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