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Торстейн Бунде Веблен
(1857-1929)
Thorstein Bunde Veblen
 
Источник: Journal of Economic Issues, Dec97, Vol. 31 Issue 4, p1011, 16p
Knoedler, Janet T.
VEBLEN AND TECHNICAL EFFICIENCY
It is well known that Thorstein Veblen accused the turn-of-the-century captains of industry of sabotage. What is not so well known is that, for Veblen, sabotage was not simply a pejorative term. By sabotage, he meant a "conscientious withdrawal of efficiency" [Veblen 1990a, 38]. But efficiency, as both Veblen and a number of the engineers of his time used the term, was not the now-standard microeconomic efficiency represented by the minimum point on a U-shaped long-run average total cost curve. Veblen espoused a "technical," rather than a cost-based, definition of efficiency. The difference between these two views of efficiency can best be understood by focusing on some of the early engineers--in particular the early Taylorites--from whom Veblen borrowed heavily and who were in turn influenced greatly by Veblen in their own thinking about efficiency.
Engineering Efforts to Understand and Measure Technical Efficiency
Veblen's definition of technical efficiency was itself an engineering definition. It derived from his view of modern industry as a "[comprehensive] machine process" [Veblen 1988, 5] that was organized by means of pecuniary transactions to allow for careful management of the many interstitial adjustments that coordinated the various related branches of industry. For Veblen, technical efficiency existed when interdependent mechanized production processes throughout the economy worked together "in an efficient manner, without idleness, waste, and hardship" [Veblen 1988, 18] to produce the maximum possible amount of output, using the most technologically sophisticated industrial techniques available.(n1)
Even more important, perhaps, is that a similar notion of technical efficiency was devised by engineers at around this same time--some progressive, some merely inclined by their training to study the industries in which they were employed from an engineering point of view.(n2) As engineers gained employment in American firms in greater numbers around the turn of the century [e.g., Gross 1969, 18; Rae 1979, 253; Noble 1979, 39], they had new opportunities to apply their scientific training to microeconomic problems of mechanical production and plant efficiency. As well, the new requirements to coordinate the flow of goods from raw materials suppliers to the ultimate consumer in a precise and expeditious manner in modern mass production firms led engineers to pay greater attention to the organization of human effort within the firm [e.g., Chandler 1977; Nelson 1980]. Some engineers even undertook to apply their scientific methods to what were seen to be the broader economic problems of the day--unemployment, overproduction, low wages, and industrial waste. These early industrial engineers organized their own professional organizations and used them to share their ideas about everything from the intricate details of mechanical procedures to reorganizing the entire economy.(n3) Especially prominent in the discussions of these "technicians," to use Veblen's phrase, was a group of mechanical engineers who, following Frederick Taylor, himself a mechanical engineer, sought to devise a "systematic," or "scientific," management [Layton 1971, 117 95., 146 ff.].(n4)
For many engineers, estimates of efficiency based only on costs were suspect. As William Trowbridge presented his case to the American Society of Mechanical Engineers in 1882, "there cannot be, from the nature of finance and pure mechanics, any exact mechanical relation between abstract mechanical laws and financial operations. The former are invariable and immutable, the latter dependent upon bargain and sale" [Trowbridge 1882, 258]. Others were critical of trying to measure human labor in dollars. One such engineer was Henry Gantt, a prominent disciple of Frederic Taylor and an engineer who began to read some of Veblen's work late in his career. He argued that traditional measures of efficiency measured dollars, not productive work, and that, when using such a measure, the "production of goods was always secondary to the harvesting of dollars" [quoted in Polakov 1922, 152].(n5)
When reliance on dollar costs did become a necessity, most Taylorites did not advocate reducing costs especially labor costs--to achieve efficiency. Instead they suggested ways to increase output. Taylor himself advocated high wages "as the foundation of the best management" [Taylor 1972a, 22]. By promoting better labor techniques as well as better management of that labor, and thus increasing the "surplus" (or the sum of wages and profits), Taylor believed that "maximum prosperity" could be had for all [Taylor 1972c, 9, 30 ff.].(n6) While at Midvale Steel, Taylor had succeeded in doubling wages through doubling output [Taylor 1972b, 156 ff.]. Taylor did not necessarily believe that implementation of scientific management would preclude the less talented or the less skilled workers from attaining a decent wage. When testifying before the Special Committee of the House of Representatives to Investigate the Taylor and Other Systems of Shop Management in 1912, Taylor argued that good management would place their workers in the occupation in which they could be most productive [Taylor 1972b]. Robert Thurston, another mechanical engineer, argued that it was essential that workers be rewarded for their greater effort and that "where scientific effort and systematic management go hand in hand, much may be hoped for" [Thurston 1902, 362]. Henry Gantt even advocated a type of incentive wage to "[harmonize] the interests of the employer and the employee" [Gantt 1902, 341], believing that efficiency could be best enhanced by improving labor productivity in pace with the production technology [Gantt 1902, 362]. Gantt also suggested that any measure of technical efficiency aimed at getting the maximum production be termed "economy," rather than "efficiency," because the latter was too often measured in terms of a low direct labor cost [Gantt 1914, 424]. Harrington Emerson [1909, 171] similarly argued that "efficiency is unattainable from overworked, underpaid, brutalized men."
