Galbraith Revisited

October 9, 1961

Over the last twelve months I have on one or two occasions examined the economic ideas of J. Kenneth Galbraith, our present ambassador to India, as expounded in his book The Affluent Society. This examination seems justified by the great influence of his ideas not only in academic circles but in the Kennedy Administration. Galbraith’s ideas were the subject of discussion at a meeting of the Mont Pèlerin Society, an international group of economists, a year ago in Germany; but the full text of the discussion has only now become available in The Mont Pèlerin Quarterly dated April–July 1961. It provides an opportunity to examine his ideas afresh.

So many good points were made by several speakers that the task of selection is difficult. The main thesis of Galbraith’s book, as summed up by Prof. George J. Stigler, “is that we are now wealthy and that an economic theory and a viewpoint which are based upon general poverty and the need for efficient production are obsolete.” Galbraith’s message is also summed up by Prof. David McCord Wright as: “‘Escape from the thralldom of productive efficiency’—stick to the out-of-date method, don’t adjust, do less work.” The disastrous effects of such a program upon American capacity and world growth are obvious.

WE SILLY SPENDERS

Stigler points out that if we accept Galbraith’s thesis that people are essentially silly in spending their income, and fall for the blandishments of persuasive advertising by buying trifling or wholly nonsensical or harmful commodities, we are likely also to believe that people are stupid in other departments of life: “It is a very short step to say that not only are they incompetent in disposing of their money, but that they obviously are incompetent in disposing of their votes intelligently.”

George Schwartz points out that: “One of the greatest pleasures in life is to disapprove of the way the people next door spend their money. I bet that every woman in the world does not think much of the curtains chosen by the woman next door.” He adds that the Galbraith thesis is just a new twist to the anti-capitalist argument: “Admittedly the capitalist order can turn out the goods; admittedly it can provide a high degree of employment . . . . Now if you make all those admissions what have you got to sell? The Galbraith line is just a desperate turn to something new, to the argument: ‘All right, the goods are there, but they are the wrong goods’.”

‘DEPENDENCE EFFECT’

Prof. F.A. Hayek contends that the Galbraith argument really turns upon the “Dependence Effect” explained in Chapter XI of The Affluent Society. This argument starts from the assertion that a great part of the wants which are still unsatisfied in modern society are not wants that would be experienced spontaneously by the individual if left to himself, but are wants which are created by the process by which they are satisfied:

“It is then represented as self-evident that for this reason such wants cannot be urgent or important. This crucial conclusion appears to be a complete non sequitur, and it would seem that with it the whole argument of the book collapses.

“The first part of the argument is of course perfectly true: We would not desire any of the amenities of civilization—or even the most primitive culture—if we did not live in a society in which others provide them. The innate wants are probably confined to food, shelter, and sex. All the rest we learn to desire because we see others enjoying various things. To say that a desire is not important because it is not innate is to say that the whole cultural achievement of man is not important. . . . How complete a non sequitur Professor Galbraith’s conclusion represents is seen most clearly if we apply the argument to any product of the arts, be it music, painting, or literature.”

And Hayek, too, points out that the Galbraith thesis merely reverses the old socialist argument: “For over a hundred years we have been exhorted to embrace socialism because it would give us more goods. Since it has so lamentably failed to achieve this where it has been tried, we are now urged to adopt it because more goods after all are not important.”