John Kenneth Galbraith was born in 1908 in rural Ontario, the son of farmers. By the time of his death in 2006 in Cambridge, Massachusetts, he had written novels, published books on economic theory and history, accrued some 50 honorary degrees and advised, in an official capacity, no less than four American presidents and their administrations. He is, by popular consensus, one of the most distinguished economists of the 20th century, and certainly one of the most influential. The Essential Galbraith collects essays from some of his most famous works, including The Affluent Society, The Age Of Uncertainty, The Great Crash and Annals Of An Abiding Liberal, giving a comprehensive overview of his positions and a taste of his originality as an economic thinker.
The book opens with essays on broad concepts: social balance, countervailing power and the “conventional wisdom,” a phrase Galbraith coined. On the topic of social balance: Galbraith argues that increased private affluence creates its own need for a “balance” of social spending. When, for example, more Americans could afford automobiles, society had to respond by investing in an infrastructure of roads and highways to support this new development. When private consumption of food and plastic-wrapped goods increases, greater demands are placed on public services in the form of sanitation and recycling.
Just as there must be balance in what a community produces, so there must also be balance in what the community consumes. An increase in the use of one product creates, ineluctably, a requirement for others. If we are to consume more automobiles, we must have more gasoline. There must be more insurance as well as more space in which to operate them. Beyond a certain point, more and better food appears to mean increased need for medical services. This is the certain result of increased consumption of tobacco and alcohol.
“Countervailing power,” another term of his invention, speaks to the inbuilt competitive relationship between buyers and sellers, employers and employees – a relationship Galbraith thinks is necessary to prevent exploitation.
The fact that a seller enjoys a measure of monopoly power, and is reaping a measure of monopoly return as a result, means that there is an inducement to those firms from whom he buys or those to whom he sells to develop the power with which they can defend themselves against exploitation. It means also that there is a reward to them in the form of a share of the gains of their opponents’ market power if they are able to do so. In this way the existence of market power creates an incentive to the organization of another position of power that neutralizes it.
Interestingly – and, to me, inexplicably – Galbraith views these competing forces as being exterior to the market, as generally understood. He views his position to be a radical departure from conventional economic thought (“competition, which at least since the time of Adam Smith, has been viewed as the autonomous regulator of economic activity and as the only available regulatory mechanism apart from the state, has, in fact, been superseded”), but it’s difficult to see why trade unions or downstream suppliers cannot be subsumed into the larger theory of the competitive market – indeed, most of the economists I am familiar with do include them. Which leads me to my largest criticism of Galbraith, and one I am glad I can qualify: the opening essays are repetitive and overly simple, content to force through a single, non-controversial or easily granted premise, usually without recourse to statistics, case studies or specific examples in history.
My antipathy to these opening essays was such that I contemplated putting down the book for good, but I was encouraged to continue by the titles of the remaining essays, which indicated they would deal with economic history and the economists who shaped it. To my mind, it is as an economic historian and biographer that Galbraith really shines. Even his writing style, which had previously been formal and repetitive, loosens up considerably when he is discussing the “massive dissent” of Karl Marx, or the bipartisan influence of Thorstein Veblen. Galbraith here demonstrates a love of the aphorism or pithy remark, particularly when he has some adversary in mind (“No one can express well what he does not understand. So clear writing is perceived as a threat, something deeply damaging to the numerous scholars who shelter mediocrity of mind behind obscurity of prose”). Two essays dealing with John Maynard Keynes – “The Mandarin Revolution” and “How Keynes Came To America” – are excellent introductions to both the man and his economic theory, and these do make reference to specific statistics, employment figures and episodes in history. Galbraith cites Nazi Germany’s economic recovery, for example, as the perfect illustration of Keynesian theory in action:
From 1933 on, Hitler borrowed and spent – and he did it liberally as Keynes would have advised. It seemed the obvious thing to do, given the unemployment. At first, the spending was mostly for civilian works – railroads, canals, public buildings, the Autobahnen. Exchange control then kept frightened Germans from sending their money abroad and those with rising incomes from spending too much of it on imports.
The results were all a Keynesian could have wished. By late 1935, unemployment was at an end in Germany. By 1936, high income was pulling up prices or making it possible to raise them. Likewise wages were beginning to rise. So a ceiling was put over both prices and wages, and this too worked. Germany, by the late thirties, had full employment at stable prices. It was, in the industrial world, an absolutely unique achievement.
Economists on both sides of the political spectrum might smile at this.
The final essays chronicle the events leading up to, and immediately following, the implosion of Wall Street in 1929, and here too Galbraith shines, both as a historian and as an economist teasing out the thinking patterns that not only led the industrial world into financial ruin but precipitated the collapse. Even while walking us through financial ruin, Galbraith is an entertaining and instructive guide.