Many engineers began to articulate a definition of technical efficiency that linked the microeconomic concepts of machine or plant efficiency to a new concept of managerial efficiency. Taylor argued from the outset that engineers had to have the authority to reorganize the entire firm from top to bottom, floor space as well as machine selection, management as well as workers, if they were to achieve true efficiency.(n7) In other words, engineers had to have free rein to apply their scientific training to the entire firm. Engineers also began to argue that management bore considerable responsibility for the inefficiency that they increasingly observed. A central argument for Henry Gantt was that a definition of efficiency that focused only on making labor more productive and ignored idle capital was false [Gantt 1918, 801-802]. In fact, Gantt suggested that if efficiency were used simply "to enable the few to accumulate wealth at the expense of the many, it is not worthwhile, for an industrial system that allows this will finally fail" [Gantt 1915, 1281. Gantt, citing his own experience as a consultant, argued that inefficient management was responsible for much observed productive inefficiency [Gantt 1916e, 13181.(n8) Fred Miller [1921, 1097] suggested that "those who would be supposed to have the greatest incentive for the prevention of industrial wastes are found to be responsible for the major portion of the wastes that occur.... they, the owners and directors of industries, are the ones and the only ones, who can adopt effective means to stop these wastes."(n9) Morris Cooke. another Taylorite whose primary engineering activity involved consulting for public utilities, found that great inefficiency came from "systematic plundering" [quoted in Layton 1971, 161] by politicians and businesspersons. Emerson, an industrial engineer who was instrumental in promoting a school of engineering thought similar to that of Taylor's, was convinced by his own vast experience as an industry consultant that the problem of industrial waste "lies absolutely in the managements which have not yet wakened to their problems, and accept enormous wastes as inevitable" [Emerson 1908, 1060].
Given the emphasis placed on standard assessments of costs as an unreliable measure of technical efficiency, a few engineers tried to develop what might be described as financial measures of technical efficiency. The argument was that existing accounting systems did not collect the most useful information on firms. Many engineers viewed the standard accounting of the time as measuring only direct production costs and labor costs with any semblance of accuracy and thus to be an oversimplified measure of the costs of producing and selling goods in firms using large agglomerations of fixed capital and complex organizational structures. Ennis early on suggested that "if [such] a cost-keeping system stops short at dollars and cents on record, it lacks life" [Ennis 1896, 242]. Gantt devoted much of his professional effort to creating an accounting system in which potential output could be compared to actual [Wallace 1921, iii]. Given that, as a logical proposition, when firms operated at less than full capacity, the unit costs of production rose, Gantt suggested an alternative system for measuring whether the facilities and workers were being used as economically as possible [Gantt 1915, 111]. His system of factory accounting was designed to go a step beyond ordinary cost accounting, in that he included usage measures of both total capacity and capacity of individual machines and units, and in that he also accounted for idleness of workers or plants according to its cause [Wallace 1921, 29 ff.].(n10) Gantt was particularly concerned with measuring idleness in the factory, believing that by obtaining such data, the engineer could then "eliminate the causes of idleness, which are lack of work, lack of help, lack of material, repairs, etc." [Gantt 1917, 887]. As described by fellow engineer Walter Polakov, Gantt's system measured waste in a deeper sense, showing "the extent to which the work of other men in recovering, preparing, and delivering this material or energy has been destroyed. It means that the work of hosts of other men has been rendered useless and their productive time forever lost" [Polakov 1922, 157].
