Home > Uncategorized > The text in which Thorstein Veblen introduced the phrase ‘neo-classical’

The text in which Thorstein Veblen introduced the phrase ‘neo-classical’

On this blog neoclassical economics are discussed on a regular basis. Thorstein Veblen is credited by Tony Aspromorgous with introducing, around 1900, the phrase ‘neo-classical’ (see the excerpt below from  ‘The preconceptions of economic science, part III, the Quarterly Journal of Economics 14 (1900), available  on the AFEE website. A lot of his criticisms of neo-classical authors still apply today: they assume what they should explain. The Keynes in the text is the father of John Maynard Keynes. Veblen was a very talented writer – which shows when you read the excerpt (and the entire text) twice.

Of the foundations of later theory, in so far as the postulates of later economists differ characteristically from those of Mill and Cairnes, little can be said in this place. Nothing but the very general features of the later development can be taken up; and even these general features of the existing theoretic situation can not be handled with the same confidence as the corresponding features of a past phase of speculation. With respect to writers of the present or the more recent past the work of natural selection, as between variants of scientific aim and animus and between more or less divergent points of view, has not yet taken effect; and it would be over-hazardous to attempt an anticipation of the results of the selection that lies in great part yet in the future. As regards the directions of theoretical work suggested by the names of Professor Marshall, Mr. Cannan, Professor Clark, Mr. Pierson, Austrian Professor Loria, Professor Schmoller, the group, — no off-hand decision is admissible as between these candidates for the honor, or, better, for the work, of continuing the main current of economic speculation and inquiry. No attempt will here be made even to pass a verdict on the relative claims of the recognised two or three main “schools” of theory, beyond the somewhat obvious finding that, for the purpose in hand, the so-called Austrian school is scarcely distinguishable from the neo-classical, unless it be in the different distribution of emphasis.
The divergence between the modernised classical views, on the one hand, and the historical and Marxist schools, on the other hand, is wider, — so much so, indeed, as to bar out a consideration of the postulates of the latter under the same head of inquiry with the former. The inquiry, therefore, confines itself to the one line standing most obviously in unbroken continuity with that body of classical economics whose life history has been traced in outline above. And, even for this phase of modernised classical economics, it seems necessary to limit discussion, for the present, to a single strain, selected as standing peculiarly close to the classical source, at the same time that it shows unmistakable adaptation to the later habits of thought and methods of knowledge.

For this later development in the classical line of political economy, Mr. Keynes’s book may fairly be taken as the matures exposition of the aims and ideals of the science; while Professor Marshall excellently exemplifies the best work that is being done under the guidance of the classical antecedents. As, after a lapse of a dozen or fifteen years from Cairnes’s days of full conviction, Mr. Keynes interprets the aims of modern economic science, it has less of the “hypothetical” character assigned it by Cairnes. that is to say, it confines its inquiry less closely to the ascertainment of the normal case and the interpretative subsumption of facts under the normal. It takes fuller account of the genesis and developmental continuity of all features of modern economic life, gives more and closer attention to institutions and their history. This is, no doubt, due, in part at least, to impulse received from German economists; and in so far it also reflects the peculiarly vague and bewildered attitude of protest that characterises the earlier expositions of the historical school. To the same essentially extraneous source is traceable the theoretic blur embodied in Mr. Keynes’s attitude of tolerance towards the conception of economics as a “normative” science having to do with “economic ideals”, or an “applied economics” having to do with “economic precepts.” (12*) An inchoate departure from the consistent taxonomic ideals shows itself in the tentative resort to historical and genetic formulations, as well as in Mr. Keynes’s pervading inclination to define the scope of the science, not by exclusion of what are conceived to be non-economic phenomena, but by disclosing a point of view from which all phenomena are seen to be economic facts. The science comes to be characterised not by the delimitation of a range of facts, as in Cairnes,(13*) but as an inquiry into the bearing which all facts have upon men’s economic activity. It is no longer that certain phenomena belong within the science, but rather that the science is concerned with any and all phenomena as seen from the point of view of the economic interest. Mr. Keynes does not go fully to the length which this last proposition indicates. He finds (14*) that political economy” treats of the phenomena arising out of the economic activities of mankind in society”; but, while the discussion by which he leads up to this definition might be construed to say that all the activities of mankind in society have an economic bearing, and should therefore come within the view of the science, Mr. Keynes does not carry out his elucidation of the matter to that broad conclusion. Neither can it be said that modern political economy has, in practice, taken on the scope and character which this extreme position would assign it.

