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Veblen’s Institutional Evolutionary Theory in
the Context of the Concepts of Institution,
Instinct and Habit
1
Gülenay Baş Dinar
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Abstract: The concepts of instinct, institution, and habit constitute the foundation of
Veblen’s economic analysis. Veblen makes his evaluations on institutional evolutionary
process over these concepts. This study analyzes the roles of these concepts in the
theory of Veblen’s institutional evolution, and argues that Veblen’s theory brings a new
perspective to the discussions in the literature on the role of the individual in the
process of social and institutional evolution, especially to the approach called “New
Economic Sociology”.
Keywords: Institution, instinct, habit, Veblen, institutional evolution, new economic
sociology.
This article is based on the PhD dissertation “The Instability of Capitalism: Veblen, Keynes, and Minsky”.
Assoc. Prof., Abant İzzet Baysal University, Faculty of Economics and Administrative Sciences, Department
of Economics, 14280, Gölköy Campus/Bolu/Turkey.
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Review of Public Administration, Volume 7, Issue 4, December 2013, p.29-50.
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Review of Public Administration, Volume 7 Issue 4, December 2013, p.29-50.
Introduction
The question of whether the society or the individual is more decisive in the
society-individual relationship has become the subject of important debates in
both sociology and economic theories. In this framework, in economy, this
issue is discussed rather in the context of the society and the individual, while in
sociology, it is debated in the context of the structure/agency dilemma. The
origin of these debates dates back to Durkheim, who emphasized the
constraining impacts of social realities on individuals’ actions. Durkheim
argued that society had priority over the human as individual. In this point of
view, society is considered a phenomenon beyond individual actions. According
to Durkheim, social institutions come before the existence of any individual.
Although Durkheim’s thesis that ignores the impact of individual action is
accepted by a significant group of followers, it has also become the subject of
serious criticisms. The most important of these criticisms is that when
considered separately, society can be outside the individuals; but it is considered
along with individuals, social world cannot exist outside the individual. In this
context, even though the things Durkheim call “social phenomenon” constrain
the individuals’ actions, they cannot determine them. According to Giddens, the
individuals not only maintain their existence in society in a passive manner, but
also change the social structure, which constrains them by their choices
(Giddens, 2008: 143-144).
According to this view, although there is an order in the behavior pattern of
the individuals within the social structure and a power of sanction that emerges
due to this order, the social structure cannot be approached as a physical
structure like a building that exists independent of human conduct (Başak,
2003: 151).
Another group of debates over this mutual relationship between institutions
and individual action is based on Mark Granovetter’s article of 1985,
“Economic Action and Social Structure: The Problem of Embeddedness”. In his
article, Granovetter points out that there are two theories at extreme ends that
explain the relationship between human behavior and institutions. A group of
these theories addresses the action theory as an “oversocialized”2 manner. There
is a concept of an oversocialized human action particularly in the field of
sociology. Approaching to human action in such way considers the individual
as a being entirely shaped by society, and thus, leaves him outside the economic
The concept of “oversocialized human” was first coined in Dennis Wrong’s article, “The Oversocialized
Conception of Man in Modern Sociology” (1992). In his article, Wrong complains that sociologists assume
that the individuals automatically obey the ideas of other people and the existing norms and behavior.
According to Granovetter (1992), this oversocialized view arises from the attempt to compensate the
ignorance of social impacts in the utilitarian tradition.
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field. In the undersocialized3 action theories, the individual is accepted as an
atomized, and isolated being independent of society. In this case, human action
is explained wholly by the economic field.
In his article, Mark Granovetter uses the concept of “embeddedness”, which
was previously used by Polanyi, and argues that the economic sphere is
embedded in social, cultural, and political processes. Economic action
incorporates not only economic elements, but also non-economic ones. With the
concept of “embeddedness”, Granovetter has contributed to the debates of
“New Economic Sociology” that has emerged in the 1980s, and points out that
his views are among the theories, which he call under-socialized and
oversocialized. Granovetter, in his article of 1992,“Economic Institutions as
Social Constructions: A Framework for Analysis”, uses the concept of
embedded, and argues that “new economic sociology” can be constructed on the
basis of three sociological assumptions. First, economic goals are accompanied
by non-economic ones. In other words, economic action is embedded in the
network of social relations network (Yılmaz, 2012: 12). Second, economic
action is socially situated, and thus, cannot be explained by individual motives
alone. Third, economic institutions are socially built (Granovetter, 1992: 4).
As in Granovetter or Giddens, Veblen’s institutional evolution theory argues
that the human is neither a social being, whose actions are determined by
society, nor is an individual being acting on his own motives In brief, Veblen
addresses the economic decision-making units neither independent of the social
structure, nor he accepts that human action is totally determined by the social
structure. Thus, Veblen conceptualizes the human as an active element, who
determines the social structure, which he lives in, and at the same time, who is
determined by the institutional structure. In this respect, it brings a concrete and
realistic nature to these two extreme theorems debated in the literature and to
the structure-action relationship.