More importantly, Gantt was interested in correctly attributing some of this idleness to managers. He suggested that "money wasted by misdirected energy, or by improper policy . . . should be charged directly to the management as a loss" [Gantt 1916a, 20] and should not be part of actual unit costs. This would allow for an assessment of managerial performance missing in conventional cost-accounting systems: in Gantt's view, "the true measure of an executive's work is the product turned out as compared to the total possible product" [Lucey 1920, 415]. In time, Gantt came to suggest that a study of idleness was more useful than a study of "what has been called `efficiency', and . . . should always be completed before the other was attempted" [Lucey 1920, 417]. This would be especially useful to demonstrate to managers that "it cost something to be idle" [Gantt 1917, 888]. A proper assessment of the costs of idleness would make clear that these were unnecessary expenses and would demonstrate that many "costs" are loaded with "the dead weight of idle machinery and tools and [thus] affords an excuse for high prices, . . . [making] possible the claim of idle capital for a reward for which it can show no service" [quoted in Alford 1934, 297]. At the same time, such an accounting would also demonstrate the savings available from improving the efficiency of the capital as well as the efficiency of labor [Gantt 1918, 801].
While little use was made of Gantt's accounting system [Jordan 1989, 296], some use was made of scientific management assessments of technical efficiency. Not surprisingly, the few nationally publicized studies of the gains from industrial standardization and the losses from industrial waste during the war and the postwar reconstruction supported the contentions of engineers such as Gantt and Emerson, as well as those of Veblen, that there were in fact considerable efficiencies to be gained from moving to a standard of technical efficiency in American industry. Standardization was an important part of the war effort, reducing the variation in styles and sizes, and in Veblenian terms, "giving production problems precedence over sales problems" [Haber 1964, 120]. The National Industrial Conference Board calculated the savings achieved by the War Industries Board from standardization for the relevant industries to be about 15 percent [NICB 1929, 9]. Similarly, an industry-wide standardization effort by the Society of Automotive Engineers (SAE) achieved savings of around million, or approximately 15 percent of the retail value of automobiles in the second decade of the century [Thompson 1954]. Louis Brandeis, in challenging the railroads' 1911 request for a rate hike before the Interstate Commerce Commission, used a Taylorite analysis that calculated waste on the nation's railroads to be 1 million a day [Chase 1927, 149: Haber 1964, 53].
In the flurry of support for engineering-led reconstruction efforts after the first world war, the Federated American Engineering Societies (FAES), directed by "The Great Engineer," Herbert Hoover, undertook the first comprehensive national study of industrial waste [Barber 1985, 7]. Hoover's FAES study proposed to examine the economy as a "single industrial organism and to examine its efficiency toward its only real objective--the maximum production" [quoted in Layton 1971, 190]--a Veblenian approach, to be sure. Hoover, while not really a Taylorite, was nonetheless greatly concerned about industrial waste, believing that while technical innovations were important in increasing the American standard of living, "even a greater field of increasing standards lies in the steady elimination of these wastes" [Hoover 1976, 331]. The FAES study identified lack of standardization as a major cause of less than maximum levels of production [Committee on Elimination of Waste in Industry of the FAES 1921]. Taylorites conducted the six individual industry studies and concluded that the majority of the waste occurring in all six cases should be attributed to inefficient or otherwise defective management practices: in some cases up to 80 percent of the waste was ascribed to management failures and inefficiencies [Committee on Elimination of Waste in Industry of the FAES 1921; Layton 1971, 202 ff.].(n11) Hoover estimated that total industrial capacity being used in 1921 was no more than 60 or 70 percent [Hoover 1976, 331]. When Hoover served as Secretary of Commerce for Harding, he undertook to implement some of the suggestions from the FAES waste study. Through the efforts of the Commerce Department's Bureau of Standards and its Division of Simplified Practice, Hoover began to promote widespread use of standardized specifications as one way to eliminate such waste. These proposals alone were estimated to have saved around 3.3 percent of GDP annually [Barber 1985, 131.
