Based on his book sales, John Kenneth Galbraith was
probably the most read economist of the 20th century. From the publication of
his first bestselling book The Great Crash in 1954 through the
1980s, the American left-liberal intelligentsia and media breathlessly
anticipated and wildly celebrated the publication of each new book.
Nonetheless, most technical economists, regardless of their political
orientation, did not take his work seriously. By the 1990s Galbraith's work had
been thoroughly discredited among professional economists. Indeed, in his 1994
book, Peddling Prosperity, leftist economist Paul
Krugman held up Galbraith as the prototype of a left-wing "policy
entrepreneur" who, like his supply-sider counterparts on the Right, sought
an audience among policymakers and the educated public, outside the cozy circle
of academic economists.
In his book, Krugman ridiculed The New Industrial
State, Galbraith's magnum opus. He
pointed out its wildly erroneous predictions regarding the evolution of the US
economy toward greater dominations by giant corporations that were insulated
from market forces, manipulated consumer preferences at will through
advertising, and whose interlocking managerial and technological elites (the
ominously labeled "Technostructure") could make decisions without
regard to the interests of stockholders. With rhetorical understatement,
Krugman concurred with the sentiments of earlier academic critics,
characterizing the book as one that "could safely be ignored."
But discredited economists, much like disgraced
politicians, never remain out of favor for long, especially after they have
passed from the earthly scene. So it is that Galbraith's reputation has been
undergoing something of a rehabilitation in the past decade. Especially among
those mainstream academic economists who are vaguely cognizant of the rapidly
accumulating failures of their discipline in explaining economic reality,
Galbraith is increasingly perceived as a misunderstood thinker whose insights
were ahead of their time and whose work was too hastily dismissed.
For example, Nobel laureate Amartya Sen was positively
elegiac in his appraisal of Galbraith, exclaiming that he "doesn't get
enough praise." In an interview, Sen opined that Galbraith's work would
indeed endure and that his book The Affluent Society exemplified Galbraith's
"great insight." The book, Sen effused, "has become so much a
part of our understanding of contemporary capitalism that we forget where it
began. It's like reading Hamlet and deciding it's full of quotations. You realize
where they came from."[1]
J. Bradford DeLong is a Berkeley economist and former
Treasury Department functionary during the Clinton administration. He also
writes the clumsily titled and soporific blog, Grasping Reality with Both
Invisible Hands: Fair, Balanced, and Reality-Based: A Semi-Daily Journal. DeLong is even less
restrained and discriminating than Sen in extolling Galbraith's brilliance,
declaring that history professors can do no better "than to assign his
books The Affluent Society and The New Industrial State to teach students how
the midcentury U.S. economy came to dominate the world." Anyone who wants
to learn about the Great Depression, according to DeLong, "should start with
The Great Crash; there is no other history of the stock-market crash of 1929
that is as short and even half as worthwhile."
DeLong even praises Galbraith's turbulent and
ill-fated stint as deputy director in the Office of Price Administration during
World War II, where he apparently performed the miracle of "squar[ing] the
growth-inflation circle by pushing production far above economists' measures of
potential output without sparking runaway price increases that would threaten
the economic mobilization."[2]Although the title of the aforementioned blog doubly
touts DeLong's intellectual engagement with "reality," his paean to
Galbraith's administration of draconian wartime price controls betrays minimal
contact with economic reality.
Recently, prominent mainstream economists with strong
inclinations toward behavioral economics have also jumped on the Galbraith
bandwagon. George Akerlof and Robert Schiller, for example, have favorably
cited Galbraith in their bestselling book Animal Spirits. They refer to Galbraith'sGreat Crash as one of the "seminal historical
accounts of bubbles and panics," and characterize it as "very much in
the same spirit as the analysis in [their own] book." They are quite taken
with Galbraith's discovery of an alleged causal relationship between the
mysteriously waxing and waning prevalence of "bad faith" — defined as
"economic activity that, while technically legal, has sinister
motives" — and economic cycles.[3]
Robert Frank is another economist with impeccable
mainstream credentials who has a predilection for behavioral economics and a
soft spot for Galbraith. He has argued that Galbraith's position that the
market economy systematically misallocates resources between private and public
sectors "was right for the wrong reasons." If only Galbraith's
training had been grounded in modern game theory, Frank contends, he would have
been better able to defend himself against his academic critics.[4]
Now there are probably various reasons for the
burgeoning Galbraith lovefest among mainstream economists. But, I believe, the
primary reason is the growing dissatisfaction within the economics profession
with the transmogrification of economics into a hyper-mathematical,
model-driven discipline that tells us exactly nothing about the real world, as
the financial crisis has plainly revealed. Compared to the arid and mechanistic
"theorems" of modern economics, even Galbraith's unsystematic and pedantic
musings are a breath of fresh air, because at least they are expressed in
English and make reference to real and meaningful phenomena. This is, of
course, not an endorsement of Galbraith's approach to economics or his various
positions. Indeed far from it: rather it is an attempt to explain the
unjustified accolades his work is beginning to receive from professional
economists.
