Norwegian-American Sociologist and Economist, Leader of the Institutional Economics Movement
Thorstein Veblen, fully Thorstein Bunde Veblen, born Torsten Bunde Veblen
Norwegian-American Sociologist and Economist, Leader of the Institutional Economics Movement
To the common man who has taken to reckoning in terms of tangible performance, in terms of man power and material resources, these returns on investment that rest on productive enterprise as an overhead charge are beginning to look like unearned income. Indeed, the same unsympathetic preconception has lately come in for a degree of official recognition. High officials who are presumed to speak with authority, discretion and an unbiased mind have lately spoken of incomes from investments as "unearned incomes," and have even entertained a project for subjecting such incomes to a differential rate of taxation above what should fairly be imposed on "earned incomes," All this may, of course, be nothing more than an unseasonable lapse of circumspection on the part of the officials, who have otherwise, on the whole, consistently lived up to the best traditions of commercial sagacity; and a safe and sane legislature has also canvassed the matter and solemnly disallowed any such invidious distinction between earned and unearned incomes. Still, this passing recognition of unearned incomes is scarcely less significant for being unguarded; and the occurrence lends a certain timeliness to any inquiry into the source and nature of that net product of industry out of which any fixed overhead charges of this kind are drawn.
We might naturally expect that the fashions should show a well-marked trend in the direction of some one or more types of apparel eminently becoming to the human form; and we might even feel that we have substantial ground for the hope that today, after all the ingenuity and effort which have been spent on dress these many years, the fashions should have achieved a relative perfection and a relative stability, closely approximating to a permanently tenable artistic ideal. But such is not the case...the assertion freely goes uncontradicted that styles in vogue two thousand years ago are more becoming than the most elaborate and painstaking constructions of today.
Within the nation the enlightened principles of self-help and free contract have given rise to vested interests which control the industrial system for their own use and thereby come in for a legal right to the community's net output of product over cost. Each of these vested interests habitually aims to take over as much as it can of the lucrative traffic that goes on and to get as much as it can out of the traffic, at the cost of the rest of the community.
There may be truth in the view (as a question of policy) so often expressed by the spokesmen of the conservative element, that without some such substantial and consistent resistance to innovation as is offered by the conservative well-to-do classes, social innovation and experiment would hurry the community into untenable and intolerable situations; the only possible result of which would be discontent and disastrous reaction. All this, however, is beside the present argument.
To the spokesmen of "business as usual" this rating of current production under the pressure of war needs may seem extravagantly low; whereas, to the experts in industrial engineering, who are in the habit of arguing in terms of material cost and mechanical output, it will seem extravagantly high. Publicly, and concessively, this latter class will speak of a 25 percent efficiency; in private and confidentially they appear disposed to say that the rating should be nearer to 10 percent than 25. To avoid any appearance of an ungenerous bias, then, present actual production in these essential industries may be placed at something approaching 50 percent of what should be their normal productive capacity in the absence of a businesslike control looking to "reasonable profits." It is necessary at this point to call to mind that the state of the industrial arts under the new order is highly productive, -- beyond example.
Wealth has by no means yet lost its utility as a honorific evidence of the owner's prepotence.
Without reflection or analysis, we feel that what is inexpensive is unworthy. "A cheap coat makes a cheap man."
Therefore the economic situation which so underlay and conditioned this modern point of view at the period when it was given its stable form becomes the necessary point of departure for any argument bearing on the changes that have been going forward since then, or on any prospective reconstruction that may be due to follow from these changed conditions in the calculable future. At this head, the students of history are in a singularly fortunate position. The whole case is set forth in the works of Adam Smith, with a comprehension and lucidity which no longer calls for praise. Beyond all other men Adam Smith is the approved and faithful spokesman of this modern point of view in all that concerns the economic situation which it assumes as its material ground; and his description of the state of civilized society, trade and industry, as he saw it in his time and as he wished it to stand over into the future, is to be taken without abatement as a competent exposition of those material conditions which were then conceived to underlie civilized society and to dictate the only sound reconstruction of civil and economic institutions according to the modern plan. Yet the Industrial Revolution does not lie within Adam Smith's "historical present," nor does his system of economic doctrines make provision for any of its peculiar issues. What he has to say on the mechanics of industry is conceived in terms derived from an older order of things than that machine industry which was beginning to get under way in his own life-time; and all his illustrative instances and arguments on trade and industry are also such as would apply to the state of things that was passing, but they are not drawn with any view to that new order which was then coming on in the world of business enterprise.