Many of the Taylorites, as they gained more experience in using their techniques within firms and industries, sought to apply some of the principles of scientific management on an even larger social scale to bring about greater material prosperity and social harmony [cf. Akin 1971, 9 ff.; Alchon 1985]. Much of the sentiment for more careful measurements of idle facilities was due to the engineers' recognition that idleness led to pervasive and systemic waste. Walter Polakov [1917, 892] observed that "if we left our machinery idle or inoperative, the results were the same as those due to the sinking of our ships, the blowing up of munitions factories, or the burning of grain elevators." George Hull [1902, 820] described "every day of idleness" as "a permanent and irreparable loss to the producer, the employer, and the community." Harlow Person [1929, 25-26] suggested that "elimination of waste at the machine or work place has since been extended to include elimination of waste in all the activities of an enterprise, and has had influences in developing the still larger concept of social waste." Emerson [1909, 16] as well argued that wastes--"wastes of material, wastes of friction, wastes of design, wastes of effort, wastes due to crude organization and administration"--could be eliminated through a careful industrial engineering approach to production and distribution, and the resulting increase in output used to eliminate all sorts of social evils. Taylor believed that scientific management techniques could be used to attack many social problems [Layton 1971, 143]. When he testified before the House Special Committee on scientific management, Taylor suggested that there was "an immense reform needed in the distribution" of goods and services [Taylor 1972b, 186]. Such proposals drew on the progressive engineering ideology that scientific methods could be applied to the entire economic system for the betterment of all of society. Emerson argued that "true efficiency [meant] ameliorated conditions for the worker, both individually and collectively--not only for the worker, but also for the employer--not only for the employer but also for the corporation, and finally for the nation" [quoted in Jordan 1994, 37; see also Emerson 1909, 171]. Even Hoover, one of the more conservative engineers to address some of these social concerns, saw unemployment as the most important waste to be eliminated [Alchon 1985, 65]. Moreover, Hoover denied the logical possibility of overproduction, arguing at one point that "there is no such things [sic] as the nation [sic] over-production, if it produces the right commodities. The commodities or services produced by the whole nation are capable of absorption by the whole nation if they are of the right character. In other words, if we could attune the whole industrial machine to the highest pitch, agriculture as well as manufacture, an increasing production would mean a directly increasing standard of living" [Hoover 1976, 332]. In this he joined other engineers, some economists, and early social workers in arguing that an increase in production and the resulting decrease in unemployment should be the policy goal in 1920s America [Alchon 1985, 46]. While the two major studies actually completed by FAES were fairly narrowly focused on the study of industrial waste and the 12-hour work shift, broader studies on the industrial system and the problems of business cycles were also planned [Anon 1923, 5-8].(n12)
Some even went so far as to blame the profit system itself for widespread technical inefficiency. M. L. Holman, a mechanical engineer interested in conservation of natural resources, noted in 1908 that wasteful practices in mining not only led to waste of coal, but loss of human life, all due to an "uncontrolled greed for gain" [Holman 1908, 605]. Ira Hollis, one-time president of the ASME, suggested that microeconomic efficiency was in conflict with macroeconomic efficiency, in that macroeconomic efficiency "will maintain the republic but the efficiency of the individual acting alone will create such division as to destroy it" [quoted in Stabile 1984, 85]. Charles Steinmetz, an avowed socialist and yet good corporate citizen for his employer General Electric, often argued, as did Gantt, that efficiency was merely a means to an end and that industrial efficiency was only part of the meaning of efficiency. Industrial efficiency, he argued, was merely "the efficiency of a man as a cog in the industrial machine, but not his efficiency as a human being. What, then, in our purpose, is efficiency? It is to make the most of our lives and our industrial productivity is but a part of the means to that end, although it is not the end" [quoted in Jordan 1989, 59]. Gantt too proposed that the "business system has its foundation in service, and, as far as the community is concerned, has no reason for existence except the service it can render" [quoted in Anon 1920, 4101. Gantt proffered his many ideas about measuring costs and efficiency as a means to the end of solving the struggle between workers and employers for higher wages and higher profits, seeing this to be a "broad question" for the country "as a whole" [Gantt 1915, 128]. Nonetheless, Gantt was also not so much concerned about the rights of property ownership or the inherent conflict of interest between employers and workers. He believed, as did many of the Taylorites, that the increase in output to be achieved by better planning of the industrial works would eliminate any such conflict of interest: "an engineer's way of eliminating the profit system would be to encourage production and make the distribution of the product such a frictionless thing that salesmanship would become almost a lost art" [quoted in Alford 1934, 261].
