American institutionalism: Veblen, Galbraith and Trump
Tristan Lockwood | ECOP6101 | Essay 1 | 3000 words (excluding footnotes)
I INTRODUCTION
American institutionalism emerged with the writings of Veblen, just prior to the turn of the 20th century. The institutionalist perspective has developed as one of the outsider looking in – concerned with the individual, subordinate to a range of complex social, economic and political interests in a constant state of change, but with an apparent tendency to reinforce the fundamental capitalist structure. In this connection, the institutionalist perspective has tended to examine economic issues through the prism of the institutions connected to these interests, and with reference to the power that these institutions create, conceal and confer.
Institutionalism has thus developed as a programme of seeking to understand society, and its complex and interrelated interests. The theoretical contributions of institutionalists are, in this sense, arguably byproducts of institutionalist’s primary, descriptive project. Moreover, their specific contributions, at least in relation to theories of price, are arguably valuable only insofar as the predication of capitalism remains. And although institutionalists appear concerned by a normative project inspired by social-democratic ideals, this is not a uniform feature of the institutional perspective. With reference to three prominent institutionalists – Veblen, Galbraith and Trump – and with a particular emphasis on the history of American industrialisation – this essay will thus seek to explicate American institutionalism in relation to the material processes that gave rise to it, and which it came to change. In doing so, it will present the argument that as a consequence of institutionalism being a theory without a normative prescription, it has been, and remains liable to be, exploited by those seeking to critique the consequences of capitalism to their own end and, further, has wrongly come to be understood as having a necessary capitalist predication, beyond its theories of price.
II INSTITUTIONALISM EMERGES
A Historical context
Thorstein Veblen is regarded as the first institutionalist scholar (Wäckerle 2014: p. 69). When Veblen began writing in the 1890s, the United States was both in the thrust of the ‘second industrial revolution’ and emerging as the world’s leading capitalist nation (Weinberg 2002). In this period, increasingly large, monopolistic firms implementing a process of managerial capitalism were prospering: taking advantage of increasing access to global markets and modern principles of business management (Veblen 1923; Chandler 1997). These firms were also becoming less reliant on internally sourced capital, as finance capital from investment banks became more readily available and joint-stock company structures were increasing in popular usage – particularly in the railway, metal and telegraph industries (Ferguson 2008: p. 120-2; Davis & Cull 1998: p. 68-71; cf O’Sullivan 2016: c. 1). The power of these firms over prices, and their influence over their own regulation, grew as they did.
At this time, new and enhanced systems of production were emerging as a consequence of significant technological developments, including, for example: the transition to mass-produced Bessemer-steel, the distribution of electricity by alternating-current, in the speed of transatlantic telegraph-cables, and increasingly sophisticated transport-networks (Thomas 1999; Müeller & Tworek 2015; Chandler 1977 p. 81-121). These developments also facilitated access to the foreign capital necessary to support the implementation of these new and enhanced systems of production, as well as new import markets from which factors of production could be more readily and affordably acquired (Müeller & Tworek 2015: p. 263). While the focus of capitalism in the 19th century had been on the production of capital goods, the turn of the century saw a relative increase in consumer production (Ryan 2007).
For Veblen – who had spent the better part of seven years between 1884 and 1891 on his family-farm in rural Minnesota – the aesthetic of these changes would have been particularly striking, when he moved to New York in 1891 then Chicago in 1892 (Edgell 2001: pp. 3-30). In his short period of country-side recluse, the first skyscrapers had been built in New York and Chicago, electrification had transformed the city nights into day, populations had exploded, and new factories were fueling mass-urbanisation as cities pushed in, up and out (Huyssen 2014; Barr, Tassier & Trendafilov 2011; as to the significance of such spatial transformation, see Castells 1978).
B Veblen’s critique
It is unsurprising that, in this context, Veblen’s critique emerged in 1899 with The Theory of the Leisure Class. Without reciting the breadth of Veblen’s contentions, it is enough to observe that one of its core ideas – ‘conspicuous consumption’ – was concerned with the nouveau riche who had accumulated capital through exploitation of the second industrial revolution (1899: c. iv). While Veblen deployed this term in target of the nouveau riche only, his contention that conspicuous consumption would affect the ordinary man, woman and child by way of social ambition, foretold the mass-consumerism that would emerge through the 20th century (Veblen 1899: c. ix).