This aspect of Veblen’s institutional evolution theory comes out with the
central importance he attaches to the concepts of institution, instinct, and habit
in his analysis. By the term “instinct”, he refers to the human’s inherent
instinctual tendencies, while by the concepts of institution and habit; he points
to the human’s aspects shaped by the social structure. In this study, the role of
these concepts in Veblen’s theoretical evolution theory will be scrutinized, and
it will be argued that Veblen’s theory can provide a new perspective to the
discussion on the individual’s role in the social and institutional evolution
process in the literature, particularly to the approach called “New Economic
Sociology”.
3
Most of the utilitarian tradition, human conduct in classical and neoclassical economy are among its
examples.
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Fundamental Concepts of Veblen’s Economic Analysis:
Institutions, Motives and Habits
The most important of concepts that constitute the basis of Veblen’s economic
analysis is undoubtedly the concept of institution. Veblen defined institution as
“generally accepted habits of thought and behavior (Veblen, 1973 (1898):
133)4. In this sense, in Veblen’s analysis, institutions reflect the whole of habits
of thought inherited from the past, and are addressed as a major element that
mold the tendencies, preferences and values of individuals (Rutherford, 2001:
174).
Veblen’s definition of institution also encompasses the concept of habit,
another prevailing concept in his analysis. In this context, this definition of
institution requires a group of people engaged in a common activity for the
emergence and survival of an institution. Besides, these common activities
should be continuously repeated, and should turn into habit or rule within the
society. Here, the action of habit performs the function of identifying how
people tend to think and behave first, at the individual level and then, at the
collective level. In this respect, habits of thought come out as an outcome of
habits relating to the social life. Lastly, it is pointed out that the relevant habits
or rules should reflect common perspective about what will be accepted as good
or bad in the society (Neale, 1988: 227-256).
Veblen thinks that institutions do not have necessary functions to promote
the social benefit, as they reflect the habits of thought of the past. The reason
that according to Veblen, institutions display conservative and inert
characteristics. Therefore, they tend to fail to keep pace with new technological
means as well as with the economic issues and social problems they generated
In this context, Veblen qualifies the existing legal and social institutions of
America as outdated and inadequate to the task of meeting the requirements of
modern large-scale industry of the present day (Rutherford, 2001: 175). In this
respect, Veblen regards institutions static, retroactive, and change-resistant
structures (Rutherford, 1984: 331).5 It can be said based on these explanations
According to Gürkan (2007: 241-242), “habits of thought can be defined as social consciousness, which
arises from traditional social experiences, whose legitimacy are not questioned and which get stricter in
time, and which determines the individuals’ way of thinking, behavior and their attitude towards incidents”.
5
Leisure class plays major role in the conservatism of institutions. According to Veblen, leisure class hinders
cultural development first by the inertia peculiar to the class itself, and secondly, through its example of
conspicuous waste and of conservatism, and indirectly, through causing unequal distribution of wealth and
sustenance. In this respect, leisure class continuously plays role in retarding the adaptation to this
environment, which is called social development. The institution of a leisure class, by force or class interest
and instinct, and by precept and prescriptive example, ensures the maintenance of the existing
maladjustment of institutions. The leisure class not only delays the development of society, but also
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that in his analysis, Veblen lays emphasis rather on the repressive and
constraining characteristics of institutions.
For Veblen, desires, goals, and activities of the individual are determined by
highly complex institutional structure. Here, the existing institutional structure
shapes and at the same time, restricts the activities of individuals. Likewise, the
individual is able to change the institutional structure via generating new social
habits. In this process, along with traditions and laws, human nature, too,
undergoes significant changes. In other words, the changed habits not only
change human behavior, but also lead certain changes in human nature (Veblen,
1973 (1899): 146).
Another concept that constitutes the basis of Veblen’s analysis is the concept
of instinct. In Veblen’s analysis, instinct is the fundamental element that guides
human behavior.6 Human instincts determine human conduct and behavior, and
accordingly, the habits of thought and institutions of society. However, although
Veblen says that instincts of the individual have major role in determining
institutions, he opposes the idea that institutions emerge merely based on these
instincts.
Veblen expresses this thought of his as follows:
“In economic life, as in other lines of human conduct, habitual modes of activity and
relations have grown up and have by convention settled into a fabric of institutions
These institutions, and the usual concepts involved in them, have a prescriptive,
habitual force of their own, although it is not necessary at every move to ravel out
and verify the intricate web of precedents, accidents, compromises, indiscretions,
and appetites, out of which in the course of centuries the current cultural situation
has arisen. If the contrary were true, if men universally acted not on the
conventional grounds and values afforded by the fabric of institutions, but solely
and directly on the grounds and values afforded by the unconventionalised
propensities and aptitudes of hereditary human nature, then there would be no
institutions and no culture. But the institutional structure of society subsists and men
live within its lines” (Veblen, 1954 (1934): 143).
According to Veblen, there are two sorts of instinct in man. One of them is
enduring instincts peculiar to human nature, which express the essence of man.
Veblen also mentions about instincts referring to individual activities, which are
a sub-product of natural instincts of man, and which can change according to
6
sometimes pioneers its development. However, this is usually possible only if social development does not
lead to a change in economic institutions (Veblen, 1973 (1899): 141).
