Entrepreneurship, knowledge and employment

American institutionalism and the theory of value and distribution

Levrero Enrico Sergio, Roma Tre University

This paper aims to reconstruct Veblen’s and more generally American institutionalism’s ideas on value and distribution, as well as the debates organised in the main American journals in the years 1920-1950 about the search of a “theoretical scaffolding” of Institutional economics that “could replace the present prevailing [theoretical] system” (E.M. Burns, 1931). It will be argued that this search faced three major obstacles. The first was that the classical theory of distribution of Smith and Ricardo was “submerged and forgotten” at the time. The second was the lack of a shared theoretical nucleus which characterised Institutionalism itself, especially with respect to the theory of value and distribution. Thus Ely (1916) judged the notion of marginal productivity as illuminating in order to explain the distribution of income among the factors of production, while J.M. Clark (1921) recalled the need to study the conditions to be satisfied to maintain the “productive power” of society and observed that the concept of a decreasing labour marginal productivity would be inapplicable in the case of plants «operating at less than capacity». Finally, the third obstacle resided in the way that some institutional economists followed in order to take social and institutional factors into account. Copeland (1931) maintained that «much of the structure of neoclassical theory remains, but its applications need to be carefully delimited», and Hamilton (1919) accepted the theory of value of Böhm Bawerk and J.B. Clark, to be completed by an institutional analysis “of the determinants of money, labour and the techniques of production”. As it will be shown, this way could easily lead to a Marshallian answer to Institutionalism – an answer that relegates the influence of institutional factors to the short run or puts them outside economics.

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Keywords: Veblen; American Institutionalism; Theories of value and distribution; Sraffa's revival of Classical theory

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