Veblen, Dewey, and the Price System:

 

Corporate Sabotage and the Democratic Engineer

 

 

 

Submitted as a Traditional Paper for consideration in the 2007 SAAP Annual Conference

 

 

 

 

Abstract:

Thorstein Veblen provides a unique and robust criticism of economics that identifies inefficiency and sabotage as foundations of the profit motive.  This paper is an exploration of Veblen’s critique of the business system and an analysis of Veblen’s non-democratic solutions to the problem.  Veblen holds that the two live options of political/economic development are fascism and technocracy.  However, Veblen’s critique, as I will show with John Dewey’s democratic theory, does not exclude democracy as necessarily as Veblen thought it did.  Veblen’s criticism of the business cycle is appropriate to today’s economy and can be democratized to avoid fascism or technocracy.

 

 

 

 

 

 

Thorstein Veblen and John Dewey are often counted as progressive thinkers in the same right who share both ideas and visions.  While both shared the progressive era’s faith that intelligence could result in a better society, Veblen’s faith in intelligence precluded an endorsement of democracy while Dewey’s was radically democratic.  It is this tension that will show that Veblen’s work cannot be directly applied to Dewey’s thought.  However, the criticisms of traditional classical economics provided by Veblen in The Theory of Business Enterprise and The Engineers and the Price System are compatible with Dewey’s radical democratic thought and can inform democratic economic control.  To the end of this argument, we will first explicate Veblen’s thought concerning the business system as opposed to the project of the engineers.  Included in this explication will be a discussion of sabotage on the part of the businessperson for the end of increased profit and Veblen’s pessimistic thought on the common citizen.  Secondly,  we will investigate the two possible paths of development Veblen suggests: business control (what Robert Heilbroner will call fascism) in The Theory of Business Enterprise and control of industry by resource engineers (or what we will call technocracy) in The Engineers and the Price System.  Finally, we will look at the differences in Dewey’s democratic theory and Veblen’s utopian (technocratic) theory.  We will see that both exclude the other and that Veblen’s theory does not directly coincide with the role of the expert in the democratic thought of Dewey.  In doing so, we will investigate a manner to democratize Veblen and his technocracy.  Doing so will create a niche where the technologist can be expert within a democracy without surrendering Dewey’s radical democratic theory or Veblen’s critique of the business system.  This argument will preserve Veblen’s criticism of classical economics without sacrificing democracy. 

Veblen observes two general controls of the industrial process: the businessmen and the engineers.  While engineers utilize workers, resources and capital to manage the machine process of industrial production toward the goal of yielding the most efficient output, businesspersons manage the economy for the sake of profit.  Veblen understands that “businesslike control of the rate and volume of output is indispensable for keeping up a profitable market, and a profitable market is the first and unremitting condition of prosperity” for the business process.[1]  Veblen notes that “[a] reasonable profit always means, in effect, the largest obtainable profit.”[2]  Veblen is clear that this type of industrial control ties the increase of profit to “[a] disturbance of the balance at any point” in the process of trade.[3]  This disruption of balance (i.e. the “natural price” of classical economics) “means a differential advantage (or disadvantage) to one or more of the owners of the sub-process between which the disturbance falls.”[4]  Profitable action in business requires that the business person seeks the most profitable investments and actions.  However, in order to realize the highest achievable profit, businesspersons engage in manipulations and strategic actions which fall into the general categories of sabotage and monopoly.

Veblen defines sabotage as the “conscientious withdraw of efficiency.”[5]  Veblen explicitly identifies in this definition sabotage on the part of the managers and owners of business.  Businesspersons control their industries for the sake of the greatest obtainable profits, not the greatest efficiency of classical economics or the greatest social good.  They achieve “this necessary control of the output of industry” by recourse to “something in the nature of sabotage—something in the way of retardation, restriction, withdrawal, unemployment of plant and workmen—whereby production is kept short of productive capacity.”[6]  What is known of scarcity and supply is employed by the businessperson to avoid flooding the market or to insure that a product has a certain prestige that produces more profits.  Underproduction and waste are the result of the power of the businessperson to control production because of this class’s interest in profit.  Communities organized on this principle thus become dependent on this system despite its imperfect production.  Simply put, it is the only game in town.  Veblen writes:

[T]he common welfare in any community which is organized on the price system cannot be maintained without a salutary use of sabotage—that is to say, such habitual recourse to delay and obstruction of industry and such restriction of output as will maintain prices at a reasonably profitable level and so guard against business depression.[7]

 

Because the entire system relies on the motivation of profit, once profit falters, that is if the saboteurs stop their campaign of inefficiency, the system stops and all production falters.

