John Kenneth Galbraith Economic theory

October 12, 2015
John Kenneth Galbraith

Galbraith is a critic of the neoclassical "conventional wisdom": a set of ideas that is familiar to all, widely accepted, but no longer relevant. His evolutionary approach explores changing conditions and examines the need to change our ideas to fit new situations. In a statement similar to that made by Veblen, Galbraith said, "Ideas are inherently conservative. They yield not to the attack of other ideas but to the massive onslaughts of circumstances with which they cannot contend." He is quick to point out that his attack is on the conventional wisdom, not on those who originally expounded the ideas:

The reader will soon discover that I think very little of certain of the central ideas of economics. But I do think a great deal of the men who originated these ideas. The shortcomings of economics are not original error but uncorrected obsolescence. The obsolescence has occurred because what is convenient has become sacrosanct.[16]

And how is it that these obsolete neoclassical ideas have been able to survive? Galbraith answers as follows:

The neoclassical system owes much to tradition - it is not implausible as a description of a society that once existed.

Additionally it is the available doctrine. Students arrive; something must be taught; the neoclassical model exists. It has yet another strength. It lends itself to endless theoretical refinement. With increasing complexity goes an impression of increasing precision and accuracy. And with resolved perplexity goes an impression of understanding."[17]

Within Galbraith's overall theory of modern capitalism one can find several specific theories that challenge orthodox economics. Two theories of particular importance are his notion of the "dependence effect" and his theory of the behavior of the firm.

The Dependence Effect

According to Galbraith, modern capitalism is dominated by large enterprises and characterized by an abundance of contrived wants that are the product of corporate planning and massive advertising:

As a society becomes increasingly affluent, wants are increasingly created by the process by which they are satisfied. Wants thus come to depend on output. In technical terms, it can no longer be assumed that welfare is greater at an all-round higher level of production than at a lower one. It may be the same. The higher level of production has, merely, a higher level of want creation necessitating a higher level of want satisfaction. There will be frequent occasion to refer to the way wants depend on the process by which they are satisfied. It will be convenient to call it the Dependence Effect.[18]

50 Major Economists #38 - John Kenneth Galbraith
50 Major Economists #38 - John Kenneth Galbraith
John Kenneth Galbraith : The Economy after the Cold War
John Kenneth Galbraith : The Economy after the Cold War ...
Read John Kenneth Galbraith and the Future of Economics
Read John Kenneth Galbraith and the Future of Economics ...
Share this Post