The Affluent Society – J K Galbraith

To secure to each family a [universal] minimum income would help ensure that the misfortunes of the parents, deserved or not, were not visited on their children. 

Investment in eduction assessed qualitatively as well as quantitatively could become the closest to being the basic index of social progress.

The large corporation is seen as good if it is a competent producer or it is seen as bad if it exceeds the optimally efficient size. Either way how it affects output is the question to be concerned with.

All of these thoughts are ones that one would not seem out of place today, they address contemporary debates, and put forward ideas many people are musing over in modern society. These were not, however, written today, nor last year, nor the decade before. They are the thoughts and observations of J K Galbraith from 1958 in his book the Affluent Society. It is a marvellous book in large part due to how shocking it is to see these thoughts laid out so long ago and so little done to act on them. I largely skip over the middle chapters concerned with prices, monetary and fiscal policy and focus more on the sections about economic thought and large scale changes in societies as these are the areas I think are most transferable to today. In the revised edition, which has a foreword written 40 years after publication, JKG still believes Economic writing and teaching installs attitudes that resist accommodating the changing world we see around us. We live in a society that for many things creates the good and then creates the desire for it, which is in strict opposition to what students are taught. Having just finished a degree in Economics it was not mentioned once that desires and demand would be anything but inbuilt. He also notes how he didn’t foresee how much affluence would be perceived as a deserved and personal reward and thus viewed as available to the poor if they just tried harder. This seems like an attitude that is still common today. The books primary goal was to remove some of the uncorrected obsolescence in economic thought. Below is a more thorough walkthrough of some of the main areas of the book that interested me. Note, SRM refers to Smith, Richardo and Malthus.

The dismal science

Reading this book was the first time I had considered where this alternative name for Economics came from but it is very clear after reading the first few chapters. Economics comes from a time of despair and poverty, times when the desolation of the masses was taken for granted and the success of a favoured few was the thing that needed to be explained. Even Smith when he talked of countries becoming wealthier talked of aggregate wealth, he had little hope for a good distribution of it. Richardo and Malthus furthered ideas that inequality was a basic premise, however, all of these economists made qualifications to their remarks that were often overlooked and ignored. Richardo seemed to view things as capitalists must prosper if there is to be progress and the owners of capital cannot help but reap the fruited of this prosperity, while other labourers would only get their market price (the iron law of wages). SRM seemed to believe that wealth could be sustained for some but large inequality was immutable except under a few circumstances, these exceptions were often overlooked. However, despite their efforts, economic life does not fall into simple patterns and yet we will often try to construct overly simple narratives to explain it. SRM did not enter their pursuits with preconceived doctrines of understanding as many do now and as such, they gave a formidable interpretation of the world they lived in. The systems in place survived a long time not necessarily as they were better for the average man but as no better system could be thought of. The narratives constructed for explaining the system we fall under can be very broad, so much so that the for many they can continue believing whatever they want to believe, as long as their beliefs are shared by enough others. These beliefs that are held by a large number of others are the conventional wisdom. We see minor debates over the minutia of the CW but rarely over the framework or foundational ideas. The CW is also buttressed by strong vested interests however it can change. The strategic advantage lies with what exists but the tactical advantage lies with what is accepted and so sometimes what is accepted changes due to new events. For example, for a time a government that provided welfare was decried but that changed and now it is accepted as quite a good one. Another example is whether balances budgets in times of trouble is a good one. Events and time are the enemies of CW as they will invariably change reality and so the CW will be under more and more pressure to change. 

Partial accommodation of affluence

In the middle of 19th-century economics seemed to become somewhat more optimistic with a partial rejection of the iron law. Wages seemed to be linked to marginal productivity and so if you could produce more or labour was scarce you could indeed be paid more. however the idea that the life of the masses would remain rather unpleasant with an upper limit on income did not subside very quickly. It seemed however that if most capital was in the hands of a few then this is where most of the prosperity would go and this in itself did not pose so much of a problem but the idea of inheritance was a special source of discomfort. monopolies as well were regarded with misgivings for neither of these avenues rewarded production merely the inheritance or control of it. Marx was making the point that if wages of workers remained low then their purchasing power would not keep abreast with what they produced and so goods would accumulate for which there were no buyers. he thought there were other reasons for decline as well though such as stagnation in boom times due to a reduction in the rate of return of capital. ironically in boom times workers could demand higher wages but this, Marx suggested, was simply a sign that they would soon enter a bust and be forced back down. The views on what type of society was best were moving towards a competitive society even though the penalty for falling behind or even bad luck could be bankruptcy. The insecurity of the new model was not seen by many as a damaging flaw however efforts to protect people were often seen this way. In America, many thinkers were being influenced by social Darwinism. Richardo’s view for leaving the market alone was essentially functional when idleness was not subsidised more was produced but struggle and misfortune were not themselves to be welcomed. The Darwinists seemed to believe that the struggle itself was to be lionised as a force to better society. in this time to if success was in a large part genetic and their offspring inherited their genetics surely inheritance was justified as it kept wealth with the ablest to have a society with the winners doing the best the losers had to face the full consequence of loss and so poverty and insecurity became inherent. The actual behaviour of the economy was diverging from the model of the ideas of SRM and the idea of competition. the real economy had few firms in markets where the model had many. another force for change in ideas was the depression. for a long time prices, wages and rents were studied with the assumption that depressions didn’t happen and the study of the business cycle emphasized the normal succession of booms with busts which almost placed a self-correcting element to them. Many economists of the day believed that recovery was only sound if it came about itself and for most of the time before the depression this is indeed what happened. 

