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Essential Galbraith

Galbraith, John Kenneth Author

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THE ESSENTIAL GALBRAITH includes key selections from the most important works of John Kenneth Galbraith, one of the most distinguished writers of our time - from THE AFFLUENT SOCIETY, the groundbreaking book in which he conined the tern "conventional wisdom," to THE GREAT CRASH, an unsurpassed account of the events that triggered America's worst economic crisis. Galbraith’s new introductions place the works in their historical moment and make clear their enduring relevance for the new century. THE ESSENTIAL GALBRAITH will delight old admirers and introduce one of our most beloved writers to a new generation of readers. It is also an indispensable resource for scholars and students of economics, history, and politics, offering unparalleled access to the seminal writings of an extraordinary thinker.

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About the Author:

John Kenneth Galbraith (1908-2006) was a critically acclaimed author and one of America's foremost economists. His most famous works include The Affluent Society, The Good Society, and The Great Crash. Galbraith was the receipient of the Order of Canada and the Robert F. Kennedy Book Award for Lifetime Achievement, and he was twice awarded the Presidential Medal of Freedom.

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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
excerpt from American Capitalism, is still in print after nearly
fifty years. The balance of power between buyer and seller therein
described 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 enduring
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
included, 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, 1929, which was published in 1955, just after the twenty-fifth
anniversary 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
accepting their relevance either to history or to the present day,
and I have added some headnotes to suggest my view of their
particular significance then and now. I end with a paper given at the
London School of Economics in 1999 on the unfinished business of the
millennium; 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 respect, 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 little trace of the diplomat, the art historian, the
novelist, the book reviewer, 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, communications and
business change, so too must the economist"s interpretation of them.
He has brought to the subject a new way of looking at the role of the
great corporations as they faced the countervailing power of trade
unions and consumer coalitions. He has identified those who are the
guiding intelligence of the corporate world, naming them the
technostructure, and has undermined belief in what he calls the myth
of consumer sovereignty. A better balance 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 persistence of financial euphoria in our
public marketplace have consistently 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
irreverence and unique perception of Thorstein Veblen, for the
profound effect John Maynard Keynes and his General Theory of
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

