The Affluent Society Essay

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The Affluent Society, published in 1958 to popular acclaim  and  academic  criticism,  became  a  bestselling book that cemented the author’s  reputation as an economist  who could write entertainingly in plain English. The book shows why inflation, inequality, and  underfunded  government services are  more   important  problems   to  solve  than   a focus on economic growth.

John  Kenneth  Galbraith (1908–2006) earned  a PhD in agricultural economics  from  the University of California, Berkeley. In 1937,  he took  a fellowship at Cambridge University  in England  to study Keynesian economics, named after John Maynard Keynes. Keynes supported government spending  to boost  demand  and bring  a nation  out of economic depression.  Galbraith taught  economics  at Harvard and   Princeton   Universities   before   working   for 5 years as an editor  of Fortune  business  magazine. During  World  War  II, from  1941  to 1943,  he was deputy  administrator of the Office of Price Administration, setting  the  prices  of  most  goods. This   helped   curb   inflation,   which   had   been   a problem  during World War I. Galbraith became an economics  professor  at Harvard in 1948,  where he wrote several books: American Capitalism, A Theory of Price Control, and The Great Crash, 1929.

In 1955,  Galbraith took  a sabbatical to  travel and write. He went to India and then lived in Switzerland to continue  writing what he conceived to be a book called Why  People Are Poor. This was “to  study  the causes of . . . continuing  poverty  in the United States.” After using The Opulent Society as a working  title, he consulted  the dictionary and decided  on  The  Affluent Society.  He  wondered whether   he  “could   sell  so  dry  a  title  to  [his] publisher,” but when the book came out in 1958, it became a national best seller. The title phrase went on to widespread use as a description of America in the 1950s  and beyond.

The eponymous first chapter  begins with a witticism characteristic of Galbraith’s writing: “Wealth is not without its advantages and the case to the contrary, although it has often  been made, has  never  proved  widely  persuasive.” Galbraith’s thesis was that economic ideas formed in prior centuries   of  privation  cannot   be  useful  for  the modern United States, with its widespread production of foodstuffs  and consumer  goods. He believed  that   a  continuation  on  the  course   of classical  economics   (termed   “the   central   tradition”), with its emphasis  on the growth  of production, risked another depression  and threatened Americans’ economic security.

The second chapter, “The Concept of the Conventional Wisdom,” brought another  phrase into the lexicon. The conventional wisdom referred to “ideas  which are esteemed at any time for their acceptability,” familiarity,  and predictability. Its enemy  is the  course  of events  that  put  the  lie to obsolescent ideas. For example, the conventional wisdom  of pursuing  a “balanced budget” greatly exacerbated the extent  and  duration of the Great Depression,  and  both  Presidents  Herbert Hoover and Franklin  Roosevelt supported it.

In 1899, manufacturing made up 49.3 percent of the  national product, followed  by  agriculture at 33.3 percent. The same year, Thorstein Veblen published The Theory  of the Leisure Class, illustrating vividly  the  inequality   in  American   life.  Veblen’s ideas   influenced    Galbraith,   even   though    by 1950   manufacturing’s  dominant   position    had been  reduced  to  29.5  percent  and  agriculture’s  to 7.3 percent of the national product. By comparison, another half-century  later, in 2001, the manufacturing sector was in fourth position at 15.3 percent  and agriculture was tied with mining for a paltry 1.3 percent of the national product. In chapter 7, “Inequality,” Galbraith observed “the  decline of interest  in inequality  as an  economic  issue”  in postwar America due to increased  total  output. In 1950, nonfinancial services were 8.5 percent of the economy;  by  2001,  such  services  constituted the largest sector, with 21.4 percent of the national product.  If  Galbraith’s  argument  failed   in  any respect to be prescient, it was in not foreseeing the rise of the service sector to national dominance. In chapter   8,  “Economic  Security,”  Galbraith  noted that reducing economic insecurity through programs such as unemployment insurance  and social security went in tandem  with the greatest surge in aggregate output in U.S. history.  Governments support higher production because it leads to greater  employment. Welfare  payments   are  used  to  buy  the  necessary goods,  keeping  demand  high and  avoiding  depression. Chapter 9, “The  Paramount Position of Production,” notes  the  conventional wisdom  that private production is important while public services are  monstrous before  he points  out  the  contradictions,  for example,  privately  produced cars require state-built highways  to  drive  on.  In two  chapters, Galbraith is critical  of advertising  that  creates  consumer demand. He coins the term dependence  effect to describe  how “as  a society becomes increasingly affluent,  wants  are increasingly  created  by the process by which they are satisfied.”

