Revival: Galbraith and Lower Econ II (1990)

Myron E. Sharpe

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351696791
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

This title was first published in 1990. The high theme of these writings is that we live in an economy of concentrated economic power. Textbook theory fails to explain this economy; it deals with bygone days. Galbraith's job is to push, drag, cajole and finesse economics into the latter half of the twentieth century. An important part of that job is to convince the public that the commonly accepted goals of economic growth and full employment variously defined by Republicans and Democrats are obsolete.

Chapter 1 A Revolution in Economics?

THE LOWER ECONOMICS referred to in the title of this book was suggested by a figure of speech once used by Galbraith. He pictured the prestige structure of economics as a hollow pyramid or cone. At the base the sides are transparent and have many openings to the outside. As one approaches the apex, the sides become increasingly opaque and impermeable. Economists dealing with practical matters dwell at the base, and they have easy communication with the outside world. Their economics is adulterated by foreign admixtures of politics, moral judgments and sociology. The practitioner at this level merits little esteem. In contrast, economists dealing with pure theory can be found near the top of the pyramid. They are protected from outside influence. Their work is formal and mathematical. It has little or nothing to do with reality, and is very highly regarded by the profession.

Galbraith's mockery makes it perfectly clear where he thinks the valuable work in economics is being done. He himself occupies a position near the base of the pyramid and practices the lower economics, which, far from being a term of opprobrium, must in this view be considered an accolade. The abstractness so much admired by contemporary economists is not suited to the work which Galbraith sets for himself. He is not, in Robert Solow's phrase describing economists, a "determined little thinker," but a determined big thinker.¹ He is not interested in refining a small part of the doctrine, but in recasting and reassembling the whole. The compelling reason for this is that the economy has changed while theory has stood still. The starting point of neoclassical economics is the small firm, the market and consumer sovereignty, as the reader can readily verify by consulting Paul A. Samuelson's ubiquitous Economics. Galbraith's starting point is the large firm, planning and producer sovereignty. Neoclassical economics takes it for granted that the growth of production is a good thing. Galbraith does not, for the growth of GNP may be accompanied by a decline in the quality of life.

Galbraith's efforts are nothing short of an attempted revolution in economic science. The test of this assertion is not his personality, style or program, but—obviously —his economics. Galbraith does not appear to be a revolutionary because in person he is urbane, in style elegant and in program well within the compass of reform. We must not be put off by such considerations. Keynes had the same characteristics. But he led a revolution in economics by attacking and destroying crucial assumptions of the discipline. If the assumptions adverted to in the previous paragraph—relating to consumer and firm behavior and the honorable status of production per se— are successfully challenged, then the Galbraithian revolution will be far more sweeping than the Keynesian. Keynes convinced his colleagues that underemployment equilibrium was possible in the absence of sufficient effective demand and that, in order to put things to rights, a government must spend (or induce spending) rather than retrench. As a result, macrotheory, which had been part of the underworld of Major Douglas and other cranks, was accorded a high place alongside micro-theory. But microtheory was left untouched. The Galbraithian attack is two-pronged: one against each branch of theory. If it were to succeed, the whole of neoclassical economics would come crashing down.

Several requirements must be met for a revolution in a science to be successful.² The science must encounter difficulties in explaining facts; an alternative, consistently logical framework of explanation must be made available; and a conversion must take place among communicants of the field of study. There is no need for the reader to wait in suspense before discovering the author's views. The first point will be conceded; the latter two denied. Neoclassical economics began with laissez-faire assumptions and by accretions and qualifications has attempted to remain relevant to industrial society. We shall agree with Galbraith that modern economics suffers from striking anomalies and is ready for renovation. We are unable to concede that he has effected an entirely successful revolution in theory. And it goes without saying that no conversion of the profession has taken place.

Galbraith is often criticized for painting on too broad a canvas, for not being a "little thinker." The big thinker allegedly cannot assimilate all the details of the subdisciplines of economics and must inevitably make a mess of things. Solow puts it this way: it is better to investigate the effect on auto and housing production of a ten percent surcharge on personal and corporate income than to study "Whither We Are Trending." To the contrary. Everyone, undoubtedly including Professor Solow, wants to know whither we're trending as much as, if not more than, he wants to know about the effects of a tax surcharge. The juxtaposition of these two types of questions could be put down as a debating device were there not a deeper issue embedded in this bit of raillery. The methodology of formalist economics dictates that the only questions to be entertained are those which can be asked and answered with precision, preferably by means of econometrics, statistics or game theory. Awkward questions that do not fit in must be abandoned to sociology. The result is that more and more can be said about less and less, and we find ourselves rising in Galbraith's pyramid to levels where the walls become impenetrable and the occupants subsist on pure thoughts.

Galbraith has been called by some an institutional economist, and I think there is merit in so classifying him. The institutionalists are a very loose American grouping originating with Thorstein Veblen, and what they have in common is the view that the economy ought to be studied as a part of human culture. Veblen thought that the model should be not physics, but cultural anthropology. Economists should concern themselves with the actual institutions of society rather than try to make generalizations about abstract relationships that have no reference to time or place. Although the institutionalists are in the minority, and thought to be slightly disreputable, we shall nevertheless take the view that economics will not be harmed by occasional infusions of reality.

