There is a line in Bob Dylan’s song “All Along the Watchtower” that goes, “Businessmen, they drink my wine, plowmen dig my earth,/None of them along the line know what any of it is worth.” Thorstein Veblen, in what amounts to a manifesto, The Engineers and the Price System is the first intellectual I have read whose ideas come close to approximating the sentiments demonstrated by Dylan in his song.
Veblen, an early Twentieth Century economist and creator of the thought stream known as Evolutionary Economics, makes a series of audacious claims in this book that are echoes of Karl Marx and Friedrich Engels’ Communist Manifesto. Veblen starts out with a discussion of what he calls “Sabotage” – which he considers to be any systematic interruption, not necessarily violence, in the process of production. Veblen says that such “restriction of production” is a common part of modern industrial life – in fact, it is the primary means by which corporations maintain profitable price levels. Restriction of production to below market need tends to keep prices high, because it is a negative system of managing supply and demand. “Since prices have to meet the company’s obligations,” he says, “the company cannot reduce prices arbitrarily. The only thing to do to maintain prices is to reduce production – to “withdraw efficiency”.”[1]
The problem with this strategy, or perhaps in Veblen’s mind the simple objective reality of it, is that it means that production is not meant to meet the needs of society. Instead, business decisions are made with regard to the largest obtainable profit.[2]
In his second chapter, Veblen builds on this first idea, that prices are maintained by corporations restricting production, by discussing the evolution of business management. The chapter, titled “Captains of Industry,” makes the argument that in preindustrial and early industrial economies, the standardization of products has not reached the point where industry is able to manufacture goods in the amounts necessary to come close to the demands of the market. This means that there is room for other manufacturers, and competition is the normal state of the market. As the process of production became standardized, and mechanized, however, the capacity of manufacturers to produce goods rose to the point where far more could be produced than could be absorbed by the market. At this point, competition became pointless, from a business sense. Here is where Veblen introduces the main character of the chapter – captains of industry, he says, started in the smaller competition-oriented firms as jacks-of-all-trades, responsible for the manufacturing and the financial sides of the company. However, as the firms became larger, the financial wherewithal to compete, and the alliance with other firms to limit competition meant that those captains of industry became more and more involved in financial activities, and less involved in the productive side of the business. Veblen gives the example of a coalition of steel firms, and a figure that is unnamed but whose activities read very much along the lines of Andrew Carnegie, and the dates he gives – the 1890’s – seem to match up with this character.
In any case, according to Veblen, what happened in all industry, with the steel industry as an example, is that people like Andrew Carnegie eventually became so involved in finance – in the cobbling together of massive companies with huge financial resources and control in market share – that they lost touch with the manufacturing side of the business – the “Industrial Arts” as Veblen calls them.[3] With little understanding of the newest technology, and little understanding of what was now going on in their shop floors, these factory owners had to rely for productive decisions on a class of specialists whom Veblen calls “production engineers”. These production engineers, increasingly separate and distant from the owner managers of industry, were responsible for the process of manufacturing. The low level of understanding among the Captains of Industry of the production process then combined with increasing responsibility to maintain a price structure that guaranteed profits. Veblen says these managers found it intellectually and organizationally far easier to restrict production in response to financial downturns, rather than improve manufacturing systems and technology in order to reduce costs in order to keep profit high.
The so-called Captains of Industry eventually failed, by refusing to update manufacturing processes, and focusing only on the financial end of the business, their failure to reduce costs and increase efficiency led to waste of material resources and ever-increasing costs. This failure opened the door for investment bankers, and, concentrating once again on the steel industry, and once again in the last decade of the nineteenth century, Veblen identifies without naming him the great JP Morgan. The key point here is that investment bankers like Morgan had the resources to buy and pool these companies, and they employed another group of specialists, whom Veblen calls “Consulting Engineers” to help them evaluate both the physical technology and the financial realities of the companies they were investing in.