For Veblen, conspicuous consumption was tantamount to waste, and served no purpose beyond a social aestheticism. Veblen was clearly concerned with waste as an economic inefficiency, but also as a symptom of a broader social ill. For Veblen, the explanation of this ill lay in the institutions affecting (and effecting) the social conventions driving this consumption and broader economic relations, including: education, religion, marriage, culture and class. Veblen’s analysis painted individuals as subordinated by – yet also transforming – these institutions. While Veblen saw many of these institutions as antiquities, the historical context of the late 1800s had exaggerated tensions within and between these institutions, resulting in social crisis.
C Elements of Veblen’s perspective
Veblen demonstrated the discord of neoclassical economics with reality, through his analysis of the social nature of consumption and production, challenging, for example, the concept of homo economicus and the fallacy of pure market pricing (Stillwell 2012: pp. 215- 218). Veblen’s skepticism in this respect was no doubt influenced by his observation of increasingly powerful monopolistic firms and of ‘conspicuous consumption’. While his anti-neoclassical ideas lay beneath the surface of his early work, they were more fully developed in his later books and articles. There are three additional aspects of Veblen’s perspective, as revealed in The Theory of the Leisure Class and other work, of particular significance to the development of institutionalism: universal Darwinism, American pragmatism and Marxism.
There is an explicit evolutionary aspect to Veblen’s perspective. Charles Darwin’s On the Origin of Species was published in 1859. A concept of universal Darwinism had promptly followed, which sought to apply Darwin’s ideas beyond the biological sciences (Dawkins 1983). As explicated by Veblen in his article ‘Why is Economics Not an Evolutionary Science’, Veblen conceived of economics in such terms, recognising both the continuity of change in and the internally-transformative capacity of the economic system (Wäckerle 2014: pp. 1, 69-70). This evolutionary characterisation of economics had some parallels with Marxism. However, for Veblen, unlike Marx, that evolution was not linear: it was dynamic. Veblen was concerned not with upheaval, but ‘the fight’ (Galbraith 2012: p. 318).
Wäckerle argues that American pragmatism was the most significant influence on Veblen’s work (2014: pp. 70-72). Clearly, a focus on habit and the behavior of real individuals lay at the centre of Veblen’s enquiry. Duggar contends that this approach is also reflective of the influence of the German Historical School (1979: p. 424-31). While this is a compelling argument as to Veblen’s unit of measure and his historical approach, the influence of pragmatism of Veblen is undeniably evident in Veblen’s preoccupation with the descriptive project at the expense of the development of a uniform theory. Moreover, Veblen explicitly refrained from offering a normative prescription about how to solve the crises he identified.
Veblen wrote frequently on Marxism and often recast Marxist themes, including, for example, the alienation of labour from capital and the idea of class struggle (1914). Unlike Marx, however, Veblen did not see revolution as necessary or logical response to the increasing rate of accumulation (cf Galbraith 2012: p. 317). While his work assumed some serious challenge to capitalism with the next generation or two, as did most economists at the time, there is a definite resignation evident in Veblen’s work to capitalism as a functional state of social evolution (Graeber 2012: p. 359). That said, Veblen’s later work did take more seriously the idea that the society may evolve toward a capitalist heterodoxy (Veblen 1919).
D Immediate successors
The Theory of the Leisure Class remained the prized statement of Veblen’s perspective. Others soon joined in developing his ideas. In the brief preface to Legal Foundations of Capitalism, for example, Commons cites ‘Veblen’s brilliant criticisms’ as the catalyst for his work explicating the legal foundations of the capitalist system in America (1924: p. vii). Likewise, Mitchell, a student of Veblen’s, and others in the early 1900s, explicitly invoked and developed Veblen’s ideas, particularly in relation to modern corporations and private property (Mitchell 1913; Berle & Means 1932). While the early 1900s were not without change, the philosophical framework, and the socio-economic context of the institutionalist movement, remained largely that which had been captured by Veblen in 1899.
