1. Veblen and the Institutionalist Approach Week 4

2. Thorstein Veblen (1857-1929) Evolutionary approach to economics: contrast with the physics model approach Sociologist/economist Theory of the Leisure Class (1899) “conspicuous consumption”

3. Human Motivations Driving the Economy emulation predation workmanship parental bent idle curiosity

4. Veblen on private property “Wherever the institution of private property is found, even in slightly developed form, the economic process bears the character of struggle between men for the possession of goods.”

5. Theory of Business Enterprise (1904) Conflict between businessmen and engineers (innovators). A conflict between establishment prospering through predation and innovators representing economic progress. Businessmen sabotage production.

6. Class division different from Marx’s Machine process versus “pecuniary calculus”

7. Neoclassical Economics Apologetics for the capitalist system.

8. Conception of human nature Jean-Jacques Rousseau Theory of Natural Man In a state of nature, man is good. Social interdependence corrupts man’s inner nature.

9. Theory of Compensation Rejected the neoclassical marginal productivity theory. Viewed compensation as determined by social class. The leisure class emerging from the hunter and priestly groups command more resources by virtue of their standing in society.

10. Executive Compensation What explains the growth in executive compensation over the years? Why is the gap between the CEO and the worker higher in the US than in other countries?

11. Criticisms of Veblen He does not address the fundamental problem of scarcity. He pays little attention to issues of freedom and democracy. His satirical writing style makes it difficult to decipher what he is saying.

12. Association for Evolutionary Economics The intellectual heritage of AFEE is that of the Original Institutional Economics (OIE) created and developed by early twentieth-century economists such as Thorstein Veblen, John R. Commons, and Wesley Mitchell. Over recent decades, this legacy has evolved to address such contemporary issues as: The role of diverse cultures in economic performance. Domestic and international inequalities of income. The roles of social, economic and political power in shaping economic outcomes. Globalization and the increasing weight of multinational corporations in the international economy. The need for expanding use of modern technologies to relieve want. The urgent need to for awareness of the impact of new technology on the biosphere. The ways in which economic thought is affected by and affects always changing economics.

13. John Kenneth Galbraith (1908-2006) The Affluent Society (1958) He argues that artificial desires are created by advertisers: Dependence Effect. Consumption should be limited with taxes and the government should provide more public goods, including the alleviation of poverty. “Private affluence and public squalor.”

14. Friedrich Hayek “The Non-Sequitur of the Dependence Effect”

15. Effect of Advertising on Prices Study of opticians. Eyeglasses 30% cheaper in states in which opticians were allowed to advertise.

16. Public Goods What are the characteristics of a public good? Provide examples. Are they underprovided in the U.S.?