If technical efficiency, conceived as the most progressive of these engineers used the term, in terms of maximum production, full use of all industrial capacity and resources, and maximum prosperity for all. was to be achieved, the solution was the same one proposed by Veblen. To quote Henry Gantt, true efficiency came from making the fullest use of the industrial plant. In his view, "the only men organized for the promotion of productive efficiency are the engineers" [Gantt 1916e, 1318]. Moreover, engineers were the only members of the community "who understand the needs of the nation, desires of the workmen, and the power of the productive forces" [Gantt 1919, 332]. Thus, technical efficiency required that "industry [be put] in the hands of those who will organize it for production at the lowest costs" [quoted in Alford 1934, 298]. Steinmetz believed that large-scale enterprise and monopoly power could be harnessed by engineers working in management to achieve technical efficiency and thus bring about shorter working days, greater material progress, and elimination of unproductive consumption, all via scientific logic and social planning [Jordan 1989, 78 ff.]. Jewett [1916, 1316] went so far as to argue that engineers should direct sales as well as production, arguing that "it was the distributing mechanism that was at fault when machinery in the mills and factories was idle and many people lacked sufficient food and clothing." When ASME member Fred Miller suggested in 1921 that over time more and more industries would come to be directed by engineers "who know how to direct them for production and who will regard production and service as the prime objects to be attained by an industrial organization" [Miller 1921, 1100], he came even closer to calling for engineers to form the Veblenian soviet of technicians.
A Brief Surrey of Economic Thought about Production and Efficiency
What is most useful in the analysis of technical efficiency, offered by Veblen and by these progressive engineers, is that it is grounded in an analysis of the actual workings of the modern mass production American firms that changed so much of twentieth-century American life and work. Their analysis provides an important missing link between microeconomic efficiency and macroeconomic prosperity.
Economic theory of production had a promising start with Adam Smith's pin factory. In explaining the benefits of the division of labor, Smith observed how allotting specialized tasks to pin factory workers led to greater dexterity by the workers and considerable saving of time from moving from task to task and allowed for output of pins to increase from a mere 20 pins to 4,800 pins per worker per day [Smith 1937, 4-5]. This analysis has been used by economic theorists to show how the efficiencies resulting from such specialization can produce the economies of scale associated with large firms, where large quantities of output lead to the famous U-shaped long-run average total cost curve. Yet Smith was more concerned with the problem of expanding the nation's output, so the objective of increasing the efficiency of a pin factory was a means of achieving maximum macroeconomic production.
Despite this promising start to an empirically based analysis of the modern firm within an industrial economy, an important shift in economists' views of production occurred through the efforts of the nineteenth century marginalists. Neoclassical theorists emphasized consumption as the sine qua non of economic life and thus began to analyze all costs, including production costs, in terms of their alternative uses, and to analyze production solely in terms of its ultimate purpose of consumption. J. B. Say, writing in the classical tradition, articulated this view as early as 1803 by declaring that production was "the creation, not of matter, but of utility" [quoted in Henry 1990, 109].(n13) Marshall, in his famous principles, explained that "man cannot create material things.... he really only produces utilities; or in other words, his efforts and sacrifices result in changing the form or arrangement of matter to adapt it better for the satisfaction of wants" [Marshall 1949, 63]. Thus, Marshall's derivation of the supply curve became an analog to the demand curve. Demand being the willingness to acquire commodities, supply became the unwillingness to undergo "discommodities" [Stigler 1968, 64]. Accordingly, Wicksteed thus could describe production costs as "simply and solely the `marginal significance of something else'" [Stigler 1968, 471. Efficiency became a concept rooted in abstractly conceived opportunity costs, rather than deriving from any measurement of actual production costs, and technical efficiency became equated with pecuniary efficiency.
These concepts were formalized in their modern form with Paul Samuelson's [1983, 57] articulation of the neoclassical theory of production. Modern neoclassical theory of the firm centers on the production function, a model of the technologically feasible region of production available to a given firm. Technological efficiency is achieved either by minimizing the physical quantities of inputs used to produce a fixed quantity of physical output or by maximizing the quantity of physical output obtained from fixed quantities of physical inputs. Assuming that inputs are substitutable, at least across some range for some kinds of production--a key assumption not well substantiated for modern production processes,(n14) then different combinations of these inputs can be used to produce the same quantity of output, and the decision about which combination to use can be based on the least-cost combination of these inputs. In other words, if these assumptions actually hold, then the neoclassical conclusion, as summarized by Tjalling Koopmans, is a rough, albeit sterile, approximation of technical efficiency: the efficient manager is assumed to choose "that combination of productive activities which maximizes the amount produced for given available quantities of factors which have given qualitative characteristics" [Koopmans 1950, 34]. As a result, it is assumed that economically efficient outcomes are a subset of technologically feasible outcomes [Ferguson 1969, 18].
