Galbraith was an important figure in 20th-century institutional economics, and provides perhaps the exemplary institutionalist perspective on Economic Power.
In American Capitalism: The Concept of Countervailing Power, published in 1952, Galbraith outlined how the American economy in the future would be managed by a triumvirate of big business, big labor, and an activist government. Galbraith termed the reaction of lobby groups and unions "countervailing power." He contrasted this arrangement with the previous pre-Depression era where big business had relatively free rein over the economy.
His 1954 bestseller The Great Crash, 1929 describes the famous Wall Street meltdown of stock prices and how markets progressively become decoupled from reality in a speculative boom. The book is also a platform for Galbraith's keen insights, and humour, into human behaviour when wealth is threatened. It has never been out of print.
In his most famous work, The Affluent Society (1958), which also became a bestseller, Galbraith outlined his view that to become successful, post-World War II America should make large investments in items such as highways and education using funds from general taxation.
Galbraith also critiqued the assumption that continually increasing material production is a sign of economic and societal health. Because of this Galbraith is sometimes considered one of the first post-materialists. In this book, he coined and popularized the phrase "conventional wisdom". Galbraith worked on the book while in Switzerland, and had originally titled it Why The Poor Are Poor but changed it to The Affluent Society at his wife's suggestion. The Affluent Society contributed (likely to a significant degree, given that Galbraith had the ear of President Kennedy) to the "war on poverty", the government spending policy introduced by the administrations of Kennedy and Johnson.
In 1966, Galbraith was invited by the BBC to present the Reith Lectures - a series of radio broadcasts, which he titled The New Industrial Estate. Across six broadcasts, he explored the economics of production and the effect large corporations could have over the state.
In the print edition of The New Industrial State (1967), Galbraith expanded his analysis of the role of power in economic life, arguing that very few industries in the United States fit the model of perfect competition. A central concept of the book is the revised sequence. The conventional wisdom in economic thought portrays economic life as a set of competitive markets governed ultimately by the decisions of sovereign consumers. In this original sequence, the control of the production process flows from consumers of commodities to the organizations that produce those commodities. In the revised sequence, this flow is reversed and businesses exercise control over consumers by advertising and related salesmanship activities.
The revised sequence concept applies only to the industrial system – that is, the manufacturing core of the economy in which each industry contains only a handful of very powerful corporations. It does not apply to the market system in the Galbraithian dual economy. In the market system, composed of the vast majority of business organizations, price competition remains the dominant form of social control. In the industrial system, however, composed of the 1,000 or so largest corporations, competitive price theory obscures the relation to the price system of these large and powerful corporations. In Galbraith's view, the principal function of market relations in this industrial system is not to constrain the power of the corporate behemoths but to serve as an instrument for the implementation of their power. Moreover, the power of these corporations extends into commercial culture and politics, allowing them to exercise considerable influence upon popular social attitudes and value judgments. That this power is exercised in the shortsighted interest of expanding commodity production and the status of the few is both inconsistent with democracy and a barrier to achieving the quality of life which the new industrial state with its affluence could provide.
The New Industrial State not only provided Galbraith with another best-selling book, it also extended once again the currency of Institutionalist economic thought. The book also filled a very pressing need in the late 1960s. The conventional theory of monopoly power in economic life maintains that the monopolist will attempt to restrict supply in order to maintain price above its competitive level. The social cost of this monopoly power is a decrease in both allocative efficiency and the equity of income distribution. This conventional economic analysis of the role of monopoly power did not adequately address popular concern about the large corporation in the late 1960s. The growing concern focused on the role of the corporation in politics, the damage done to the natural environment by an unmitigated commitment to economic growth, and the perversion of advertising and other pecuniary aspects of culture. The New Industrial State gave a plausible explanation of the power structure involved in generating these problems and thus found a very receptive audience among the rising American counterculture and political activists.
A third related work was Economics and the Public Purpose (1973), in which he expanded on these themes by discussing, among other issues, the subservient role of women in the unrewarded management of ever-greater consumption, and the role of the technostructure in the large firm in influencing perceptions of sound economic policy aims.
In A Short History of Financial Euphoria (1994), he traces speculative bubbles through several centuries, and argues that they are inherent in the free market system because of "mass psychology" and the "vested interest in error that accompanies speculative euphoria." Also, financial memory is "notoriously short": what currently seems to be a "new financial instrument" is inevitably nothing of the sort. Galbraith cautions: "The world of finance hails the invention of the wheel over and over again, often in a slightly more unstable version." Crucial to his analysis is the assertion that the common factor in boom-and-bust is the creation of debt to finance speculation, which "becomes dangerously out of scale in relation to the underlying means of payment." The financial crisis of 2008, which took many economists by surprise, seemed to confirm many of Galbraith's theses.
Galbraith cherished The New Industrial State and The Affluent Society as his two best. Economist and Galbraith friend Mike Sharpe visited Galbraith in 2004, on which occasion Galbraith gave him a copy of what would be Galbraith's last book, The Economics of Innocent Fraud. Galbraith confided in Sharpe that "his is my best book", an assertion Galbraith delivered "a little mischievously."
In 2010, the Library of America published a new edition of Galbraith's major works, edited by his son, James K. Galbraith: The Affluent Society & Other Writings, 1952-1967. Including American Capitalism, The Great Crash, 1929, The Affluent Society, and The New Industrial State, the edition was the first by an economist in the Library of America series.
Famous quotes containing the words books and/or economics:
“There are books ... which take rank in your life with parents and lovers and passionate experiences, so medicinal, so stringent, so revolutionary, so authoritative.”
—Ralph Waldo Emerson (18031882)
“The new sound-sphere is global. It ripples at great speed across languages, ideologies, frontiers and races.... The economics of this musical esperanto is staggering. Rock and pop breed concentric worlds of fashion, setting and life-style. Popular music has brought with it sociologies of private and public manner, of group solidarity. The politics of Eden come loud.”
—George Steiner (b. 1929)