John Kenneth Galbraith - History of Economic Thought - Lecture Slides, Slides of Economics

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John Kenneth Galbraith

John Kenneth Galbraith (1908-2006)

• Modern Competition and Business Policy , 1938.
• A Theory of Price Control , 1952.
• American Capitalism: The concept of countervailing power , 1952.
• The Great Crash, 1929 , 1954.
• The Affluent Society , 1958.
• The New Industrial State , 1967.
• Economics and the Public Purpose , 1973
• Money , 1975.
• The Age of Uncertainty , 1977.

Countervailing Power

• However, the monopolists and oligopolists do

not get to do whatever they want.

• Workers form unions , buyers form retail

cooperatives and retailers form large chain

stores , all to balance the huge power of the

producers.

• Capitalism, in other words, fights monopoly

with monopoly.

Countervailing Power

• Galbraith went on to argue that it was pointless

for the government to try to encourage competition through its anti-trust policies.

• That approach would not work because modern

capitalism has a tendency towards monopolization.

• A more practical approach would be for the

government to encourage and strengthen all sources of countervailing power.

Dependence Effect

• One consequence of the power of advertising in

determining our tastes is the existence of “public squalor amidst private affluence”.

• We pay too much attention to goods that are

advertised and ignore those that aren’t, including public amenities such as good roads, clean subways, etc.

• We end up with nice and clean homes on the one

hand and nasty subways and broken highways and bridges on the other.

The Modern Corporation

• The modern corporation is characterized by the separation of ownership and control in business firms.
• Galbraith argued that modern economies are dominated not by small mom-and-pop stores but by large corporations.
• These corporations are owned by millions of shareholders who each own a tiny portion of the firm.
• It is not possible for them to run the day to day operations of the firm directly.
• Therefore, they typically hire a professional manager (the CEO) to run the company.

The Modern Corporation

• Of course, the CEO cannot ignore profitability altogether for fear of being sacked by the shareholders.
• But the CEO does not have to maximize profits either.
• All that the CEO has to do is ensure an adequate level of profits to keep the shareholders happy.
• Galbraith argued that after reaching that adequate level of profitability, the CEO turns his or her attention to other goals, such as the firm’s sales, size or market share.