Towards the Culturalization of Macroeconomics: A Veblenian Contribution

Abstract

Conventional macroeconomics cannot be the basis for a pragmatic understanding of the behavior of the financial model of capitalism in which we live and for drawing practical economic policies. Its most important problem is the relegation of key monetary and financial institutions, which entrap the analysis into a self-regulated markets illusion. This article argues that Thorstein Veblen’s post-Darwinian cultural and processual analysis of the business enterprise system provides ideas, principles and foundations that can leverage a contribution to an evolutionary recontextualization of macroeconomics. The analysis focuses attention only on the role that the evolution of pecuniary habits of mind and routines have in episodes of unsustainable balance sheets, liquidity crunches and debt-deflation processes and marks out the cultural foundations of financial fragility and instability and of the principle of effective demand.

Keywords:

• Veblen
• culturalization
• habits of thought
• fragility
• macroeconomics

JEL Classification Codes:

• B22
• B52
• E14

Disclosure Statement

No relevant financial or non-financial competing interests were reported by the author.

Notes

1 This article relies on and extends the analysis made by Argitis (2020).

2 This article exclusively concentrates on specific aspects of Veblen’s post-Darwinian cultural, financial contribution to macroeconomics. For Veblen’s scientific method, philosophy, and political thought, see, e.g., Anderson (1933), Dorfman (1934), Daugert (1950), Dowd (1958), Gruchy (1967), Hamilton (1974), Edgell (1975), Tilman (1996), Argyrous and Sethi (1996), Hodgson (2004), Knoedler, Prasch, and Champlin (2007), Plotkin and Tilman (2011), Lawson (2015b).

3 Veblen’s post-Darwinian cultural, financial contribution to macroeconomics must be extracted from several of his writings and in particular from his Theory of the Leisure Class ([1899a] 2007), The Theory of Business Enterprise ([1904] 1915), The Instinct of Workmanship and the State of the Industrial Arts (1914), The Vested Interests and the Common Man (1919), The Engineers and the Price System (1921) and the Absentee Ownership and Business Enterprise in Recent Times ([1923] 1924).

4 See, e.g., Rutherford (1998), Hodgson (2004 and 2007) and Tilman (2007).

5 In Veblen’s system, corporation finance is the institution that depicts the cultural coevolution between industry and finance (see e.g., Dirlam 1958; Mitchell 1969; Ganley 2004; Wilson 2006; Raines and Leathers 2008; Argitis 2013b; 2016; 2020).

6 See Raines and Leathers (1992) for a discussion of Veblen’s envision of financial innovation.

7 For Veblen ([1904] 1915, 139–140) the goodwill “taken in its wider meaning, comprises such things as established customary business relations, reputation for upright dealing, franchises and privileges, trademarks, brands, patent rights, copyrights, exclusive use of special processes guarded by law or by secrecy, and exclusive control of particular sources of materials.”

8 Veblen also argues that higher leverage is likely to boost the price of industrial products, motivating industrial production. Nevertheless, he explains this effect to be psychological and significant in brisk times. In contrast, pecuniary leverage is habitual during the prosperity phase of the business cycle, and it is ultimately destabilizing.

9 Veblen ([1904] 1915, 149) also refers to the role of “folk psychology.”

10 Ali Bolbol and Mark Lovewell (2001) coin the concept of Veblen’s q to exemplify the distinction between putative and actual earning-capacity and its importance for the valuation of a corporation’s capitalization. See also Medlen (2003) and Raines and Leathers (1996 and 2000).

11 For a more detailed analysis of Veblen’s analysis of surplus product or net industrial product, see, e.g., Gruchy (1958) and Dente (1977).

12 Veblen (1921) also underlines that industrial deficiency is associated with the fact that the scientists, the engineers, and the technicians, who preserve the institutionalization of the instinct of workmanship that advances industrial efficiency are under the authority of business principles.

Additional information

Notes on contributors

Giorgos Argitis

Giorgos Argitis is a professor in the department of economics at the National and Kapodistrian University of Athens, Greece. The author would like to thank an anonymous referee for his useful comments and suggestions. The responsibility for any remaining errors rests with the author alone.