Question

Why is Veblen described as an “Institutional Economist”? In what sense is his theory of the leisure class with its emphasis on conspicuous consumption an economic theory of human behavior that focuses on consumers as social beings in contrast with the neoclassical theory of consumer behavior that focuses on consumers as autonomous individual utility maximizers? try to be as detailed as possible.

Answer 1

The impact of the various institutions upon the economic behavior and on the gradual evolution of the people and the study of this phenomenon is referred to as ‘Institutional Economics’. The concept of Institutional Economics was first derived and put forward to the world by an American Economist Thorstein Veblen during the period of 1920’s-30’s. Thorstein Veblen was the founder of the concept or the study and the economic implementation of Institutional Economics. Hence he is described to as an Institutional Economist.

  The Traditional Economic policies were long being opposed by various economists from various parts of the world , until , Thorstein Veblen, who was also a staunch opposer of the Traditional Economic policies , laid the foundation of a new economic model in the 1920’s , the “Traditional Economics” . Veblen was of the thinking that the people in an economy are continuously being affected by the changing institutions and customs in the economy, rather than the Traditional concept of economics which referred to the people being the makers of all the decisions in the economy. According to Veblen , the traditional economic concept was in no was technological and was a neo old theory, and that it was only meant for the richer section of the society who was busy minting money for themselves. The old theory never emphasized on the production of the necessary goods for the survical of the people. Institutional Economics apply the concept of the impact of the various institutions on the gradual evolutionary behavior of the people. It goes deep in to the study of the impact of the larger concept of Market on the behavioral development of the people. The necessary applicability of an economy to properly function is its institutions functioning properly,. The Insitutional Economists lay emphasis on the study and its impact on these institutions. The basic conceptions of the Institutional Economists are: The human behavior is continuous evolving and that pre assumption of the human behaviour and defining it on the basis of price mechanism if totally incorrect, it should rather be researched on the basis of their behavior,. The economic general behavior is not a static concept, it is all the time changing and is relative to the time and place it is being followed in., human beings cannot be measured on the basis of just the traditional theories, his behavior must be studied to understand the concept of the behavior.The influence of the Institutionalism has been huge on all the future concepts on economic study.More importantly for the economists who have seeked to understand , study and explain the cultural and social phenomenon on the human behavior and its adaptiveness, the institutional economic concept has been very impactful.The developing countries , who still have majority of their consumers trying to sustain for a healthy economic condition in their day to day life, can be best understood with the help of the Institutional economic study and best economic decisions can be taken for their development.