The Essential Galbraith

Countervailing Power
[from American Capitalism]
This is a chapter from one of my first books, the generously titled
American Capitalism, which came out in 1952, barely into 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 regulatory role of competition. It was the competition of
many sellers 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 policy
going 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-day
Wal-Mart. The numerous and technically competitive farmers found
their best economic recourse in purchasing cooperatives when dealing
with those who bought and bargained for their product. Thus the
answer to monopoly was less and less the rule of law and more and
more the coercion of countering bargaining power. Not exceptionally,
perhaps, I carried this idea somewhat to the extreme, but it did
involve an impressive attack on established belief.
A substantial number of economists greeted my thesis with interest
and approval when it was published, but a much larger number of
defenders of the orthodox view were strongly at odds. At the annual
meeting of the American Economic Association, the most prestigious
gathering of economists, it was suggested by the head of the
organization, the distinguished Calvin Hoover of Duke University,
that there be a major reception for the book. This was quickly
vetoed, but a special meeting to discuss it was added to the program.
At lunch that day I heard someone at the next table say, "We must go
now -- it"s time to hear them kill off Galbraith." It didn"t prove to
be quite that bad; there was even some supporting comment. The
concept of countervailing power was allowed to pass into economics
and in a small way into public instruction. The book has been
continuously in print ever since -- as I say, a matter of almost
fifty years.
* * * *
On the night of November 2, 1907, J. P. Morgan the elder played
solitaire in his library while panic gripped Wall Street. Then, when
the other bankers had divided up the cost of saving the tottering
Trust Company of America, he presided at the signing of the
agreement, authorized the purchase of the Tennessee Coal & Iron
Company by the Steel Corporation to encourage the market, cleared the
transaction with President Roosevelt and the panic was over. There,
as legend has preserved and doubtless improved the story, was a man
with power a self-respecting man could fear.
A mere two decades later, in the crash of 1929, it was
evident that the Wall Street bankers were as helpless as everyone
else. Their effort to check the collapse in the market in the autumn
of that year is now recalled as an amusing anecdote; the heads of the
New York Stock Exchange and the National City Bank fell into the
toils of the law and the first went to prison; the son of the Great
Morgan went to a congressional hearing in Washington and acquired
fame, not for his authority, but for his embarrassment when a circus
midget was placed on his knee.
As the banker as a symbol of economic power passed into the
shadows, his place was taken by the giant industrial corporation. The
substitute was much more plausible. The association of power with the
banker had always depended on the somewhat tenuous belief in a "money
trust" -- on the notion that the means for financing the initiation
and expansion of business enterprises was concentrated in the hands
of a few men. The ancestry of this idea was in Marx"s doctrine of
finance capital; it was not susceptible to statistical or other
empirical verification, at least in the United States.
By contrast, the fact that a substantial proportion of all
production was concentrated in the hands of a relatively small number
of huge firms was readily verified. That three or four giant firms in
an industry might exercise power analogous to that of a monopoly, and
not different in consequences, was an idea that had come to have the
most respectable of ancestry in classical economics. So, as the J. P.
Morgan Company left the stage, it was replaced by the two hundred
largest corporations -- giant devils in company strength. Here was
economic power identified by the greatest and most conservative
tradition in economic theory. Here was power to control the prices
the citizen paid, the wages he received, and which interposed the
most formidable of obstacles of size and experience to the aspiring
new firm. What more might it accomplish were it to turn its vast
resources to corrupting politics and controlling access to public
opinion?
Yet, as was so dramatically revealed to be the case with the
omnipotence of the banker in 1929, there are considerable gaps
between the myth and the fact. The comparative importance of a small
number of great corporations in the American economy cannot be denied
except by those who have a singular immunity to statistical evidence
or a striking capacity to manipulate it. In principle, the American
is controlled, livelihood and soul, by the large corporation; in
practice, he or she seems not to be completely enslaved. Once again
the danger is in the future; the present seems still tolerable. Once
again there may be lessons from the present which, if learned, will
save us in the future.
ii
As with social efficiency and its neglect of technical dynamics, the
paradox of the unexercised power of the large corporation begins with
an important oversight in the underlying economic theory. In the
competitive model -- the economy of many sellers, each with a small
share of the total market -- the restraint on the private exercise of
economic power was provided by other firms on the same side of the
market. It was the eagerness of competitors to sell, not the
complaints of buyers, that saved the latter from spoliation. It was
assumed, no doubt accurately, that the nineteenth-century textile
manufacturer who overcharged for his product would promptly lose his
market to another manufacturer who did not. If all manufacturers
found themselves in a position where they could exploit a strong
demand and mark up their prices accordingly, there would soon be an
inflow of new competitors. The resulting increase in supply would
bring prices and profits back to normal.
As with the seller who was tempted to use his economic power
against the customer, so with the buyer who was tempted to use it
against his labor or suppliers. The man who paid less than the
prevailing wage would lose his labor force to those who paid the
worker his full (marginal) contribution to the earnings of the firm.
In all cases the incentive to socially desirable behavior was
provided by the competitor. It was to the same side of the market --
the restraint of sellers by other sellers and of buyers by other
buyers, in other words to competition -- that economists came to look
for the self-regulatory mechanism of the economy.
They also came to look to competition exclusively, and in
formal theory they still do. The notion that there might be another
regulatory mechanism in the economy has been almost completely
excluded from economic thought. Thus, with the widespread
disappearance of competition in its classical form and its
replacement by the small group of firms if not in overt, at least in
conventional or tacit collusion, it was easy to suppose that since
competition had disappeared, all effective restraint on private power
had disappeared. Indeed, this conclusion was all but inevitable if no
search was made for other restraints, and so complete was the
preoccupation with competition that none was.
In fact, new restraints on private power did appear to
replace competition. They were nurtured by the same process of
concentration which impaired or destroyed competition. But they
appeared not on the same side of the market but on the opposite side,
not wi...

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