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A Mind of His Own

1.

John Kenneth Galbraith has been a Harvard economist, an accomplished diplomat, a political activist, a close adviser to presidents, a novelist and memoirist, and the best-selling economic writer of his time. But among economists he was perhaps most known for, and proudest of, his economic apostasy. He refused to accept what he considered the simplifying assumptions and the mathematical models that were fundamental to both the liberal and conservative economic orthodoxy of his day. Richard Parker’s comprehensive biography arrives at an appropriate time; many of the basic assumptions of orthodox economic theory that Galbraith challenged for much of his career are now being questioned within the orthodox tradition itself.

In fact, Galbraith devoted a chapter to the inherently misleading nature of conventional economic wisdom in his best and most influential book, The Affluent Society, published in 1958; his status today as an outsider in his own profession was readily predictable even then. But he was also one of the leading progressive intellectuals of the post–World War II period. His disdain and sarcastic wit were most aroused when it came to discussing the abuses of business power and the accumulation of undeserved wealth, especially on Wall Street. His sympathies were for the worker, the poor, and the otherwise disadvantaged.

Advocating such views required considerable intellectual courage. In those early postwar years, even being a follower, as Galbraith was, of the British economist John Maynard Keynes, who advocated government spending to mitigate recession, could arouse suspicions of subversion. Galbraith’s still more outspoken views, already visible when he served as a government official during World War II, almost resulted in his being denied tenure at Harvard.

Galbraith will turn ninety-seven in October, and it is unlikely that many professional economists in their thirties, forties, and perhaps even their fifties have read him with much care. By contemporary standards, Galbraith was more an economic sociologist than a technical economist, a remarkably gifted writer who viewed economics more as an explanation of how we have lived, and how we might live better, than as a set of mathematically demonstrable hypotheses about how to maximize economic production. But this description does not do justice to his breadth and originality. Galbraith made errors, but his works incisively dealt with deeply consequential changes in the modern economy and its relation to government which he believed practitioners of orthodox economics were neglecting. Among the changes was an immense increase in corporate power that put in doubt much economic doctrine about the working of market forces. Had Galbraith devoted more effort to gathering empirical evidence to support his views and to finding ways to test them statistically, his influence on economics would have been greater. Galbraith bears the responsibility for failing to do this.

Richard Parker is an economist who teaches at Harvard’s Kennedy School of Government. Although he criticizes some of Galbraith’s work and corrects his occasionally distorted recollections of the past, Parker is a Galbraith partisan and had the economist’s full cooperation. With a strong grasp of complex economic issues that span some sixty years Parker succeeds in placing Galbraith’s economic contributions within the intellectual tradition—part Keynesian and part derived from the work of Thorstein Veblen—to which they belong.

Many of the themes Galbraith dealt with vigorously between the 1950s and the 1980s are again current. Among these are the view that consumers, contrary to one of the most important assumptions in orthodox economics, are not necessarily rational and they often do not act in ways that increase their happiness; that financial markets are not as efficient or rational as was once claimed; that large corporations do indeed have power to set prices and wages and influence consumers through advertising and marketing; that public goods such as health care and transportation are critical to social welfare and to economic growth; and that Keynesian fiscal policy—using government spending and changes in tax rates to stimulate growth—can be effective.

In tracing Galbraith’s intellectual development, Parker has also written a much-needed history of American progressivism. He provides thorough and often original descriptions of Galbraith’s part in many of the political events of the time. Parker’s work reminds us that between the Great Depression of the 1930s and the Reagan presidency the US did not follow an easy or inevitable path toward expanding social programs and accepting coexistence with the Soviet Union. There was a constant battle between America’s right and left, and Galbraith was at the forefront of both the economic and political conflicts of his time.

Galbraith was born in 1908 on a small farm in Ontario, Canada, to parents of Scottish descent. Here his political education began. Faith in the uses of government was powerful in the Galbraith household. His father was a government activist, a committed supporter of Canada’s Liberal Party, and an occasional local officeholder himself. The elder Galbraith’s local standing, which Parker writes was considerable, was no doubt enhanced by the fact that, like his son, he was six feet nine inches tall. Galbraith went on to Ontario Agricultural College to learn mainly about animal husbandry, not economics. Nevertheless, he early showed an ability to write clearly and helped start a school newspaper. In 1931, he won a fellowship to the doctoral program in agricultural economics at the University of California at Berkeley.

