Economics and the Public Purpose
It would be interesting to trace the development of John Kenneth Galbraith’s ideas, beginning with American Capitalism (1952) and culminating (so far at any rate) with Economics and the Public Purpose, which has just been published. Such a survey would show, I think, that Professor Galbraith is very sensitive to the moods of the moment, moving with but little resistance and even less acknowledgment from a kind of Panglossian optimism in American Capitalism (and the same year’s famous New York Times Magazine article “We Can Prosper Without War Orders”), through increasing skepticism in the middle books (The Affluent Society and The New Industrial State), to something which now displays what is at times ill-concealed alarm. That all this goes along with, and in Galbraith’s mind no doubt stems from, a basically not much changed vision of the American economy and American society, is a noteworthy fact which may tend to suggest that the correspondence between this vision and the reality is not altogether perfect. It is to this aspect that I should like to direct attention.
To begin with, Galbraith’s newest critique of neoclassical (or orthodox or received) economics contains little that is new. It has been repeated, with variations and changing emphases, in all his works. And for the most part it is entirely justified. Economics as the subject is taught in establishment educational institutions has little relevance to reality and is thoroughly apologetic in effect if not in intent. I will not dwell on this: those who are not already familiar with Galbraith’s critique will find it well presented, with some new angles (Galbraith emerges this time as something of a middle-class women’s liberationist), in Economics and the Public Purpose. What I wish to focus attention on is the “model” (the term is almost de rigueur these days) which he puts in the place of his version of the neoclassical picture of a consumer-dominated and producer-powerless self-adjusting market system which fails to perform satisfactorily only when deluded intellectuals and ignorant politicians meddle with it.
Galbraith’s present model differs from his earlier versions in that he now divides the economy into two parts which he calls the “planning system” and the “market system.” The planning system, as he acknowledges on page 217, is merely a new name for what is traditionally called the “monopolistic or oligopolistic sector.” It comprises a thousand or so giant corporations which produce three-quarters or more of the country’s industrial output. The market system is the rest of the private economy, with agriculture, services, and retailing as its principal subdivisions. Having identified these two “systems,” Galbraith proceeds to analyze the functioning of the economy as a whole as it is affected by their interaction with each other and with the state or public sector.
According to this analysis, the dominant part is the planning system. It is here that the driving force of the economy (the savings-and-investment process) is centered. Given its over-whelming monopoly power, the planning system is able to exploit the largely…
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