For a more accurate view of Galbraith the man and his
work, we turn to economists who were masters of verbal-logical economic theory
that had reached its high point in the 1930s. Two eminent British economists of
widely different political persuasions, Lionel Robbins and James Meade, were
steeped in this kind of economic analysis, which used mathematics for
illustrative purposes only and sought to explain economic phenomena by tracing
them back to their essential causes using logical deduction based on realistic
premises. Robbins and Meade each assessed Galbraith in their private wartime
diaries based on personal interactions with him.[5] Neither was particularly impressed, although
their respective assessments of Galbraith could not take into account the works
for which he would later become famous.
For much of the 1930s Robbins was a follower of the
Austrian School of economics, having been influenced by the writings of Ludwig
von Mises and by Friedrich A. Hayek, with whom he developed a close personal
relationship. In the late 1930s and especially during the war, Robbins fell
more and more under the personal influence of Keynes whom he had gotten to know
personally, although he still remained for the most part a generally
market-oriented economist. Robbins did not think much of Galbraith's mental acuity
and dismissed him as a shill for New Deal policies, writing,
I knew Galbraith in the old days; he sat for some
little time in my seminar. I must say I am not altogether surprised at what has
happened; for I have always thought him a dull fellow, well intentioned enough,
but a sort of pedant of New Deal economics — just the kind of man to upset the
business community without himself bringing any startling administrative
ability to offset the loss of that which he had antagonized.[6]
Meade was a co-recipient, with Bertil Ohlin, of the
1977 Nobel Prize in economics. Throughout his career Meade was deeply concerned
with the inequality of income and wealth and wrote voluminously on the subject.
Meade also was a vigorous supporter of "incomes policy," i.e.,
permanent wage and price controls, as a remedy for "stagflation,"
which he believed had become an endemic feature of industrialized market
economies.[7] Meade was, therefore, in no sense a conservative
or free-market economist and in fact could be classified as a Fabian socialist
or social democrat in his policy leanings. Yet he viewed Galbraith in much the
same light as Robbins. He wrote in a diary entry,
Later I dined with Galbraith and his wife at the
Cosmos Club and then went on to their home in Georgetown to talk. He is the
"relentless" type of radical, believes that Russia should be
permitted to absorb Poland, the Balkans and the whole of Eastern Europe in
order to spread the benefits of Communism, that the outlook for American
politics is very black because even if the Roosevelt administration wins the
next election the liberal New Dealers are now all a crowd of tired, cautious,
conservative liberals etc. I think he may be a little embittered at the
punishing experience at the OPA where there was a witch hunt against liberal
College professors of which he was the main victim.
In a footnote to this entry inserted right after the
word "Communism," the diary editors state, "Meade now suspects
that he may have unfairly misinterpreted Galbraith's views, and Galbraith
denies that he ever held such views."[8] But whether Meade's suspicions 47 years later
about what Galbraith did or did not mean is more accurate than his recollection
of what Galbraith said on the day he made the diary entry is beside the point.
It is clear that Meade the economist was not favorably impressed by Galbraith.
We might also cite the views expressed about
Galbraith's work by two Austrian economists, Friedrich Hayek and Murray
Rothbard, both of whom masterfully employed the verbal-logical deductive
approach in advancing economic theory.
Hayek, a co-winner of the Nobel Prize in 1974,
demolished the central thesis of Galbraith's Affluent Society in
a short piece he published in 1961. Galbraith had argued that most consumer
wants in a modern economy are the outcome of the "dependence effect,"
that is that they depended on and were created by the very process of producing
the goods that were meant to satisfy them. Therefore, according to Galbraith,
the really important needs were already satisfied in an "affluent
society," and the only real problem was not producing more for private
consumption but rationally distributing the available resources to produce
things that are most urgently needed, specifically more collective goods and
public services to be provided by the state.
Hayek perceptively identified this argument as a
modern version of the naïve socialist argument first put forth by the nutty
Utopian socialist Saint-Simon and his followers in the mid-19th century.
According to this argument the problem of production had been solved and all
that remained was the problem of distribution. Hayek wrote that such a
contention was "absurd" and that Galbraith's book embodied "the
latest form of this old contention."[9] Hayek then went on in his brief article to neatly dispose of Galbraith's argument by
demonstrating that most wants in a civilized society are indeed dependent on
(but not determined by) the existence of goods intended to satisfy them. And
this is not just true of Galbraith's oft-quoted example of cars with oversized
tailfins. There would be no demand for literature without the invention of the
printing press and the production of books, no demand for cell phones or even
telephones in general without their invention and production, no demand for a
vaccine against poliomyelitis without its formulation by Jonas Salk and
production by pharmaceutical companies, and so on and on. Thus Hayek showed
Galbraith's central thesis to be a vacuous "non sequitur," for the
fact that most wants "depend" on the production of the goods
necessary to satisfy them does not imply that expanding production for
(private) consumption is unnecessary. Because of its brevity and incisiveness,
Hayek's critique of Galbraith stands as one of the most brilliant examples of
economic demolition ever penned. One cannot imagine such a piece being written
today by an economist schooled in modern model-building techniques.
