H. Dobb, eds., ( Cambridge: Cambridge University Press, 1951 ), p. 5.
David Ricardo, quoted in Wesley C. Mitchell, “Postulates and preconceptions of Ricardian Economics,” in The Backward Art of Spending Money, p. 215.
See Polanyi, The Great Transformation, pp. 111–129. This chapter is one of the most interesting and original interpretations of classical “naturalism” in the literature.
Ricardo, quoted in Mitchell, “Postulates and Preconceptions,” p. 219.
John K. Galbraith, The Affluent Society, 3d ed., rev. (Boston: Houghton Mifflin, 1976), ch. 9. The title of this chapter is “The Paramount Position of Production.”
H. H. Liebhafsky, The Nature of Price Theory (Homewood, III.: Dorsey Press, 1963), chs. 4 and 8.
Criticism of the neoclassical school, perhaps especially Marshall, must always be tem-pered with the observation that they were not yet wholly the captives of their own formal system. Thus, in their discursive writing, their parentheses, their footnotes, and their public pronouncements, they exhibited numerous departures from the model they passed on to the incoming generations. See Joan Robinson, Economic Philosophy (Garden City, N. Y.: Anchor Books, 1962 ), pp. 48–74.
See, for example, Eric Roll, A History of Economic Thought, 2d ed. (New York: Prentice-Hall, 1942), pp. 165–72, 187–95, and 347–411.
Liebhafsky, The Nature of Price Theory, ch. 12. Joan Robinson comments that in the marginal productivity theory, “the apparent rationality of the system of distribution of the product between the factors of production conceals the arbitrary nature of the distribution of the factors between the chaps.” Robinson, Economic Philosophy, p. 61.
Robinson, Economic Philosophy, p. 54.
Galbraith, The Affluent Society, p. 120.
This was the essence of the original argument for the income tax. See Liebhafsky, The Nature of Price Theory, pp. 43 and 54–55.
Galbraith, The Affluent Society, p. 121.
Empirical work, from “Engel’s Law” in 1857, had indicated such a pattern. See W. Paul Strassman, “Optimum Consumption Patterns in High-Income Nations,” Canadian Journal of Economics and Political Science (August 1962): 364.
Perhaps the classic exposition of this transition from marginal utility to indifference was the 1939 study of J. R. Hicks, Value and Capital, 2d ed. (Oxford: Clarendon Press, 1946). The achievements of this “scientific revolution” are stated with outstanding clarity by Hicks: “Thus we can translate the marginal utility theory into terms of indifference curves; but, having done that, we have accomplished something more remarkable than a mere translation. For, in the process of translation, we have left behind some of the original data; and yet we have arrived at the desired result all the same” (p. 17). Italics added.
Joan Robinson suggests, moreover, that whatever lies concealed behind revealed preferences will, unfortunately, just have to stay there, since “it is just not true that market behavior can reveal preferences.... The objection is logical, not only practical.” The problem is that a preference perforce exists at a moment in time, but “we can observe the reaction of an individual to two different sets of prices only at two different times. How can we tell what part of the difference in his purchase is due to the difference in prices and what part to the change in his preferences that has taken place meanwhile?... We have got one equation for two unknowns.” Robinson, Economic Philosophy, pp. 50–51.
See C. E. Ayres, Toward a Reasonable Society (Austin: University of Texas Press, 1962 ), ch. 3, pp. 39–54. Also Ayres, The Theory, pp. 205–30.
See Wesley C. Mitchell, “Economics, 1904–1929,” in The Backward Art, p. 407.
That “invalid assumptions do make an invalid theory regardless of successful hypothesis testing” is a view that has proved useful in science, if less so in astrology. This view seems to be gaining in popularity again, following the long debate over “Milton Friedman’s peculiar assertion” to the contrary. W. Paul Strassman, “Technology: Trait, Category, or Virtue Itself?” Journal of Economic Issues 8 (January 1974): 678–79.
On the neoclassical theory of consumer behavior as an “ideal type” — hence a “personification” — and an exercise in “fellow-feeling,” see John R. Commons, Institutional Economics, vol. 2 (Madison: University of Wisconsin Press, 1959) pp. 727ff.
Thorstein Veblen, “The Limitations of Marginal Utility,” in The Place of Science, p. 240.
John M. Keynes, The General Theory of Employment, Interest and Money (1936; London: Macmillan, 1957), chs. 2, 3, 8–10, and 23. Veblen can be considered an “underconsumptionist” in the sense that he clearly rejected Say’s Law and found considerable merit in the case put by underconsumption theorists from Malthus to Hobson, the “British institution¬alise” Veblen specifically agreed with Hobson that underconsumption arose from the maldis¬tribution of income, but found Hobson’s redistributive remedies “manifestly chimerical” in a business-dominated society. The tendency to depression could not be checked by any form of increased consumption or “waste,” Veblen argued, so long as the technological capacities of industry were subject to the pecuniary aims of business. See Thorstein Veblen, The Theory of Business Enterprise (1904; New York: Charles Scribner’s Sons, 1936), ch. 7, esp. pp. 250–58.
