New Ideas from Dead Economists, Pt. 8 (John Kenneth Galbraith)

This is part 7 of my review of New Ideas from Dead Economists by Todd Buchholz. Here are parts 1 (Adam Smith), 2 (Thomas Malthus), 3 (David Ricardo), 4 (John Stuart Mill), 5 (Karl Marx), 6 (Alfred Marshall), and 7 (Thorstein Veblen) if you’d like to look back. Any of the entries can stand alone, of course.

The ideas of our last economist, Thorstein Veblen, proved to be very powerful and influential. He influenced a generation of economists that came to be known as the “institutionalists.” Of these followers, one of the most famous and successful was John Kenneth Galbraith. For the most part, I think Buchholz does his best to be pretty fair when presenting the different economists. It’s obvious he respects each of them for various reasons (thus their inclusion in the book). Occassionally he’ll present someone by explaining how wrong they are. Two people he specifically does this with are Marx and Galbraith. That’s not to say that he handles it improperly, by any means. I think Buccholz presents them exactly the way they’re viewed in the economics community.

Galbraith was born in rural Canada, but spent most of his career in the United States. He was a Harvard professor, an advisor to presidents, a novelist and a social commentator. It’s tough to pin down exactly what Galbraith’s contribution was, because he doesn’t leave a model behind that economists have really latched on to.

Like Veblen, he criticizes Marshall’s demand model (demand for a good increases as the price falls). He builds on Veblen’s ideas by pointing out that there’s a significant difference between needs and wants. You might wake up in the morning and say, ‘I have got to have my Cocoa Puffs in the morning.’ Galbraith would argue that you should just buy the cheapest, simplest substitute for Cocoa Puffs (love the frugality). He would assert that you cannot need Cocoa Puffs, you just want them. He also asserted that your desire for Cocoa Puffs didn’t come from within, it was placed there by advertising. That’s the point of successful advertising, to create desires where desires don’t already exist. His criticism of Marshall’s law of demand relies on the premise that artificial desires are planted in consumers by manipulative advertisers.

So far, I would say that I agree with him. I hate advertising. I try to avoid it at all cost. I agree that it has the ability to make me want things I simply don’t need. Galbraith, however, loses me as he takes it one step further. He asserts that because wants are simply instilled by companies trying to sell things, the government should limit private spending and use the resources to improve public facilities.

He also had a very grim view of the future. He predicted that unless the gov’t adopts principles of democratic socialism and planning, that unemployment will rise as technology displaces workers, the world will be filled with more pollution, and people would keep inventing more and more useless gadgets that people would fill their houses with.

Buccholz and most of the rest of the economic community don’t see it the way Galbraith did. Galbraith’s naysayers were led by another famous economist, Friedrich von Hayek. His critics ask whether Galbraith only sees needs (food, shelter, sex) as important in life? If that’s true, culture means nothing. There was no desire for Mozart (insert famous artist of any medium here) until he composed the music and aroused the desire in others. Does Galbraith really propose that Mozart made no contribution to mankind simply because there was no “need” for his music?

Further, in my opinion, it’s crazy to suggest a limit on private spending. It’s crazy to suggest a limit on innovation. If Galbraith is truly so worried about public spending, about the poor, etc., he shouldn’t ignore the potential contributions of technology. Technology can help raise the standard of living of the poor. Any free marketeer will tell you that an economy based on what consumers want will be stronger. The government is not the proper machine for driving demand. Besides, as Buccholz points out – if the government forbade advertising and encouraged consumers to spend money on public programs – they’re advertising! It’s no different. Plus, it’s a burden on the free market.

I would say that if Galbraith hadn’t gone into the realm of the government forbidding this and that or the world will end, I would have been right there with him. Advertising has a tremendous influence on our lives. But does that mean that the gov’t should forbid/restrict it? I don’t think so (they already have in some areas – think tobacco). The great thing about the free market is that it chooses what goods work and what goods don’t. Even if you run great ads, say for Axe body spray, if the body spray made you break out in a rash, you wouldn’t buy it again. If everyone got a rash and only purchased Axe (or whatever other product) once, the company would soon go out of business. Information in the market trumps advertising. The internet has made that information more freely available than ever before. As always, thanks for reading.