Veblen’s comprehension of instincts as major factors that determine should not be interpreted that he
approached to human behavior, which can be interpreted as biological reductionism. Veblen did not argue
that human nature was predetermined by instincts alone (Dugger, 1984: 978). Mayberry (1969) stated that
Veblen’s goal was not to make empirical or analytical generalizations by basing his statements about human
nature on instincts. His aim was to build a conceptual framework for the interpretation of institutional
evolution (Mayberry, 1969: 318).
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time and space. This instinct constitutes the basis for people’s having different
lifestyles and habits of thought. Veblen explains it by the concept of cultural
relativity. In this context, instints such as workman ship instinct, idle curiosity
instinct and parental bentare incorporated in human nature, and by presenting
continuity, determine the institutions of society.Such instincts exist in every
human. However, the consequences of these instincts are determined by cultural
environment. Although Veblen states there are many instincts that guide human
behavior, in his analyses, he focuses on instincts that determine the institutions
of society. Thus, the concept of cultural relativity coined by Veblen shows why
the institutional environment that surrounds the individual diversifies in terms
of time and space. In this context, just as instincts are the main essence that
makes human a human, culture is accepted as the essence of institutions. This
can be considered as an explanation of different levels of development in
different societies. Different levels of development in different societies stem
from the fact that individuals live in different cultural environments. The
instinctive reactions given by the individuals existing in different cultural
environments will differ, and accordingly, they develop different habits of
thought. Thus, such an explanation assigns an active role to both instinctive
tendencies of man and the cultural environment he lives in (Özçelik, 2007: 225226).
Here, cultural instincts are the reflections of institutional environment, while
instinctive reactions are those of human conduct. Cultural instincts or
institutional powers produce a cluster of specific individual activities. This
cluster of specific individual activities creates certain habits of thought, which
are generally accepted as new institutions at societal level. New institutions
mean new cultural instincts, and new cultural instincts cause new instinctive
reactions; this goes on like this (Özçelik, 2007: 227). Therefore, here, Veblen
says that as a social being, man forms institutions, and at the same time, is
formed through institutions, and conceptualizes institutions and the institutional
evolution based on mutual and cumulative causation.7
“Like all human culture this material civilization is a scheme of institutions —
institutional fabric and institutional growth. But institutions are an outgrowth of
habit. The growth of culture is a cumulative sequence of habituation, and the ways
and means of it are the habitual response of human nature to exigencies that vary
incontinently, cumulatively, but with something of a consistent sequence in the
cumulative variations that so go forward, — incontinently, because each new move
Veblen’s approach to institutional evolution as mutual and cumulative causation is very closely related with
Veblen’s understanding of science. Veblen, with his principle of mutual and cumulative causation, points
out that economics must be the theory of a process. This is what Veblen implies with scientificity.
According to Harris (1953), the Veblen economics cannot totally be reduced to a mechanical or behavioral
science (Harris, 1953: 30).
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Veblen’s Institutional Evolutionary Theory in the Context of the Concepts of Institution…
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creates a new situation which induces a further new variation in the habitual
manner of response; cumulatively, because each new situation is a variation of what
has gone before it and embodies as causal factors all that has been effected by what
went before; consistently, because the underlying traits of human nature
(propensities, aptitudes, and what not) by force of which the response takes place,
and on the ground of which the habituation takes effect, remain substantially
unchanged” (Veblen, 1909: 628).
According to Hodgson (1988), the interaction between the individual and the
institution put forth above, that is to say, cultural and institutional
environment’s determination of goals and activities of the individual and at the
same time, their influence on the structure of society, which the individual lives
in, is a matter that should absolutely be considered in an actual evolutionary
analysis.
Veblen’s analysis can be defined as some kind of behavioral economics due
its addressing human behavior and habits in economic analysis. In this
framework, Veblen’s behavioral economics presents an approach based on the
intersection of human nature, institutions, and technology. Human behavior is
determined by a set of natural tendencies innate in the nature of a person and the
habits, which he or she acquires within the society. The human’s way of
thinking and habits, too, change over time depending on these habits. The
driving force behind the change in habits is the change in the physical power of
the society, i.e. technology (Stabile, 2005: 56).
The Emergence and Role of Institutions
In Veblen’s economic analysis, both the individual and the existing institutional
structure have major role in the emergence of institutions. Therefore, for
Veblen, neither the individual, nor the existing institutional structure alone is
adequate the emergence of institutions. In other words, the activities of
individuals cannot provide the emergence of institutions without a specific
institutional environment. Likewise, without the activities of the individual, a
specific institutional environment remains inadequate in bringing out
institutions. Thus, in this sense, Veblen thinks that individuals and institutions
are in a mutual interaction. By such an analysis, Veblen, based on the principles
of mutual and cumulative causation, considers the individual as a being, who
influences the formation of institutions and who, at the same time, is influenced
by the existing institutional structure.
In this respect, it can be said that Veblen’s economic analysis lays emphasis
on both the rational and socially conditioned aspects of individuals’ behaviors.