Finally, we note Murray Rothbard's
opinion of Galbraith's work. Rothbard's multi-volume treatise on economics Man, Economy, and
State, which still stands today as the most comprehensive
and advanced statement of economic theory in the verbal-logical or
"causal-realist" tradition that has its roots in the Austrian School,
in early American neoclassicism of John Bates Clark and Frank A. Fetter, and in
the London School of Economics in the 1930s.[10] Rothbard had little use for the style and
substance of Galbraithian economics. In a review of books on inflation and the
business cycle in the late 1970s, one of which included a book
by Robert Heilbronner, Rothbard remarked,
Robert Heilbroner, like John Kenneth Galbraith, might
be said to fall into the category of "popular economist": that is,
someone who knows virtually nothing about economics, yet manages to write a
series of best sellers on the subject, read avidly and almost exclusively by
noneconomists, who exclaim over the profundities therein.[11]
Rothbard goes on to utilize Galbraith as a standard of
economic ignorance, describing Heilbronner as "a lightweight, for he knows
even less economics than Galbraith does and lacks the mordant wit (derived, if
not cribbed, from Veblen) and the aristocratic life style of the famous
opponent of affluence."[12]
In another article
criticizing The Affluent Society, Rothbard points out that
Galbraith never provides an objective standard according to which the public
sector can be judged to reach its optimum as ever more resources are siphoned
off from private consumption to feed its growth.[13] In fact Galbraith categorically denies that a
test of the appropriate balance between the satisfaction of private and public
needs exists: "The answer is that no test can be applied, for none
exists.… The present imbalance is clear.… This being so, the direction in which
we move to correct matters is utterly plain."[14] Galbraith does not even make the perfunctory
pseudo-scientific appeal to a social-welfare function or the Kaldor-Hicks
compensation principle — his own naked and arbitrary personal whim is evidently
a sufficient standard to guide society and the economy.
Rothbard also reveals the flaws and contradictions in
one of Galbraith's supporting arguments. Galbraith contends that as living
standards rise, additional increments of goods decline in value. But Galbraith
somehow deduces from this correct principle that satisfaction of additional
wants are now worth nothing to the individuals concerned. But, as Rothbard
points out, even if Galbraith's unwarranted deduction is granted, what about
government services? The US government, for example, has grown much more rapidly
than the private sector relative to national income in the 20th century. This
prompts Rothbard's query: "But if that is the case, then why should government 'services,' which have expanded at a
much faster rate, still be worth so much as to require a further shift of
resources to the public sector?"[15]Needless to say, no answer to this question is
forthcoming in Galbraith's book.
So Galbraith is indeed, as Robbins keenly observed,
"a dull fellow." More important, what does this reveal about the
state of a discipline whose distinguished members have begun to hail him and
embrace his doctrines?
Notes
[1] Amartya Sen, quoted in Richard Parker, John Kenneth Galbraith: His Life, His Politics, His
Economics, New York: Farrar, Straus and Giroux, 2005, p. 669.
[3] George A. Akerlof and
Robert J. Schiller, Animal Spirits: How Human
Psychology Drives the Economy, and Why It Matters for Global Capitalism,
Princeton, NJ: Princeton University Press, pp. 26, 177 n. 7, 181 n. 1.
[4] Robert H. Frank, "Right for the Wrong Reasons: Why Galbraith Never
Got the Prize," New York Times (May
11, 2006).
[5] The Wartime Diaries of Lionel Robbins & James
Meade 1943–1945, ed. Susan Howson and Donald Moggridge, London:
Macmillan (1990).
[6] Ibid. p. 61. The last
sentence refers to Galbraith's unceremonious dismissal from his position as
deputy administrator of the US Office of Price Administration (OPA).
[7] For an overview of
Meade's life and works, see Mark Blaug, Great Economists since Keynes: An Introduction to the
Lives and Works of One Hundred Modern Economists, New York: Cambridge
University Press, pp. 161-63.
[9] Friedrich A. Hayek, "The Non-Sequitur of the 'Dependence
Effect,'" in idem, Studies in Philosophy, Politics, and Economics, New York: Simon and
Schuster, 1969, pp. 313-17.
[1] Murray N. Rothbard, Man, Economy and
State: A Treatise on Economic Principles with Power and Market: Government and
the Economy, Scholar's Edition, 2nd ed. , Auburn AL: Ludwig von
Mises Institute, 2009.
[11] Murray N. Rothbard, "Boom! Crack!
Crash!" A review of The Inflation Crisis,
and How to Resolve It by Henry Hazlitt (Arlington
House, 1978); Beyond Boom and Crash by Robert L. Heilbroner (W.W.
Norton, 1978); Manias, Panics, and
Crashes: History of Financial Crises by Charles P. Kindleberger
(Basic Books, 1978), Inquiry (October
30, 1978), pp. 21–22.
[13] Murray N. Rothbard, "The Fallacy of
the Public Sector," in idem, Economic Controversies, Auburn AL: Ludwig von Mises
Institute (2011), pp. 419–26.
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