To this "natural" plan of free workmanship and free trade all restraint or retardation by collusion among business men was wholly obnoxious, and all collusive control of industry or of the market was accordingly execrated as unnatural and subversive. It is true, there were even then some appreciable beginnings of coercion and retardation -- lowering of wages and limitation of output -- by collusion between owners and employers who should by nature have been competitive producers of an unrestrained output of goods and services according to the principles of that modern point of view which animated Adam Smith and his generation; but coercion and unearned gain by a combination of ownership, of the now familiar corporate type, was virtually unknown in his time. So Adam Smith saw and denounced the dangers of unfair combination between "masters" for the exploitation of their workmen, but the modern use of credit and corporation finance for the collective control of the labor market and the goods market of course does not come within his horizon and does not engage his attention.
What is not doubtful, in the steel business or in any of the other industrial enterprises that run on a similar scale and a similar level of technology, is that the owners of the corporate capital have come in for a very substantial body of intangible assets of this kind, and that these assets of capitalized free income will foot up to several times the total value of the material assets which underlie them.
Women have been required not only to afford evidence of a life of leisure, but even to disable themselves for useful activity...the high heel, the skirt, the impracticable bonnet, the corset... are so many items of evidence to the effect that... the woman is still, in theory, the economic dependent of the man?that, perhaps in a highly idealized sense, she still is the man's chattel. The homely reason for all this conspicuous leisure and attire on the part of women lies in the fact that they are servants to whom, in the differentiation of economic functions, has been delegated the office of putting in evidence their master's ability to pay.
These ethnic types differ in temperament in a way somewhat similar to the difference between the predatory and the ante-predatory variants of the types; the dolicho-blond type showing more of the characteristics of the predatory temperament?or at least more of the violent disposition?than the brachycephalic-brunette type, and especially more than the Mediterranean.
Today (October, 1918) -- it is to be admitted with such emotion as may come to hand -- this question is one which can be entertained quite seriously, in the light of experience. In the recent past, as matters have stood up to the outbreak of the war, the ordinary rate of production in the essential industries under businesslike management has habitually and by deliberate contrivance fallen greatly short of productive capacity. This is an article of information which the experience of the war has shifted from the rubric of "Interesting if True" to that of "Common Notoriety."
Whatever approves itself to us on any ground at the outset, presently comes to appeal to us as a gratifying thing in itself; it comes to rest in our habits of thought as substantially right.
These indices and others which resemble them in point of the boldness with which they point out to all observers the habitual uselessness of those persons who employ them, have been replaced by other, more dedicate methods of expressing the same fact; methods which are no less evident to the trained eyes of that smaller, select circle whose good opinion is chiefly sought...As the community advances in wealth and culture, the ability to pay is put in evidence by means which require a progressively nicer discrimination in the beholder. This nicer discrimination between advertising media is in fact a very large element of the higher pecuniary culture.
Trained service has utility, not only as gratifying the master's instinctive liking for good and skillful workmanship and his propensity for conspicuous dominance over those whose lives are subservient to his own, but it has utility also as putting in evidence a much larger consumption of human service than would be shown by the mere present conspicuous leisure performed by an untrained person.
When an attempted reform involves the suppression or thorough-going remodeling of an institution of first-rate importance in the conventional scheme, it is immediately felt that a serious derangement of the entire scheme would result... that a readjustment of the structure to the new form taken on by one of its chief elements would be a painful and tedious, if not a doubtful process.
