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Archibald Galbraith, a Canadian schoolteacher, once climbed onto a platform atop a steaming pile of manure to address a group of Liberal party voters before the coming Ontario elections.
“Before I begin,” he said, “I must apologize for speaking from the Tory platform.” Later on, his teenage son, John Kenneth, would congratulate him on the dig, to which he [Archibald] would respond, “It was good. But it didn’t change any votes.” (Arthur Scheslinger, 1984, p. 7) So, from an early age, John Kenneth Galbraith was between the world of politics and pragmatism.
John Kenneth Galbraith was born in 1908. His father’s involvement in politics had a profound impact on the young John Kenneth, politicizing him at an early age. He originally studied Agricultural Economics at the Ontario Agricultural College, but would eventually say that he took his first “real” economics course at UC Berkeley, and that the economics instruction in Canada was “very poor” (Dunn, 2002, p. 350). As a graduate student at UC Berkeley, he continued his study of agricultural economics and worked as a research assistant for a “very zany old man by the name of Edwin Voorhies” (Kreisler, 1986). He stated that it was his study of agricultural economics that left him with a strong feeling that “social science should be tested by its usefulness,” an idea inspired by Veblen’s dichotomy between exoteric knowledge (knowledge that is valuable and applicable) and esoteric knowledge (knowledge that has no practical application, but because of that, is considered more “prestigious”). Galbraith believed that social sciences should be exoteric, not esoteric. In his book Economics and The Public Purpose, Galbraith develops this idea further, saying, “The ultimate test of a set of economic ideas is whether it illuminates the anxietes of the time” (Galbraith, 1973, p.198).
In the 1930’s, while Galbraith was studying to receive his Ph. D, it was clear that economic theory was not addressing the anxietes of the time. Economists were struggling to explain how free markets had led the United States to economic ruin. One in four Americans were jobless. Production had all but ground to a halt. Obviously, there were egregious errors in the accepted dogma, which stated that free markets left to their own devices would bring about efficiency and employment. Galbraith said that his method of coming to an understanding was to “for years…start with [Alfred] Marshall, see the world as it is, and make the requisite modifications” (Dunn, 2002, p. 351). Upon graduating, Galbraith traveled to Washington D.C. and took a position assisting with the implementation of the Agricultural Adjustment Act, before taking a position as a tutor at Harvard. At Harvard, he made speeches supporting the reelection of Roosevelt, cementing his initial ties with the Democratic party. Not long after, he was offered a fellowship at Cambridge, where the discussions centered around Keynes, who had just published his General Theory of Employment, Money, and Interest (Dunn, 2002, pp. 350-355).
Galbraith returned from England to his tutor position at Harvard a confirmed Keynesian.
He spent a few more years tutoring at Harvard (where he met John F. Kennedy) and then took a job as resident economist for the American Farm Bureau Federation in Washington. Galbraith’s observation of the farm industry solidified his belief in the power of government to move industries forward. In 1930, farm households accounted for a quarter of the population, whereas today they account for only 1% of the population and yet on the whole, they now produce more than they did in 1930. This is due to strong government support of the farming industry. That national planning could “transform a weak, disorganized, and poverty prone sector of the economy into America’s most spectacular productive success…preserved his political concerns” (Arthur Schlesinger, 1984, p. 8). Galbraith became head of the Office of Price Administration in 1941 during World War II, and at the same time began his long career as a ghostwriter, penning speeches for Samuel Rosenman and Robert Sherwood (Arthur Schlesinger, 1984, p. 8).
Galbraith then became editor of Fortune magazine, where he worked directly for Harry Luce, founder of Time Inc., whom he called “one of the most ruthless editors I have ever known, or anyone has ever known” (Kreisler, 1986). Galbraith has credited Luce with dramatically improving his writing via ruthless editing. Galbraith credited Fortune with giving him a “marvelous introduction to the corporate mind,” because the focus of the magazine at the time was “the anatomy of the big corporations” (Dunn, 2002, p. 353). The decision making processes of major corporations would be a recurring phenomenon that he would write about in many of his publications.
