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A tribute to John Kenneth Galbraith

Famed Liberal Economist and Harvard Professor John Kenneth Galbraith dies at 97

By: Hatto Fischer, Athens

Professor John Kenneth Galbraith, the Harvard professor who won worldwide renown as a liberal economist, backstage politician and witty chronicler of the affluent society, died Saturday April 29, 2006 night, his son said. He was 97. Galbraith died of natural causes at 9:15 p.m. at Mount Auburn Hospital, where he was admitted nearly two weeks ago, Alan Galbraith said.

In economics both as a study and as a practical discipline which includes work at institutions like the World Bank or the OECD there are two major fault lines: 1) economic theory and history of economic thought do not combine well as economics has less and less to do with making sure resources are used wisely and in the best possible way and more with wastage; and 2) economic theory leading to a practice which business interest and governments accept fails to resolve the problems of unemployment and therefore perpetuates poverty by abstract design. In light of all wastage but also extreme poverty the theory of Bataille applies when saying through wastage high prices are established, and even if that means blood is on the goods because some had to sacrifice their lives to get to that gold or fur. Hence it is rare for thinkers to be at home both in the academic and political fields while retaining a lucid intellect in order to come to terms with what economics has been wrestling with all along since Polanyi, Schumpeter or Myrdal, namely how to explain economic factors while not loosing sight of the need for just distribution and abolishment of poverty? John Kenneth Galbraith was one of the rare cases to fulfill just that and he did it in a manner which is often named as liberal approach to things when in fact it was his forthright civil equally critical tone that mattered to anyone studying his writings. In an interview with AURORA asking him if he would still believe high growth rates are a thing of the past and if they occur then along with heavy international borrowing, he replied yes and went on to explain what he meant by the ‘equilibrium of poverty’:

Aurora: "What have been the major forces determining this equilibrium of poverty?"

Galbraith: "In the first place I identify this with primitive agriculture, and two factors have been at work there. One is, of course, population growth. If you were a poor farmer in India, Pakistan, or in much of Africa, you would want as many sons as possible as your social security. They would keep you out of the hot sun and give you some form of subsistence in your old age. So, you have pressure for population growth that is, itself, the result of the extreme economic insecurity. This is something, which hasn't been sufficiently emphasized."

Source: http://aurora.icaap.org/talks/galbraith.htm


The term ‘economic insecurity’ means not merely an emphatic term but reflects itself a mind wrestling with what has remained elusive to economic theory for too long a time. As a matter of fact, economics has become such an abstract discipline which was praised by philosophers like Karl Popper as being more like natural sciences objective and empirical, when in fact it meant excluding all factors which could not be dealt with by such a method. The most apparent outcome was the refutation of the Keynesian model which named the state as responsible for those out of work and this theory being replaced by the Friedman model of the Chicago school which relied solely on what determines consumer behavior, namely instead of short term long term income expectations. Life earnings as sole determining factor freed the state of any “liberal” function or obligation and reduced governmental policy to just fiscal or more precisely monetary regulation of the flow of money according to which the circulation of goods and extra money slowed down or speeded up. This has made the FED in the United States the most powerful institution and replaces any conscious effort to formulate and implement an economic policy. It is of no coincidence that Bill Clinton tried at the beginning of his presidency to tackle this problem of ‘economic insecurity’ from a different angle by not relying solely on the money flow as regulator of the circulation of goods for he had at that time John Kenneth Galbraith as advisor. That influence could be felt immediately.

Galbraith continues to explain further ‘equilibrium of poverty’ by describing the enormous discrepancies between urban and rural based types of economic life:

“Secondly, in some African countries, there has been a deeply misguided effort to keep farm and food prices low in order to benefit an urban proletariat. Whatever advantages this has had in the short run, it has had disastrous effects in the longer run. One has to divide the problem between urban (with some industrial life), and agriculture, with its equilibrium of poverty.”