III FAST FORWARD THROUGH THE YEARS
A The war-years: 1917 to 1945
The wars years emboldened the United State’s industrialism. The rapidly emerging working-middle-class readily became the consumers of the Untied States’ growing mass-productive capacity. The nouveau riche became only richer, while an army of blue-collar-workers were coming to share in the fruits of the production-line, as average household income steadily increased (Glickman 1963: c. 7; cf Benson 2015). The increased productive capacity of the war-years was in large part a consequence of scientific advancements of the war effort: both as a corollary of significant investment in war-science and the ongoing strength of the scientific institutions those investments developed (Mirowski 2011: pp. 87-183).
In the United States, like in other parts of the world, the wars had also provided the catalyst for the development of stronger government institutions. One such institution was the Federal Reserve System, which although introduced in 1913, had its functions significantly expanded in the depression of the 1930s and again in 1946 (Hetzel 2008). The increased reach of government into everyday business and life was also made apparent through increased taxation and regulation (see, for example, Robbins 2017); which itself was often implicitly concerned to promote consumption (Cohen 2003: c. 1-4).
B Keynes and Keynesianism
To understand the evolution of institutionalism in the post-war context, it is first necessary to turn briefly to the emergence of the Keynesian school and its related ‘ideologisation’. ‘Keynesian economics’ emerged with the work of Cambridge scholar John Maynard Keynes in the 1920-30s. In the context of the Great Depression in particular, Keynes mounted a challenge to traditional neoclassical ideas, including that free markets would provide full employment provided workers were flexible in their wage demands. On the contrary, Keynes contended that demand determined overall levels of economic activity and that, in the short term, markets would not on their own accord realise equilibrium. To avoid short-term unemployment in times of economic crisis, Keynes argued in favour of the use of fiscal and monetary policies (1936). Many economists ‘heralded his concept of state responsibility for economic management… as revolutionary’ and ‘appointed themselves his disciples’ (Sorrel 1996). One of these disciples was John Kenneth Galbraith.
By the time Keynsian economics emerged, institutionalism was posing a serious threat to the dominance of neoclassical economics (Stillwell 2012: pp. 214). Similarly, the interventionist approach of Keynes stood in contrast to that conventional wisdom. The popularisation of Keynsian ideas served to ignite social and academic debates, which quickly transgressed from the realm of theory to ideology. By contrast to a similar ideologisation that occurred in the Marxist context (Magnusson & Stråth 2016), this new debate assumed a capitalist orthodoxy. This ideologisation was reinforced by a tandem politicisation. In the United Kingdom, the liberal democrats and conservatives took up the causes of interventionism and non-interventionism, respectively, with the same occurring to a lesser extent in the United States, until after the war when it too took up this binary (Renshaw 1999: pp. 338-360).
The Keynsian school borrowed heavily from institutionalist ideas, specifically in relation to its exploitation of the social nature of consumption and production as the foundation of its monetary and fiscal policy innovations. That said, certain institutionalists, including Veblen, expressed skepticism in relation to the Keynsian school (1920). Although conceding the strength of Keynes’s analysis, Veblen, for example, identified the benefits of investment in the redevelopment of Germany as ideologically motivated and a form of capitalist protectionism (1920). Veblen’s critique in this regard reveals his own consciousness of the potential for institutionalist ideas to be exploited in support of policies directed at protecting the capitalist system as itself an equilibrium, as opposed to an evolutionary state.
C Galbraith
Galbraith was a prominent voice of institution economics through the ‘Golden Age of Capitalism’ and into the late 20th century. As noted above, however, Galbraith did not start his career as a self-ordained institutionalist, but as a Keynsian. While Keynsian economics continued to inform Galbraith’s perspective, particularly in relation to economic crisis, Galbraith was critical of its limited application (1958: p. 118). His work developed a strong descriptive quality, similar to that of Veblen, who he came to frequently invoke (1958: c. 3).
