JK Galbraith goes mainstream

One of the things that John Kenneth Galbraith is known for in a long life as a prominent economist is coining the term ‘conventional wisdom’. It is perhaps ironic that, in his nineties, he has become a model exponent of the contemporary orthodoxy.

In his recent book The Economics of Innocent Fraud, Galbraith affirms many of the common assumptions of today’s economic and political debate: that corporations dominate society, that financial instability is a big problem, and that we should be sceptical about economic growth.

Galbraith would be horrified by the suggestion that he is part of the mainstream, instead presenting himself as a trenchant critic of what he sees as the corporate-dominated values of today. But orthodoxy presented as criticism is itself common today – just think of how New Labour still often portrays itself as a minority force battling against the forces of conservatism.

There’s certainly little that is radical about Galbraith’s career history. He has been a professor of economics at Harvard since 1948, president of the American Economic Association, deputy administrator of the office of price administration during the Second World War, director of the US Bombing Survey in 1945 and US ambassador to India in the early 1960s. His books include The Great Crash (1955), The Affluent Society (1958), The New Industrial State (1967) and The Culture of Contentment (1992).

The Economics of Innocent Fraud is more of an extended essay than a book. Strangely for a scholar of Galbraith’s depth, it doesn’t have any footnotes or a bibliography, nor does it refer to his extensive range of previous work in the text. Instead it should be seen as an introduction to Galbraith for those with a short attention span; a kind of Galbraith-lite for the MTV generation brought up in the shadow of Enron and Microsoft.

A casual reader of his latest book might assume that Galbraith is a particularly lucid representative of the new generation of ‘anti-capitalist’ authors, such as Naomi Klein, Noreena Hertz or George Monbiot (1). But he said it all first – many of his key works were published before any of them were born. It is an indictment of the younger generation that they add so few new ideas, merely building within foundations that he laid down. Even in its lightweight form it presents more serious intellectual challenges than many of today’s commentators.

For Galbraith, the all-powerful role of companies defines contemporary society. As he argues in his latest work: ‘Central to my argument here is the dominant role in the modern economic society of the corporation and of the passage of power in that entity from owners, the stockholders, now more graciously called investors, to the management. Such is the dynamic of corporate life. Management must prevail.’ (2) He rejects the view that consumers are sovereign. Instead he says it is producers, in the guise of corporate management, who truly control the economy.

Galbraith goes on to argue that corporations dominate the state; that government institutions are forced to obey the narrow interests of companies. From here it is a small step to his argument that the recent Iraq war was fought for the military establishment and weapons industries. Younger authors are more likely to point to energy firms such as Halliburton, but the view is the same.

But Galbraith misjudges the power of the state relative to the corporation. During his seven decades as an economist, the state has come to play an increasingly central role in economic life. State spending accounts for a high proportion of gross domestic product (GDP) in all the developed economies. The state is also highly active, through a wide variety of institutions such as central banks and financial regulators, in maintaining economic activity. In fact, today’s corporations could almost be seen as an arm of an ever-growing state.

The pernicious influence of the financial markets is another key theme for Galbraith. These markets only account for one chapter of The Economics of Innocent Fraud but The Great Crash, on the impact of the 1929 Wall Street Crash, is the best selling of all his books (3), and helped to popularise the notion that the 1929 crash led to the Great Depression of the 1930s.

However, while it is obviously true that economic problems are often associated with financial instability, it is simplistic to blame finance for difficulties in the real economy. A better characterisation of the relationship would be to see the rise of the financial markets as a symptom of economic lethargy. If productive investment yields poor profits it is often more attractive for companies to play the financial markets (4). A financial crash might be a symptom of underlying economic problems, but it doesn’t cause them.

A final key theme is the critique of economic growth. This includes an attack on the use of GDP as a measure of human advance: ‘Good performance is measured by the production of material objects and services. Not education or literature or the arts but the production of automobiles, including SUVs [sports utility vehicles]: Here is the modern measure of economic and therewith social achievement.’ (5).

Those who criticise GDP as a measure of development today often do not realise that Galbraith made the same point in The Affluent Society back in 1958. Indeed Galbraith’s text can be seen as the first substantial example of scepticism about the value of economic growth (6). This was followed in the 1960s and 70s by other works that developed the idea that economic growth is problematic (7). It took several decades for Galbraith’s views on the topic to become the ‘conventional wisdom’.

But this view devalues the benefits of economic growth, which allows people to live wealthier and healthier lives, and also fosters broader cultural and scientific development. Society can become wealthier in every respect when there is material abundance – a richer economy gives society the time and resources to develop its creativity, in art and science just as in new production methods.

It is sometimes said that people get more conservative as they get older. The peculiar thing about Galbraith is that it has taken until his nineties for his supposedly radical ideas to be thoroughly integrated into the mainstream.

The Economics of Innocent Fraud, by John Kenneth Galbraith, is published by Allen Lane. Buy this book from Amazon (UK) or Amazon (USA).

Daniel Ben-Ami is the author of Cowardly Capitalism: The Myth of the Global Financial Casino, John Wiley and Sons, 2001 (buy this book from Amazon (UK) or Amazon (USA)). He is also a contributor to Cultural Difference, Media Memories: Anglo-American Images of Japan, Continuum International Publishing Group, 1997 (buy this book from Amazon (UK) or Amazon (USA)).

Read on:

Beyond the Growth Fetish, by Daniel Ben-Ami

spiked-issue: economy

(1) For a review of Monbiot’s most recent book see Recipe for Austerity, by Daniel Ben-Ami

(2) The Economics of Innocent Fraud, p9-10

(3) A man for all markets, William Keegan, Observer, 6 October 2002

(4) See Daniel Ben-Ami, Cowardly Capitalism: The Myth of the Global Financial Casino, John Wiley and Sons, 2001

(5) The Economics of Innocent Fraud, p27

(6) Beyond the Growth Fetish, by Daniel Ben-Ami

(7) Examples of the genre include: EJ Mishan, The Costs of Economic Growth (1967); Donella H Meadows et al The Limits to Growth (1972); EF Schumacher, Small is Beautiful (1973); Fred Hirsch, Social Limits to Growth (1976); Tibor Scitovsky, The Joyless Economy (1976); and Richard Douthwaite, The Growth Illusion (1992)