(Source of interview by Aurora: http://aurora.icaap.org/talks/galbraith.htm )

When asked further how he would explain self perpetuating poverty, he formulated several things which are interrelated as it starts with bad advice and does not end with the mistake made by attempting to implement models taken from the development in the United States or Canada to other countries. This leads to forgetting the different set of priorities with regards to education, transportation and proper land use, and all this under quite different conditions of political stability. For instance, a country faces quite different challenges when it has ranked highly the priority of seeking to absorb a rural population into the process of urbanisation once given a chance to make that transfer. If that chance is not given to do so in an orderly fashion, then because cultural investments are missing. In that sense, John Kenneth Galbraith is a novel economist since he includes in his considerations the cultural dimension.  The latter is something which other economists tend to exclude almost systematically and methodologically. But in the list of priorities Galbraith would set, ‘cultural investments’ come first:

“One must always have in mind one simple fact—there is no literate population in the world that is poor, and there is no illiterate population that is anything but poor.”

(Source of interview by Aurora: http://aurora.icaap.org/talks/galbraith.htm)

There is something decisive about his way of thinking for it takes into consideration the time factor. For instance, when looking at the economy in his book “The New Industrial State”, John Kenneth Galbraith expresses the common thinking existing at that time as well within the Kennedy administration, namely that the state had no longer so much the capacity to organize things, but much more the multi national companies. Without anticipating fully the decline of the industrial sector it reflected nevertheless the shift of power occurring between economy and state and foresaw already what has become known now as the globalized economy depending upon major players and actors no longer respecting state borders.

Most crucial for a further understanding of his thoughts was then the time shift that Galbraith considered to be crucial to explain modern production conditions. He pointed out in his book ‘The New Industrial State’ that when Henry Ford assembled and produced his cars, he needed a mere three days: on the first to collect the parts, on the second to assemble them and on the third to sell them. By the time modern car manufacturers developed their sophisticated automobiles by relying heavily on technology, the time needed to assemble and to produce these cars had shifted dramatically from three days to four years. Consequently, so the conclusion for John Kenneth Galbraith, a car company could no longer rely on stable demand by the consumers if it was to target the production of a new series of models. Something else had to stabilize the risk of investment in such a new model. This point has generally not been understood or rather the relationship between production needs and consumer demands been misunderstood when referring to Galbraith’s theory.

Of course, the most evident point is that car manufacturers and not only them can stabilize the demand for their products by having the state purchase a certain amount in order to overcome the risk of investments and to guarantee a return to the capital invested within that same time period of four years and more. There is no other need but the state having to deregulate itself in order to act as a consumer offering stable demand to companies so that they are willing to invest. The easiest way for the state to do so has been seen under the Bush junior administration, namely to deregulate almost everything, including tax breaks, while going to war allows even the issuing of contracts without any public procurement procedure. The state acts as individual consumer with subjective preferences which justify expenditures of a private nature although done by the public hand. The obscurity between private and public interests is but the full swing of having negated completely social obligations as if the state must cater only private interests which are linked to economic growth and therefore to the wrong success criteria of any economy, whether now evaluated in terms of local production capacities along with its labor market or in terms of world development based on free trade and counter balancing of extreme crisis provoked by poverty and ever more economic insecurity.

A tribute to John Kenneth Galbraith has, therefore, to attest first of all that he made this relevant link between the time dimension modern technology involves when it comes to producing things and what consequences this has for how firms face up to this challenge when wishing to market their products well ahead of the time of their real appearance on the market. The response to that gap by the state and state led initiatives has been sketched in the ‘New Industrial State’, but needs to be taken further as criticism of the liberal economy having been outdated and refuted by military based interventions to ensure that the Friedman model of life time incomes determining consumption can really work. For that means the military presence guarantees that everyone is willing to pay the high price and thereby it meant ignoring all the injustices and infringements of human rights as was already the case when Pinochet toppled Allende in Chile 1973 and made that country into the first laboratory for the Chicago economic model. If anything it proves the theory of Bataille that the willingness to pay such a high prize has to go hand in hand with ignoring all the blood spilled in the process. John Kenneth Galbraith was like Noam Chomsky one of the rare exceptions who spoke with all intellectual clarity his mind and did not close his eyes to all the plights in the world. As such he has become the conscience of modern economic theory and practice.


The article appeared first in heritageradio on2.5.2006


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