Veblen opposes the consideration of the individual as a rational and hedonistic
being, who is in pursuit of optimization and who continuously calculates benefit
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and loss. For Veblen, the individual is a social being, and he is constrained and
shaped by his social environment. However, at this point, Veblen does not
exclude rational aspects of individuals (Baş Dinar, 2011a: 105).Veblen lays
emphasis on intentional and goal-directed characteristics of the individual
behavior, and accepts that individuals use their intelligence in order to find the
best ways to attain their goals. For Veblen, although individuals do not pursue
maximization, they set their habits and routines so as to produce better
alternatives over time. According to Veblen, individuals are conditioned by
their social and economic surroundings within certain patterns of thought
(Rutherford, 1995: 448-449). Thus, in Veblen’s analysis, the individual is
addressed as both a rational and social being.
As an extension of such a perception of the individual, in Veblen’s economic
analysis, the conception of “habit” emerges as a key concept describing the
formation and sustenance of institutions. Here, what the concept of habit means
is extremely important. According to Hodgson (1998), habits form part of
cognitive abilities of individuals. In addition, these cognitive abilities are
learned within the existing institutional structures. When habits become a
common part of a group or social structure, they transform into routines or
customs. The concept of habit refers to “established ‘habits of thought’ in a
society”. These habits of thought are usually incorporated in main institutions of
the society and they reflect the society’s opinion of what is wrong or right.
Although habits of thought are incorporated in the institutions of the society,
they are not of stable or inertia nature. With the actions of the individual, habits
of thought change in time, and begin to conflict with the existing institutions of
the society. The prevalence of such habits of thought exert a strong pressure
towards change in institutions, and a result of, social institutions change in the
course of time.
In brief, in Veblen’s economic analysis, institutions are formed by habits of
thoughts conveyed from the past. Hence, the actions of the individual are
shaped by institutional structures that are molded by habits. Likewise,
individual, with his or her actions, molds institutional structures. The said
interaction provides stability in institutions and social structure. According to
Hodgson, institutions provide a cognitive framework that would ensure the
transformation of the existing habits in a society into useful knowledge. The
individuals, by using this cognitive framework, have the opportunity to foresee
the outcomes and impacts of their actions. Thus, in the guide of prevalent habits
of thought accepted by the society, they, by ensuring the spread of behaviors
that are considered good in the society and the restriction of those that are
regarded as unacceptable by the society, serve as mediator and conciliator in the
social system (Hodgson, 1998: 171-180). Moreover, institutions ensure the
Veblen’s Institutional Evolutionary Theory in the Context of the Concepts of Institution…
37
transfer of skills, techniques, and habits of thought to the next generations. In
this context, institutions constitute the foundation of the technological
development that will create the physical conditions of the society.
The relationship between the individuals and institutions in Veblen’s
economic analysis can be explained by the help of the following figure. Figure 1
shows “action” and “knowledge” as to the two factors that provide the
interaction between the individuals and institutions. Thus, habits in a society
spread via the individuals’ imitation or emulation of certain behaviors, which
thus leads to the emergence of institutions. Institutions develop behaviors and
habits, and help transmit them to new members of the society. Hence,
institutions are formed by the actions of individuals, and in return, they mold
the actions of individuals (Hodgson, 1998:180).
Figure 1.The Interaction Between Institutions and the Individual
Source: (Hodgson, 1998: 176)
Hence, such a conceptualization of institution does not definitely exclude
individual action. For Veblen, desires, goals, and activities of the individual are
determined by highly complex institutional structure. Here, the existing
institutional structure shapes and at the same time, restricts the activities of
individuals (see: Dugger, 1984: 981). Likewise, the individual is able to change
the institutional structure via generating new social habits. In this process, along
with traditions and laws, human nature, too, undergoes significant changes. In
other words, the changed habits not only change human behavior, but also lead
certain changes in human nature (Veblen, 1973 (1899): 146). In this respect,
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Veblen considers the individual from both sociological and biological
perspective (Cordes, 2005: 2).
The Process of Institutional Evolution in Veblen’s
Economic Analysis
Veblen explains the process of institutional evolution based on a Darwinian
selection theory. The Darwinian selection theory8 suggests that in the evolution
of social structure, the most appropriate and efficient habits of thought (and
thus, institutions) will be selected, and these will replace the institutions with
lower quality. Accordingly, Veblen defines social evolution as “a process of
selective adaptation of temperament and habits of thought under the stress of
the circumstances of associated life.” Thus, when a particular tendency or
viewpoint is socially accredited, it will shape the habits of thought of society, it
will guide the tendencies and desires of individuals. Those who do not comply
with the methods required by the accepted order will be excluded from society
(Veblen, 1973 (1899): 130-131).
It is possible to assert based on these explanations that in Veblen’s analysis,
the driving force of institutional evolution is the change in the habits of thought
of society. The change in the habits of thought stems from the fact that man is in
a struggle of survival in social life like all other living beings, and as an
outcome of this struggle for survival, he constantly endeavors to adapt to the
environment. As an outcome of these efforts, material conditions of society
changes, and this leads to change in the habits of thought and thus, institutions
and society (Baş Dinar, 2011c: 108). Therefore, here it is stated that the changes
in the institutional structure can be achieved only by the pressure of
technological development. In this sense, Veblen uses the idea of technological
development in a broad sense so as to lead to new habits of thought and new
ways of thinking.9
In the institutional economic analysis, institutional evolution occurs as a
consequence of mutual and cumulative causation between the individual and the
institution. Therefore, in Veblen’s works, the phenomenon of mutual and
cumulative causation is of great importance in understanding institutional
evolution. For Veblen, mutual and cumulative causation connotes that the
existing institutions and social norms are incorporated in human behaviors and
it means that prevailing habits of thought in the society and the motive system
For the place and importance of Darwin’s evolution theory in Veblen’s economic analysis, see: Jennings and
Waller (1998); Hodgson (2003); Hodgson (2004a); Hodgson (2004b), Hodgson (2008), Baş Dinar (2011a).