When   the   second   edition   was   published   in 1969, Galbraith removed chapter  12, “The Illusion of  National Security,”  because  his  point  was  so well established  after the Soviet launch  of the first earth  satellite,  Sputnik, in 1957  despite  the Soviet Union’s  lower  economic  output (than  that  of the United  States). America’s  policy  response  was  to devote massive government funding to science and mathematics  in  public  education. Both  editions predated the advent  of consumer  credit cards, but the inherent instability of consumer debt from installment payments,   for  example,  for  automobiles, is set out  in chapter  14, “The  Bill Collector Cometh.” Galbraith’s dry  wit  presaged  the  2008 mortgage   crisis  when  he  observed   that  “poorer credit  risks  can  be  accommodated, but  at  last  it becomes  necessary  to exclude  the borrower who, as  a  matter   of  principle,   does   not   choose   to pay.” The second edition excised the “cyclically graduated compensation” of unemployment insurance,  which moved with the employment  rate as a varying percentage  of the weekly manufacturing  wage.  Instead,  Galbraith  approved the  proposed policy of a guaranteed minimum  wage with a negative income tax. Ironically, in the 2008–2012 recession, the federal government’s  unemployment insurance  extensions  resembled  Galbraith’s cyclically graduated compensation proposal in that benefits  terminated  when  a  state’s  employment rate met a certain threshold (but this policy ignored the structural aspects of unemployment from lack of education or training).

Chapters 15 through 17 deal with inflation, monetary policy, and fiscal policy. The last two are evaluated    as   tools   to   control    inflation,   with monetary policy the clear loser. In addition to harming those on fixed incomes, inflation  also lowers government revenue and the real income of its employees.  In chapter  18, “The  Theory  of Social Balance,”  Galbraith posited  that  the  dividing  line between areas of wealth  and poverty  is marked  by the division  of “privately produced and  marketed goods   and   services  from   publicly   rendered   services.”  Overspending  on  consumer   goods   while underfunding government services is termed “social imbalance.” Thus, new car sales lead to gridlocked roads before new highways are built to alleviate the congestion.  Education and basic scientific research are underfunded yet necessary public services.

Galbraith advocated the use of sales taxes to help fund state and local government services, restoring “social balance”; incredibly, a few states continue to survive without individual  income taxes. This advocacy cut against  the liberal position  that  sales taxes are  regressive  (a larger  percentage  of low-income wages than  high-income  salaries) and income taxes are progressive, making the latter more equitable. Galbraith distinguished between “case  poverty,” based on individual  characteristics, and “insular poverty,” such as in poor communities in Appalachia and West Virginia.  Migration and  education could alleviate  insular  poverty,  but  escape might  be limited by poor schools and bad influences. Unfortunately, higher national income does not efficiently remedy modern poverty. Galbraith served as U.S. Ambassador to  India  from  1961  to  1963, hosting   separate   visits  from  President   and  Mrs. John  F.  Kennedy.  Galbraith, along  with  Michael Harrington, influenced  what  came to be known  as President  Lyndon  B. Johnson’s War on Poverty, announced in his January  1964  State of the Union address.

Bibliography:

  1. Dunn, Stephen P. and Steven Pressman. “The  Economic Contributions of John Kenneth  ” Review  of Political Economy, v.17/2 (April 2005).
  2. Galbraith, John Kenneth. The Affluent Society. Boston: Houghton Mifflin, 1958.
  3. Galbraith, John Kenneth. The Affluent Society, 2nd ed. Boston: Houghton Mifflin, 1969.
  4. Halloran, Daniel F. “Progress Against Poverty: The Governmental Approach.” Public Administration Review,  28/3 (May–June  1968).
  5. Harrington, Michael. The Other  America: Poverty  in the United  New York: Macmillan, 1962.
  6. Vining, Rutledge. “The Affluent Society: A Review ” American Economic Review,  v.49/1 (March 1959). http://www.jstor.org/stable/1808061 (Accessed August 2014).

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