the essential Galbraith k John Kenneth Galbraith selected and edited by Andrea D. Williams A Mariner Original houghton mifflin company boston • new york 2001 books by john kenneth galbraith [a partial listing] American Capitalism: The Concept of Countervailing Power The Great Crash, 1929 The Affluent Society The Scotch The New Industrial State The Triumph Ambassador’s Journal Economics, Peace and Laughter Economics and the Public Purpose Money: Whence It Came, Where It Went The Age of Uncertainty Annals of an Abiding Liberal A Life in Our Times The Anatomy of Power A View from the Stands Economics in Perspective: A Critical History A Tenured Professor The Culture of Contentment A Journey Through Economic Time: A Firsthand View A Short History of Financial Euphoria The Good Society: The Humane Agenda Name-Dropping: From F.D.R. On The Essential Galbraith contents Preface vii Introduction ix Countervailing Power 1 from American Capitalism The Concept of the Conventional Wisdom 18 from The Affluent Society The Myth of Consumer Sovereignty 31 from The Affluent Society The Case for Social Balance 40 from The Affluent Society The Imperatives of Technology 55 from The New Industrial State The Technostructure 66 from The New Industrial State The General Theory of Motivation 79 from The New Industrial State Economics and the Quality of Life 90 from Economics, Peace and Laughter vi C0ntents The Proper Purpose of Economic Development 109 from Economics, Peace and Laughter The Valid Image of the Modern Economy 118 from Annals of an Abiding Liberal Power and the Useful Economist 134 from Annals of an Abiding Liberal The Founding Faith: Adam Smith’s Wealth of Nations 153 from Annals of an Abiding Liberal The Massive Dissent of Karl Marx 169 from The Age of Uncertainty Who Was Thorstein Veblen? 200 from Annals of an Abiding Liberal The Mandarin Revolution 224 from The Age of Uncertainty How Keynes Came to America 236 from Economics, Peace and Laughter The Speculative Episode 249 from A Short History of Financial Euphoria In Goldman, Sachs We Trust 255 from The Great Crash, 1929 The Crash 275 from The Great Crash, 1929 Things Become More Serious 292 from The Great Crash, 1929 The Unfinished Business of the Century 307 Speech given at the London School of Economics, 1999 Sources 315 preface I send this book to press and on to my readers with one slight sense of concern. It is that someone will ask who decided that this was The Essential Galbraith. The author will be a plausible suspect. In fact, it was associates, my publisher and the wider professional and reading public who were responsible. The selection here is of writing that is thought to have had some durable impact on economic and other scholarly thought or on the world at large. Thus, as later noted, the piece on Countervailing Power, an ex- cerpt from American Capitalism, is still in print after nearly fifty years. The balance of power between buyer and seller therein de- scribed was considered a major modification of the traditional competitive supply-and-demand construct to which all who have studied economics were exposed. It is perhaps a measure of the en- during nature of the term “the Conventional Wisdom,”as defined in the second essay, that one rarely gets through a newspaper today without encountering it. Though I try, however unsuccessfully, to convey an aspect of modesty, I am always pleased to have added this phrase to the language. The Affluent Society, from which several chapters are here in- cluded, was the most widely published economic volume of its time. After his nomination for President in 1960, one of the first questions asked of John F. Kennedy was whether, if elected, he would be guided by the ideas expressed by his known supporter in that book. He responded favorably but also with a certain note of ambiguity. Later in this collection come three pieces from The Great Crash, viii Preface 1929, which was published in 1955, just after the twenty-fifth anni- versary of that catastrophic event. It was a bestseller at the time; so it has remained to this day. Even now, as we are launched in a new century, there is inevitable unease about the future of the economy and therewith the stock market, so a knowledge of what happened in 1929 is, indeed, still essential. There are other essays here which were similarly selected and thus selected themselves. The reader will, I think, have no trouble accept- ing their relevance either to history or to the present day, and I have added some headnotes to suggest my view of their particular sig- nificance then and now. I end with a paper given at the London School of Economics in 1999 on the unfinished business of the mil- lennium; this had the largest circulation both here in the United States and around the world of any lecture I have ever given. John Kenneth Galbraith March 2001 introduction If, as Professor Galbraith says in the preface, others are responsible for the contents of this book, it is of primary interest to inquire why he himself eschews the credit. It has been widely believed that he is not a man for whom modesty is a familiar virtue, so why does he find it necessary now to step back into the shadows? The answer seems to lie in the fact that what has been considered vanity could be better viewed as a deep sense of security. He is secure in his basic beliefs and secure that his readers, for whom he has the deepest re- spect, will be able to discern them. He is not given to self-analysis, and so, while he clearly understands what is the Essential Galbraith, he prefers that others define it. It should first be noted that in the pages that follow, readers will find John Kenneth Galbraith the economist and the writer, with lit- tle trace of the diplomat, the art historian, the novelist, the book re- viewer, the theater critic or even, except in the last essay, the lecturer. This is highly appropriate, because economics has, in fact, been his chosen field and writing his obviously innate talent. He has always believed that economics should be studied not in the abstract or as a mathematical construct but as it affects the lives of men and women every day. He is not afraid to overturn or at least reexamine strongly held beliefs of earlier generations, realizing that as technology, com- munications and business change, so too must the economist’s in- terpretation of them. He has brought to the subject a new way of looking at the role of the great corporations as they faced the coun- tervailing power of trade unions and consumer coalitions. He has x Introduction identified those who are the guiding intelligence of the corporate world, naming them the technostructure, and has undermined be- lief in what he calls the myth of consumer sovereignty. A better bal- ance between public and private expenditures has been a recurring theme in his writing, with its reminder that the affluence of our contemporary society should be made to extend to the poorest and most defenseless of our citizens. The uses of power and the persis- tence of financial euphoria in our public marketplace have consis- tently attracted his interest, as have the problems of the developing countries, notably India. Above all, the constant thread through his work is his concern with how economics affects the quality of our daily lives and how it will change that of succeeding generations. These are some of the essentials of the Essential Galbraith, but there are more. There is his continuing fondness for certain of his economic predecessors — for the gift for language and the basic structure that Adam Smith gave to political economy, for the irrev- erence and unique perception of Thorstein Veblen, for the profound effect John Maynard Keynes and his General Theoryof Employment Interest and Money had and continue to have on the economic world. Finally, there is a writing style that illuminates and enhances all that is said: sardonic humor, felicitous phrasing, reasoned argument in reasonable words or, as he would say, clarity of thought reflected in clarity of prose. So how can the Essential Galbraith be defined? He is a committed liberal, a compassionate optimist, a cautious but firm iconoclast and a writer whose words can change the way the world looks at its problems. And none of that would he ever write about himself. Andrea D. Williams March 2001 Countervailing Power [from American Capitalism] This is a chapter from one of myfirst books, the generouslytitled American Capitalism, which came out in 1952, barelyinto the second half of the last century. Then, and for well over a hundred years before, a near-sacred doctrine in the economic textbooks had been the beneficent regulatoryrole of competition. It was the competition of manysellers that protected the consumer and also the individually powerless wage earner from the full economic effects of monopoly. The preservation of competition through the antitrust laws — the fabled Sherman Act in particular — was a vital element of public policygoing back to the latter part of the nineteenth century. Now, as I argued in American Capitalism, a new process was at work: trade unions, a countering organizational force, were the obvious response to the greater power of the big corporations. Similarly, but less evidently, when there was one expression of economic power — such as the large producer of consumer staples — another one developed in the form of the seller of those staples — the A&P or the latter-dayWal-Mart.