            The outcome of this sabotage is less production, more waste, and unbridled inefficiency.  Thus, the assumptions of the classical economists, that all parties in the economy acting by the means of self-interest produce a net positive outcome, do not hold for Veblen.  Prices do not come to a balanced and fair natural price, because the power of the consumer of production to sabotage production is minuscule or absent in comparison to the abilities of the captain of industry to disrupt production.  Furthermore, because the “vested interests” of the state are bound up in the business system, the government aids the business process by legalization and supporting such actions.[8]

The other means by which business seeks to take advantage of disturbances in the market for the sake of better profits is by the creation of monopoly.  Veblen defines “monopoly” as not only as one supplier in a market, but also as one supplier that has created the illusion that their particular product is unique and therefore sold at a premium.  When one company corners a market, they have a monopoly, despite other companies in the same market with similar products.  Veblen considers it “very doubtful if there are any successful business ventures within the range of modern industries from which the monopoly element is wholly absent.”[9]  The profit motive of business is served when captains of industry “look to a permanent continuance of their business” by endeavoring to “establish as much of a monopoly as may be.”[10]  Veblen identifies the primary tool of achieving monopoly power as salesmanship, which includes advertising.

Salesmanship is defined as all the effort and work that goes into bargaining and deal making to move products for the sake of profit making.  Salesmanship includes “needless multiplication of merchants and shops, wholesale and retail, newspaper advertising and bill-boards, sales-exhibits, sales-agents, fancy packaging and labels, adulteration, multiplication of brands and proprietary articles.”[11]  On these superfluous acts of sales is spent considerable effort and money.  Salesmanship enables the businessperson to convince others to purchase despite the artificially inflated price or inefficient production.  Salesmanship is the substitution for price controls and enables the sabotage of business to continue.  Veblen explicitly condemns salesmanship not simply as a means of enabling sabotage to yield high profits but more importantly as “the chief factor in that ever-increasing cost of living, which is in its turn the chief ground of prosperity among the business community and the chief source of perennial hardship and discontent among the underlying population.”[12]  Without this tool, business would be unable to maintain the acts of sabotage because high prices would become apparent to the populace.  Veblen, to tie salesmanship to the business system more explicitly, holds that “[s]alesmanship is also the most indispensable and more meritorious of those qualities that go to make a safe and sane business man.”[13]  Moreover, salesmanship insures that “except so far as it is managed with a constant view to profitable bargains, the production of goods is not a business proposition.”[14]  For Veblen, “the whole end and substance of [the] business enterprise” is that of salesmanship.[15]

Advertising is one of the principal factors of salesmanship and possibly the most detrimental to the common good.  A “monopoly of custom and prestige” is the “end sought by the systematic advertising of the larger business concerns.”[16]  When advertising establishes a brand name or trade-mark, it has created a monopoly of prestige or custom.  Name brands, be they pharmaceuticals, clothes, or sugar and flour, regularly sell for a large part more than similar (or identical) generics.  When these products are purchased, the businessperson has successfully acted to sabotage the workings of the economy to gain a larger profit.  Veblen is clear that advertising results in higher prices and less general welfare as a whole because “[t]he aggregate expenditure that could advantageously be put into advertising in the absence of competition would undoubtedly be but an inconsiderable fraction of what is actually incurred, and necessarily incurred under existing circumstances.”[17]  Advertizing, itself a waste, enables the systematic sabotage of the industrial process not simply in the actions of robber-barons attempting to buy out each other, but in how the price is adjusted and artificially inflated for the unwarranted gain of business interests.