9
Rutherford (1984) says, although the idea of dynamic institutional change caused by technological change is
important in Veblen’s analysis, such an analysis does not denote ignoring other major elements in Veblen’s
analysis. Rutherford, in this article, studies different processes that constitute Veblen’s evolutionary change
system.
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39
affect the speed and direction of technological knowledge. Thus, in Veblen’s
analysis, changes in the main direction of life lead to changes in institutions and
cultural norms (Rutherford, 1995: 447). In other words, changes in institution
and social norms occur as an outcome of a cumulative array of habits. The
reason is that each new situation is the result of a preceding change, and they
incorporate all causal factors affected previously. Veblen states that technology,
which is the major factor lying behind the process of institutional evolution,
likewise occurs in a cumulative process. Thus, Veblen defines technology as a
joint stock of knowledge derived from experience, a joint effort (Veblen, 1990
(1914): 103).
Veblen explicitly expressed his views on the institutional theory in his book,
“The Theory of the Leisure Class”, which he wrote in 1889. In this work,
Veblen describes how the habits of thought of the society–i.e. institutions–have
changed and evolved from the primitive society phase until the phase of modern
capitalist society.
To this end, Veblen divided the Western history into four successive eras.
These are the savagery peaceable economy of the Neolithic era (peaceable era),
the predatory barbarian economy, where ownership, belligerence, male
supremacy and the leisure class emerged (the barbarian era), the pre-modern
times in the form of handicraft economy (handicraft era), and modern era,
which is determined by machinery factory production (machine era). According
to Veblen, the basic element that determines these phases is their different
levels of technology. In this respect, in Veblen’s analysis, technology is the
main element that determines social and institutional evolution (Veblen, 1973
(1899): 32).
Veblen says that at the peaceable, savage phase, when social development,
which is a peaceable stage, was at primitive level, societies were comprised of
small groups, and generally displayed peaceable characteristics. The reason is
that since in such a society, the individual ownership was not developed yet,
dynamic that would push into competition, and thus, to the conflict people were
few in number. The basic characteristics of such a society can be said to be
efficiency and productivity. Here, productivity and efficiency were associated
with whether or not people provide benefit to the society by their activities. To
work in such a society was considered a virtuous behavior (Veblen, 1973
(1899): 30).
With the transition of the society from the peaceable phase to the barbarian
and predatory phase, now the society began to lose its peaceable nature due to
the domination of competition, and “competence” and “competition” came to
the prominence as the distinguishing characteristic of the human. In that phase,
things people gained by fighting and struggling began to be considered
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valuable, while things gained by hard-working were regarded as worthless
achievements (Veblen, 1973 (1899): 30-31).
Veblen says that this development in the institutional evolution, that is to
say, the shift from a peaceable society to a barbarian and predatory one made
plunder a general habit and an approved mental attitude for the group members;
thus, the habits of thought of society changed in favor of such a society
(Veblen, 1973 (1899): 32). The change in institutions and habit of thoughts of
society occurs as a result of need and pressure exerted byte social structure lived
in. According to Veblen, the society’s capacity to change depends on to what
degree the members of the society are subjected to the restricting forces of the
environment.10 Thus, in Veblen’s analysis, the main factor that that leads the
institutions to change is material requirements. Although Veblen says that the
habits of thoughts of the society change in the process of institutional evolution,
he also emphasizes that this change is never easy, and it takes a long time. For
Veblen, the difficulties in change stems from the fact that people instinctively
fear and avoid there-adaptation process entailed by change (Veblen, 1973
(1899): 139).
Veblen says that in the barbarian society, women traditionally served in the
fields, which the industrial occupations would develop in the subsequent
periods; these tasks were considered vulgar and dirty works, and thus, men were
exempt from such types of work. Hence, the origin of today’s leisure11 class is
based on this distinction in the barbarian era. In the barbarian society, the
occupation of the man ensures the continuity of the group, while the occupation
of the woman is regarded as simple, and it is underestimated.12 In the barbarian
phase, the distinction that emerged as “the occupation that required prowess and
courage” and “heavy and boring occupation” constitutes the division of labor as
industrial and non-industrial occupation in the contemporary capitalism
(Veblen, 1973 (1899): 25).
Veblen categorizes people with “non-industrial occupations” as “the leisure
class”, and asserts that the leisure class has emerged with the transition of
humanity from the peaceable phase to the predatory phase. According to
According to Veblen, leisure class’s degree of being influenced by the powers that require institutions’’
readjustment is low. That is to say, the leisure class does not need to struggle for the means of life as much
as other classes of the society. Thus, this class shows conservative features. Moreover, the leisure clashes
great interests in the maintenance of existing institutional structure or social order. This is one of the major
reasons for the conservative attitude of the leisure class. For Veblen, the task of the leisure class in social
evolution is to retard the movement, and to preserve what is obsolescent (Veblen, 1973 (1899): 137).
