Edited and written by David Gordon, senior fellow of the Mises Institute and author of four books and thousands of essays.

No Wiser With Age

Summer 1996

John Kenneth Galbraith
Houghton Mifflin Company, 1996, vii + 152 pgs.

John Kenneth Galbraith has been writing about economics for over fifty years, with considerable elegance but with little grasp of sound theory. In The Good Society, published as Galbraith approaches his ninetieth year, there are a few signs that our author has at last mastered some economics. Unfortunately, the habits of a lifetime are hard to break; and in the end it is the familiar statist who shines through.

But one should not look a gift horse in the mouth. Before having to confront, for the twentieth (or is it thirtieth?) time, Galbraiths standard fallacies, let us savor his newfound wisdom. Near the beginning of the book, the astonished reader encounters this: "An evident purpose of the good economy is to produce goods and render services effectively"; "there can be no question" that the market "does produce consumer goods and services in a competent, even lavish fashion." It "defies all sense" to say the market "should somehow be taken over by the state; to suggest socialism in either consumer or capital goods "verges on the fanciful" (p. 15). Ludwig von Mises himself could not have put it better.

A conventional leftist complaint against the free market is that the system falls prey to domination by monopolies. Galbraith will have none of this (though he has complaints of his own against corporations): "Monopoly power-exploitation of the consumer by prices unrestrained by competition . . . has surrendered to international competition and also to explosive technological change. Todays eminence and economic influence are tomorrows obsolescence" (p. 16).

Galbraith also rejects the familiar complaint that multinational corporations dominate foreign policy: "The political power and influence of the transnational corporation and of those associated generally with foreign investment were greatly overestimated. They derived from the mystique of capitalism, not from its reality" (p. 26).

But I have saved the best for last. Galbraith has a well-developed reputation as an extreme Keynesian. Continual government spending is for him the order of the day. How astonishing, then, that he actually warns against inflation: "Future security in life is based normally on the assumption of stable or reasonably stable prices." The "good society therefore must honor the expectation of reasonable price stability" (p. 31). It is Galbraiths closest approach to support for sound money. He does not bother to inform his readers that he here dissents from Keynes, who called for just the euthanasia of the rentier class that Galbraith says he opposes.

But The Wisdom of J. K. Galbraith is a very short book. Galbraith is unable to sustain the insight displayed in the remarks just quoted; the senility of youth keeps crowding out the wisdom of old age. Although he at times recognizes the value of the free market, he constantly calls for its regulation and suppression.

For Galbraith, not unreasonably, the problems of poverty and unemployment can be solved only through economic growth. This depends, in elementary Keynesian fashion, on maintaining aggregate demand at a sufficiently high level. This decidedly does not mean that the government should cut taxes in a recession, in order to stimulate business investment. "Here again the hope is at odds with the reality; there is no certainty that the funds released by tax reduction will be invested or spent. In hard times people and firms so benefited may well choose to hold on to their money" (p. 39).

To this there is a familiar Austrian response. Economic development depends, not on aggregate demand, but on the adjustment of relative prices so that markets clear. In particular, unemployment can be avoided, even in a depression, if real wages fall sufficiently. One thinks in this connection of W.H. Hutts profound, though dense, Keynesianism: Retrospect and Prospect (1963). And, of course, to the Austrian analysis just sketched, there are in turn Keynesian attempts at response. But to expect Galbraith to enter into this dialectic is futile: for him, economic theories are not arrived at through reasoned argument. They are obtained through a revelatory process the workings of which Galbraith keeps to himself.

He deals with dissent from his views in a manner like that of Thornstein Veblen, whom he resembles both in doctrine and ironic style. He identifies an economic interest that the criticism serves: this evidently passes for refutation. Thus, in response to calls for a tax cut, he states: a "disturbing part of the support for tax reduction as an antidote to economic stagnation and unemployment comes from those whose tax burden would thus be eased" (p. 39).

Galbraith is perfectly right. People who would benefit from a tax cut are likely to call for one. But does this show their views incorrect? I should have thought that the genetic fallacy, the confusion of an account of a beliefs origin with the grounds for its validity, was one of the most familiar pitfalls in social science. But evidently this pons asinorum proved too much for our Harvard eminence.

