This is an interesting perspective I haven't considered much before. Let's analyse this point a bit more. This post is a bit of a rambling stream off the top of my head.

First, what I have thought about casual clothing up to this point: I always considered the concept of telling other people what they should have to wear to work to be somewhat ridiculous. When I think of being forced to "dress up", the places that this could be useful that come to mind are 1. when you want to maintain a consistent aesthetic amongst a group of people ie. a funeral, a wedding, a party, 2. when you want to make an artistic statement ie. "dressing up to look nice", whether this means impressing your boss or impressing a potential mate. In either case dress generally assumes the form of what I consider a "costume": Clothing that is meant to do something apart from just cover the body. Some people are naturally more comfortable more dressed up than others, some people consider wearing their favourite casual shirt "dressing up". "dressing up" is not a binary thing, it is a spectrum, you can be a little dressed up or a little dressed down. Sometimes having too casual a dress culture can be alienating to those whom like to dress up. This is a real issues, however I've tended to sweep it under the rug and not considered it in too much detail before.

Now let's look at the concept of casual dress causing "casual culture". For the sake of this thought, let's just assume "casual culture" is in fact a bad thing. For reference, I think casual culture is not entirely a bad thing: I think the core of work being "too casual" really means it's casual to the point where things are laid back enough that things are not progressing efficiently, and overall employees cannot feel satisfaction from the level of work being completed. Again this is entirely subjective, workers from different countries may think what you are calling casual culture is "too uncasual" or working "too casual". And of course casualness is also a spectrum not a binary "casual" or "non-casual".

With this definition I think the core subjective nature of the comment starts to become apparent: When is work "too casual" ie. "when are we not taking ourselves seriously enough to feel satisfied and get work done"? Rather than trying to figure out the total casualness level that makes work "toxic", let's instead look at each action by itself how it effects total casualness. The "delta casualness" of an event if you will. For example, if we move from dressing in classic "work clothes" to dressing in something closer to weekend wear, this has a net effect of increasing casualness. It also has the "feedback effect" which you state as inspiring "casual culture". Let us ignore this feedback effect for now. So is this increase, without taking into account the feedback effect, good or bad?

The core cons I see in casual clothing are quite obvious: less comfortable, need to spend money on pointless objects in order to increase casualness, lack ability to express oneself. In other word there is no core utility in casual clothing.
What are the pros of casual clothing? Honestly there really aren't any large I can think of, except for as mentioned previously the feedback effect. Let us then look at the feedback effect.

The feedback effect, whereby an increase in casualness causes a further increase in casualness leading to a "toxic culture" is debatable. Let's assume that it's real though. What actually are just changing our clothes doing to us as people that causes the overall culture to be effected so dramatically? I think it's similar to working at home vs going to work. I think many people, myself included, find it much more difficult to work at home than working at work, purely because we feel less of that motivation to actually do work. When I have to go to work, I have to then justify having just spent 30 minutes commuting to work, which I do by saying in my head "Why did I just waste 30 minutes on travel? ah yes I did it to get work done, therefore I should work". It forces me to get into "work mode". I think that casual clothes similarly just push us mentally in this direction. "Why did I go through all this effort of getting dressed up like this? Oh yes it's to work. Thus I will start my work". It's simply being used as a token to express our "seriousness".

However I think that really any sacrifice can be a "token of seriousness". As I say, commuting to work in my own life has always been a big motivator. If it were socially acceptable and not cult like, we could have people scream and chant at the beginning of every day. In fact some examples of this are Walmart with their weird Walmart chants, and schools with the pledge of allegiance and national anthems. In fact both these places also (sometimes) bear uniforms, again acting of tokens of seriousness. What makes a token of seriousness depends on the person and the environment, and thus the effectiveness of the tokens are generally quite subjective. Not wearing casual clothes will only cause a feedback effect of decreasing the seriousness of work if it was a significant token of seriousness in the first place.

So the question really boils down to, "is dressing up a useful token of seriousness?" Which I have to state in my opinion it isn't. The things that make me feel serious are generally maintaining proper hygiene, proper schedule, moving to a physical place of work daily. Not dressing up does cause a small drop in seriousness I agree, however I think this drop is acceptably small. I warn however I am very heavily biased towards a lack of dressing up due to having never worked or been educated anywhere which required dressing up.

So what is the solution? I think that individuals should find their own tokens of seriousness if they need them. This is why an open dress policy is good: it makes it optimal for everyone so long as everyone is making sure to push themselves to make logical decisions about self motivation. If they feel better dressing up then they should. In practice, I mentioned before this casual dress culture does actually cause it to be more difficult for others whom find dressing up a reasonable token of seriousness as they now they stand out whenever they dress up, and perhaps this is a serious issue (a seperate debate). Yes there is some merit in everyone dressing up and keeping a consistent aesthetic, however I don't think this aesthetic significantly changes the culture (another debate surely). I think dressing up largely changes just the individual's seriousness. If a boss is properly devoted to maintaining a non-casual workplace, simply forcing people to dress up will probably increase seriousness a little, but it is not a fix for your coorporate culture as it is not a significant enough token of seriousness for many. I think if you do not want people to be less casual you do it through other more direct means, for example creating a culture of overtime, short breaks, lack of "screwing around" on work time, etc. It feels silly and manipulative to make everyone wear a costume in hopes of inspiring them to work harder rather than just making your end goals clear.