Budget Constraints and Business Enterprise: A Veblenian Analysis
"It takes money to make money" as Poor Richard might say. Business opportunities multiply as the capital at hand increases, whereas they dwindle to little or nothing when capital is relatively insubstantial. While this aphorism, qualified in one way or another, sustains wide credence perhaps even among economists, it is not always recognized that it stands in conflict with the normative ground of property rights under the canons of classical thought. In the classical tradition, the productivity of real resources (in classical theory: labor; in neoclassical theory: land, labor, and capital) is the normal ground, both actual and legitimate, of the ownership of wealth and receipt of income. Thus productivity is the "normal basis" for the consumer's budget constraint. The premise that "it takes money to make money" upsets this classical postulate, because it implies that the strategic use of money assets is a means to acquire more money assets, in which case money has real causal force, both in the acquisition of income and in the control of productive enterprise. That being the case, one could not hope to reduce the sources of individual wealth to expenditures of productive force. The paper shows that the Veblenian critique can be used as the basis for a critique of the neoclassical treatment of budget constraints. It is argued that the structure of neoclassical producer and consumer theory sustains this underlying canon of classical thought. The latent influence of this canon can be seen in the asymmetrical treatment of budget constraints. The neoclassical consumer faces a budget constraint, which, it is strongly suggested, is somehow derived from the productivity of his land, labor, and capital. However, the neoclassical producer faces no comparable budget constraint on his productive enterprise.