Galbraith returned to Academia in 1948, having spent five years as editor of Fortune. He was nominated to a position teaching economics at Harvard. However, members of Harvard’s board of overseers regarded him as a “dangerous Keynesian,” and as a result, “took the step, almost unprecedented in modern times, of blocking the appointment” (Dunn, 2002, p. 353).
However, Galbraith had many political allies, and among them was Harvard’s president, James B. Conant. Conant was such a fan of Galbraith that he threatened to resign unless the board of overseers backed down. Eventually they did, and Galbraith became a tenured professor at Harvard. It was then that he began work on his first major bestseller, American Capitalism: The Concept of Countervailing Power.
Galbraith begins his discussion of capitalism in America by pointing out the following conundrum: Mainstream economic theory asserts that in the case of monopoly, prices will rise, business will screw consumers, fail to innovate, and as a result, the economy will be in bad shape. He then notes the work of Joan Robinson in developing the idea of monopolistic and oligopolistic competition, noting that oligopolistic industries behave in the same way as monopolies would, and through informal agreements can have the exact same effect. Then, using the actual data collected by the American government, he shows that the majority of industries are in fact oligopolistic. But he goes even further than that, saying that almost all industries will eventually become oligopolistic for the following reasons: At the birth of an industry, competetion is necessary and possible, as no firms have clear and significant advantages yet. But over time, it will become increasingly difficult to enter the industry because of the barriers to entry created by high capital requirements and increasing returns to scale. At the same time that increasing returns to scale start to set in (as they inevitably do), existing firms will also gain the advantage of experience and prior organization. The convergence of these factors leads, in most cases, to an industry with a few power players and a larger but still relatively small number of hangers-on, who exist by filling niches that aren’t worth the time of the large firms.
Galbraith poses a question in American Capitalism, and before getting to that question, it is important to get a sense of the context in which he asks it. After World War II, America was experiencing incredible prosperity. But underlying this prosperity was the fear of depression. The Great Depression was still fresh in the collective consciousness, and the average man’s faith that capitalism would bring about efficiency and full employment was shaken. And yet, as the years after the war progressed, things were stable and employment was plentiful. It is also important to note that the era of non-depression Keynesianism was beginning, and much to the chagrin of the business community, government was becoming a much more participatory force in markets.
The business community was reacting violently against this expansion of government, claiming that it was a complete disaster, wasteful to the very extreme and bound to cripple growth. The state of the American economy in the 1950’s then was that of big government, near-ubiquitous monopoly or oligopoly, and an underlying fear of depression. Yet, by almost any measure, the economy was a success.
The problem, according to Galbraith, was that, “in principle, the economy pleased no one; in practice it satisfied most. Social inefficiency [government spending], unrationalized power [monopoly and oligopoly], intrusive government [regulation], and depression were all matters for deep concern. But neither liberal nor conservatives, neither the rich nor all but the very poor, found the consequences intolerable” (Galbraith, 1954, p. 85). What fascinated Galbraith was how an economy which was so flawed in theory could work so well in practice.
The question he asked was: Why are things so…well…good? Thus, he states that his aim in American Capitalism is to “examine in turn the circumstances that have kept social inefficiency, private power, government intervention, and unemployment from ruining us in the recent present” (Galbraith, 1954, p. 85).
The first answer that he gives is that oligopoly is much more conducive to techonological innovation than classical competetion. “There is no more pleasant fiction than that technical change is the product of the matchless ingenuity of the small man forced by competition to employ his wits to better his neighbor. Unhappily, it is a fiction,” he says. “Technical development has long since become the preserve of the scientist and engineer” (Galbraith, 1954, p.86). His argument is that due to the costliness of development, it can only be undertaken by a firm with considerable resources. In highly competitive industries, no one firm has considerable resources. Moreover, because innovations can easily be imitated, it is not economical for a small competitive firm to bear the research and development costs for an entire industry.
