Maturity
In 1899 Veblen published his main work, entitled The Theory of Leisure Class: An Economic Study of the Evolution of Institutions - reprinted in 1912 with the title The Theory of Leisure Class: An Economic Study of Institutions (Veblen 1899 [1912]).
Starting from the observation of American society, he delves deeply into the concept of conspicuous consumption, going beyond the satisfaction of basic needs to include what he qualified as waste. According to him, the ruling class is driven and propelled by the financial emulation to consume in order to preserve its reputation within the circles to which it relates, while maintaining a social distance from the underclass. This invidious comparison encourages more individuals to consume in order to gain and grow in social status and power. Conspicuous consumption and invidious comparison are also part of the critical argument against neoclassical theory, which implies that the consumer is perfectly rational. Conspicuous consumption and invidious comparison are formidable instruments for safeguarding capitalism. The working class is driven to emulate leisureclass consumption and this behaviour overcomes the social conflict between the parasitic class and the productive class. The purchased social power of the wealthier class also perpetuates control of the institutions, like in the US university system (Veblen 1918). Notwithstanding the negative judgement by the academic world, Veblen’s theories became an alternative for socialists in search of a non-Marxist critique of capitalism (see Edgell and Townshend 1993).Veblen also wrote an article on “Gustav Schmoller’s economics” (Veblen 1901). Contrary to other American institutionalists, he criticized the German Historical School but did appreciate Schmoller.
In The Theory of Business Enterprise (Veblen 1904) - which can be considered as his main work in economics proper - he proposed a theory of credit.
Here, Veblen concentrates on the businessman’s habits in order to understand the social mutations and the habits of mind prevalent in society. The mentality of the businessman oriented toward profit making and toward large financial speculation is driven by a predatory instinct, with a total disinterest in the industrial process, which is in the hands of technical professionals. Enterprises and their captains, thanks to a credit system - always endowed with better performance and the issuance of stocks and obligations - overcapitalize their tangible and intangible assets, such as goodwill and brand. Enterprise ownership through shareholding is subsequently defined by Veblen also as absentee ownership (1923). If technicians, who are driven by workmanship, controlled production in the interest of community, thereby increasing output and lowering prices and the financial value of the enterprise, this would cause a loss of power of the financial ownership through a loss in the value of shares. The ownership therefore feels justified in sabotaging the production system by an artificial limitation of production. Therein lies the possibility, for the businessmen, to alter the price system and increase the value of enterprises. One of the main consequences of this arrangement is unemployment. According to Veblen, the means of production (capitalist property), in order to be productive, must be articulated with community’s technological knowledge (immaterial equipment). For Veblen, knowledge is produced by the community thanks to experience and experimentation handed down from generation to generation. For this reason, he equated the pecuniary gain of capital goods to rent while criticizing patent systems that draw rent from community knowledge. It follows that to limit production for financial purposes and not on behalf of society is a social waste. This is the Veblenian dichotomy between business and industry.In his studies of American trusts, Veblen focused on quasi-monopoly and oligopoly price, even in the absence of a formal analysis able to explain the relationship between price and quantity.
Veblen attempted to combine microeconomics with macroeconomics, examining different industries and the effect they had on the whole production of goods and services. The author concluded that, from a microeconomic point of view, the politics of prices determined in oligopoly to the advantage of businessmen, created a distortion of the flow of individual revenue, altering general consumption and investments. Therefore, the maximization of profits at the microeconomic level corresponded to a drop in the national production at the macroeconomic level (Vianello 1961: 236-7). Indeed, with the industrial concentration process, the short-term interests of the world of finance overruled the medium- and long-term interests of the production system. This contradiction could lead to a crisis of capitalism.Veblen’s Chicago period was the most prolific in his academic career. It ended in 1906, when he was forced to resign from the university, officially because of marital infidelity but most probably because the university’s president learned of his manuscript against the US university system.