Veblen and the Origin of the Catching-Up Hypothesis
James M. Cypher*
Date submitted: February 10, 2011. Date accepted: September 26, 2011.

Development economics is understood as a postwar phenomenon without antecedents. Yet, Veblen’s contribution to development economics was once widely disseminated and acknowledged. Veblen’s evolutionary economics centered on historical, limited truths applicable to specific cultures. Veblen’s growth theory is a theory of economic development: quantitative accumulation is significant because it engenders qualitative change. Veblen’s analysis of the harnessing of the economic potential centers on the ability of a society to successfully introduce scientific and technological advances, giving rise to increasing returns as the surplus is invested in industrial activities. Veblen presented oblique comments and startling insights in a non-empirical manner.

Keywords:Veblen, technology, development economics, imperial Germany, opportunity of Japan.

Development economics shows little knowledge of the original contributions of Thorstein Veblen [1857-1929] to this field of study.2 In particular (and above all in Latin America), there has been a slow and inadequate acknowledgment of the potential power of Veblen’s fundamental ideas suggesting that some “backward” nations—without making sequential, long-term, prior investments—could leapfrog up the technological ladder: Veblen juxtaposed “the efficacy of borrowing” technological innovations and “the penalty for having been thrown into the lead” to simultaneously offer an explanation for Germany’s late 19th century industrial forward leap, and the onset of Britain’s relative stagnation (Veblen, 1915: 86; Veblen, 1948: 349, 375). While Veblen has been largely overlooked, there are some exceptions to be made, primarily among those working in the little-understood tradition of Institutional Economics. Thus, James Street argued that “[i]nstitutional development theory takes its primary roots from conceptions advanced by “…Thorstein Veblen and his intellectual successors…” (Street, 1987). The idea that Veblen originated or co-originated—with Alexander Gerschenkron—a developmental “catching-up” hypothesis seems now to be widely accepted (Abromovitz, 1986: 389, 401; Farberg and Gohindo, 2003: 9-13; Findlay, 1978: 2). Yet Gerschenkron, who is commonly credited with a unique view of the catching-up process in “backward” nations, makes but a singular reference to Veblen (Gershenkron, 1965c: 8).3 The tendency to conflate Veblen with Gerschenkron or to ignore him altogether has continued: the cutting-edge, twenty chapter collection, devoted to catching-up strategies and possibilities, Industrial Policy and Development: The Political Economy of Capabilities Accumulation, for example, prominently features Gerschenkron’s analysis and fails to make even a single reference to Veblen’s work (Cimoli, Dosi and Stiglitz, 2009: 24, 380, 382).

More than a century has passed since Veblen’s startlingly original ideas began to appear. The project of interpreting or reifying Veblen appears to be a function of time and circumstance: reversing the common chronological order, this chapter begins with a critical analysis of contemporary understandings of Veblen’s work within the context of a still-emerging literature on catching-up. The following section is devoted to mid-20th century attempts by US Institutional economists to interpret Veblen’s ideas regarding growth and development. The next section hues closely to Veblen’s original writings on these themes in an attempt to offer a representative summation of his ideas. From the above, a range of conclusions regarding Veblen’s contributions to development economics is presented in the final section.

* The author is a Professor-Researcher of Economics in the Doctoral Program in Development Studies at the Universidad Autónoma de Zacatecas in Zacatecas, Mexico. He would like to thank Doug Dowd, Huáscar Fialho Peessali and J. Ron Stanfield for their comments and suggestions. Email:

1 For example, Jomo K. S. recently edited Pioneers of Development Economics, with chapters dedicated to William Petty, Ricardo, List, Marx, Lenin, Marshall, Kalecki, Keynes, Kaldor and Keynes, Polanyi, Gerschenkron, Prebish and Lewis, and Singer (Jomo, K.S., 2005). Dominant in this period were the views of proponents of “reactive nationalism,” particularly those of Sun Yat-sen, whose ideas for Chinese development were composed in 1918, and M.G. Rande, an Indian proponent of Fredrich List whose publications on Indian development commenced in 1892 (Arndt, 1987: 16-19). British colonial administrators, particularly D. F. Lugard in his 1929 treatise on Britain’s “dual mandate” regarding the stabilization of imperial control through limited programs of native participation, nutrition and education, propounded a new model of legitimation (Arndt, 1987: 28; Cypher and Dietz, 2009: 206-7). Other contributing factors helping to raise awareness of the need for a separate development economics would include influential work conducted by specialists at the League of Nations and the International Labor Organization during the Interwar period that brought to the foreground critical empirical analyses demonstrating the extent of the variance of nutritional, educational and medical care levels between the industrialized nations and those of the underdeveloped regions (Arndt, 1987: 33-35). Finally, Russia’s revolution brought to the foreground contending views on development along with the more rigorously presented economic perspectives of Preobrazhensky and Bukharin, whose 1920s debate over the need for balanced vs. discontinuous growth helped set the course of industrialization for decades to come (Erlich, 1960; Gerschenkron, 1965a; 1965b).

2 The bulk of Gerschenkron’s well-known book Economic Backwardness in Historical Perspective (282 of 436 pages) is devoted to Russia and the thrust of his work pertains to Soviet economic development (Gerschenkron, 1965). From an Institutionalist perspective, given the extremely distinct nature of the institutional structure of the Soviet Union to any situation of backwardness that Veblen analyzed, and given that Gerschenkron did not utilize in any manner the methods or framework of institutional economics, it is a mistake to attempt to tie Veblen to his work in any way except the most superficial. Furthermore, Turner notes that Marx’s concept of the ‘Asiatic Mode of Production’ has failed to be applied to developing regions and is “riddled with theoretical problems” (Turner, 1983: 35).