Ultimately, Veblen makes the point in his third chapter, “The Captains of Finance and the Engineers,” that the owners of the factories were becoming more and more absent from the scene and act of production. A specialized class of engineers, far more knowledgeable about the production process than anyone else, became managers separate from the owners of the machines. The financial side of large businesses came to be controlled by bureaucrats – clerical staffers working for the investment bankers who operated according to formulae and standard channels of activity (replacing the former Captains of Industry). The concentration of capital in the hands of a few investment banks also meant that industry was by and large a single monolithic unit sharing money through an artificial system called credit, and that the manufacturing processes and financial processes of industry were an interlocking system, all one, though each was working for itself.
Then Veblen returns to his original point – that the capitalist system in the age of mechanized big business works not by producing what society needs, but by restricting production so that society is in a state of constant want. Industry and business do not work for society, but for profit. The ever-widening gap between those who know manufacturing and could solve the problems of supplying the material needs of society are restricted by the financiers, for whom restricting production is the easiest and most understandable method to maintain profitable prices. Manufacturing and Finance, though dependent upon one another, are also at odds with each other.[4]
Going back to the system of interlocking industrial concerns – the global reality that every business depends on every other business to survive. What Veblen appears to see here is the beginnings of a global economy. He also sees clearly that this global economy works on regular acts of sabotage. Firms consciously limit their own production to maintain price levels. Government limits production through policy, taxation and other means. Veblen contends that it is these times, when they work at cross purposes, or directly in detriment to each other, that you have a dislocation – an economic downturn. He all but predicts the Great Depression (Veblen wrote The Engineers and the Price System in the spring of 1929, and he died only a few months before the Black Thursday stock market crash of October, 1929) and blames “businesslike sabotage” for it.
At the end of the third chapter, and in the fourth, “On The Danger of a Revolutionary Overturn,” Veblen makes what I thought was his most shocking point. He claims that the Wealthy class, what Marx would have called the Bourgeoisie, and the laboring class have always been at odds, and are forever negotiating with each other, but that they have missed the emergence of a new class – the engineers. Veblen claims that the engineers, though small in numbers, are critical. They are a kind of neo-craftsman, aware of the devil’s bargain of labor and industry, but educated, technologically capable, and necessary to industry. These neo-craftsmen know the value of the productive process and of management and labor, but, he says, they will become aware that they hold the means to solve the material problems of society, and may hold a revolution. Their necessity to factory owners will mean that they are successful in getting rid of the system of what Veblen comes to call, at this stage, “absentee ownership” and capitalism in general.
In his fifth chapter, “On The Circumstances Which Make for a Change,” Veblen prescribes a way to prevent this revolution of engineers, and to preserve capitalism. His prescription really has two pieces – he advises the so-called “Vested Interests” – the Captains of Industry and the Financiers, to sit tight, avoid the use of violence, and provide the engineers some sense of importance in the system (this seemed to me a bit of a weak prescription for what Veblen has made out to be such a serious potential problem). The other prescription is the elimination of wasteful practices through which unintentional restriction of production occurs, and obstructs the needs of society.[5]
Finally, Veblen says that while the only group both discontented enough, and organized in the right way to conduct a revolution is the technicians of the United States, they do not appear to be in any way preparing for such a move. However, to correct the problems that may lead to any potential move toward rebellion, Veblen prescribes centralized coordination of production, removing the so-called Vested Interests from the equation by creating a production directorate, and putting productive control in the hands of the technicians and engineers. Ultimately, it seems Veblen is espousing what amounts to a revolution, but a bloodless one, done by design – an idea almost poetic in the way it reflects the theory and development he presents in the book.
Veblen, Thorstein. The Engineers and the Price System. New York: Harcourt, Brace & World, 1963. Reprint, 1948.
[1] Thorstein Veblen, The Engineers and the Price System (New York: Harcourt, Brace & World, 1963; reprint, 1948), 12.
[2] Ibid., 11.
[3] Ibid., 67-69.
[4] Ibid., 72.
[5] Ibid., 127.