The Proto-Keynesian Macroeconomics of Thorstein Veblen

Thorstein B. Veblen

J.A. Hobson

J.A. Hobson

J.A. Hobson’s influence on Veblen’s Macroeconomics

1. Introduces the concept of “waste” or “unproductive consumption” in Physiology of Industry (1889)

2. In Hobson “waste” is a remedy for underconsumption, however in Veblen’s analysis, “waste” maintains prices by reducing productivity.

3. Examples of waste from Hobson roughly corresponds with Veblen’s

Examples of Waste: Hobson and Veblen

Hobson’s examples of “waste”• Luxuries• The capital engaged in

distributive businesses• Unemployment• Unemployed capital• Military expenditures

Veblen’s Examples of “waste”• Competitive consumption• Excessive competition• War, colonization, provincial

investments and the like• Expenditures that merely

withdraw and dissipate wealth and work from the industrial process

M.I. Tugan-Baranovsky

M.I. Tugan-Baranovsky

Tugan-Baranovsky and Veblen

1. Veblen cites and comments on Tugan demonstrating that capital investment is the driver of business cycles.

2. According to Tugan, supply therefore is ahead of demand and creates the need for advertising and marketing, which play large roles in Veblen’s analysis.

3. Tugan demonstrates how price deflation moves from commodity to commodity with money being the mediator. In Veblen price deflation moves from industry to industry with some industries staying relatively isolated from deflationary pressures.

4. In Tugan-Baranovsky, credit exacerbates business cycles. In Veblen credit and finance play decisive rolls in all aspects of the business cycle.

Arthur Spiethoff

Arthur Spiethoff

Spiethoff and Veblen agree that:

1. Profits are the drivers of business cycles 2. Increasing prices are critical to rising profits 3. Incongruent actual profits and expected profits are

exacerbated by speculation. 4. Spiethoff’s distinction between “acquisitive capital” and

“productive capital” parallels Veblens distinction between “industrial” and “pecuniary” pursuits.

Notable disagreements between Spiethoff and Veblen:

1. Inequality is not the root causes of crises although it does exacerbate them. (Both Hobson and Tugan-Baranovsky maintained that inequality is the root cause of crises)

2. Productivity growth, one its own, does not cause crises. The depressive influence of productivity growth can be overcome by the “upward tendencies” of the business cycle.