Arguments used to maintain old ideas

inequality: defences of inequality have changed throughout time. for a long time they were very passive, inequality was the way things naturally were you could try to change this but it would likely not work, at least in the long run. However, over time this changed and more functional arguments were made such as the undistributed enjoyment of income was an essential incentive. Empirical evidence on the effect of egalitarianism on capital formation is uncertain. Norway following the war was very egalitarian and had one of the highest rates of capital formation. Latin American republics with highly unequal societies had a remarkable record for having such low capital formation. JKG notes how few things more evident that the decline of interest in inequality. this observation seems to have reversed in modern times. why does he say it has receded as an issue? Firstly, whilst it is still prominent as an issue it seems like its prevalence is less likely to cause violent reactions than in the past. another reason is the change in position of the rich. wealth gives 3 main benefits, satisfaction in the power which one has, physical possession of goods, and the esteem of being rich. All of these have been greatly reduced and so envy has been reduced. As they have become more numerous the rich have become a debased currency. wealth itself was also less advertised and so less resented. in the decades around the book it was rather accepted that the increases in output and not the redistribution of income was the main driver of increases in wellbeing for the average person and so the goal of an expanding economy became deeply embedded 

security: whilst the competitive economy was thriving the insecurity it yielded was cherished. However, it was almost exclusively cherished in the second person or the abstract. it was vital to encourage ‘the people’ but rarely oneself. not all liked the insecurity though and the firm was one of the first to try to reduce it. out came monopolies, price and production agreements and cartels. these were to try and control prices. but control was extended, consumer tastes might change but large corporations resisted this through advertising. the reduction in insecurity for the large corporation was not fully appreciated and this may be because these organisations were able to do it without significant help from the government. JKG notes that there was almost no large industrial corporation in the USA that had failed. We know that many of them would in only a few decades, the nifty 50, but, interestingly, at the time they were so stable and powerful. why were corporations first to look for security and not the masses? possibly as you need to have some fortune to want security and they were the first large group to obtain fortunes. economic output has been seen by many to be an alternative to welfare and redistribution and so is often sought for the purpose of economic security. production came to be viewed as a path to not just productivity but also security and equality

production: in the 1950s when the government was defending its performance it protested that the current year was the second-best in history. many said the second-best was not good enough but almost no one misinterpreted what was second best, production. none would think they were talking about progress in the arts and sciences or health or education. arguments were over whether second-best production was good enough not over whether production was at all the right indicator. in past times goods were scarce and so producing them were central to many’s thoughts but now goods are abundant. how can we increase production?

  1. Eliminate idleness 
  2. Use the best combinations of labour and technology
  3. Increase the supply of labour
  4. Increase the supply of capital
  5. Increase technological innovation

Most economics focuses on a few and not all of these. improvements in technology are the result of scientific and engineering knowledge but JKG notes they did little in way of systematic sorting to increase investment in these areas. many industries such as home construction see little innovation at all. in almost all settings we promote thrift and diligence and greater efficiency however under times of stress the CW is reexamined and we make efforts to expand labour force and systematic investment made. JKG notes that people seem very irrational in the distinction between different kinds of goods and services. In economic calculations little distinction made between private and public services, an increased supply of education and increased supply of TV’s measured similarly. We have vacuum cleaners to clean houses that are praiseworthy but street cleaners are an unfortunate expense. we seem convinced of the dire importance of the goods we have without being in slightest degree concerned about those we don’t have. test of effect on predictive efficiency for the desirability of action is all but universal 

