No More Learning

The most important feature of private ownership is not that it enables those who own, but that it disables those who do not. Technically, anyone can get into someone else's car and drive away, or give an order to sell all of Warren Buffet's shares in Berkshire Hathaway. The sole purpose of private ownership is to prevent us from doing so. In this sense, private ownership is wholly and only an institution of exclusion, and institutional exclusion is a matter of organized power.
Exclusion does not have to be exercised. What matters is the right to exclude and the ability to exact terms for not exercising that right. This right and ability are the foundation of accumulation. Business enterprise thrives on the implicit threat or explicit exercise of power embedded in ownership, with capitalist income being the 'ransom' for allowing industry to resonate:
Plainly, ownership would be nothing better than an idle gesture without this legal right of sabotage. Without the power of discretionary idleness, without the right to keep the work out of the hands of the workmen and the product out of the market, investment and business enterprise would cease. This is the larger meaning of the Security of Property.
(Veblen 1923: 66-67, emphasis added)
Of course, the role of power is hardly unique to capitalism. According to Veblen, all forms of ownership are based on the same principle of coercive appropriation, which in his view dates back to the early stages of barbarism and the initial emergence of predatory social customs. The differentiating
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factor, he says, is technological: the institutionalization of forceful seizure is intimately linked to the nature of tangible implements and to their relative significance in production. In the earlier stages of social development, forced appropriation was limited because there was little to appropriate and most objects were easily replaceable. But as society's 'immaterial assets' started to accumulate, so did the benefit from controlling its key 'material assets'.
The right to property
The first form of property rights, according to Veblen (1898; 1899a), was the ownership of people, particularly women. Etymologically, the English word 'husband' and the Mesopotamian word 'baal' both share the double meaning of ownership and marriage - and, in the latter case, also sexual exploit and the superior male-god of the west-Semitic pantheon. 4
Subsequently, the focus of ownership shifted (although not necessarily linearly) from slaves, to animals, to land. The specific trajectory depended on the nature of technological development, and it was only recently that it moved primarily to produced means of production. 5 Notably, prior to capi- talism neither slave ownership nor landed wealth were ever justified on grounds of productive contributions; both were institutionalized as a 'right' - by virtue of divine will or sheer force, but never as a consequence of creativity.
Now, clearly, the mere ownership of capital is no more productive than the ownership of slaves or land, so why do economists insist it is?
The answer, according to Veblen, is that economic theory had been unduly influenced by the transitory institutions of handicraft that existed during the transformation from feudalism to capitalism. Common sense suggested that craftsmen, working for themselves with their own material appliances, had a 'natural right' to own what they had made; it also implied that they could dispense with their product as they saw fit - that is, sell it for an income. 6 Handicraft and petty trade thus helped institutionalize pecuniary earnings as a natural extension of ownership-by-creativity. With exchange seen as a 'natural right of ownership', the very earning of income became a proof of productivity.
But this common sense is misleading for two reasons. First, even at the handicraft stage, production was an integrated societal process. Thus, despite
4 This was also the view of the early Marxists. According to Engels' The Origin of the Family, Private Property and the State (1884), classes and the hierarchic state both evolved from private property, which in turn originated in the appropriation of women by men.
5 Early evidence of such shifts is found throughout the many debates over slavery and the parcelling of family estates in the Book of Numbers.
6 As John Locke put it in the seventeenth century: 'The Natural Liberty of Man is to be free from any Superior Power on Earth. . . to have only the Law of Nature for his Rule. . . . The measure of Property, Nature has well set, by the Extent of Mens Labour, and the Conveniency of Life' (1690, ? 22: 324 and ? 36: 334, original emphases).
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the myth of 'individualism', private ownership was at least partly dependent on the dynamics of organized power (with the exclusionary practices of guilds offering a conspicuous illustration). Second, and more significantly, the institutions of handicraft were short-lived. As Veblen pointed out, technical change ushered in by the onset of the industrial revolution meant that produc- tion had to be conducted on a large scale, which in turn implied the progres- sive separation of ownership from production.
The absentee ownership of power
During the earlier stages of capitalism, production and business were still partly interwoven. 7 Indeed, even as late as the nineteenth century, US 'captains of industry' such as Cornelius Vanderbilt and Andrew Carnegie were seen as creative forces, acting as master workmen as well as astute businessmen. This duality did not last for long, however, and as business became increasingly separate from industry, the implication was no less than profound. Gradually, capitalism came to mean not merely the amassment of 'capital goods' under private ownership, but more profoundly a division between business and industry affected through the rise of absentee ownership.
