The Economic Contributions of John Kenneth Galbraith

Abstract

Galbraith's principal theoretical contribution is foreshadowed in American capitalism and unfolds more clearly into view in his trilogy The Affluent Society, The New Industrial State and Economics and the Public Purpose. His thesis is that the economic ideas that once explained a world of poverty have not adjusted to a world of affluence dominated by the modern corporation. His main themes are the concentration of economic power in the large corporation and the social and environmental imbalance that results from the large corporation. Galbraith attempts to tease out the implications of the uneven development of modern affluence and outlines an emancipatory case for social change.

Acknowledgements

The authors would like to thank Ron Stanfield for help and advice. The Commonwealth Fund, a New York City-based private independent foundation, supported the research undertaken by Stephen Dunn. The views presented here are those of the authors and not necessarily those of The Commonwealth Fund their directors, officers or staff.

Notes

¹It resulted in a series of three papers published by the Giannini Foundation (see Voorhies et al., 1933a,b; Galbraith, 1934).

²The economic report was published as The Effects of Strategic Bombing on the German War Economy (US Strategic Bombing Survey, 1945). Galbraith also participated in an assessment of aerial bombing on the Japanese economy. This study concluded that US bombing raids damaged the Japanese economy (US Strategic Bombing Survey, 1946).

³The story of Galbraith's time in India appears in Ambassador's Journal: A Personal Account of the Kennedy Years (1969a).

⁴A major shortcoming of Galbraith's discussion of the firm is that he does not articulate how the technostructure adapts and changes. For example, there is no discussion of why the U-form mode of organization was replaced by the M-form mode of organization. While all the elements of the modern new institutional economics appear to be there (complexity, uncertainty and asset specificity), orthodox theorists are inclined to dismiss Galbraith's thesis suggesting that the absence of an economizing perspective ultimately resists the explanation of change. Indeed, the absence of such a perspective may explain Galbraith's (1988) admitted failure to foresee the rationalization and downsizing of American industry in the 1980s. Nevertheless, although Galbraith does not specifically evaluate the reasons for the evolution of certain governance structures, his framework does permit such an explanation – organizational changes that enhance the power of the technostructure are pursued, but the absence of conventional market forces means that a complacent technostructure will exhibit sclerotic tendencies and/or may be challenged by other technostructures (such as those originating in Japan). Such considerations warrant more theoretical.

⁵That is to say that, although Galbraith notes that integration offers the prospect of controlling the price and supply of strategic factors under conditions of uncertainty, he also recognizes the role of long-term, money-denominated contracts. The firm can enter into large long-term contracts as a strategic response to uncertainty. Contracts and their enforceability are a major source of stability and security for the modern corporation. Money-denominated contracts occupy a pivotal role in protecting the prices and costs and safeguarding the sales and supplies at these prices and costs. Galbraith argues that, as production takes time and planning, money-denominated contracts represent the means by which uncertainties about the future may be mitigated. A large and extensive web of money-denominated contracts, cascaded downward, greatly facilitates the future planning and stability necessitated by advanced technology.

⁶Indeed as Hodgson (2001) pointed out, no author has brought these ideas to the attention of the modern reader more clearly and definitively than Galbraith. Indeed, many are inclined to see this as Galbraith's principle conclusion. However, as should be clear from this discussion, their nexus to the imperatives of technology and organization are paramount and must not be hidden from view nor treated in isolation.

⁷For example, Galbraith ties consumer debt directly to the process of want creation: ‘It would be surprising indeed if a society that is prepared to spend thousands of millions to persuade people of their wants were not to take the further step of financing these wants, and were it not then to go on to persuade people of the ease and desirability of incurring debt to make these wants effective. This has happened … The Puritan ethic was not abandoned. It was merely overwhelmed by the massive power of modern merchandising’ (Galbraith, 1958a, p. 200).

⁸That is ‘Members seek to adapt the goals of the corporation more closely with their own; by extension the corporation seeks to adapt social attitudes and goals to those of the members of its technostructure. So social belief originates at least in part with the producer. Thus the accommodation of the market behavior of the individual, as well as of social attitudes in general, to the needs of producers and the goals of the technostructure is an inherent feature of the system’ (Galbraith, 1967, p. 217).

⁹In Galbraith's (1967b) own words, ‘The small firm cannot be restored by breaking the power of the larger ones. It would require, rather, the rejection of the technology which since earliest consciousness we are taught to applaud. It would require that we have simple products made with simple equipment from readily available materials by unspecialized labor. Then the period of production would be short; the market would reliably provide the labor, equipment and materials required for production; there would be neither possibility nor need for managing the market for the finished product. If the market thus reigned there would be, and could be, no planning’ (p. 50).

¹⁰Countervailing power is similar to James Madison's idea of dividing up power in government so that no branch of government or no particular individual can gain too much power over everyone else. As an economist, Galbraith focuses mainly on economic power rather than political power, although the two can never be neatly separated. From this perspective, the state must serve as another branch of the economy and must contain the power of large firms similar to the way the judiciary constrains the power of the executive branch of government.

¹¹As noted above, Galbraith has been interested in the issue of controlling inflation for most of his career. He was effectively the US price czar during the Second World War and he has continuously advocated wage and price controls in order to keep inflation in check. In some of his earliest writings Galbraith (1941, 1952a,b, 1955a, 1958b) argued for controlling prices in selected industries. In addition, in testimony before the Joint Economic Committee of Congress on 20 July 1971 he called for permanent wage and price controls in the USA.