The passage from which the above citation is taken is highly significant also in another and related bearing, and it is at the same time highly characteristic of the most effective modernized classical economics. The subject matter of the science has come to be the “economic activities” of mankind, and the phenomena in which these activities manifest themselves. So Professor Marshall’s work, for instance, is, in aim, even if not always in achievement, a theoretical handling of human activity in its economic bearing, — an inquiry into the multiform phases and ramifications of that process of valuation of the material means of life by virtue of which man is an economic agent. And still it remains an inquiry directed to the determination of the conditions of an equilibrium of activities and a quiescent normal situation. It is not in any eminent degree an inquiry into cultural or institutional development as affected by economic exigencies or by the economic interest of the men whose activities are analysed and portrayed. Any sympathetic reader of Professor Marshall’s great work — and that must mean every reader — comes away with a sense of swift and smooth movement and interaction of parts; but it is the movement of a consummately conceived and self-balanced mechanism, not that of a cumulatively unfolding process or an institutional adaptation to cumulatively unfolding exigencies.

  1. February 1, 2018 at 7:30 pm

    During the years of my Neoclassical indoctrination at Berkeley in the 60s, Veblen was not simply marginalized, he was dismissed, as was the entire Institutional School, along with Henry George. No likelihood that the purity of Neoclassical might get contaminated by such things as land speculation.
    There was one econ professor, Paul Taylor, who studied California water from a heterodox and power politics perspective. He was tenured, but his worthy work was marginalized in that highly reputable institution, which had been bought and sold by the powers behind the budding California Water Plan. Marginalizing is an effective way to counter a threat to power when you can’t get away with some form of elimination.

  2. February 2, 2018 at 1:22 pm

    I wonder if any economist, including Veblen has ever received any sort of instruction or directed reading on the rudiments of science? It appears not. I suggest this book be added to the economics curriculum, “What is this Thing Called Science?” by Alan F Chalmers. The book would also aid all here who continually use the terms realism, real, and realistic science with little understanding of what they’re saying. For the latter, Chapter 15 is very useful.

    • February 2, 2018 at 3:46 pm

      Joking, where Ken appears to be serious, G K Chesterton defined a Heretic as “a man whose view of things has the temerity to differ from mine”.

      • February 4, 2018 at 7:34 am

        The whole of science is nothing more than a refinement of everyday thinking.
        — Albert Einstein

        Of what does this refinement consist? Chalmers’ book is one of only 2-3 texts explaining the refinement without burying the reader in the philosophy and sociology of science. Since 1976 this book has helped thousands of laypersons and potential scientists of every sort grasp the essentials of work as a scientist. Unless potential economists are an exceptionally stupid group, I see no reason this book could not help them learn the basics of science, as well.

      • February 4, 2018 at 9:33 am

        Having the temerity to differ from Albert Einstein (who like Steve Keen’s fish was subconsciously swimming in Logical Positive waters) and by implication Chalmers and Ken, I see TWO purposes in science. Firstly, seeing what we have never seen before (historically including further and inside as well as the ‘smaller’ of refinement; and secondly, rethinking what we do and teach our children in light of the latest discoveries: in our era, about the physical processing of language.

        Literally, maths provides techniques of learning and science is supposed to provide knowledge.