The institution of absentee ownership has altered the very nature and meaning of capital. Not unlike the European lords of the Middle Ages, who gradually withdrew from the direct management of their estates, modern capitalists have become investors of 'funds', absentee owners of pecuniary wealth with no direct industrial dealings.
The complete delinking of capital from 'capital goods' is well illustrated by comical extremes. In the summer of 1928, the world's largest oil companies signed the secret Red Line Agreement, parcelling the Middle East between them for years to come. To celebrate the occasion, the architect of the deal, Calouste Gulbenkian, or 'Mr Five Percent' as he was otherwise known, char- tered a boat to cruise the Mediterranean with his daughter Rita:
Off the coast of Morocco, he caught sight of a type of ship he had never seen before. It looked very strange to him, with its funnel jutting up at the extreme stern of the long hull. He asked what it was. An oil tanker, Rita told him. He was fifty-nine years old, he had just made one of the greatest oil deals of the century, he was the Talleyrand of oil, and he had never before seen an oil tanker.
(Yergin 1991: 206)
This illustration is not an outlier. Currently, roughly half of all capitalist assets are owned indirectly through institutional investors such as pension and mutual funds, hedge and sovereign funds, insurance companies, banks
7 For a literary reflection of this fusion, see for instance the 'The Silent Men', a short story in Camus' Exile and the Kingdom (1958).
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and corporations. The ultimate owners of these assets, whether big or small, exercise little voice in the management of the underlying production pro- cesses. For the most part, they merely buy and sell shares of these assets and collect the flow of dividends. Often, their diversification is so extensive that they don't know exactly what they own. And that characterization is by no means limited to portfolio owners. Many of the largest direct investors - including the capitalist dons whose names populate the Forbes listing of the superrich - are equally removed from any industrial dealings. Most of their energies are spent on the high politics of sabotage and the fine art of cutting and pasting assets through endless deals of divestment and merger - activities that they commonly carry out, just like Gulbenkian, without ever seeing a single 'capital good'.
Whereas most economists continue to view capital as an amalgamation of machines, structures, semi-finished commodities and measure-of-their-igno- rance technology, for the business investor capital has long been stripped of any physical characteristics. In the eyes of modern owners - whatever their gender, colour, religion, sexual inclination, ethnicity, culture, nationality, creed, height, weight or age - capital means one thing and one thing only: a pecuniary capitalization of earning capacity. It consists not of the owned facto- ries, mines, aeroplanes, retail establishments or computer hardware and soft- ware, but of the present value of profits expected to be earned by virtue of such ownership.
Of course, neoclassicists have never had a quarrel with capital as the present value of future earnings. In the long run, they assure us, demand and supply make this present value equal to the cost of producing that capital (assuming competitive markets, perfect foresight and the rest of the hedonic fairy tale). But as Veblen (1908) acutely observed long before the Cambridge Controversy (and as we have seen in Part III), this explanation was logically faulty from the very start. If capital and capital goods were indeed the same 'thing', he asked, how could capital move from one industry to another, while capital goods, the 'abiding entity' of capital, remained locked in their original position? Similarly, how could a business crisis diminish the value of capital when, as a material productive substance, the underlying capital goods remained unaltered? Or how could existing capital be denominated in terms of its productivity, when technological progress seemed to destroy its pecuniary value?
For Veblen, the answer was straightforward: capital simply is not a double-sided entity. It is a pecuniary magnitude, and only a pecuniary magni- tude, and its magnitude depends not on the capacity to produce but the ability to incapacitate. In the final analysis, the modern capitalist is nothing more than an absentee owner of power.
Strategic sabotage
What exactly is this power to incapacitate? Where does it come from, what form does it take, and how does it yield profit? According to Veblen, the
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answer remained obscure partly because the historical consolidation of capi- talist property rights slowly substituted ideological manipulation and legal authority for brute force and religious sanctity.
With the twin emergence of the modern corporation and the modern state, capitalism has acquired a 'civilized' face: absentee ownership has become a legitimate norm; open violence has been replaced by latent threats under- written by hefty advertising budgets, bloated security services and over- flowing jails; and power has solidified into a mystical structure (at least for those subjected to it). In this new order, the power to incapacitate - or 'sabo- tage' as Veblen liked to call it - becomes a fully legitimate convention, carried out routinely and invisibly through the very subordination of industry to business. The blueprints of capitalist production are already programmed for business limitation, its hired managers are schooled in the art of invisible restriction, and its top executives are remunerated in proportion to profit. In order to merely earn the normal rate of return, all the owner has to do is own.