Like Veblen, Galbratih was preoccupied with consumption and, in particular, consumption by the wealthy (1958). The distinction between the work of Veblen and Galbraith, in this regard, was the number of wealthy persons: the Fordism that materialised in the war-years involved the emergence of a relatively wealthy, and expanding, working-middle-class (1958: c. 23; Anhier 2012). Galbraith’s insights about the tendency for consumption to increase commensurately with production were a product of his observations of social response to the increased production during and immediately following the war-years. In search of an explanation for this phenomenon, came Galbraith’s greatest contribution to an institutionalist theory of price in the ‘dependence effect’ (1958: c. 11). Similar to Veblen’s assault on neoclassical economics, the dependence effect demonstrated a serious defect in the Marginalist assumptions about the causality of consumption. While the dependence effect no doubt had some resonance in earlier history, its emergence as theory highlights the increasing significance of consumerism and corporate power in the United States at this time.
To an even greater extent than Veblen, Galbraith was defined by his pragmatism. In 1994, Galbraith said in response to a question about his politics: ‘I react pragmatically.’ What the full quote also reveals about Galbraith is a skepticism of economic ideology. For Galbraith, like Veblen, economics was a descriptive project, in which ideas had utility only insofar as they were, in reality, correcy. That said, Galbraith was a Democrat, and his work was clearly inspired by social-democratic ideals (Goldberg 2012: c. 2). Moreover, in contrast to Keynes for example, Galbraith saw the evolutionary trajectory of capitalism as tending toward a society without need, and the role of government to intervene, where necessary, to achieve this end. His anti-ideological stance can, in this sense, be understood as an aversion to the ‘conventional wisdom’ of the neoclassical school (Stilwell 2012: p. 230). In this regard, although Galbraith invoked institutionalist ideas appropriately in his critique, his work reveals an unjustified reliance upon the correctness of that critique as proof of his normative prescription. This was a departure from Veblen’s explicit restraint from such prescription and, unlike the work of Veblen, also assumed a capitalist orthodoxy.
IV TRUMP
The introduction of this essay promised the explication of American institutionalism, in relation to the material processes that gave rise to it, and which it came to change, with reference to Veblen, Galbraith and Trump. So far, Veblen and Galbraith have provided a suitable vehicle to explore the material processes which gave rise to institutionalism and the development of its capitalist predication. So what more can be added by reference to Trump?
Donald Trump is in many ways an institutionalist: like both Veblen and Galbraith, he is concerned to interrogate institutions, and, in his trade, spending and regulatory policy, undeniably pragmatic and in many ways anti-neoclassical – take for example his recent imposition of a 25-percent trade tariff on various Chinese goods imposed to ‘strengthen’ American industry (Swanson 2018). Moreover, Trump’s presidential campaign turned on his understanding and exploitation of more or less the same social institutions underscoring Veblen’s analysis in 1899: education, religion, culture and class. Trump’s politics’ recognise the relevance of the economic tensions within and as between social institutions and the yet untapped crisis of dissatisfaction with the modern consequences of capitalism arising within. At the same time, Trump is undeniably, and arguably the epitome of, a modern capitalist.
Trump thus illustrates how the institutional approach has continued to equip those who are skeptical of certain consequences of capitalism with the tools to challenge it to their own normative ends. For Trump, this is a blend of populism and, ironically, the redeployment of neoclassical ideas. For Galbraith, this was a social-democratic agenda. What is thus clear is the risk of institutionalism’s exploitation.
V CONCLUSION
The productive and consumptive forces Veblen first identified within the thrust of the second industrial revolution, and which continued to amplify in the time of Galbraith, undoubtedly endure. For this reason, institutionalism remains a useful analytical tool. However, for the reasons developed in this essay, institutionalist has been, and remains open to being, exploited, as its capacity to interrogate economic issue is not met by a normative prescription. This is, for example, in contrast to Marxism, and indeed other economic schools habouring less explicit ideological motivations. This weakness of institutionalism is also a strength, and should be guarded by zealous proclamation of its deliberate abstinence in this regard. Moreover, while a capitalist predication is necessary to understand both Veblen and Galbraith’s contributions to a theory of price, it is certainly not an essential aspect of the broader descriptive programme of institutionalism. This conclusion is consistent with Veblen’s conception of capitalism as an evolutionary state. Further, the strength of institutionalism lies in the breadth of its interrogation, and perhaps, contrary to a capitalist predication, its greatest capacity for future use is as a tool to interrogate the institution of capitalism itself.