While even mainstream economists sometimes refer to the scarcity of good data on production and costs. for the most part, they have left these propositions as theoretical concepts still awaiting empirical validation. Noted econometrician John Johnston, who has tried to compile actual cost data on engineering functions, even suggested that the law of diminishing returns--the central theoretical element underlying U-shaped cost curves--applies mainly to the agricultural case. Menger even demoted this "law" to a "promising hypothesis" [Johnston 1960, 9]. Yet this "law" is still used uncritically to support derivation of the traditional U-shaped cost curves found in most economics textbooks [Johnston 1960, 11].
Any U-shaped cost curve would have been seen by the early engineers as excessively focused on cost-based measures of efficiency and thus as an inadequate representation of technical efficiency. Because the U-shaped cost curve is without much empirical backing, it is also an inadequate representation of pecuniary efficiency.(n15) Meanwhile, non-cost-based measures of technical efficiency and maximum production grounded in analysis of real firms have been overlooked by the profession. Only by constructing an elaborate edifice of assumptions about how production should take place and how firms should organize their inputs have economists been able to equate technical to pecuniary efficiency.
In short, since the work of Adam Smith, neoclassical understanding of production has been constructed on a foundation of assumptions about production functions that are increasingly removed from investigation of actual firms. Early engineers used their expertise about actual firms and production functions to distinguish between technical and pecuniary efficiency and to argue for the former as the more important measure. Veblen also recognized this disparity and made much the same argument. The standard treatment of costs in modern microeconomics and the lack of any macroeconomic concepts of technical efficiency represent the victory of an economics based on exchange relationships rather than on real production possibilities.
Conclusion
Engineers abandoned their pursuits of an engineering-based understanding of technical efficiency as they became acculturated into managerial perspectives and business pursuits in the 1920s [Knoedler and Mayhew 1994]. They adopted definitions of efficiency that were much more compatible with conventional pecuniary measures. These measures quickly became dominant as engineers learned to become "economists" in the narrowest sense of that term.
Two comments by and about Gantt, the Taylorite who sought most diligently to develop a model of the economy using his engineering training and Veblenian ideas, suggest that a more useful brand of economics might have been constructed had more engineers endeavored to use their engineering training to understand the new industrial system. Gantt suggested in 1919 that economists were concerned mainly with understanding exchange and trade and thus understood little about actual production processes, where engineers by contrast were the only members of the community "who understand the needs of the nation. desires of the workmen, and the power of the productive forces" [Gantt 1919, 332]. Yet he confidently predicted that "the day will come when the principles underlying the managing mechanism for an industry will be as clearly defined and as well understood as those underlying the design of a steam engine.... It is the function of the engineer to discover or develop those principles [Gantt 1916a, 18].
Commenting on what French engineers had learned from Gantt's work, Freminville expressed considerable criticism of commercial definitions and objectives, as well as of economists:
In bowing low before this law [of profit] and accepting all its consequences without reserve, the economists did nothing more than to enthrone empiricism and individualism and the craving for an immediate profit. They ignored that the new processes of industry demanded important scientific knowledge and a coordination of efforts all the more difficult to realize by the diversified character of industrial activities.... The school of scientific management . . . undertook also the solution of the economic production, but it followed a method altogether new. Instead of finding the explanation of industrial crises in vague and uncertain theories and rigid formulae, it developed a truly scientific spirit and its methods rested on scientific principles. It applied itself to the study of the simplest elementary facts, and demonstrated that industry suffered from evils whose evils had been underestimated and which it would not be possible to remedy without effecting important modifications in the industrial organization [Freminville 1920, 426].
Veblen continued. to the end of his career, to refine his concepts of technical and pecuniary efficiency, based on his observations of the changing nature of modern business and modern industry. "Great profits," he suggested, "are achieved not from productive efficiency, but from shifts in the distribution of ownership in vendible capital or securities" [quoted in Dorfman 1961, 225]. Yet the received economics became a study of salesmanship, rather than an understanding of "the industrial system considered as a ways and means of producing goods and services" [Dorfman 1961, 446]. In short, the pecuniary definition came to have primacy in both the business community and the community of economists' and technical definitions faded from the scene.
