Veblen and the Origin of the Catching-Up Hypothesis
James M. Cypher

Roughly a half-century ago, before the dead hand of neoclassical economics swept the economics profession, Veblen’s contribution to development economics seems to have been more widely disseminated and acknowledged—and carefully interpreted—than it is today. This, at least, is the conclusion one would likely draw from essays by Morris Copeland, Douglas Dowd, Carter Goodrich, Allan Gruchy, and Myron Watkins published in Thorstein Veblen: A Critical Appraisal (Dowd, 1958). One of the prime characteristics of development economics as it has been practiced since WWII has been its emphasis on historical specificity. Veblen’s evolutionary economics centered first on the “historical relativity of economic truths” as being the only “scientifically valid” concepts, which had to be limited to “specific historical periods and to a specific culture or…cultures” (Copeland, 1958: 60). Second, economic analysis had to be embedded in a “sense of cultural perspective,” thereby dispensing with the pretentions of universality of neoclassical and much of classical economics (Copeland, 1958: 61). It would be difficult to locate two more prescient first principles guiding the methodology of development economics. In making these distinctions it is important to note Veblen’s exposure to and selective affinity for these key elements of the underlying ideas of the German Historical School (Dorfman, 1963; Reinert, 2005).

Gruchy argued that Veblen’s main concern was to supplement economics with a theory of growth, “which seeks to explain the long-term forces fostering or hindering the expansion of [a] nation’s total production” (Gruchy, 1958: 154 [italics added]).

Veblen’s growth theory is a theory of economic development because economic expansion leads to and causes institutions to metamorphose: quantitative accumulation is significant and worthy of serious analysis only because it engenders qualitative change. By deduction, the absence of adequate growth can be explained by the ability of the “kept classes” to abscond with most all of the national economic surplus, thereby destroying the possibility of investment. How to confront and displace the kept classes and thereby harness the hidden potential in peripheral nations is clearly an overriding theme of development economics. Veblen’s analysis of the harnessing of this potential centers on the ability of a society to successfully introduce scientific and technological advances, thereby giving rise to increasing returns as the surplus is invested in industrial activities. Increasing returns from the expanding manufacturing core spill over onto other sectors. Retarding habits of thought and behavior recede as long-run increasing returns, lowering production costs, proceed through a cumulative process. 5

Among the kept classes, which would roughly accord with the agro-mineral-export- financial oligarchy (and their underlings) in a developing nation, human proclivities such as conspicuous consumption are often dominant “dynastic privileges” (Watkins, 1958: 255). Among the underlying population the proclivities to 1) sustain the well-being of society, 2) excel in productive activities, and 3) use reason to build tools to solve social problems were thought to be closer to the surface. If a society can bring this constructive animus to the foreground and subordinate the predatory animus historically inculcated among the oligarchy—thereby changing the collective habits of thought and action—economic development can likely be achieved.

5 Institutional forces and factors, under the control of the kept classes, certainly can derail this process, since profit not progress is the moving force of the industrial system. The shortest route to quick profits may lead to monopolistic “sabotage” or “derangement” of technological progress. Veblen’s ideas of technological impacts under conditions of US monopoly capitalism in the late 19th and early 20th centuries are not the focus of this article.