The end result of these business strategies is the loss of production of necessary and important material goods which could otherwise be used to improve general welfare.  It is a perverse tragedy that businesspersons “are unremittingly engaged in a routine of acquisition, in which they habitually reach their ends by a shrewd restriction of output; and yet they continue to be entrusted with the community’s industrial welfare.”[18]  Because the end of business is production for profit, not production for the general welfare of people, the ends of business do not coincide with the greater good of society.  Balance of all industrial production and consumption is required for the machine process to work.  Similarly, the slowdown of production results in profit for the business while the populace must deal with artificial scarcity.  Conflict occurs and the general welfare of a society is hindered because the business person’s “gains (or losses) are related to the magnitude of the disturbances that take place, rather than to their bearing upon the welfare of the community.”[19]  Veblen writes:

The economic welfare of the community at large is best served by a facile and uninterrupted interplay of the various processes which make up the industrial system at large; but the pecuniary interests of the business men in whose hands lies the discretion in the matter are not necessarily best served by an unbroken maintenance of the industrial balance.[20]

 

This system is not one of interactions that Adam Smith identified, where an invisible hand yields a natural price.  Veblen explicitly rejects such a theory, which is a mainstay of classical economics, where community and social good result from private interest.

            Due to the vested interests of those who hold governmental power and of the businesspersons, Heilbroner follows Veblen to observe that

business would increase in predatoriness until it eventually degenerated into a system of naked force, undisguised prerogative, and arbitrary command in which the business man would give way to a recrudescence of the old warlord.  We would call such a system fascism.[21]

 

Furthermore, American culture is not capable of curbing the sabotage of the business system because “[b]y settled habit, the American population are quite unable to see their way to entrust any appreciable responsibility to any other than business men.”[22]  This habit is unfortunate because any “overturn [of these business interests] can hope to succeed only if it excludes the business men from all positions of responsibility.”[23]  Veblen is, therefore, skeptical of the power of democracy.  Moreover, because of the trust Veblen sees the public put in the business community, he fears that the fascism (as Heilbroner correctly calls it) of business interest will come about with the consent of the people.

            While Veblen presents his vision of the rise of fascist warlords of industry in The Theory of Business Enterprise, he presents another version in The Engineers and the Price System.  His second vision is one of rule by engineers and technicians, what we will call technocracy.  It is important to note that because of Veblen’s criticisms of the American habit of trusting business, there is little hope for democracy to do anything but rubberstamp the rule of business interests.  Veblen, however, sees a shimmer of hope in the engineers.  Engineers, who provide “the intellectual work involved in the modern machine industry,” have, up to a future revolutionary turn, been employed to “prepare the way for the man of pecuniary affairs by making possible and putting in evidence the economies and other advantages that will follow from a prospective consolidation.”[24]  Engineers insure that industry runs in such a way that it becomes an “inclusive organization of many and diverse interlocking mechanical processes, interdependent and balanced among themselves in such a way that the due working of any part of it is conditioned on the due working of all the rest.”[25]  Industry will only “work at its best only on condition that these industrial experts, production engineers, will work together on a common understanding; and more particularly on condition that they must not work at cross purposes.”[26]  Engineers lack the commercial interests (in their role as engineer) and therefore do not seek the sabotage of the industrial system for the sake of profit.  Quite the contrary, Veblen understands that the engineer seeks to produce goods and services efficiently for the general welfare of the community, nation, and world.  This role is quite the opposite of the “function of the great barons of business” which is best understood as “[t]he bold game of financial chicanery” that “served as much to disturb the flow of goods as to promote it.”[27]  This vision of engineering gives Veblen the hope of a “Soviet of Technicians” that might come to power and control industry in such a way that the business interests (and the vested interests of the national government) are stopped.

            It is important to remember, that for Veblen, these two options, fascism of business interests and technocracy, are the only live options we are presented with due to the conditions of the business system.  This is due to the fact that the habits of the population are too rigid to embrace anything but business control and that the vested interests of the state are also firmly on the side of business.  Furthermore, and demonstrating part of Veblen’s pessimistic vision, the chances of a “Soviet of Technicians” is very remote.  Although Veblen’s visions have not come to pass in such an extreme manner as he predicted in 1919, we ought be careful to heed some of his advice and criticism as we live through the days of Enron, Halliburton and record profits for oil companies.

