Log in

PKSG Working Paper Series

Working Paper PKWP1618

Thorstein Veblen on the nature of the firm and income distribution

November 2016

Guglielmo Forges Davanzati

The aim of this paper is to provide a theoretical model inspired by Veblen’s theory of the firm, and to derive some implications of firms’ behaviour for the process of income distribution. It will be shown that the firm is a locus of conflict, involving technicians – interested in expanding production – and “businessmen” – interested in gaining money profits via the management of the “pecuniary side” of the firm. The outcome of the bargaining within the firm defines the ‘workmanship-type’ or ‘non-workmanship-type’ nature of the firm, and affects the level of real wages and employment, insofar as the greater the power of technicians, the higher the real wages are. Moreover, since the expansion of production is associated with the minimum degree of underutilization of capital, technical improvements have a positive effect on the level of employment. Finally, it is argued that a wage increase can have a positive effect on the degree of capital utilization and the level of employment, via the increase in total demand and in the degree of capital utilization.

Keywords: Veblen, theory of firm, wages, income distribution

JEL classification: B15: History of Economic Thought through 1925: Historical; Institutional; Evolutionary B31: History of Economic Thought: Individuals D21: Firm Behavior: Theory D30: Distribution: General

Download: Working Paper PKWP1618