Galbraith then turns his keen eye to the idea of inefficiency. He deals with this issue by asserting that America’s relative opulence shields us and is moreover a cause of such inefficiency. At the time that the classical economists were writing, an opulent economy had yet to be observed. For Malthus and Ricardo, “inefficiency was, indeed, an evil thing. It denied bread to the hungry and clothing to the naked” (Galbraith, 1954, p.102). The true power of Galbraith’s insight is his ability to point out the obvious. He criticizes his fellow economists for bringing the mentality of the nineteenth century, with all its poverty and degradation, to the opulent twentieth century. Galbraith finds this error both amusing and absurd, saying, “He [the mainstream economist] worries far too much about partially monopolized prices…for tobacco, liquor, automobiles, and soap, in a land which is already suffering from nicotine poisoning and alcoholism, which is nutritionally gorged with sugar, which is filling its hospitals and cemeteries with those who have been maimed or murdered on its highways, and which is dangerously neurotic about body odors” (Galbraith, 1954, p.102). His point is that these inefficiencies are in fact a sign of the wealth of America. They are the symptom of a wealthy economy, and thus we ought not to worry so much about them. He also discredits the idea of intrusive government, noting that, “alarm over pending action by government on economic matters, which frequently reaches almost pathological proportions when the decision is pending, almost invariably evaporates completely once the action is taken. One of the profound sources of American strength has been the margin of error provided by our well-being” (Galbraith, 1954, p.106).
But the most significant reason that monopoly has failed to capsize the American economy, according to Galbraith is the exercise of what he calls countervailing power. The assumption always made by economists, when they would consider the case of markets, was that the check on an individual firm’s power wold come from the supply side of the industry.
Galbraith disagrees. He admits that the existence of monopoly power in a competitive market does in fact encourage the entry of more producers to appropriate some of that power for themselves. “In other words,” he says. “Competition was regarded [and is] a self-generating regulatory force” (Galbraith, 1954, p. 112).
But in a market that is not competitive, the incentive for some economic agent to approptiate that power still exists. But it need not come from the supply side. That power is, in practice, usually appropriated by strong buyers or coalitions of buyers, who can sometimes take even more than their share. Because of the tendency of power to be organized in response to existing power, “countervailing power is also a self-generating force” (Galbraith, 1954, p. 113).
According to Galbraith, it is the large retailers who, by way of their absolute power over manufacturers, bargain for the consumer and protect the consumer from the high monopoly prices that would otherwise result. Likewise, the considerable market power of large firms is checked by trade unions for a simple reason, there is something to be bargained for Galbraith notes that trade unions are most powerful in the least competitive industries. This is because the surplus that a company derives from monopoly power acts as an incentive to unions. In the very competitive industries, producers and workers are operating at bare minimum profit and the incentives to organization insignificant.
These are the basic ideas laid out in American Capitalism. The book in many ways lays the framework and tone for the books he would publish in the sixties and seventies. But while American Capitalism was Galbraith’s first major bestseller, it was The Affluent Society that skyrocketed him to fame. The Affluent Society builds on many of the concepts introduced in his first book, but with several key differences. Though Galbraith could not suppress his urge to social commentary, The Affluent Society is a much more prescriptive book, growing out of his chapter on technical development in American Capitalism. To his original analysis he adds a significantly moral component. The Affluent Society concerns itself with the policies that ought to be undertaken once the basic needs of the people have been met. Galbraith’s main argument is that our ratio of private good (cars, televisions, automobiles) to public goods (schools, roads) is inequitable and ridiculous. The premise of his argument is that once our basic desires such as food, clothing, and shelter have been satisfied, large corporations employ advertising to concoct new demand for products. The traditional economic and utilitarian argument for goods qua goods falls on its face if consumer demand is not sovereign. What is really necessary is the use of society’s productive resources in the public realm in juxtaposition with growth in the private realm. He calls this idea “social balance,” saying, “the problem of social balance is ubiquitous, and frequently it is obtrusive. As noted, an increase in the consumption of automobiles requires a facilitating supply of streets, highways, traffic control, and parking spaces” (Galbraith, 1958, p. 193). He also confronts the existence of poverty in an affluent society as being the result of outdated nineteenth century attitudes. “A poor society,” he says, “had to enforce the rule that someone who did not work could not eat. An affluent society has no similar excuse for such rigor” (Galbraith, 1958, p. 251). But he admits that, “nothing requires such a society to be compassionate. But it no longer has a high philosophical justification for its callousness” (Galbraith, 1958, p. 251).