      • merijntknibbe
        February 4, 2018 at 9:53 am

        Maybe there is some common ground between Ken and you. Normal sciences often award Nobel Prizes for new discoveries or new ways to make discoveries: to see what never has been seen before. There is a tendency in economics to change this, but the economics ‘Nobel’ is often awarded just for theory and not for better ways to measure poverty, hunger, slavery or unemployment. Or, to take the positive side, to measure productivity and progress. Or changes in the ‘mode of production’, for instance characterized by changes in ownership of ‘capital’ (abolishing capital is the classic example, but nowadays there also is a struggle about the ownership of patents, platforms, inheritances and the like). A Nobel for measurement of change of ownership, would be nice! A great new economics paper with great new discoveries: ‘the rate of return on everything, 1870-2015″: http://www.nber.org/papers/w24112

      • February 4, 2018 at 3:49 pm

        Thank you for this, Merijn. Thoroughly enjoyed the irony! Your talk of the so-called economics ‘Nobel’ brought to mind this passage on ‘The Eternal Revolution’ from Chesterton’s ‘Orthodoxy’:

        “Evolution is a metaphor from mere automatic unrolling. Progress is a metaphor from merely walking along a road – very likely the wrong road. But reform is a metaphor for reasonable and determined men: it means we see a certain thing out of shape and we mean to put into shape. And we know what shape.

        “Now here comes the whole collapse and huge blunder of our age. We Have mixed up to different things, two opposite things. Progress should mean that we are always changing the world to suit the vision. Progress does mean (just now) that we are always changing the vision. It should mean that we are slow but sure in bringing justice and mercy to men: it does mean that we are veryswift in doubting the desirability of justice and mercy … Progress should mean that we are always walking towards the New Jerusalem. It does mean that the New Jerusalem is always walking away from us. We are not altering the real to suit the ideal. We are altering the ideal: it is easier”.

      • Craig
        February 4, 2018 at 7:05 pm

        “We are not altering the real to suit the ideal. We are altering the ideal: it is easier”.

        Correct. And as Wisdom is the thorough integration of the practical and the ideal…that is why we need a Wisdomics

    • February 4, 2018 at 8:12 pm

      Merijntknibbe and Dave, if science is as Einstein claims only refinement of everyday thinking, then what are the purposes and processes of everyday thinking? I suggest they are two. First, to address areas of human concern – to be useful in figuring out questions and their possible answers “for human life.” The important word here is “useful.” Second, science is an aid to human imagination in its millenniums long construction of human collective life. Science helps humans create themselves.

      Both Einstein and Chalmers accept these explanations for the existence of science. Einstein expected scientific theories to have the proper empirical credentials, but he was no positivist; and he expected scientific theories to give an account of physical reality, but he was no scientific realist. In 1946 Einstein explained what he took to be Ernst Mach’s basic error when accepting positivism. “He did not place in the correct light the essentially constructive and speculative nature of all thinking and more especially of scientific thinking; in consequence, he condemned theory precisely at those points where its constructive-speculative character comes to light unmistakably, such as in the kinetic theory of atoms.

      On realism Einstein says, “’The physical world is real.’ That is supposed to be the fundamental hypothesis. What does “hypothesis” mean here? For me, a hypothesis is a statement, whose truth must be assumed for the moment, but whose meaning must be raised above all ambiguity. The above statement appears to me, however, to be, in itself, meaningless, as if one said: “The physical world is cock-a-doodle-doo.” It appears to me that the “real” is an intrinsically empty, meaningless category (pigeon hole), whose monstrous importance lies only in the fact that I can do certain things in it and not certain others.”

      But science is complex. The standard definition still accepted even by some scientists, and certainly by most laypersons and the media misses that. Science is not the observation and reporting of the facts. It’s much more than that. Neither is science the creation and testing of theories to describe and explain those facts. It’s more complex than that. Read Chalmers’ book. It’s one of the better I’ve seen at explaining science in full perspective, warts, and all. There is no single definition of science that can fit all that scientists do within it. As Chalmers emphasizes science is its history. In that history of work, decisions, paths followed and not followed, and thousands of debates we find science. Far as I can tell that’s the only way to find science. Scientists do this intuitively, since they are involved fully in that history. But few scientists if asked could lay out a fully workable definition of science. They know it when they see it. From this perspective, the “creation science” of some religious groups falls short of being science. It does not fit within the history of science. But it seems certain some will continue to try to shoehorn it into that history.

  3. February 2, 2018 at 3:55 pm

    “A lot of his criticisms of neo-classical authors …”

    Not clear to whom “his” refers, Merijn. Thorsten Veblen or Tony Aspromorgous?

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