We have however left a mystery unsettled. If tax cuts will not secure the necessary rise in effective demand, where may we find salvation? The answer should elicit no gasps of surprise: "As a way to stimulate demand in time of negative growth or stagnation, there remains only direct and active intervention by the state to create employment" (p. 39). Here then is Galbraiths logic: The free market "lavishly" produces consumer goods and socialism cannot accomplish this. Therefore, in case of trouble, we must turn from businessmen, who are capable of efficient production, to government, which is not. One would have to go to the doctors of Molieres Imaginary Invalid to equal this diagnosis.

However deficient as analysis, Galbraiths remarks introduce a fundamental theme of his economics: taxes, especially on the rich, should never go down. As we have seen, they must not be lowered if the economy falters. But things do not change in better times: "When the economy recovers and public revenues rise, there must then be the discipline that brings stimulative expenditure to an end. Taxes must be kept at previous levels or increased as a counter to speculative excess" (p. 40). Whatever the illness, our doctor prescribes the same medicine.

Two reasons underlie Galbraiths demand for high taxes, neither of which does him credit. Though he recognizes the markets efficiency, he nevertheless dislikes it: he does not want people to have "too many" consumer goods. How much is too much? Of course he will be the judge of that. In reply to the contention that deficit finance (which he fervently supports) crowds out private investments, Galbraith remarks: "The argument opposes private investment for however frivolous the consumer product or service against public investment of whatever social urgency" (p. 58).

People, then, in their private capacity do not know what is good for them. And the rich must especially be targeted for taxation. Income and wealth are grossly unequal, and heavy progressive taxation must be instituted to mitigate this evil. Why equality is morally required Professor Galbraith thinks unnecessary to discuss. Only those with an interested motive could question his wisdom.

Our author is less reticent when addressing the claim that progressive taxation reduces incentives. First, the accusation of bad motives: "Nothing else" than a progressive tax "is subject to such highly motivated and wholly predictable attack" (p. 65). Next, he adduces a bad argument: "it could be claimed with equal improbability that a strongly progressive income tax causes the rich and the affluent to work harder, more imaginatively, in order to sustain their after-tax income" (p. 5).

The need to weigh incentives against the "income effect," to which Galbraith here refers, has of course generated a vast literature. Galbraith finds it unnecessary to address any of this. Instead, he acts as if the mere mention of the income effect suffices to eliminate altogether the problem of incentives. And, having accomplished its mission, the effect dissolves: it is "equally improbable."

Galbraith is not yet satisfied. What we have so far described is a program for a governmentally directed national economy. But as Mises long ago pointed out, international currency flows impede the planners from carrying out their goals. Galbraith has the answer: "Among the advanced countries there must now be effective international coordination of social and economic policies. This begins with fiscal and monetary action." "No single country can act effectively and alone." There must "be coordination of national social policies" (p. 118). We see here a perfect illustration of Misess point that the failures of intervention generate demands for more intervention.

And yet more awaits us. The nation itself must be abolished. "The economic and social responsibilities of the nation-state are a transitional phase. The ultimate goal is a transnational authority with the subsidiary powers, not excluding the raising and expending of revenue, that go with it" (p. 118). The "One-Worlder" is not a right-wing caricature; in the person of Galbraith, he actually exists. No doubt for him the spirit of Yalta evokes a pleasant glow.

A world government of the sort envisioned by Galbraith would have much more than economic functions. There are liable to be frequent breakdowns of law and order in the "poor lands." Military intervention, under the control of the United Nations, provides the remedy. "Dispatch of the requisite police cum military personnel must be a general and accepted obligation" (p. 135). The reluctance of Americans to risk the lives of our soldiers abroad cannot be tolerated. One, two, three, many Bosnias!

And what if you are so benighted as to oppose these imperialist crusades? Galbraith has a conclusive argument in their support: the inevitable trend of history requires them. It was not so long ago that Galbraith predicted the convergence of the U.S. and Soviet economies, but a minor matter like a poor track record cannot shake Galbraiths conviction that he possesses oracular powers. Age cannot wither him.


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