The lower economics is institutional economics, and it possesses its own method, which has been aptly called storytelling.³ Storytelling is the device required by the person who wants to make a rational statement about a subject like anthropology, history or economics in its actual institutional setting. The storyteller must knit together all the relevant facts, theories and values required to tell a coherent and convincing story. The facts must be verifiable, the theories germane and the values compelling.⁴ Those who are dismayed that storytelling is cruder than mathematical model building may be consoled by the fact that the subject matter itself is crude and does not always lend itself to elegant treatment. Above all, value, fact and theory cannot be tightly locked into separate compartments. What is GNP? It is usually treated as fact (data), but it also intermingles theory (this is the correct thing to measure) and value (the bigger the better). At first GNP looks quite objective and value-free, but ought keeps sneaking back in where it was thought to have been banished, and while we start with what seems a mere measure of economic activity, we end with a somewhat fuzzy measure of good (more of it) and bad (less of it). Social science tries hard to avoid saying what people ought to want but says it anyway. Market theory assumes that consumers want what they want because they want it. But with this assumption comes the implicit judgment that in a market economy the existing pattern of distribution of goods and services (whatever it is) is best, and that it is no business of the economist to second-guess people about their preferences.

The practitioner of the lower economics does not so deceive himself. He prefers to make explicit the interplay of value between the observer and the observed. The fear that Galbraith is substituting the judgment of the observer for that of the observed strikes terror in the hearts of economists. But that is because of a misapprehension. He is simply explicit about his values while others are so much in the habit of being implicit that they have come to think that as scientists they haven't any values at all (other than truth seeking and that sort of thing). One could say with some precision that value is to the economist as sex is to the Victorian: it must be hushed up. But we all know about the astonishing manifestations of sex when it is hushed up. Unfortunately economics is a repressed science and Galbraith has tried to help overcome its inhibitions. Regrettably the analysis is still at the stage where the analyst is resented.

If Galbraith's willingness to discuss broad issues succeeds in influencing others to do likewise, he will have made no small contribution to economics, quite apart from the substantive aspect of his efforts. Far from being avant-garde, a move in the direction of accepting broad inquiry as a legitimate function of economics would in a sense be a counterrevolution, since it harks back to the great tradition of the doyens of economics from Adam Smith to Maynard Keynes, who did indeed overcome the fear of Thinking Big. With this subversive thought we shall leave speculation and proceed to examine Galbraith's three major books.

1. Economists are so defined in a sparkling exchange with Galbraith. The Public Interest, Fall 1967.

2. Thomas S. Kuhn is the first (to my knowledge) to discuss revolutions in science methodically. See The Structure of Scientific Revolutions, The University of Chicago Press, 1962. A second edition with a reply to critics was published in 1970. Benjamin Ward took up the idea of scientific revolutions and applied it to contemporary economics in What's Wrong with Economics? Basic Books, 1972.

3. A disquisition on storytelling can be found in What's Wrong with Economics? pp. 179-190; but to understand these pages it is necessary to read the whole book.

4. Some rules for verifying a story are offered by Ward on p. 189 of his book.

Chapter 2 American Capitalism

AMERICAN CAPITALISM is the first of John Kenneth Galbraith's major books and the only one having about it an aura of complacency. It was published in 1952 during the postwar celebration of free enterprise and it bears the birthmarks of that euphoric epoch. Subsequently, Galbraith was to become more critical, less accepting, sterner in his judgment of the American economy. The task of American Capitalism was to explain why it works; the task of subsequent books was to explain why it fails. American Capitalism starts with the declaration that the competitive model cannot explain the modus operandi of modern industrialism. Events have passed it by; it is no longer relevant. Before his later disenchantment, Galbraith sought another automatic mechanism within the very structure of capitalism which would make clear why it continued to operate rather than fall apart. This mechanism he found in the theory of countervailing power, the central subject of his book. He subsequently abandoned the theory. It does not appear again in his works. Yet it is a line of thinking still worth examining.

The collapse of the competitive model

Frequently in his writings Galbraith stops to cast an admiring glance at the competitive model, the theory of a free enterprise economy so assiduously constructed by generations of economists. The days when this model seemed to reflect reality are not sufficiently distant for its hypnotic effects to fail to influence them. The competitive model solved so many problems so brilliantly. But this elegant structure received a smashing blow in the Great Depression. The exception became the rule. Concentration in industry was matched by a counter-concentration of labor in trade unions. Entry into many industries was barred by prohibitive capital requirements. Say's Law of Markets was laid to rest when it became apparent that buying and selling were two separate acts and that a person did not have to buy after he had sold. Prices and the volume of goods produced were no longer determined automatically in the concentrated sector of business. Instead they were determined by the decisions of private persons in the managements of large corporations. Monopoly opened the door to prices above and quantities below the competitive level. In fact, among the giants of industry prices were outlawed as a weapon of competition and replaced by competition based on product differentiation and advertising. Uncertainty was introduced into the economic game: the observer could no longer be sure what moves the players would make under given assumptions. Of course we are speaking about a rather abstract kind of uncertainty—how the players would act according to the dictates of the model. But the players themselves felt uncertainty no less under competitive capitalism than under oligopolistic capitalism. That very uncertainty was undoubtedly one of the forces which motivated the change.

Concentration in industry and labor carried an anticonc...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Dedication
• Contents
• Preface
• Chapter 1 A Revolution in Economics?
• Chapter 2 American Capitalism
• Chapter 3 The Affluent Society
• Chapter 4 The New Industrial State
• Chapter 5 Conclusion
• Index