The world of production

consumer demand: The theory of consumer demand is based on the urgency of wants, that does not diminish appreciably as more of them are satisfied, and that these wants originate in the mind of the consumer. However, as Adam Smith observed, ‘nothing is more useful than water; but it will purchase scarce anything. a diamond, on the contrary, has scarce any value in use: but very great quantity of other goods may frequently be had in exchange for it’. He saw a difference between the value in exchange and value in use and the resulting paradox of high utility and low exchangeability. The given answer was that the urgency of desire is a function of the quantity of goods available, meagre supply leads to high marginal satisfaction. despite diminishing marginal utility being taken as given the diminishing urgency of wants not admitted. So long as the consumer is adding new products the urgency of wants will not diminish and so the production of goods does not diminish in purpose. However, if wants are to be seen as urgent they must arise within the consumer and not be contrived for him. If the wants are created by the process of production then the urgency of the wants can’t be used to defend the urgency of production, it is filling its own void. Despite the fact we seem to live in one few would openly recommend the squirrel wheel as a model for the economy. Also, a major danger to modern want creation is the process of debt creation. Debt leads to interest repayments however one of the tricky things about repayments is that a large increase in interest rates brings only a small increase in monthly repayments. If you borrow £3800 at 9% for 2 years you will have a total interest bill of £684 and monthly repayments of £187. If interest is increased by 1/3 to 12%, repayments will only increase by £9 a month. This can make policy less effective to control consumption. 

What to produce: We seem to have rich and diverse private goods but poor public ones. we seem to fail to see the importance of a balance between the two leading to a curious unevenness of our blessings. The family which takes their air-conditioned car with power steering goes through cites that are badly paved, overflowing with litter and billboards with wires that should long have gone underground. they get to the countryside that is largely invisible behind advertisements with the aesthetic value of the countryside coming second. They picnic with exquisitely packaged food in a portable icebox next to a polluted stream and spend the night in a park with a menace to safety. we applauded the man who cultivates new private wants but would be shocked and appalled at the politician who proposes a new public service. Some public services such as education were not always correlated with progress. In the earlier stages of development, there was little predictable correlation between educated people and the rate of innovation. Most inventions were the result of brilliant flashes or tinkering rather that training and development. this is not the case anymore. the idea that innovation is still the result of brilliant flashes is rather outdated 

The efficiency debate: The large corporation is seen as good if it is a competent producer or it is seen as bad if it exceeds the optimally efficient size. Either way how it affects output is the question to be concerned with. If one looks at unions they are often vilified for their negative effect on efficiency but why should life be intolerable to make things of small urgency? The idle man may be damaging himself but if his role is to put maroon enamel to the outside of a motor car it is hard to suggest he is impeding society. What is produced may be seen as less of a concern compared to the income and employment one can get from producing it. Therefore it is the income and employment that are worried about rather than what is itself being produced to create them.

opportunity for change

Alternative incomes: one solution to this whole problem is to have a satisfactory substitute for production as a source of income. One device used is unemployment income. However, the fear people seem to have at others scrounging off of them seems to be extraordinary and is exaggerated from what it should be. Also, the labour force is far from homogeneous and those without work are very often young and have less education and beyond a certain level of employment, it may not be the best idea to try to put everyone into work that they may be ill-suited to. One proposal of a provision of a basic income as a matter of general right is put forward. This is one of the parts of the book that astonished me the most, the fact that universal basic income was being talked about in the 1950s. To secure to each family minimum income would help ensure that the misfortunes of the parents, deserved or not, were not visited on their children. To eliminate poverty requires a more than proportional investment in the children of the poor. This will aim to make people and the children of people who are idle, productive. 

The working week: What is a society to do with more affluence? Work fewer hours in the day/week, work less hard, have fewer people working? If we look historically the first outcome did infect occur since 1850’s workweek was around 70 hours and this fell to 40 hours in a century. this seems to reflect the declining marginal urgency of goods. However, interestingly the option of nothing changing from 1958 was not given despite that being what has been closest to occurring. One large change is that the class of leisure has been replaced by a class that works but whose work does not have the connotations of pain, fatigue or discomfort. This is the New Class. For these people, it is taken for granted that work will be enjoyable, or at least not uncomfortable. These are people who work for something other than merely money but the enjoyment of work and the prestige of it. This may be one reason why income tax despite warnings about damages to incentives has had little deleterious effect as it may reduce money but not the prestige of the job.

Public goods: Public works suffer from a great disadvantage in that they have to prove absolute justification. It must be shown without doubt that a new rail line will help the economy or a new school programme will help the children learn. This is not a standard private institutions are held to. There are reasons to demand this in public works. The large sums of money or the wide-reaching impacts, however, it has the adverse effect of likely stifling some projects that may help but the effect is less certain. If this was to change then we may see a levelling between the rich private goods we enjoy and the paucity of public ones. JKG also mentions that investment in eduction assessed qualitatively as well as quantitatively could become the closest to being the basic index of social progress as education is what allows more people to enter the new class of those who work not for money but some level of enjoyment.

The dangers: If we are in a society where we have production only because we first create the wants that require it, we will have few resources to spare. We will be rich but never quite rich enough to spare anything much for the poor. Also, there is a danger that with affluence we settle into a comfortable disregard for those without it and that we develop doctrine to justify the neglect.

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