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History of Economic Thought�UNIT-III�

Presented

By

Dr.D.Hema

Assistant Professor of Economics,

CPA College, Bodinayakanur.

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Veblen(1857-1929)

  • Veblen was the founder of Institutionalism
  • He was Spiritual leader of renaissance-American economic thought
  • Doctorate degree in 1884-Yale University
  • He was Prolific writer
  • He edited the journal of Political economy in 10 years.

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Main Economic Ideas

1.Criticism of earlier schools of thought

  • Veblen was an inspired critic.

He was not satisfied

  • the methods
  • Doctrine
  • Theories of classical school
  • Marginalist school

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His economic view contained in his articles

Published in –Quarterly journal of Economics

journal of Political Economy

He has been critical of

Marginal utility of economics

Historical school

Socialism

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He attacked classical economic theories based on Hedonism

Economic man-Balancing pleasure and pain

Social psychology –Importance of instincts

his main ideas contained in his book

``the instinct of workmanship’’

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2.Significance of Institutions

Veblen considered entire civilization

-``a scheme of institutions’’

Human behaviour-ultimately developed institution.

According to Veblen,

Industry and Business-2 important institutions of capitalism--private property, banks ,money etc..have developed.

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Development of social institutions –influenced-

Factors- population, physical environment, climatic changes etc..

He has divided the society into two classes

  • Productive class
  • Leisure class

Veblen institutionalism rests on two stones

-economic conflict,

-change

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3.The theory of business enterprise

Veblen’s Book-``The theory of business enterprise’’-present

  • Large scale business enterprise
  • Institution of American capitalism

According to Veblen,

machine provides-modern industry

Machine had standardized

  • Human life
  • Goods processes
  • Consumer taste

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Economic and industrial mechanism results

  • Wastes
  • Depression
  • Unemployment

According to Veblen,

large business enterprise –activities- Instability of the capitalistic system

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4.Corporations

According to Veblen,

technological basis of industry has-give rise to new form of industry –corporation-depends – corporate credit system-greater earning capacity benefits-benefits not consumers.

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5.The theory of the leisure class

Veblen pointed out

leisure class-ancient institution

Every society –upper class men-superior rank

this class ownership property-aggressive

-never helped necessaries life-this class waste-do not human well being.

this class unable to fulfill own basic needs.

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6.Trade cycles

Veblen noticed that society -2 classes of people

  • Busy in supplying the requirements of human society.
  • Speculation and profit making.

During the days

Prosperity or high profits

  • rising prices
  • Industry borrowed large amount of money-expand business
  • Earn high profits
  • Bank increased rate of interest

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Boom stage

  • Profits decrease
  • Price do not increase
  • Increase cost of labour and materials.

7.Class conflict

According to Veblen,

the society was divided into two classes

  • Productive class
  • Leisure class

Technological change –change economic institutions-through them human behaviour.

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8.Value

Veblen differentiated between

  • economic value-commodity, end products –satisfies both individual and social needs
  • pecuniary value or exchange –final product

pecuniary gain to its owner

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