I'm glad that I asked, Bill. The new economics in Veblen's time was
the Austrian economics of the late 19th century, based on the subjective
theory of value and the concept of opportunity costs. Veblen's critique
of Austrian economics centered on what he felt was a neglect of
evolutionary change in the theory. I doubt that he was correct on this,
but it is possible that the older Austrians were not as careful on this
issue as Mises and Hayek. In his critique, Veblen provided no
documentation of which I am aware, although I am not an expert on Veblen.
In 1898, Veblen wrote a paper entitled Why Economics is Not an
Evolutionary Science. In that paper, he criticized all of economics,
including the Austrians of the time. In the following, I will discuss
two of his criticisms of the new economics.
1. Economists have classified the ways and means of turning material
objects and circumstances to account under the heading of capital,
this capital being conceived as a mass of material objects serviceable
for human use. (387) This, he said, is not an effective method for
conceiving the matter for the purpose of a theory of the developmental
process. What we need to recognize, he maintained, is that the human
agent is distinct from physical properties of materials. An
evolutionary theory should focus on human knowledge, skill, and
predilection i.e., the properties of the human agent. Economic
action must be the subject matter of the science if the science is to
fall in line as an evolutionary science. (388)
To this, the modern Austrian has an easy reply. First, no one could read
Ludwig Lachmanns or Israel Kirzners books on capital and come away
thinking that the human agent has somehow been disregarded. He is an
integral part of their theories. Second, Mises entitled his book human
action precisely because he placed the human agent at the center.
Economics, or catallactics as he preferred to call it, is the study of
economic action human action under the conditions of the market economy.
2. The reason for the Austrian failure, argued Veblen, seems to lie
in a faulty conception o f human nature. (389) [T]he human material
with which the inquiry is concerned is conceived in hedonistic terms...
The hedonistic conception of man is that of a lightning calculator of
pleasures and pains, who oscillates like a homogeneous globule of desire
of happiness under the impulse of stimuli that shift him about the area,
but leave him intact. He is an isolated, definitive human daturm...
The reply is first that nobody could read Israel Kirzners Competition
and Entrepreneurship without concluding that his criticism of
mainstream economics is very similar to that of Veblen on this issue.
Nor could one who understands Misess Human Action form this opinion.
I dont want to go too far in defending the modern Austrians. They have
not so far tried to incorporate what psychologists and epistemologists
know about the nature of knowledge and how it develops into their images
of the market economy. However, they are by no means guilty of the
sins that Veblen, perhaps wrongly, attributed to their predecessors.
Nor do I want to give the impression that everyone who attachers the
label Austrian economist to himself adheres to the image I am painting
here. There is a great deal of conflict within the Austrian ranks.
The new economics of which you speak has a great deal in common with
my version of Austrian economics. Regarding financing of
entrepreneurship, there are two distinct mechanisms. In the first, banks
act as money creators and lend the new money to businesses. When they
create money in unison, which they usually do not due to banking
regulations, the result is inflation, malinvestment, and a trade cycle.
Usually, one bank creates money while another destroys it. In the second
they act as financial intermediaries, channeling savers' money to those
entrepreneurs who offer the highest returns. Nothing else in what you
call the new economics, except the abundant resources assumption and
the claim of labor displacement, is, as I see it, in conflict with the
Austrian economics I use. Although, given the difference between us in
the way that you use terms, I would not be surprised to find that I am
mistaken.
Veblen, Thorstein. (1898) Why Economics is Not an Evolutionary
Science. The Quarterly Journal of Economics. July.
Kirzner, Israel, An Essay on Capital, New York: Augustus M. Kelley,
1966, reprinted in Kirzner (1996) Essays on Capital and Interest: An
Austrian Perspective. Brookfield: Edward Elgar.
Kirzner, Israel. (1973) Competition and Entrepreneurship. Chicago:
University of Chicago Press.
Lachmann, Ludwig M.(1978) Capital and Its Structure. Mission, Kansas:
Sheed Andrews and McMeel. (originally published in 1956)
von Mises, Ludwig. (1966 [1949]). Human Action: A Treatise on Economics.
Chicago: Henry Regnery Company.
[EMAIL PROTECTED] wrote:
**Well, if you want my
