On the Death of John Kenneth Galbraith
The great economist John Kenneth Galbraith was shocked at the public squalor alongside private affluence. He devised the horse-sparrow theory, horses must be fed so the sparrows can live. Profit making is different than profit maximizing. A healthy economy means shrinking the financial sector and expanding the public sector.
ON THE DEATH OF JOHN KENNETH GALBRAITH
By Rudolf Hickel
[This article published 5/1/2006 is translated from the German on the Internet, http://www.nachdenkseiten.de/?p=1246. Rudolf Hickel is director of the Institute of Labor and Economy at the University of Bremen.]
John Kenneth Galbraith, the economics genius from the US, died at the age of 97. The economist, social critic, advisor of Presidents Roosevelt and Kennedy and diplomat influenced enormously by the 1929 stock market crash wrote over 33 books and a flood of essays that can hardly be surveyed. In his famous book "The Affluent Society" of 1958, he warned of a policy division between "public poverty and private riches" that was already actual in Germany. He criticized the ecological consequences of unbridled economic growth in the 1950s. As a genuine liberal who wanted to produce equal opportunities independent of social status, he is regarded as the most profiled critic of neoliberalism.
He was born on January 15, 1908 in Iona Station in the Canadian province of Ontario. After a residence at the renowned University of Berkeley and acceptance of US citizenship in 1937, he changed to the elite university of Harvard. Now he died at the age of 97 in a hospital in Cambridge, Massachusetts. After a doctorate with a theme from agricultural economics at the University of California in Berkeley, he turned at last to the great questions of the development of capitalist economies. In 1948 he landed in Harvard and remained loyal to this Mecca of economists. The regular Swiss journeys of Kenneth Galbraith who became rich through his bestseller offered him a pleasant change.
THE INGENEOUS TROUBLEMAKER OF HARVARD
It is important to be sparing with superlatives. Still John Kenneth Galbraith was one of the very great analysts and reformers of modern capitalism. With an enormous rage for writing, he described its driving forces, interest-oppositions and crisis susceptibility. His books were worldwide bestsellers. His popularity has shriveled in the last years. The Galbraithian message of a solidarian economy disturbs the current overpowering faith in redemption through the deregulated wealth machine of capitalism. His death should be an occasion for rediscovering his work for a solidarity economic society that is organized politically. Finally with a sense for historical change, he described how political organization forces the reduction of the economy and society to individual economic selfishness.
The development of Kenneth Galbraith is closely connected with the history of the twentieth century. Again and again he was pressed into politics alongside his research and journalist work. In politics he acted less and less successfully.
He ran aground against the lobby of big businesses in attempting to carry out price controls against the war-conditioned inflation during the Roosevelt presidency. This bitter experience with the political influence of the powerful economic business giants permanently affected his anatomy of US capitalism. In the 1960 campaign for the presidency of John F. Kennedy, he massively supported his old friend from the university. However this engagement did not bring any ministerial post in the Kennedy cabinet because of the presidential worry about the uncontrollable unconventional thinker. He was ambassador in India from 1961 to 1963.
His academic work triggered great controversies. The spectrum of judgment extends from great visionary in the tradition of Thorsten Veblen, Joseph Schumpeter and John Maynard Keynes up to Marxist-blinded socialist and populist. The pope of economists Paul A. Samuelson denied that the lanky two-meter man from Harvard was an economist. While Samuelson was already awarded the Nobel Prize for economics in the second year, this honor never came to Galbraith. When Galbraith heard Samuelson's harsh criticism, he commented self-assuredly:
Nothing could have touched me less. I do not believe anyone who is an economist and ignores social and political ideas has any significance for the real world.
Two reasons explain his successes. Firstly, his formulations were very readable, provocative, enlightening and seasoned with infectious wit. He proudly proclaimed in a 1999 interview:
I write for a broad public because it tickles my fantasy and also because of my view that understanding the functioning of the economy - and especially the tendency of the privileged to care for their own interests - is one of the most important things in a democracy.
Secondly, the interdisciplinary method brings together different technical disciplines. Galbraith was an important preparer of the way of an evolutionary institutional economics. According to this theory, institutional changes and great structures influence individual economic conduct. Great agreements are clear although he often opposed the theoretical revolutionary John Maynard Keynes from Great Britain. Like Keynes, Galbraith established the necessity of political creativity to avoid economic crises and enable provisions with public goods and social protection against risks that markets create for those who existentially depend on paid income. As in the subtitle of this 1998 collection of essays on the "Solidarity Society," he pleaded "for a modern social market economy."
Instead of the idyll of perfect competition modeled by neoclassicism, Galbraith emphasized the economic concentration in a few mega-businesses. The result is the use of strategic price-setting power on the monopolist markets. The invisible hand - through which individual economic rationality should optimize the overall economic welfare behind the backs of the actors - was long replaced by the shaking hand of the business giants. In his first 1952 bestseller on "American Capitalism," he showed the consequences of the economy marked by economic monopoly power. He did not conclude with regard to real power relations that monopolies must be shattered. Rather he stressed economically concentrated power produces counter-power through unions and the intervening state ensures balance ("countervailing power"). However this model of "organized capitalism" has lost significance in the last years through the loss of power of big institutions. In the 1967 bestseller "The New Industrial State," Galbraith took up modern developments in "organized capitalism." The progressive separation of capital owners - shareholders - in relation to the growing layer of capital functionaries is underlined. From a contemporary view, Galbraith underrated the developed influence of capital owners in relation to the top managers. Today the bosses in the boards of directors are driven to higher profits by the concentrated power of the sponsors.
Those who spur on are the agents of the shareholders above all the mammoth fund representatives and the little clique of short-sleeved analysts in the power center of the New York Exchange.
In his most important work "The Affluent Society," Galbraith marked out the state functions essential for the economy. He published this work in 1958 after his ski vacation in the Swiss Gstaad. Economically purchased needs are used and speeded up by the profit economy. While the surplus in private wealth increased, insolvent consumers become impoverished for lack of income. The public sector becomes impoverished because there is no corresponding mechanism to ensure its necessary production. Private enterprise wealth within spreading public poverty is the consequence. Dilapidated cities, a deficient infrastructure and gigantic income poverty demonstrate this. Galbraith argued for a dismantling of this imbalance between state and private enterprise. He wanted to convert the huge production possibilities into prosperity for everyone. That means "struggle against poverty." The affluent society is more actual today for Germany than ever. Public poverty is now concentrating in the communities in Germany through a fiscal policy that spares wealth and re-shifts incomes and burdens.
The 1998 essay "The Solidarity Society" reads like a legacy. The goals of his "modern social market society" are: employment, chances of ascent for all people, a good education, freedom from social unrest, a stable net, dismantling the miserable bureaucracy and social oriented foreign policy.
Galbraith's diagnostic interest and his moral foundation can be formulated as follows: the moral justification for economists lies in the question whether they can improve the world in which they live.
Future economic systems and their economic theoretical ideologues and decision-makers should be judged by this question.
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