There he was well schooled in the prevailing neoclassical economic theory then dominated by Alfred Marshall’s 1890 study, The Principles of Economics. In the second half of the nineteenth century, neoclassical economists, culminating with Marshall’s work, formalized and refined the early thinking of Adam Smith and his classical peers. Smith’s central thesis was that the productivity of an economy—what it produces from its labor and other resources—will naturally increase and reach its maximum strength under the discipline of competition. If business owners pursue their economic self-interest, competing actively against one another, Smith’s invisible hand induces them to invest their time and resources in ways that produce desired goods as plentifully and inexpensively as possible.

Marshall, a professor at Cambridge University, created the elegant demand and supply curves with which all first-year economics students are familiar. The demand for goods (or services) will equal their supply at a specific price, known as the equilibrium point; the process of production will then be “optimized,” i.e., the maximum quantity of goods and services will be sold on the market at the fairest prices. Moreover, this will occur with no intervention by government, whose meddling for the most part can only disrupt the process. The market for labor works similarly. Workers will be paid what they are worth to the employer and the maximum number of jobs will be created. Left unfettered, neoclassical economics claims, competitive markets will both check the power and profits of business and induce them to allocate resources effectively enough always to return the economy to full employment.

The severity of the Great Depression threw the classical theory into disarray. At least 25 percent of the workforce was unemployed and the nation’s total production or Gross Domestic Product fell ultimately by half. Production of manufactured goods such as cars fell by 80 percent and production of railroad cars to zero. The economy resisted all attempts to rescue it. “Measured by its continuing imprint on actions and attitudes, the depression clearly stands with the Civil War as one of the two most important events in American history since the Revolution,” Galbraith later wrote.

Probably from the start, Galbraith was more attracted to the works of more progressive thinkers than Marshall, including Karl Marx and the American social critic Thorstein Veblen; and Veblen, Parker writes, left a deeper mark on Galbraith than did Marx. His famous book, The Theory of the Leisure Class, published in 1899, was still widely popular in the early 1930s, and its corrosive criticism of industrial wealth and unequal incomes remained as persuasive to Galbraith, especially during the crisis of the Depression, as to Veblen’s first readers during the age of the robber barons. With his degree in hand, Galbraith won a Canadian-sponsored fellowship to teach at Harvard. Harvard had long been considered America’s preeminent university, and his application there, as Parker notes, suggests that Galbraith, even in his youth, was not a timid man.

At Harvard, in the fall of 1934, Galbraith met John D. Black, a faculty member and leading agricultural economist with ties to Roosevelt’s New Deal, who changed his life. “In Black,” Parker writes,

Galbraith had come upon that critical figure so many talented young people seek (and need) at the beginnings of their careers: teacher, patron, mentor, protector. Unlike so many of the other senior men in the department, Black had no antipathy to Roosevelt or to the New Deal idea that government was needed to shape capitalism’s powers productively and equitably.

Galbraith’s thinking was also permanently influenced by studies arguing that there was a lack of strong competition in America’s markets, including the widely read 1932 book The Modern Corporation and Private Property, by Gardiner Means, a Columbia economist, and Adolf Berle, a successful Wall Street lawyer and liberal reformer. He was also impressed by the fresh economic analyses of a young Harvard professor, Edward Chamberlin, and the British economist Joan Robinson, who had been a student of John Maynard Keynes. Their combined message was that large business in America had undue power to control markets and prices, contrary to the Marshallian model derived from Adam Smith.

At this point, Galbraith had not yet worked out a view of his own. In 1936 he produced a conventional analysis of the Depression with a businessman, Henry Dennison, which favored government planning and regulation of the economy in order to address the lack of competition in markets. In fact, that year, Galbraith had just read and been captivated by Keynes’s The General Theory of Employment, Interest and Money, as had so many of the young men around him, but he had not yet fully absorbed its implications. With Keynes, a new sort of economics was in sight, if as yet still dimly. Paul Samuelson, the Nobel Prize–winning economist and theoretical pioneer, who was then a graduate student at Harvard, later wrote that it was as intoxicating to read Keynes as it must have been for Keats to read Chapman’s translation of Homer. Though complex and technical, what made The General Theory so attractive was that it offered a straightforward explanation of the causes of depression, and, moreover, a simple solution.

Keynes argued, contrary to the claims of neoclassical economics, that falling interest rates did not always induce business to borrow more heavily in order to fully invest the nation’s savings. Without larger investment, the economy’s resources, including its labor force, would remain underemployed. To correct this, Keynes’s analysis suggested that government deficits, through additional spending or tax cuts, would stimulate enough demand to produce the investment needed for growth and ultimately the additional jobs that would satisfy the demand. The path to prosperity was thus not to be found in a set of complex regulations and detailed government oversight, for which the individualistic American people probably had no appetite anyway; prosperity could be achieved through the more attractive macroeconomic process of managing the business cycle through fiscal policy.

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