This presentation introduces few revolutionary economists who changed the direction of Economics. Thorstein Veblen and Conspicuous Consumption. Michal Kalecki and John Galbraith

1. Radical Economists
YASODA VIDANA GAMAGE

2. Thorstein Veblen

3. Thorstein Veblen (1857 – 1929)
Bought a evolutionary dynamic approach to the study of Economic Institution.
Founded the school of institutional economics
Veblen’s work influenced by a range of social thinkers, including Karl Marx, Herbert
Spencer and Adam Smith.
Influenced by Charles Dawin’s ideas. Veblen views society as being dominated by
the struggle for existence with the fittest social institutions and habits of thought
surviving.
Two stage model of social evolution, primitive societies characterized by peace and
cooperation, and predatory barbarism characterized by its warlike and competitive
character.

4. Conspicuous Consumption
• Introduced in the book “ The Theory of Leisure class “.
• Refers to the consumers who buy expensive items to display wealth and income
rather than to cover the real needs of the consumers.
Eg – Motivation to drive a luxury car rather than an economic car
• Consumers use such behaviors to maintain or gain higher social status
• Two distinct characteristics of a good
• Serviceability – Practical purpose
• Honorific – Extra satisfaction derived from the usage of that good

5. Veblen Goods
• A product whose demand increase as price
increase because people believe its higher price
reflects greater status.
• Eg – Designer clothes, luxury cars, Modern art
• It may have a normal demand curve at low
prices but after a certain price start to have a
snob value so demand increases as price
increase

6. The Theory of the Leisure class
• This book is about the upper class who were emerge during the industrial boom time
• The Leisure class had unrestricted amount of leisure time on their hands and they
demonstrate its superiority through conspicuous expenditure.
• As industrial society evolved, conspicuous consumption is the practical way to
demonstrate wealth to transient population.
• And it’s a way to demarcate the social hierarchies of the day.
• This was a waste because luxury good requires more resources that the production of
non luxury good.

7. Why Veblen is important?
• He rejected neoclassical economics, Marxism and laissez faire economics.
• He was interested in the relationship between economy, society, culture and history.
He believed that the economy was embedded in social institutions, thus disagreeing
with his contemporaries.
• According to mainstream ideology economic theory is timeless, static and
universally valid. However Veblen tried to show that economics was influenced and
by human biology and psychology.
• Human beings are not rational individual working on self interest(carefully
calculating, pleasure maximizing) rather creatures of instinct and irrational impulses.

8. Michal Kalecki

9. Michal Kalecki ( 1899 – 1970 )
• Major figure in PKE. He produced a crucial bridge between Marxism and
Keynesianism.
• Born in Poland. Polish Economist
• Kalecki independently discovered the basic elements of what is today known as
Keynesian theory several years before the publication of “The General Theory"
• His work served as a source of inspiration to many Cambridge Keynesians – e.g.
Robinson, Kaldor – He has been called the left-wing Keynes.
• Made significant contributions to theories of business cycle, growth, full
employment, income distribution.

10. • His method was first to look at the world and then to model what he saw.
• Full employment is a special case and is most unlikely in peace time unless a
permanent budget deficit is maintained.
• No perfect competition exists
• Not concerned about existence and stability of equilibria like in neoclassicism, he
analysed without a belief in a tendency toward some long-term equilibrium.
• National income equals the sum of gross investment (I) and capitalists’ consumption
(Cc) workers’ consumption (Cw), on one hand, and the sum of wages (W) and profits
(P), on the other.
P+W = GNP = I +Cc+ Cw
• Kalecki assumed that workers do not save (W= Cw). Therefore, gross profit (P)
becomes the sum of capitalist consumption (Cc) and Investment (I).
P=Cc+I.

11. John Kenneth
Galbraith

12. John Kenneth Galbraith ( 1908- 2006 )
• Canadian born Economist
• Galbraith's major writings constitute both an attack on neoclassical economic
thought and an analysis of modern capitalism.
• Galbraith is a critic of the neoclassical "conventional wisdom": a set of ideas that
is familiar to all, widely accepted, but no longer relevant.
• Oligopoly and countervailing power - he argued that giant firms had replaced
small ones to the point where the perfectly competitive model no longer applied
to much of the American economy.

13. • The entrepreneur no longer exists as an individual person in the mature
industrial economy due to:
• the rise of the modern corporation,
• the emergence of the organization required by modern technology and planning and
• the divorce of the owner of the capital from control of the enterprise.
• Technology: systematic application of scientific or other organized knowledge to
practical tasks. Six important consequences of increased use of sophisticated
technology:
• Long span of time between beginning and completion of a task.
• Increase in the capital that is committed to production.
• Technology requires specialized manpower.
• From all above comes the necessity for planning.
• Heavy need for "Research and Development" in modern corporation.