            Rick Tilman holds that, while there is considerable overlap in the thought of Veblen and John Dewey, that we ought not go too far.  Although both figures are predominate in discussions of the progressive era, Tilman points out that writing in a particular era is not enough to justify significant similarities between the two thinkers.  Tilman argues that “the leading figures of Progressive social thought have less in common than the last two generations of American social scientists have imagined.”[28]  Veblen’s mistrust of democracy and Dewey’s faith in it are due to two very different views on how people behave in politics and on how successful education can be.  Although Veblen wholly supported intelligent inquiry and control of industry, his vision is not Dewey’s vision of intelligence per se.  Tilman observes, “Given Veblen’s position, [that] Dewey’s “method-of-intelligence” is unlikely to be an effective instrument of change in an environment dominated by ceremonially encrusted minds and buttressed by socially rigid institutions.”[29]  The existing circumstances, the aforementioned set habits Veblen identifies in the American people, are preventative to significant change and not easily reversed.  Dewey’s faith in education was not shared by Veblen.  Dewey “believed that a liberal education should inculcate the habits of rational, critical and reflective thought.  However, these were precisely the habits of thought that Veblen believed unlikely to develop given the indoctrination and propaganda characteristic of higher education.”[30] 

Given the inability Veblen sees in the potential to change the population, we find that “Veblen was clearly prone to sanction changes that were utopian” while “Dewey was much more explicit in his recognition of the feasibility problem and endorsed a means-ends continuum for policy prescriptions.”[31]  However, we cannot hold that Veblen has an unfounded point of view, given that he considers the state of the world to be so lost in the business system and the interests that sustain it.  Moreover, Veblen’s criticisms of the business system are important, coherent and should be considered, even if his solutions seem unsavory.  In looking at a manner to democratize Veblen’s technocracy while retaining faith in education and democracy, the important criticisms Veblen makes of business might be preserved while avoiding the unpleasant possibility of rule by experts, which is at best an aristocracy.  To this end, we will employ the democratic theory of John Dewey.

            The rule of experts is, in Dewey’s thought, a type of “revival of the Platonic notion that philosophers should be kings.”[32]  To hold such an idea, we must hold “that the democratic movement was essentially transitional.”[33]  Democracy is not an end in this view, but rather a movement that “marked the passage from feudal institutions to industrialism, and was coincident with the transfer of power from landed proprietors, allied to churchly authorities, to captains of industry.”[34]  Dewey explicitly rejects that the expert of any field be put into a position of explicit and non-democratic power because “[a] class of experts […] inevitably so removed from common interests” will “become a class with private interests and private knowledge, which in social matters is not knowledge at all.”[35]  These private interests would become the new vested interests and lead not to a utopia of ideal industrial production, but a system where power is invested in a localized minority who rule for limited ends and exclude the people as a whole.

            For Deweyan democracy, the means and ends of action cannot be dichotomized and treated separately.  The end-in-view of one action is the means of another and means themselves are ends of action with consequences and value.  Dewey holds that

[i]f there is one conclusion to which human experience unmistakably points it is that democratic ends demand democratic methods for their realization.  Authoritarian methods now offer themselves to us in new guises[…].  In whatever form they offer themselves, they owe their seductive power to their claim to serve ideal ends.[36]

 

Democracy must be the means as well as the end.  Utopian and radical changes, when these changes are without the consent of a democratic people, are incapable of achieving an end that is democratic.  While this might not pose a problem for Veblen, as he is not terribly interested in democracy, it does present a practical problem to the implication and end of his philosophy.

