Homage to Galbraith

John Kenneth Galbraith the American economist has died at 97. He was perhaps the most prominent of the household names that my economist father evoked when I was growing up. Reading his obituary in the New York Times I am forcefully reminded of how the great depression formed both Galbraith’s view of the world and well as that of his entire generation. His passing is much like that of the passing of the last Civil War veteran, or more recently here in Australia, the last Anzac. While many still remember the Great Depression, few had more understanding of it and no economist more eloquently spoke for that generation that endured it.

The Times obituary puts it this way:

Mr. Galbraith was one of the most widely read authors in the history of economics; among his 33 books was “The Affluent Society” (1958), one of those rare works that forces a nation to re-examine its values. He wrote fluidly, even on complex topics, and many of his compelling phrases among them “the affluent society,” “conventional wisdom” and “countervailing power” became part of the language.

I think his ability to write popular, yet serious, books on economics greatly enhanced his influence. When I hear him attacked and FDR’s great Keynesian reforms of the 30s mocked by contemporary market economists I am acutely aware that they did not experience the 30s. Likewise, I find myself annoyed by leftist economists lacking that experience who too easily push for redistribution of other people’s wealth as the ‘only’ solution. Galbraith’s work was down to earth and grounded in experience and his wit was deadly. The obituary continues:

Robert Lekachman, a liberal economist who shared many of Mr. Galbraith’s views on an affluent society they both thought not generous enough to its poor nor sufficiently attendant to its public needs, once described the quality of his discourse as “witty, supple, eloquent, and edged with that sheen of malice which the fallen sons of Adam always find attractive when it is directed at targets other than themselves.”

There is a good example of Galbraith’s wit in his The Great crash of 1929 which ruthlessly dissects the causes of that great debacle. To make a long story short one of the key causes of the crash was allowing investors to buy stocks on 10% margin. That meant that 90% of their value was a loan secured by the value of those stocks. The minute the market came down there was no way to meet the margin calls and the market collapsed under a deluge of sell orders. In addition to pillorying this euphoria based financing, Galbraith pointed to a closely related source of illusionary wealth – money that had been embezzled but not yet discovered as such. He speculated that this amount, although unknowable at any one time, would be much larger during good times than bad. Tongue firmly in cheek he coined the term ‘bezzle’ to denote this very real but unknowable sum of non-existent money and trace its contribution to the general collapse. I was sharply reminded of this bit of Galbraithian malice when Enron and WorldCom came unstuck when the tech bubble burst. I’m sure that it didn’t surprise Galbraith that this outbreak of irrational exuberance in the bezzle was caused by a flaw in the American regulatory regime. The big five accounting companies were self regulating and employed by corporations both as auditors and as advisers on how to avoid scrutiny. Like me, Galbraith grew up on a farm, and knew what to expect when the fox was left to guard the hen house.

Even though I don’t have much enthusiasm for some of Galbraith’s ideas, what makes him different from many on the traditional left is that he had a firm grasp of human nature and a wry realism. He understood self interest – even that of economists quipping: “Economics is extremely useful as a form of employment for economists.” Nor was he an apologist for communism saying, “Under capitalism, man exploits man. Under communism, it’s just the opposite.” He had a clear view of the darker side of human nature and even though he held out great hope for education to ameliorate its worst effects, he always involved that understanding of human nature in his calculations. He didn’t assume self interest could be eliminated or that it was altogether a bad thing. Instead I think much of his best work was based on his keen realistic eye. When he looked at modern capitalism he saw it clearly, not through the lens of ideology. He didn’t endlessly repeat the 19th century critique of capitalism as many still are today, but opened his eyes and wrote about what was in front of him. For example he described the emergence and dangers of oligopoly – the domination of the market by a few large players – in the post WW2 economy and was not simply negative in his assessment. Watching his TV series “The Age of Uncertainty” in the seventies I was genuinely surprised to hear him point out that if you wanted to build a new automobile the multinational company was the institution in the best position to do so successfully and efficiently.

The following exchange from a forum held in his honor at Harvard when he was 93 sums up his attitude:

Asked what liberalism meant to him, Galbraith replied that he did not believe in categories.

“In many matters, you want to exempt yourself from doctrine and apply yourself to the individual case. The well-being of the people should be the controlling factor.”


2 Responses to “Homage to Galbraith”  

  1. 1 Alex

    Hi

    Thanks for that, don’t really know much about the guy but you have inspired me to find out more!

    i loved the capatlism, communism quote.

    cheers

    Alex

  2. 2 nullo

    an economist’s denial of theory is quite ironic…

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