For an institutionalist critique of macroeconomic equilibrium theory and its orthodox underpinnings, see Wendell Gordon, “Simple Underconsumption,” Southwestern Social Science Quarterly 31 (March 1951): 243–57; and “Orthodox Economics and Institutionalized Behavior,” in Carey C. Thompson, ed., Institutional Adjustment: A Challenge to a Changing Economy ( Austin: University of Texas Press, 1967 ).
Joan Robinson, “The Second Crisis of Economic Theory,” in The Second Crisis of Economic Theory, ed. Rendigs Fels (Morristown, N. J.: General Learning Press, 1972 ), p. 6.
Thorstein Veblen, “Why is Economics Not an Evolutionary Science?” in The Place of Science, p. 67.
Ayres, The Theory, p. 101.
Gruchy, Contemporary Economic Thought, p. 12.
Karl Polanyi, “The Economy as Instituted Process,” in Karl Polanyi, Conrad M. Arensberg, and Harry W. Pearson, eds., Trade and Market in the Early Empires: Economics in History and Theory ( Glencoe, III.: Free Press, 1957 ), pp. 243–70.
David Hamilton provides a useful descriptive analysis of more recent “symbolic” consumption in his The Consumer in Our Economy (Boston: Houghton Mifflin, 1962), pp. 65–76.
Veblen, The Theory of the Leisure Class, p. 99.
Strassman, “Optimum Consumption Patterns,” p. 365.
See ibid., pp. 369-72, for an interesting development of the concept of “awareness- yielding” consumption, which would appear to be predominantly instrumental. Also, Hamilton, The Consumer, pp. 76ff., has a good discussion of “technological determinants of wants.” For the most part, the analysis of instrumental consumption has been carried out in the context of the general theory of instrumental valuation. See Ayres, The Theory, ch. 10; and Toward a Reasonable Society.
Veblen, The Theory of the Leisure Class, p. 43.
Ibid., p. 32. A note on Veblen’s theoretical use of “motive” is perhaps in order. Unlike the orthodox conception of finished motives fixed in the individual consciousness, Veblen’s is a concept of evolving cultural propensities. Subsequent scholarship has suffered the misfortune that he chose to call the more stabilized ones of these “instincts.” Motive, — including Veblen’s propensities, — is, however, a question of “sufficient reason” to act, and we have Veblen’s insistence that the cultural sciences can only provisionally and proximately make use of this teleological aspect of the human situation for purposes of analyzing an evolving sequence of cause and effect. Both of the motives mentioned in the text are thus evolved cultural products that will evolve further. See Veblen, “The Limitations of Marginal Utility,” pp. 239ff.
Veblen, The Theory of the Leisure Class, p. 36.
Robinson, “The Second Crisis....” Veblen saw the tendency to depression as the normal state of the pecuniary economy “under the consummate régime of the machine, so long as competition is unchecked and no deus ex machina interposes.” The two remedies for the situation, under prevailing institutions, were (1) elimination of competition and (2) massive wasteful expenditure. Veblen expected both expedients to be used increasingly, with military expenditures playing a large part in maintaining a suitable level of waste. This theme was introduced in 1904 in Veblen, The Theory of Business Enterprise, pp. 254ff., and was carried through all of Veblen’s later work.
Gruchy, Contemporary Economic Thought, p. 3.
Robinson, “The Second Crisis,” pp. 6–7.
Gruchy, Contemporary Economic Thought, pp. 8–18.
Galbraith, The Affluent Society. See also the chapter on Galbraith in Gruchy, Contemporary Economic Thought, ch. 4.
Galbraith, The Affluent Society, chs. 9 and 10.
The impression must not be left that Veblen was somehow unaware of the role of advertising in consumer behavior, especially emulative behavior. He reserved some of his sharpest barbs for the practices of advertising and salesmanship. Such “sellers’ costs” were often the largest part of the price of advertised goods and were “net waste” for the economy. “Meritricious publicity,” creating “good will” or other “intangible assets,” was one of the principal means by which a firm could secure a “vested interest,” a “marketable right to get something for nothing.” But Veblen apparently thought that the net effect was to “induce credulous per-sons now and again to change their mind about what things they will buy,” rather than to in-crease total consumption. Thorstein Veblen, The Vested Interests and the Common Man (1919; New York: Viking Press, 1946), pp. 100–101. See also Thorstein Veblen, Absentee Ownership and Business Enterprise in Recent Times (1923; New York: Viking Press, 1954 ), pp. 284–325.
Galbraith, The Affluent Society, p. 126.
Gruchy, Contemporary Economic Thought, p. 8.
Robinson, “The Second Crisis,” p. 7.
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Lower, M.D. (1980). The Evolution of the Institutionalist Theory of Consumption. In: Adams, J. (eds) Institutional Economics. Springer, Dordrecht. https://doi.org/10.1007/978-94-009-8736-4_8
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