The expert, for Dewey, has a role, but not as explicit ruler.  Dewey uses a metaphor to describe his idea of the place of the expert.  “The man who wears the shoe knows best that it pinches and where it pinches, even if the expert shoemaker is the best judge of how the trouble is to be remedied.”[37]  Because, as Larry Hickman comments, “experts can be experts only if they are in close contact with the problematic situations concerning which they are putative experts,” the expert must be in contact and cooperation with the non-expert that lives the life the expert constructs or modifies.[38]  This precludes technocracy.  Rather, the role of the expert in Dewey’s vision of a society is that of the researcher and clarifier of facts, hypotheses, and the means and methods of bringing about resolution of experienced difficulties.  Hickman uses the example of the now abolished Office of Technology Assessment as an example of the vital but non-authoritarian role that engineers and technological experts should play in a Deweyan democracy.  This office aided legislators but did not explicitly make policy.  These technological experts provided their knowledge and expertise so that the democratically elected legislation “utilized the information provided, the scenarios developed, and the outcomes projected by those experts as the basis for the political judgments.”[39]  This argument’s assumption is that Dewey’s view on the educability of the public is the case, and not Veblen’s more pessimistic views.

While the Deweyan role of the expert in aiding democratic governance is not consistent with the view Veblen has of a “Soviet of Technicians,” it does answer much of his criticism of the business system as the sole interest of production.  Dewey’s thought provides a means to interject the advice and expertise of technicians and engineers without creating an aristocracy.  What this compromise allows is the retention of the criticism Veblen lays against business interests as saboteurs of industrial efficiency, but does not force us into the choice of technocracy or business-rule, both of which are autocratic.  The criticism of business as uninterested in production save as a means for the expansion of profit is an important observation and must be considered, this is Veblen’s strength.  There are important criticisms that can be taken from Veblen to understand the business system and its explicit goals.  Criticizing business in this fashion does not necessitate a loss of faith in democracy or the intelligence of humanity.


 

[1] Thorstein Veblen, The Engineers and the Price System (1921; New York: Harbinger, 1963) 42.  (Hereafter cited as Engineers.)

[2] Engineers, 45.

[3] Thorstein Veblen, The Theory of Business Enterprise (New York: Charles Scribner’s Sons, 1904) 25.  (Hereafter cited as Business Enterprise.)

[4] Ibid.

[5] Engineers, 38.

[6] Engineers, 42.

[7] Engineers, 41-42.

[8] Engineers, 49.

[9] Business Enterprise, 54.

[10] Ibid.

[11] Engineers, 112.

[12] Engineers, 115.

[13] Engineers, 113.

[14] Engineers, 112.

[15] Ibid.

[16] Business Enterprise, 55.

[17] Business Enterprise, 58.

[18] Engineers, 64.

[19] Business Enterprise, 29.

[20] Business Enterprise, 27.

[21] Robert L. Heilbroner, The Worldly Philosophers: The Lives, Times, and Idea of the Great Economic Thinkers, rev. 7th ed. (New York: Touchstone, 1999) 239-240.

[22] Engineers, 139.

[23] Ibid.

[24] Business Enterprise, 36.

[25] Engineers, 72

[26] Ibid.

[27] Heilbroner, 238.

[28] Rick Tilman, The Intellectual Legacy of Thorstein Veblen: Unresolved Issues (Westport, CT: Greenwood Press, 1996) 112.

[29] Tilman, 114.

[30] Tilman, 114.  (For example, the last chapter of The Theory of the Leisure Class is titled “The Higher Learning as an Expression of the Pecuniary Culture.”)

[31] Tilman, 118.

[32] John Dewey, The Public and Its Problems, The Later Works of John Dewey 1925-1953, vol. 2Ed. Jo Ann Boydston (Carbondale, IL: Southern Illinois University Press, 1988) 363.

[33] Ibid.

[34] Ibid.

[35] LW 2:364

[36] John Dewey, Freedom and Culture,The Later Works of John Dewey 1925-1953, vol. 13Ed. Jo Ann Boydston (Carbondale, IL: Southern Illinois University Press, 1991) 187.

[37] LW 2:364

[38] Larry Hickman, Philosophic Tools for Technological Culture: Putting Pragmatism to Work (Bloomington: Indiana University Press, 2001) 139.

[39] Hickman, 142.