But then where is the 'sabotage'? Is it not true that in order to profit, busi- ness enterprise needs to promote industrial creativity, productive ingenuity and 'best practices'? The answer is not really. Strictly speaking, business cannot 'promote' industry. At most, it can unleash it - and even that it does only up to a point and under very specific conditions. Earnings do depend on output - but not on any type of output and not only on output. Moreover, the dependency is non-linear and sometimes inverted, which is why Veblen referred specifically to strategic sabotage.
Seen as an entire social order, business enterprise certainly is far more 'productive' than any earlier mode of social organization. 8 Yet, in Veblen's opinion, the immense productive vitality of this social order is an industrial, not a business phenomenon. Business enterprise is possible only in conjunc- tion with large-scale industry, though the reverse is not true (as illustrated by socialist industry or giant cooperatives such as Mondragon). The practices of business of course are closely related to industry, but only in point of control, never in terms of production and creativity. From this a priori vantage point, business per se is distinct from industry and therefore cannot boost industry, by definition. Even companies in possession of cutting-edge technology cannot promote industrial creativity; instead, they can merely relax - usually for a hefty fee - some of the constraints that would otherwise limit creativity.
This interpretation of the hyperproductivity of capitalism is quite different from that of Marx. In our view, Marx was correct to stress the dialectical imperative of technical change, an emphasis that the evolutionist Veblen preferred to disregard. Over the longer haul, capitalists indeed find them- selves compelled - and in turn force their society - to constantly revolutionize
8 This statement refers not to 'measured' increases in utility or abstract labour, but to the unprecedented social transformations, massive technical change and neck-breaking pace of energy conversion that came with the capitalist epoch.
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the pattern of social reproduction. They continually 'invest' in having industry develop for them new methods and products and in expanding their capacity to produce them. Yet all of this they do in the expectation of adequate differential returns, and differential returns are possible only through restriction.
'Free is not a business model', explains the representative of eBay China (Dickie 2006). Money spent on having your engineers invent open-source technology or on making your workers create physical capacity that everyone can freely use is money gone down the drain. The only way such spending can become a profit-yielding investment is if others are prohibited from freely utilizing its outcome. In this sense, capitalist investment - regardless of how 'productive' it may appear or how much growth it seems to 'generate' - remains what it always was: an act of limitation.
The direction of industry
The limitation takes two general forms. The more important - but also more elusive and harder to delineate - concerns the very direction of industrial development. This restriction, of course, is hardly unique to capitalism, being inherent to the very development of any system of hierarchical production.
According to the historical evidence marshalled by Stephen Marglin (1974), rulers almost invariably fight to impose techniques that secure and amplify their power - often at the expense of efficiency (conventionally measured). This was true when the Romans forced slaves into brick and pottery 'factories' - just as it was true when European feudal lords imposed water mills and prohibited hand mills, when post-bellum American planters forced a credit-based system of share-cropping on small farmers, and when Stalin collectivized Soviet agriculture. The purpose of these technological impositions, Marglin argues, was 'divide and conquer'. And in his opinion, the same remains true with capitalist production: this is why British capital- ists retained demonstrably inefficient mining techniques, why they introduced the factory system well before the arrival of machines, and why they insisted on a minute division of labour that was debilitating to the point of becoming technically counterproductive.
At first sight, this capitalist imposition of inefficiency may seem surprising, if not counterintuitive. After all, capitalists seek profit, profit increases as cost falls, and cost falls as efficiency rises - so isn't it in capitalists' best interest to adopt the most productive techniques? What exactly is the point of increasing power if the end result is lower profit? The question may sound biting - but it is the wrong one to ask. In fact there is no contradiction at all: in reality, power means not less profit but more profit.
