The Dream World Of An Academic Icon

, James F. Davis, Leave a comment

It was once said of Hegel that he set out his philosophy with such obscurity that people finished by thinking it profound. In The Economics of John Kenneth Galbraith: A Study in Fantasy, author Sir Frank McFadzean concludes that a similar accusation could well be leveled at John Kenneth Galbraith. Galbraith’s views are set out in an eloquent, verbose and witty style, demonstrating a rare command of the English language. But one searches in vain for evidence to justify his lofty claims.

Galbraith has tirelessly promoted government-planned economy for the past 50 years. He was a professor at Harvard University for over 40 years and perhaps the most published and publicized “economist” in American academia in the past 75 years. He was a leader in American academia in condemning the market economy without ever, it appears, actually having studied it.

Sir McFadzean, with his experience as a British academic, civil servant, and head of a large private corporation, wrote this book to analyze Galbraith’s theories. Below is a summary of his analysis.

Throughout virtually all of his books, Galbraith speaks of the superiority of a centrally planned economy. Until its untimely demise in 1991, the Soviet Union was one of the examples Galbraith used to “prove” his point. He continued to predict that the Soviet Union’s centrally planned economy would overtake the United States’—right up to the moment the Soviet Union’s economy and empire collapsed. He seems never to have tested some of his more exuberant generalizations against readily available information.

In his book The New Industrial State, Galbraith states that the control of prices in the planning system (as he christens the world of large corporations) presents little difficulty. He thinks that one need only learn that prices have to be set at a level consistent with the need to persuade the “consumer.” On one hand he thinks that big business planners control prices as they wish. Yet his statement sharply restricts the price-fixing freedom by acknowledging the need to meet the test of the market (consumers). He either does not see or ignores this contradiction.

He believes in wage and price controls throughout the whole economy. During World War II, in fact, he himself administered price controls for President Roosevelt. He thinks the entire economic system should be fixed by economists such as himself—basically the communist or socialist approach where a few elitists decide what is best for everyone else. He seems to ignore the evidence of history that indicates once political and economic powers are concentrated in the same hands, the outcome is usually the tyranny of one or the other of the extremes, i.e., fascism, communism or socialism.

When it comes to investment, Galbraith appears to have the intellect of a child, because by his definition, it is impossible to have investment that does not produce a positive return. Underlying his eloquent verse is the implicit assumption that corporations have the power to make people buy whatever they produce at any price they decide. He seems oblivious to all the huge companies that have gone bankrupt.

Galbraith defines market forces as either “entrepreneurial” or “mature corporations.” He is totally unclear as to at what stage of development a business leaves the entrepreneurial or market stage and moves over to the mature-corporation stage in the planning system.

The Harvard professor has a very patronizing attitude towards established institutions; he is very good at criticizing. This has always been the strength of the intellectuals of the left, people who are, as Joseph Schumpeter put it, “usually devoid of any practical knowledge of the issues on which they pontificate but who disguise their shortcoming by their command over the written and spoken word.” Galbraith disguises his third rate mind with a great vocabulary.

Galbraith states that power flows from the bottom of a corporate organization chart to the top. One example he uses is that soldiers win battles, not generals. He seems oblivious to the fact that the generals’ (leaders’) strategy usually has a lot to do with soldiers being able to exploit the enemy’s weak point or corporations producing a product that consumers desire. Galbraith seems to underestimate the problems and skills necessary of management, probably because he has very little experience in that area.

The “great pontificator” argues that the aim of the techno-structure is survival; yet most decisions in everyday life are not taken for survival reasons. The people making investment decisions usually have to live with the consequences of these decisions. Advice givers like Galbraith are not so handicapped.

Organizations do not fare well when they try to handle problems outside their sphere of competence. Galbraith derides the description of the American economy as a profit-and-loss system on the grounds that mature corporations can protect their profits by planning. An example he gave was U.S. Steel. At the time it had not posted a loss in the previous 25 years. Guess what happened after he made his diagnosis?

Galbraith thinks that large companies have the ability to control prices and profits. Yet picking up a Forbes or Fortune summary of the earnings of the largest companies in the world demonstrates that many of these companies have shown and are presently showing huge losses. He seems not to have noticed.

It is not the size of a company but the availability of alternatives that is the key to market power and profits. If the competition can make a better product at a lower price, the size of your company cannot stop the consumer from buying from your competitor.

One of the major advantages of the corporate planner, says Galbraith, is the elimination of uncertainty. Those, such as McFadzean, who have actually managed large corporations, have not yet been able to identify anyone with this talent. They know that the elimination of uncertainty is not of this world. They also know that the most destabilizing things that have happened in the world have been political in their origin. We know that the rapid increase in the price of oil was due to an intra-governmental cartel, not collusion of the major private oil companies.

Without any supporting evidence, Galbraith portrays the planners of large corporations as approaching their task by determining, first, the profit they wish to earn, second, what they’re going to produce and, third, how to foist their production on the consumer. The reverse is what actually happens. Most planners start off with research into customer requirements and probable future trends of their preferences.

In his book Economics and the Public Purpose, Galbraith also advocates introducing into the United States a steeply progressive tax system and the nationalization of major industries. He seems not to have noticed the disastrous effects such policies have had in Great Britain, the Soviet Union, Africa and virtually every other nation that has tried them. Yet his books are still required reading in many major universities.

Galbraith shares Robespierre’s and Lenin’s belief that his tastes and preferences are superior, and that he knows better than you, the wage and salary earners, what is good for you—and he is prepared to enforce his judgment in the name of the public interest. He doesn’t seem to have noticed that his ideas are basically totalitarian.

Cost/benefit analysis of government social expenditures is not something Galbraith wishes to address. He seems to imply that politicians have some mystical means of making costs disappear. He seems also not to have noticed that the private sector virtually always operates and produces in a vastly more efficient manner than a government doing the same tasks. For example, unsubsidized private companies are putting our hugely subsidized postal system out of business in the delivery of packages.

Apparently Galbraith is oblivious of the words of Adam Smith: “Kings and ministers . . . are themselves always and without any exception the greatest spendthrifts in the society. Let them well look after their own expenses and they may safely trust private people with theirs.” Smith firmly believed that in the satisfaction of human wants, money was most advantageously spent by those who had actually earned it. Galbraith implies that he knows better than you how your money should be spent.

Needless to say, it would be wrong to suggest that the free market is flawless. But it has fewer flaws than any of the alternatives available or suggested by Galbraith and other leftist “liberals.” Those who dislike the profit motive are free under a market economy to establish cooperatives. Consumers are equally free to shop wherever they like. Under a centrally planned government, those options are not available. Galbraith and many left-wing politicians seem to believe they are clairvoyant. They do not appear to have studied nor to possess much knowledge of history or economics. Why then are these thoroughly discredited theories still popular in many universities and among so many politicians?

Mr. Davis is the president of Accuracy in Academia’s Board of Directors.