Notes
(n1.) Veblen took pains to distinguish between technical and pecuniary efficiency in his first major book, The Theory of the Leisure Class [Dorfman 1961, 183]. He elaborated on these distinctions in Instinct of Workmanship: "Industrial efficiency, whether of an individual workman or of the community at large, is a function of the state of the industrial arts" [Veblen 1990, 1451--i.e., an efficiency rooted in modern industrial techniques and maximum output. By contrast, the conventional measures of efficiency--termed by Veblen pecuniary efficiency--referred to "proficiency in pecuniary management and the acquisition of wealth" [Veblen 1990, 349]. Veblen saw these two measures of efficiency as being incompatible and not simply as different ways of expressing the same outcome [Dorfman 1961, 193-1941.
(n2.) The engineers' broader definition of technical efficiency was an outgrowth of an earlier debate in the late nineteenth century, during which engineers developed two definitions of efficiency--technical efficiency and commercial efficiency--that paralleled the distinctions adopted by Veblen. Technical efficiency was simply an engineering relationship between the quantity of inputs and the quantity of output, or what is seemingly represented by the economist's production function. Commercial efficiency occurred when the costs of producing that output were minimized. A good statement of the various kinds of efficiencies considered by engineers is provided by engineer William Ennis in which he equated various engineering definitions of efficiency: "Quotient of work performed by work imparted, of value by cost, of effect by cause" [Ennis 1896, 242].
(n3.) Edwin Layton describes the formation of the major engineering associations in his classic book The Revolt of the Engineers [1971].
(n4.) Some engineering trade magazines took notice of these progressive engineering ideas and even helped to promote them to engineering and business leaders [Stabile 1984, 84].
(n5.) Gantt's colleague Walter Polakov suggested as well that dollars could not be used to measure human work [Polakov 1922, 152]. This is not to suggest that all engineers were critical of economic criteria for efficiency or that all engineers were prepared to use engineering ideas for progressive economic reform. In the writings of some early engineers can be found a concept close to that of Veblen's notion of pecuniary efficiency. In fact, one of the first engineering economy texts suggested that "the question `will it pay' . . . must always be present in any engineering decision" [Grant 1930, 9], and other early engineers explicitly introduced concepts like compound interest into their analyses of costs. These concepts ultimately came to dominate engineers' thinking, as engineers seemingly became mainstream economists [cf. Towne 1916; Knoedler and Mayhew 1994; Haber 1964; Layton 1971; Jordan 1994].
(n6.) This required, according to Taylor, a "complete mental revolution" [Taylor 1976b, 27] on the part of both worker and employer. Misunderstanding of Taylor may be due to the fact that managers at most firms resisted implementation of the full Taylor system [Nelson 1980].
(n7.) Some considerable criticism has been heaped upon Taylorism by many as succeeding mainly in getting the workers to cede control over their work to management. Braverman [1974, 90], for example, explains that Taylor's "`system' was simply a means for management to achieve control over the actual mode of performance of every labor activity" [Braverman, 90] and thus to accord even more control over the workplace to management. Stabile [1984, 39] also suggests that Taylorism had the effect of speeding up the workers, led to an intensification of workload and promoted greater technical control over workers.
(n8.) When Gantt spent some time during World War I organizing munitions plants for greater productivity, he discovered that American workers were the most productive workers in the world, but he found that managerial failure had led to many business failures among this group [Gantt 1916d, 806].
(n9.) Miller [1921, 1100 1101] also argued that "the major cause of waste in manufacturing lies in defective administrative methods," noting that changes in management had often dramatically improved the efficiency of industrial firms.
(n10.) These causes included seasonal or cyclical variations in demand, bottlenecks in obtaining inputs, or problems of managerial coordination.
(n11.) Layton [1971, 203] suggests that these results may have been overly weighted to find fault with management, due to the fact that the study measured responsibility for waste in terms of opportunity for removing the waste rather than in terms of moral responsibility for causing the waste and also due to the general tendency for Taylorites to believe that most waste was preventable with good management.
(n12.) These studies were not carried out due to the increasing business opposition to FAES in the wake of the implied critique of management practices by the FAES Waste in Industry study.
(n13.) This of course was part of an effort by early economists to repudiate the labor theory of value found in Smith and Ricardo.
(n14.) Johnston [1960, 7, 14] notes that most of the available data is for agriculture.
(n15.) The famous engineering studies of cost curves done by Joe Bain in the 1950s suggested that cost curves for most large manufacturing firms in the United States were relatively flat [Shepherd 1997, 166 ff.].
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