11
Here, Veblen does not use the term, “leisure” in the meaning of “laziness” or “inertia”; he tries to imply
“unproductive consumption” with these concepts.
12
Veblen, with these ideas, not only demonstrates how the society and institutions evolve, but also explains the
evolution of the woman’s place in the social system, and thus, greatly contributes to the comprehension of
the woman’s present status in the society.
10
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41
Veblen, the emergence of the leisure class coincided with the emergence of the
private property institution, and these two institutions are different forms of
realities of the same social structure (Veblen, 1973 (1899): 33). Therefore,
Veblen investigated the origins of these two institutions in order to understand
capitalism, and to this end, conducted an anthropological study. For Veblen, the
private property institution is approached as an element that represents the yield
of the property ownership’s efficient labor in the classical theory of natural
rights. Veblen opposes to the consideration of production as an individual
activity by classical economists in this process as well. According to Veblen,
production is the outcome of a social process. Veblen explains this view of his
in his study called “The Beginning of Ownership” as follows (Veblen, 1954
(1934): 33-34):
“This natural-rights theory of property makes the creative effort of an isolated,
self-sufficing individual the basis of the ownership vested in him. In so doing it
overlooks the fact that there is no isolated, self-sufficing individual. All
production is, in fact, a production in and by the help of the community, and all
wealth is such only in society. Within the human period of the race development,
it is safe to say, no individual has fallen into industrial isolation, so as to
produce any one useful article by his own independent effort alone. Even where
there is no mechanical co-operation, men are always guided by the experience of
others... Production takes place only in society-only through the co-operation of
an industrial community…There can be no production without technical
knowledge; hence no accumulation and no wealth to be owned, in severalty or
otherwise. And there is no technical knowledge apart from an industrial
community. Since there is no individual production and no individual
productivity, the natural-rights preconception that ownership rests on the
individually productive labor of the owner reduces itself to absurdity, even under
the logic of its own assumptions.”
In Veblen’s analysis, production is a social phenomenon and against it,
private property is individual. This manifests a struggle in the society. In this
sense, production, which is a social activity conducted for social benefit in
modern capitalism is controlled by individuals, whose in pursuit of commercial
profit, and property owners “who does not personally manage the business they
own”(absentee ownership)”.
Veblen states that the machine era that represent modern age, is the last of
social phase, which the Western world has developed to utilize the institutional
and social evolution it has undergone. According to Veblen, this era was
realized as a consequence of a number of technical and institutional
developments at the end of the 18th century, and it led to major social and
institutional transformations. The mechanical inventions that took place in this
era radically transformed the organization of production, and caused significant
changes in the habits of thoughts of engineers, workers, and technicians. As a
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result of this transformation, industrial production, industrial processes, and
industrial products in modern culture became the main elements that directed
daily actions of people, that is to say, that determine people’ habits of thought.
It is possible to explain through the Figure 2. below how the process of
institutional evolution works in Veblen’s analysis. As seen in Figure 2., Veblen
explains the source of the process of institutional evolution by the concept of
instinct.13 In this framework, Veblen argues that instincts inherent in human
nature determine the direction and speed of the process of institutional
evolution, and divides these instincts into two as “peaceable instincts” and
“predatory instincts”. According to Veblen, “peaceable instincts” refer to
behavioral tendencies of the human towards improving the material living
conditions. “Predatory instincts” are behavioral tendencies of the human to
preserve his existing habits of thought, and thus, to resist to the process of
institutional process. Hence, in Veblen’s analysis, while “peaceable instincts”
are the source of new institutions that will ensure the transformation of the
society, “predatory instincts” are comprised of instincts that want the
maintenance of old institutions incorporating old habits of thought. However,
Veblen does not see predatory instincts as the fundamental characteristic of
mankind; he asserts that these characteristics appeared during the transition
from the primitive savage society to the barbarian phase (Veblen, 1973 (1899):
24). Thus, Veblen believes that in historical terms, peaceable instincts precede
predatory instincts, and are more important than they are.
Then, Veblen divided the peaceable instincts into three groups as parental
bent, idle curiosity and the instinct of workmanship. “Parental bent” is based on
social solidarity and sharing of the produced products, and constitutes the
foundation of social and family welfare. “Idle curiosity” is part of the instinct of
workmanship and parental bent, and shows the human’s pursuit of scientific
knowledge. “The instinct of workmanship”, to which Veblen gives the utmost
importance, refers to that the human considers production, endurance, and
efficiency as virtue, whereas he sees futility, incompetence, and inefficiency as
defect. This instinct is the basis for the success and competitiveness of people.
For Veblen, the instinct of workmanship is also a source of technological
development that lies behind social and institutional evolution. The reason is
that according to Veblen, production is a social activity, and is evoked by the
instinct of workmanship. Therefore, for Veblen, workmanship, as a competitive
show of strength, is the primary instinct that ensures increase in production and
efficiency (Veblen, 1973 (1899): 29-30).
13
Although Veblen attributes the evolution process to the instincts inherent in human nature, he does not
overlook rational aspects of individuals, and thus, he also places emphasis on intentional and goal-directed
characteristics of individuals. In this context, the role of instincts in the process of institutional evolution
should be evaluated in view of the explanations on the concept of instinct provided in the previous section.
