The influence of Thorstein Veblen's Theory of Business Enterprise on the economic theories of Edward Chamberlin.

Author:Sawyer, Steven

Edward Chamberlin's Theory of Monopolistic Competition is one of the twin pillars (along with Joan Robinson's contribution) of what is today called "Industrial Organization." In addition to its impact on microeconomics, macroeconomics has over the last twenty years incorporated "monopoly power" into its "microfoundations," particularly as developed by the "new Keynesian approach" (Blanchard et al. 1989, 373-374). The purpose of this paper is to evaluate the apparent influence of Thorstein Veblen, particularly his Theory of Business Enterprise ([1904] 1975) on Edward Chamberlin's Theory of Monopolistic Competition (1933) and then to evaluate whether or not Chamberlin advanced Veblen's theory, as Chamberlin claimed. (1) Early in his book, Chamberlin quoted Veblen's Theory of Business Enterprise with reference to the pervasiveness of what Veblen referred to as the "monopoly element" (Chamberlin 1933, 5). Chamberlin's quoting of Veblen indicates a familiarity with Veblen's contribution to the analysis of "selling costs," as found in The Theory of Business Enterprise. In fact, the pages Chamberlin quoted are from the only chapter of Veblen's 1904 book that deals with this issue: chapter 3, "Business Enterprise." But was Chamberlin cognizant of Veblen's comprehensive approach to "selling costs" (2) which goes beyond just chapter 3 of Veblen's second book? Before this question is answered, the intricacies of Veblen's influence on Chamberlin, which were indirect as well as direct, will have to be scrutinized. This "influence" involves the interaction of three well-known early twentieth century economists: Richard T. Ely, Thorstein B. Veblen, and Allyn A. Young.

Chamberlin's book The Theory of Monopolistic Competition was a rewrite of his 1927 dissertation (Chamberlin 1933, vii). Allyn Young was Chamberlin's dissertation advisor. (3) Young was the chair of the Economics Department of Stanford University while Veblen was an associate professor there (Blitch 1995, 24). Young had endorsed Veblen for the job, had unsuccessfully recommended Veblen's promotion to professor, and, even after Veblen's dubious discharge from Stanford, had tried to recruit Veblen (and Wesley C. Mitchell) for the committee of experts assigned to "study the problems and lay the groundwork for the peace conference," that is, Versailles (65). (4) What is actually more telling than all of the above personal contact Young had with Veblen is the fact that Young criticized what he felt was the misplaced influence of Veblen on Mitchell (139). Young also criticized Veblen's characterization of "modern sciences" as concerning "themselves primarily with "unfolding sequences" and "cumulative causations" (158). These two criticisms, while certainly making it less likely that Young was an institutional economist, make it clear that Young had a good working knowledge of Veblen's ideas. Young, according to Chamberlin, "contributed greatly to such validity and clarity as the theory may have" (Chamberlin 1933, viii). Some have claimed more recently (Blitch 1985, 395-402) that Young's influence was quite substantial.

An interesting corollary to the Veblen-Young-Chamberlin chain of influence is Richard T. Ely, who was a professor of both Veblen (Dorfman 1934, 40) and Young (Blitch 1995, 8). It has been said that Ely was one of the earliest "institutional" economists (Rader 1976). Ely's role here is limited to two of his books: Outlines of Economics and Monopolies and Trusts. The 1908 edition of Ely's Outlines of Economics involved revisions made by Young (17). Charles P. Blitch has made the case (Blitch 1995) that many of Young's ideas can be found in editions of Ely's Outlines of Economics that involved Young as "reviser." In fact, Blitch has used passages that he's been able to trace to Young, using correspondences from Young to Mitchell and Ely, to show evidence that the seeds of many of Chamberlin's ideas came from Young (395). This paper is primarily focused on selling costs. The most extensive treatment of selling costs by Young can be found in the third revised edition ([1916] 1919) of Outlines of Economics in a section called "Competitive Investment," which is found in the chapter on "Interest." This section, which only runs about three pages, contains some of the passages Blitch used to prove his case that many of Young's ideas are embedded in Chamberlin's work. What is intriguing about this section is that Young appears to be paraphrasing the last fifteen pages of Veblen's chapter 3 (mentioned above) of his Theory of Business Enterprise. As can be seen in figure 1, the similarity of these sections is uncanny.

Figure 1. Young (in Ely's...

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