The confusion is easy to sort out. The idea that profit maximization neces- sitates cost minimization and that cost minimization requires efficient production holds only in the fairy tale of perfectly competitive equilibrium. In this fictitious context, where prices and wages are set by mother market to
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equilibrate marginal productivity and utility, it certainly makes sense for the 'representative' capitalist to adopt the most efficient techniques. 9
But once we get rid of the fiction and move to the real world where prices represent not utility and productivity but power, these imperatives immedi- ately break down on their own terms. 'Productive efficiency' (minimum inputs per unit of output) no longer implies 'economic efficiency' (minimum cost per unit of output), and 'economic efficiency' no longer means 'maximum profit'. In this imperfect context, it makes perfect sense for capitalists to impose 'inefficient' techniques: their very inefficiency is the power leverage through which profits are generated.
Let's illustrate this principle with more contemporary examples. Take transportation. On the face of it, a well-designed public transit seems much more conducive to human welfare and the natural environment than private transit. Yet, in the US and elsewhere, capitalist transportation has tended to move away from the public and toward the private. And the reason is not hard to grasp. Public transportation resonates with the integrated operation of industry and therefore doesn't sit well with regular flow of business profit.
This is perhaps the reason why early in the twentieth century the automo- bile companies bought and dismantled 100 electric railway systems in 45 US cities (Barnet 1980: Ch. 2). And it is also why these companies have long shunned any radical change in energy sources. The electric car, first invented in the 1830s, predates its gasoline and diesel counterparts by half a century, and for a while was more popular than both (Wakefield 1994). But by the early twentieth century, having proved less profitable than the gas guzzlers, it fell out of favour and was forcefully erased from the collective memory. Then came intolerable pollution, which in the 1990s led the state of California to mandate a gradual transition of automobiles to alternative energy. Complying with the new regulations, General Motors had its engineers quickly develop a highly efficient electric car, the EV1. But fearing that this gem of a car would undermine profit from their gas guzzlers, the company's owners, along with owners of other concerned corporations in the automo- tive and oil business, also invested in an orchestrated attempt to defeat the California bill. When the regulation was finally overturned, every specimen of the EV1 was recalled and literally shredded (Paine 2006). 10
A similar pattern emerges in the setting of broad electronic standards. In theory, the goal of such standards is to have as many different electronic components and processes resonate as seamlessly and effortlessly as possible. In practice, though, the debate is not over industrial resonance but business profit: it is not the technical blueprint that matters, but who will control it.
9 It is worth noting that this adoption merely keeps the capitalist running on empty, since perfect competition allows no profits beyond the marginal productivity of capital.
10 Of course, business circumstances change, and when in the 2000s global warming and peak oil emerged as lucrative profit opportunities, GM suddenly rediscovered its zeal for electric propulsion and quickly reinvented what it had previously shredded (Reed 2008).
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The production of digital audio tapes (DAT) in the early 1990s, for instance, had been postponed (to the point of making the technology outdated) because several large firms could not reach a consensus regarding its effect on recording profits, a saga that has since been replayed in the 'format wars' over digital versatile discs (DVD) and high-definition optical discs.
These examples can easily be extended. Other broad industrial diversions include the development by pharmaceutical companies of expensive remedies for invented 'medical conditions' instead of drugs to cure real disease for which the afflicted are too poor to pay; the development by high-tech compa- nies of weapon technologies instead of alternative clean energies; the develop- ment by chemical and bio-technology corporations of one-size-fits-all genetically modified vegetation and animals instead of bio-diversified ones; the forced expansion by governments and realtors of socially fractured suburban sprawl instead of participatory and sustainable urbanization; the development by television networks of lowest-denominator programming that washes the brain instead of promoting its critical faculties; and so on.
Of course, as we repeatedly noted the line separating the socially desirable and productive from the undesirable and counterproductive is inter-subjec- tive and contestable. But taken together, these examples nonetheless suggest that a significant proportion of business-driven 'growth' is wasteful if not destructive, and that the sabotage underlying these socially negative trajecto- ries is exactly what makes them so profitable.
The pace of industry
The other limitation - perhaps less important but easier to approximate - concerns the growth of industrial capacity and output, whatever their purpose. The conventional view, both popular and academic, is that business loves growth. The more utilized the capacity and the faster its expansion, the greater the profit - or at least that's what we are told. The facts, though, tell a very different story. In reality, business can tolerate neither full-capacity utili- zation nor maximum growth. And why the aversion? Because otherwise profit would collapse to zero.