Veblen’s Institutional Evolutionary Theory in the Context of the Concepts of Institution…
43
Veblen describes the place of the instinct of workmanship in human life in
his book, “The Instinct of Workmanship and the Irksomeness of Labor “as
follows:
“Obscurely and persistently, throughout the history of human culture, the great
body of people have almost everywhere, in their everyday life, been at work to turn
things to human use. The proximate aim of all industrial improvement has been the
better performance of some workmanlike task” (Veblen, 1954 (1934): 84).
Figure 2. The Process of Institutional Process in Veblen’s Analysis
The consideration of the instinct of workmanship as a competitive show of
strength and a source of technological development by Veblen indicates that
this instinct is addressed as a dynamic element that compels the institutional
structure to change.
As in the primitive savage era, the technological level of the society did not
yet allow for its adequate nourishment and survival, in this era, the instinct of
workmanship prevailed in human activities. Individuals had to be engaged in
industrial activities to survive. In the predatory phase, the technological
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development increased efficiency, and brought the production to a level that
would ensure the livelihood of a non-working leisure class. With the transition
to a peaceable society to a predatory society, the instinct of workmanship began
to be counteracted by the predatory instincts. As a result of this, in the predatory
phase, when private property emerged, workmanship-associated old values were
depreciated to be replaced by new values dominated by plunder:
“As the predatory culture reaches a fuller development, there comes a distinction
between employments. The tradition of prowess, as the virtue par excellence, gains in
scope and consistency until prowess comes near being recognized as the sole virtue.
Those employments alone are then worthy and reputable which involve the exercise of
this virtue. Other employments, in which men are occupied with tamely shaping inert
materials to human use, become unworthy and end with becoming debasing. The
honorable man must not only show capacity for predatory exploit, but he must also
avoid entanglement with the occupations that do not involve exploit. The tame
employments, those that involve no obvious destruction of life and no spectacular
coercion of refractory antagonists, fall into disrepute and are relegated to those
members of the community who are defective in predatory capacity; that is to say, those
who are lacking in massiveness, agility, or ferocity. Occupation in these employments
argues that the person so occupied falls short of that decent modicum of prowess which
would entitle him to be graded as a man in good standing...Therefore, the able-bodied
barbarian of the predatory culture, who is at all mindful of his good name, severely
leaves all uneventful drudgery to the women and minors of the group. He puts in his
time in the manly arts of war and devotes his talents to devising ways and means of
disturbing the peace. That way lies honor” (Veblen, 1954 (1934): 93-94).
The distinction of “heavy and boring employments” and “employments
requiring prowess and courage” that emerged in the predatory phase manifests
itself as industrial employments and non-industrial employments in the machine
era. Veblen, by industrial employments, implies the activities of workers,
laborers, operators, and technicians, who emerged as an outcome of the instinct
of workmanship, for increasing the material welfare of the society and
production, and the machine process. He qualifies the activities of property
owners, investors, bosses, employers, entrepreneurs and businessmen, which are
not directly related with material production, instead, which are performed in
order to obtain financial gains and to exploit people as “pecuniary
employments” or “business enterprise”. For Veblen, this distinction constitutes
the foundation of the institutional structure of modern capitalist civilization. In
this sense, Veblen states that the industrial activity incorporate dynamic
characteristics, while non-industrial activity involves conservative features.
Industrial employments or the machinery industrial production process are
regarded as the source of institutional change by Veblen, while he considers
pecuniary employments or business enterprise as obstacle to institutional
Veblen’s Institutional Evolutionary Theory in the Context of the Concepts of Institution…
45
change. Thus, in modern capitalism, a conflict appears between the two
institutions.14
Veblen, after putting forth the process of industrial evolution from the
primitive ages to the phase of modern capitalism, focused on the functioning of
modern capitalism. In this framework, in his books “The Theory of Business
Enterprise” of 1904 and “Absentee Ownership” of 1923, he thoroughly
analyzed the characteristics of modern capitalism, and explained the roots of the
institutional causes of instabilities created by capitalism over the concepts of
institution, instinct, and habit.15 Accordingly, in Veblen’s institutional evolution
process, the peaceable instincts inherent in the human bring the industrial
activity and production to the forefront, and thus, ensure the advancement of
societies, and in this respect, display dynamic characteristics. The predatory
instincts embedded in the human bring out business and financial activities that
prevent production increase, and exhibit conservative characteristics. Moreover,
as financial and business enterprise is based on the goal of achieving sustained
profit, it requires artificial curbing of production, and in this sense, as the cause
of sabotage of industry, it is seen as an obstacle before dynamic industrial
institutions in the long run.
