The Concise Encyclopedia of Economics

John Kenneth Galbraith

John Kenneth Galbraith is one of the most widely read economists in the United States. One reason is that he writes so well. He turns a clever phrase that often makes those he argues against look foolish. Galbraith's first major book, published in 1952, was American Capitalism: The Concept of Countervailing Power. In it he argued that giant firms had replaced small ones to the point where the perfectly competitive model no longer applied to much of the American economy. But not to worry, he argued. The power of large firms was offset by the countervailing power of large unions, so that consumers were protected by competing centers of power.

Galbraith made his biggest splash with his 1958 book, The Affluent Society. In that volume he contrasted the affluence of the private sector with the squalor of the public sector. Many people liked that book because of their view that Galbraith, like Veblen before him, attacked production that was geared to "conspicuous consumption." But that is not what Galbraith did. In fact, Galbraith argued that "an admirable case can still be made" for satisfying even consumer wants that "have bizarre, frivolous, or even immoral origins." His argument against satisfying all consumer demands was more subtle. Galbraith wrote: "If the individual's wants are to be urgent, they must be original with himself. They cannot be urgent if they must be contrived for him. And above all, they must not be contrived by the process of production by which they are satisfied.... One cannot defend production as satisfying wants if that production creates the wants."

Friedrich Hayek made the most fundamental criticism of Galbraith's argument. Hayek conceded that most wants do not originate with the individual. Our innate wants, he wrote, "are probably confined to food, shelter, and sex." All other wants we learn from what we see around us. Probably all our aesthetic feelings—our enjoyment of music and literature, for example—are learned. So, wrote Hayek, "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."

Galbraith's magnum opus was his 1967 book, The New Industrial State. Galbraith argued that the American economy was dominated by large firms. "The mature corporation," wrote Galbraith, "had readily at hand the means for controlling the prices at which it sells as well as those at which it buys." Galbraith wrote: "Since General Motors produces some half of all the automobiles, its designs do not reflect the current mode, but are the current mode. The proper shape of an automobile, for most people, will be what the automobile makers decree the current shape to be."

The evidence has not been kind to Galbraith's thesis. Even our largest firms lose money if they fail to produce a product that consumers want. The U.S. market share of GM, for example, one of Galbraith's favorite examples of a firm invulnerable to market forces, has fallen from about 50 percent when Galbraith wrote the book to about 30 percent today.

Galbraith was born in Canada and moved to the United States in the thirties. He earned his Ph.D. in agricultural economics at the University of California at Berkeley. He was one of the chief price controllers during World War II as head of the Price Section of the U.S. government's Office of Price Administration. Unlike almost all other economists, Galbraith defends permanent price controls. In 1943 Galbraith left the government to be on the editorial board of Fortune. After the war he directed the U.S. Strategic Bombing Survey. That survey's main finding was that saturation bombing of Germany was not very effective at slowing down German war production. In 1949 he became an economics professor at Harvard, where he had been briefly before the war. He is still at Harvard. Galbraith has also been politically active—an adviser to President Kennedy, Kennedy's ambassador to India, and president of Americans for Democratic Action. He was president of the American Economic Association in 1972.

Selected Works

The Affluent Society. 1958.

American Capitalism. 1952.

The New Industrial State. 1967.

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