Consider again the automobile sector. Were the large car companies to decide to produce as much as possible rather than as much as the 'traffic can bear', their output could probably double on fairly short notice. And this potential is hardly unique to automobiles. Almost every modern industrial undertaking - from petroleum, through electronics, to clothing, machine tools, telecommunication, pharmaceuticals, construction, food processing and film, to name a few - tends to operate far below its full technological capacity (not to be confused with full business capacity). 11 If all industrial
11 The difference is fundamental. Conventional capacity measures consider what is feasible under the existing social order of business enterprise and production for profit, and usually estimate normal utilization to be in the 70-90 per cent range. Alternative conjectures based
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undertakings were to follow the reckless example of automobiles, the relent- less pressure of oncoming goods and services would undermine tacit agree- ments and open cooperation among dominant firms and government agencies, trigger massive downward price spirals, and sooner or later end up in a Great Depression and a threat of political disintegration.
Speculating in a similar vein, Veblen (1923: 373) concluded that it was therefore hardly surprising that 'such a free run of production has not been had nor aimed at; nor is it at all expedient, as a business proposition, that anything of the kind should be allowed'. 12 Profits are inconceivable without production, but they are also impossible under a 'free run' of production. For profits to exist, business enterprise needs not only to control the direction of industrial activity, but also to restrict its pace below its full potential.
Business as usual
Conceptually, we would expect there to exist a non-linear relationship between the income share of capitalists on the one hand and their limitation of the pace of industry on the other. 13 This relationship is illustrated hypo- thetically in Figure 12. 1. The chart depicts the utilization of industrial capacity on the horizontal axis against the capitalist share of income on the vertical axis. Up to a point, the two move together. After that point, the rela- tionship becomes negative.
The reason is easy to explain by looking at extremes. If industry came to a complete standstill, capitalist earnings would be nil (bottom left point in Figure 12. 1). But capitalist earnings would also be zero if industry always and everywhere operated at full socio-technological capacity (bottom right point). Under this latter scenario, industrial considerations rather than business decisions would be paramount, production would no longer need the consent
on a material/technological limit, however, are likely to suggest far lower capacity utiliza- tion. Veblen, for one, estimated this utilization to fall short of 25 per cent (Veblen 1919: 81), a figure not much different from later estimates reported in Blair (1972: 474) and Foster (1986: Ch. 5). Interestingly, though not surprisingly, US military contractors, engaged in the most destructive form of business enterprise, sometime operate at as little as 10 per cent of their capacity - while earning superior rates of return (U. S. Congress 1991: 38).
12 A glimpse into what such a 'free run' might look like is offered by the recent experience of Japan: 'The underlying problem facing many Japanese companies', writes the Financial Times, 'is that they have misallocated capital over a long period. Instead of regarding it as a scarce resource to be used as efficiently as possible, they have pursued engineering excellence. . . . Japanese production lines are often models of automated efficiency, but less attention has been paid to whether the goods on them should be produced at all. Many companies have poured cash into projects that will never generate a return above the cost of capital' (Abrahams and Harney 1999).
13 Business limitations on the direction of industry are much more difficult to delineate and shall not be examined here.
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"Business As Usual" = Stategic Limitation of Industry
? ? ? Maximum "INDUSTRY" Minimum Sabotage (capacity utilization) Sabotage
Figure 12. 1 Business and industry
of owners, and these owners would then be unable to extract their tribute earnings. 14
In a capitalist society, 'business as usual' means oscillating between these two hypothetical extremes, with absentee owners limiting industrial activity to a greater or lesser extent. When business sabotage becomes excessive, pushing output toward the zero mark, the result is recession and low capi- talist earnings. When sabotage grows too loose, industry expands toward its societal potential, but that too is not good for business, since loss of control means 'glut' and falling capitalist earnings. For owners of capital the ideal condition, indicated by the top arc segment in Figure 12. 1, lies somewhere in between: with high capitalist earnings being received in return for letting industry operate - though only at less than full potential. Achieving this 'optimal' point requires Goldilocks tactics - neither too warm nor too cold - or what Veblen sardonically called the 'conscious withdrawal of efficiency'.
This theoretical relationship receives an astounding empirical confirma- tion from the recent history of the United States, depicted in Figure 12. 2. The
14 This hypothetical possibility was contemplated with great horror more than a century ago by The Spectator of London. In discussing workers' cooperatives, the newspaper concluded: 'They showed that associations of workmen could manage shops, mills, and all forms of industry with success, and they immensely improved the conditions of the men, but they did not leave a clear place for the masters (May 26, 1866, quoted in Marglin 1974: 73, emphasis added).