Conclusion
Veblen addressed to the process of institutional evolution in the framework of
the principle of mutual and cumulative causation in the context of a Darwinian
selection theory. To this end, Veblen put forth the purpose of economics as the
analysis of the cumulative process of change undergone by the material life, and
investigated institutional evolution from the ancient eras to the present. In
Veblen’s economic analysis, the institutional evolution has occurred as an
outcome of change in the habits of thought of the society. The change in the
habits of thought of the society as a consequence of change in material
conditions of the society, that is to say as a result of technological change. In
this sense, technological development is the engine of the institutional
evolution. What lie behind technology are instincts highlighted by Veblen
regarding human nature. The instinct of workmanship, parental bent and idle
curiosity, which Veblen define as peaceable instincts, forms the source of
dynamic institutions that ensure the development of society. Private property
and the leisure class, which Veblen qualifies as the predatory instincts, generate
14
For Veblen, a number of practices specific to Modern America such as real estate speculation, price
inflation, credit manipulation, imitation, sabotage of production, excessive competitive environment,
disparagement of neighbors, salesmanship, sanctification of businessman, etc. were evolved from the values
of America’s rural society of the pre-industrial revolution era. According to Veblen, these rural values laid
the foundations of the emergence of the industrial order (Levy, 1994: 12-13).
15
For an evaluation of the role of instincts in the development of corporate culture under the conditions of
modern capitalism, see: (Cordes, 2007).
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conservative institutions that impede the development of conservative
institutions.
After describing the process of industrial evolution from the primitive ages
to the phase of modern capitalism, Veblen focused on the functioning of
modern capitalism; he highlighted the conflict between dynamic institutions and
conservative institutions, and drew attention to how financial activities, which
he called static institutions, prevent the development of dynamic industrial
activities in modern capitalism conditions, posing an obstacle to the welfare of
the state.
The concepts of institution, instinct, and habit have a central importance in
Veblen’s views on the process of institutional theory. Veblen carried all his
discussions about capitalism through these concepts. Veblen pointed out that the
human should be considered as a social being, rather than a being in pursuit of
merely pleasure. To this end, he intensely used the concept of habit in his
analysis. Veblen argues that human beings, while living within the society,
acquire some habits accumulated within the institutional and social structure,
and that these habits direct the individual’s behavior accompanied by the
instincts inherent in humans. According to this understanding, the primary
instinct that guides human behaviors is not pain or pleasure. Here, the fact that
Veblen considers the concept of instinct, which directs human behaviors, along
with the concept of habit indicates that the human is approached as a being,
which is influenced by both cultural and social structure, and also as a unique
being with some natural instincts. In this sense, the concept of instinct refers to
the human’s innate and unique tendencies, and thus, to individual specificities,
while the concept of habit refers to the aspects of individual shaped by the
social and cultural system (Kilpinen, 2003: 298).
The concept of habit reveals that human behavior is not just about
rationality, and in this sense, it helps with the conceptualization of human
beings as beings with the habits and instincts. Thus, the conceptualization of the
human as a concrete being, who does nothing but endeavors to maximize his
self-interest, is abandoned. Thus, the concept of habit allows for explaining the
world in a more realistic16 way (Hodgson, 2004c: 407).
Veblen, with these concepts, did not restrict his analysis merely to the
economic field, but he included the non-economic fields as well. In this context,
Veblen’s analysis has been conveyed beyond the economic field, wherewith
scarce resources, production, distribution, and exchange transactions are carried
out. In addition, Veblen did not restrict his analysis to the economic field. He
In the literature, there are many studies, which argue that Veblen’s economic analysis is closely related with
pragmatist philosophy of science. For the place and importance of pragmatist philosophy of science in
Veblen’s economic analysis, see: (Baş Dinar, 2011b; Tillman, 1984; Kilpinen, 1998; 2003; Hodgson, 1996).
16
Veblen’s Institutional Evolutionary Theory in the Context of the Concepts of Institution…
47
analyzed the economic field from a sociological viewpoint as well, along with
economic elements. In fact, his definition of institution encompasses changeresistant institutions in the society and, at the same time, emphasizes that
change-resistant institutions may change in the course of time, and it may lead
to new behaviors and trends.
Even though Veblen, in his theory of institutional evolution, criticizes
neoclassical economics, and particularly its notion of passive individual, his
main issue is not to exclude the individual from the economic analysis, but to
include the influence of changes in the social structure on both the individual
and institutional structures. In this respect, it can be asserted that Veblen’s
theory is positioned between oversocialized and undersocialized, which are on
the extreme ends of the spectrum in the literature. Thus, as Yılmaz (2012)
states, Veblen’s analysis displays significant similarities with Granovetter’s
(1985; 1992) method of institutional analysis called New Economic Sociology,
which is intensely debated.
Veblen’s theory of institutional evolution, which he formed based on the
concepts of instinct, habit, and institution, brings a more realistic explanation to
the emergence, functions and evolution of institutions by placing emphasis on
mutual causation between the institution and the individual. Such a point of
view ensures the analysis of the roles of institutions created by both the
individual and the society in the process of institutional evolution. Due to its
nature, Veblen’s theory of institutional evolution may bring a new perspective
to debates on “New Economic Sociology”, one of the most important debates in
the literature. As Yılmaz (2012) states, the movement of new economic
sociology, in an ironic manner, has engaged in an intense interaction not with
Veblenian tradition of institutional economics, but with mainstream economics.
However, the development of New Economic Sociology, which aims to explore
economics from an economic and sociological perspective, by following the
footsteps of the Veblenian tradition, can constitute a sound foundation for
studying the disciplines of economics and sociology in a holistic and realistic
manner.
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