Although almost all dimensions of Thorstein Veblen's analysis of modern capitalism have attracted adequate attention, his theory of business or market competition that lies in the heart of his understanding of modern capitalism has not received the interest it deserves. Even though there are attempts here and there, they do not provide us with a full picture of his conceptualization of business competition. This paper aims to elaborate on Veblen's theory of business or market competition. It is argued that he, in fact, developed a very sophisticated theory of dynamic business competition based on the idea that the economy is more than the market and as such it should be studied dynamically, holistically, and historically by primarily considering empirical phenomena instead of solely by focusing on a priori deductive mental exercises.
The first section of the paper elaborates on the foundations of Veblen's vision of the capitalist market economy. In the second section, his notion of "the state of industrial arts," which is the starting point in dissecting his two visions of competition, is explored. While the third and fourth sections elucidate his distinction between the two ideas of competition, the fifth section illustrates the working logic of competition in contemporary capitalism. His theory of competition is assessed in the final section by comparing it with other theories of competition to show the innovations he introduced. The overall conclusion is that he developed a very sophisticated theory of competition essential for analyzing contemporary capitalism.
Veblen's Vision of Capitalist Market Economy
Veblen's theory of competition attracted attention within the context of business cycles. Instead of treating it as a whole, those who were interested in Veblen's theory of business cycles discussed different aspects of his theory competition as long as they were useful for their purpose, while overlooking other dimensions (Bolbol and Lovewell 2001, 531-534; Raines and Leathers 1996, 146-150; Mouhammed 1994; Dillard 1987, 1628-1629; Dillard 1980, 262-263; Arrow 1975, 7-8; Sowell 1967, 186-187; Riesman 1953, 166; Anderson 1933). To come to the point, Veblen's theory of competition has attracted scant attention. The absence of any serious and systematic attempt to outline his theory of business competition has had serious consequences for critical institutional economics, resulting in the formation of a widespread judgment that "there is no institutionalist macroeconomic theory as such" (Peterson 1988, 170). Even some institutionalists have criticized him for not building any type of systematic theoretical framework at all (Hodgson 2001, 246). This is not a legitimate claim, given that Veblen left us with a very sophisticated, holistic, and dynamic understanding of modern capitalism to comprehend its essence by taking into account economic, political, social, and cultural dimensions together in an interrelated and historical way, as we will see below. The first step to see this is to start with his perspective of modern capitalism.
Veblen characterized the modern business situation as competitive. It is a system of pecuniary rivalry and contention because competition runs in terms of money. Thus, he, like Adam Smith, David Ricardo, Karl Marx, and Austrian economists, described market competition as a dynamic process of rivalry and contention, not a market structure (Veblen  1932, 218). The fundamental question to be answered for Veblen was: What is the main cause behind material scarcity? Is it just a material limitation or something else as well? He saw a clear link between competition and material scarcity. Accordingly, he developed an evolutionary theoretical framework that is aimed at examining "a cumulative sequence of economic institutions stated in terms of the process itself' (1898, 393). His ultimate goal was the construction of a set of the most effective institutions to overcome material scarcity (Anderson 1933, 620).
In line with his vision, Veblen distinguished between three economic ideal types that actually appeared in history with reference to traded items and the medium of trade. These were natural goods economy, money economy, and credit economy. The cardinal difference between the first two and the third is that trading under the former was only traffic in goods, meaning that people were exchanging goods and services for money without any profit objective; trading in capital, that is, buying and selling money and money-like commercial papers to make more money, was added under the latter regime ( 1932, 151-152). The most distinguishing feature of capitalism is investment for profit ( 1964, 70). He took the viewpoint of business people to understand modern capitalism: "A theory of the modern economic situation must be primarily a theory of business traffic, with its motives, aims, methods, and effects" ([19041 1932, 4). In short, Veblen attempted a unified holistic theory to understand the dynamics of capitalism. His concept of the state of industrial arts was the cornerstone of his theory in understanding the modern capitalist economy. The next step is to elaborate on his notion of the state of the industrial arts before explaining his two conceptions of competition.
The State of the Industrial Arts and Market Competition
The starting point in understanding Veblen's theory of market competition, similar to that of the theory of imperfect competition, is the state of the industrial arts. The state of the industrial arts determines the organizational structure of the market actors, methods of production, and structure of industries as well as relations between different sectors of the economy (Stanfield and Carroll 1997, 482). What does it mean then? "The state of the industrial arts is a joint stock knowledge derived from past experience, and is held and passed on as an indivisible possession of the community at large. It is the indispensable foundation of all productive industry, of course, but except for certain minute fragments covered by patent rights or trade secrets, this joint stock is no man's individual property" (Veblen  1933, 28). The concept, therefore, means the state of existing technology used in production that is produced by the society at large. It is, indeed, a collective property and a joint heritage of the community. This technology usually requires large material equipment to enable owners to derive a gain, even if the owners have not contributed anything to the technology or the state of the industrial arts (1917, 322). By and large, Veblen perceived the technology as a product of the whole society and hence part of it.
With sophisticated machine technology, the economy became like a biological body, consisting of interdependent parts and interlocking processes. First, there was a greater division of labor and standardization of output technologically from the eighteenth century until the mid nineteenth century. Industry that was established upon machine technology assured higher productivity (Veblen 1919, 88). The degree of interdependence between the parts of the modern industrial system and of interlocking processes was loosely concatenated because technology was not very complex or comprehensive. The new technological era started with the Industrial Revolution in the mid nineteenth century. It necessitated a larger unit of industrial equipment. Modern industry became comprehensive as well as close-knit as the processes concatenated and balanced with each other mechanically and with the increasing sophistication in machine technology and mechanization ( 1932, 25).
The developments in the state of industrial arts are the main factor behind two crucial developments. The first development was the birth of industrial corporations. Industrial corporations, or business enterprises, and "producing-sellers" became the two dominant actors on the market. The second major change was the separation of industry from business. Whereas the primary concern of industry is actual production, profit or pecuniary gain is the cardinal goal for business (Veblen  1964, 77). The deep structural transformations in the overall economy as well as the market actors had major implications for business competition in Veblen's vision of capitalist market economy. Accordingly, Veblen made a distinction between a period of free competition and an epoch of trusts and combinations; the higher development of machine processes had a deep impact on business or market competition. Each period corresponds to a specific time span. The period of free competition started in the eighteenth century and left its place to the era of trusts and combinations toward the end of the nineteenth century. The next step is to turn to his vision of competition in the first historical period.
By free competition, Veblen meant the absence of restrictions on trade and industry in the form of conventional state regulations. "In so far as trade and industry was not restrained by conventional regulations, statutory or customary, both trade and industry was in effect an open field of free competition, in which man met man on a somewhat equitable footing" (Veblen  1932, 270). Society consisted of masters (employers) or producing-sellers, creative workers, traders or "honest middlemen," and consumers. Veblen defined the traits of the society in the eighteenth century in the following way:
This eighteenth-century order of nature, in the name of which Adam Smith was in the habit of speaking, was conceived on lines of personal initiative and activity. It is an order of things in which men were conceived to be effectually equal in all those respects that are of any decided consequence-in intelligence, working capacity, initiative, opportunity, and personal worth. The creative factor engaged in industry was the workman, with his personal skill, dexterity and...