In the 50’s, America was in the midst of the cold war and attempts at engineering a better society were very suspect. Galbraith throughout The Affluent Society understands the inherent and ideological opposition to big government and social policy, but he is adamant in stating, “that cities’ residents should have a nontoxic supply of air suggests no revolutionary dalliance with socialism” (Galbraith, 1958, p. 191).
In fact, Galbraith eventually finds socialism and central planning to be in many ways similar to the kind of capitalism that developed in America in the latter half of the 20th century.
In The New Industral State, Galbraith focuses his effort on understanding what he calls the “technostructure.” In an era when the division of intellectual labor is so overwhelming, the management or even management team of a powerful corporation doesn’t actually make most of the decisions. The decisions are instead made collectively by teams of experts. Galbraith coins the term technostructure as, “embracing all who bring specialized knowledge, talent or experience to group decision-making. This,” he says, “not the management, is the guiding intelligence, the brain, of the enterprise” (Galbraith, 1967, p.71).
Many of Galbraith’s ideas resonate to this day. Unfortunately, most do not. It would be tempting to end this essay optimistically, expounding poetically on the way Galbraith’s ideas continue to influence national policy. In reality, although he was a well-respected and powerful man, many of his ideas continue to be ignored by mainstream economists and politicians. Rarely does one hear a contemporary economist talk about countervailing power, or reference the “technostructure.” While as a society we owe much to Galbraith and his ideas, the discipline of economics has for all intents and purposes laid his practical ideas by the wayside. But whether or not his continued influence on economics is felt by the mainstream, his contribution to the discipline remains poignant and accessible for those who choose to seek it out on their own.
Galbraith’s main contribution to economic thought was his tackling of the problem of power. He was convinced that the most glaring, most significant, and most ignored problem in the field of economics was the effect of power on economic activity. Understanding why Galbraith was so affixed by this idea of power is actually quite simple; he was surrounded by it.
Through his political work, Galbraith knew not only Kennedy, but several other presidents and all the most powerful officials in the democratic party. Through his work at Fortune he became acquainted with the heads of the largest and most powerful corporations in the world. He saw, 10
clearly, the extent to which the decisions of these men (and the technostructures supporting them) affected the direction and performance of the economy of the whole. Given that he was an astute man, for him to ignore the influence of power on economies, in order to advance a series of aesthetically pleasing models and equations, would have been not only unthinkable but dishonest. Galbraith wanted badly to be useful, to “change votes,” as his father would have said.
To him, sitting in a room concocting theories did not qualify as usefulness. He longed to be in the thick of policy-making. Later in life, he wanted badly to avoid what he called “Belmont Syndrome”1 Thus, his struggle to be relevant was not only ideological but moral.
John Kenneth Galbraith died peacefully at home in 2006. He left behind not only an extensive body of economic work, but two novels. His first novel, The Triumph, written in 1969, was about U.S. foreign policy disasters in Latin America. His second novel, A Tenured Professor, written in 1990, was about an eccentric Harvard professor, and lampooned the elite institution. He lived ninety-seven years, almost all of them (excepting the first few) were preoccupied with upending the “conventional wisdom.” He remains one of the most famous and controversial economists of the twentieth century, and a fine novelist.
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