? "BUSINESS" (capital income share)
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18
16
14
12
10
8
Figure 12. 2 Business and industry in the United States Note: Series are shown as 5-year moving averages.
? ? ? ? 1987
1943
2007
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1948
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? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 26 24 22 20 18 16 14 12 10 8 6 Unemployment (%)
4 2 0
Source: U. S. Department of Commerce through Global Insight (series codes: INTNETAMISC for interest; ZBECON for profit; YN for national income; RUC for the rate of unemployment).
chart contrasts the success of business on the vertical scale with the limitation of industry on the horizontal. The former is measured by the income share of capitalists (profit and interest), the latter by the rate of unemployment (inverted from right to left). 15 The data clearly show the negative effect on business - both of excessive industrial sabotage until the early 1940s and of insufficient sabotage during the Second World War. 'Business as usual' was restored only after the war, with growing industrial limitations helping
15 In their empirical work, many radical political economists consider as capitalist all non- labour income - including profit, interest, proprietors' income and rent. We find this encompassing perspective deeply misleading for two reasons. The first is technical. Many proprietors work for a living, while a significant proportion of rent is imputed to owners' occupied dwellings. As a result, it is never quite clear what part of these incomes is 'capi- talist'. The second and perhaps more important reason is that the bulk of profits and interest is earned by large capitalist organizations, while most proprietors' income and rent is earned by individual owners. The former exercise enormous power, while the latter have little or none.
? Profit and Interest / National Income (%)
Accumulation and sabotage 239 capitalists move up and to the left on the chart, toward their 'optimal' income
share. 16
Taking stock and looking ahead
Building on Veblen, our discussion so far has illustrated how business and industry could be thought of as fused yet distinct spheres of capitalism. According to this framework, industry is an integrated creative process whose productivity derives from the totality of its purposefully resonating pulses. By contrast, business is a power process carried out through the prerogatives of ownership. Owning per se is an idle act. It has no productivity and therefore no bearing on industry, either positive or negative. Owners of course can impact industry indirectly. But for this impact to be profitable it has to be negative. It is only by stirring the development of industry in directions that are wasteful and harmful yet easier to control, or by strategically limiting its pace so that their own discretion doesn't become redundant, that profit can be earned. It is this threat of dissonance that enables absentee owners to lay claim to a process to which they do not directly contribute. That is how capi- talist earnings are generated.
In what follows, we concentrate specifically on the way in which business limits the pace of industry. Extending Veblen, we identify two types of sabo- tage: (1) universal business-as-usual limitations that are carried out routinely and uniformly by all firms; and (2) limitations that are unique to a single company or group of companies. Corresponding to these two types of limita- tions are two rates of return: (1) a normal rate of return that all capitalists believe they deserve; and (2) a differential rate of return that capitalists seek over and above the normal.
Pricing for power
Begin with the universal methods of sabotage. To the uninitiated, these are practically invisible. They involve no violence and force, no fire and blood, no hunger and deprivation. They do not even seem to restrict industry. For the most part, their path is clean and detached. And the reason is simple: they operate not directly, but indirectly, through the fundamental unit of the capi- talist order: price.
From price taking to price making
According to received liberal dogma, firms are 'price takers': they accept whatever price mother market gives them. The reality, though, seems to
16 A similar non-linear pattern emerges if we substitute the official rate of 'economic growth' for the rate of unemployment (on an inverted scale). However, given our mistrust of 'real' measurements, we forgo this illustration.
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suggest the exact opposite. The standard practice, documented extensively and repeatedly since the 1930s, shows that most modern firms are 'price makers': they set their own price and then sell as much as possible at that price.
Neoclassicists have fought tooth and nail to deny this inverted reality. They had no other choice: to recognize price making would have pulled the rug from under conventional price theory and brought down the rest of economics. Substantively, their counterattack was a failure. Although led by some of the heaviest guns, it hardly dented the facts: price making was here to stay. Pedagogically, though, the attack was highly successful. It managed to expunge the whole debate from introductory economics textbooks, with the result that today's students know little or nothing about the controversy. A brief outline therefore seems appropriate. 17
The first to question seriously the competitive price-taking model and to emphasize the tendency toward oligopoly and monopoly was Veblen. 18 During the roaring twenties his interventions were duly ignored; but by the 1930s, with the Great Depression having opened the door to intellectual dissent, his insights began to echo. Within a few years, the neoclassicists found themselves confronted with two sets of challenges.