These supernumerary and preferential gains, "excess profits," or whatever words may best describe this class of free income, may be well deserved by these beneficiaries, or they may not. The income in question is, in any case, not created by the good deserts of the beneficiaries, however meritorious their conduct may be.
Under the altered conditions of population, skill, and knowledge, the facility of life as carried on according to the traditional scheme may not be lower than under the earlier conditions; but the chances are always that it is less than might be if the scheme were altered to suit the altered conditions.
When individuals, or even considerable groups of men, are segregated from a higher industrial culture and exposed to a lower cultural environment, or to an economic situation of a more primitive character, they quickly show evidence of reversion toward the spiritual features which characterize the predatory type; and it seems probable that the dolicho-blond type of European man is possessed of a greater facility for such reversion to barbarism than the other ethnic elements with which that type is associated in the Western culture.
They are apparently moved by a feeling that so long as the established arrangements are maintained they will come in for a little something over and above what would come to them if they were to make common cause with the undistinguished common lot. In other words, they have a vested interest in a narrow margin of preference over and above what goes to the common man. But this narrow margin of net gain over the common lot, this vested right to get a narrow margin of something for nothing, has hitherto been sufficient to shape their sentiments and outlook in such a way as, in effect, to keep them loyal to the large business interests with whom they negotiate for this narrow margin of preference.
Under the circumstances prevailing at any given time this [leisure] class is in a privileged position, and any departure from the existing order may be expected to work to the detriment of the class rather than the reverse. The attitude of the class... should therefore be to let well-enough alone. This interested motive comes in to supplement the strong instinctive bias of the class, and so to render it even more consistently conservative than it otherwise would be.
When the community passes from peaceable savagery to a predatory phase of life... opportunity and the incentive to emulate increase greatly... The activity of the men more and more takes on the character of exploit; and an invidious comparison... grows continually easier and more habitual. Tangible evidences of prowess?trophies?find a place in men's habits of thought as an essential feature... and booty serves as prima facie evidence of successful aggression...as a conventional evidence of successful contest. Therefore... the obtaining of goods by other methods than seizure comes to be accounted unworthy...Labor acquires a character of irksomeness by virtue of the indignity imputed to it.
Things have changed in such a way since that time, that the ownership of property in large holdings now controls the nation's industry, and therefore it controls the conditions of life for those who are or wish to be engaged in industry; at the same time that the same ownership of large wealth controls the markets and thereby controls the conditions of life for those who have to resort to the markets to sell or to buy. In other words, it has come to pass with the change of circumstances that the rule of Live and Let Live now waits on the discretion of the owners of large wealth. In fact, those thoughtful men in the eighteenth century who made so much of these constituent principles of the modern point of view did not contemplate anything like the system of large wealth, large-scale industry, and large-scale commerce and credit which prevails today. They did not foresee the new order in industry and business, and the system of rights and obligations which they installed, therefore, made no provision for the new order of things that has come on since their time.
Under the new order of things the mechanical equipment ? the "industrial plant" -- takes the initiative, sets the pace, and turns the workman to account in the carrying-on of those standardized processes of production that embody this mechanistic state of the industrial arts; very much as the individual craftsman in his time held the initiative in industry, set the pace, and made use of his tools according to his own discretion in the exercise of his personal skill, dexterity and judgment, under that now obsolescent industrial order which underlies the eighteenth-century modern point of view, and which still colors the aspirations of Liberal statesmen and economists, as well as the standard economic theories. The workman -- and indeed it is still the skilled workman -- is always indispensable to the due working of this mechanistic industrial process, of course; very much as the craftsman's tools, in his time, were indispensable to the work which he had in hand. But the unit of industrial organization and procedure, what may be called the "going concern" in production, is now the outfit of industrial equipment, a works, engaged in a given standardized mechanical process designed to turn out a given output of standardized product; it is the plant, or the shop.