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American Affluence and Conventional Wisdom Asserting that the United States in the twentieth century is an anomaly in world history due to its unprecedented affluence, Galbraith states that economic theory up to this point is based primarily on societies characterized by poverty and is, therefore, inadequate to addressing the economic condition of the United States in the twentieth century. He introduces the concept of conventional wisdom, which refers to the generally accepted ideas within any given society. Galbraith asserts that conventional wisdom is based primarily on tradition and does not accommodate changes in society and so must be viewed with skepticism. He observes that the early economic theorists—the leading figures being Smith, Ricardo, and Malthus—of the previous centuries based their theories in a world economy characterized by poverty. Galbraith then provides an overview of major currents in economic theory since the Industrial Revolution in the mid-nineteenth century. A predominant current of twentieth-century thought—the ‘‘central tradition’’ of economic theory—was the idea that financial crises, such as the depression, are a normal occurrence of economic cycles.

Production Galbraith traces the major currents of American economic thought in the twentieth century, particularly the influence of Social Darwinism and Marxism. Galbraith argues that the issue of inequality in the distribution of wealth has become less and less of a concern in American conventional wisdom. Focus has moved instead to the benefits of increased production at all levels of society. He points out that since the 1930s economic security, both for the business owner and the worker, has steadily increased, as has overall production. With the decrease in concern for economic inequality and the relative elimination of extremes of economic insecurity, Galbraith argues, production has become the foremost concern in economic thought. He elaborates upon the extent to which conventional wisdom in the United States regards production as the essential measure of economic vitality. However, Galbraith notes that, in fact, this concern with production is irrational and inappropriate to the realities of the economy. He stresses that the conventional wisdom is selective in evaluating various types of production so that private sector production is deemed good for the economy while social services provided by the government are considered bad for the economy.

Consumption Galbraith further observes that with the steady increase in wages in the United States, luxury items have come to be considered consumer ‘‘needs,’’ equivalent to the need for food and shelter in less affluent societies. He points out that it is inaccurate to claim that the production of these luxury items is determined by the ‘‘needs’’ of the consumer; rather, it is the extensive advertising efforts that accompany production, which creates the ‘‘need’’ in the consumer. Galbraith insists that contemporary economic theory has failed to take this dynamic, which he calls the ‘‘dependence effect,’’ into account. He explains that after the 1930s the conventional wisdom of economic thinking became dominated by a stress on the value of high production rates. He observes that although in recent times the focus on production as a measure of economic vitality has given way to a broader range of concerns, it remains, in the conventional wisdom, the be-all and end-all of national prosperity. He goes on to describe the steady increase in consumer debt from the 1920s to the present, warning that massive consumer debt, while potentially hazardous to the economy, is encouraged in the United States as a corollary to high rates of production and consumption.

Inflation Galbraith examines economic attitudes about inflation, which, since World War II has clearly become an inevitable factor in the United States economy. Economists disagree on the cause of...

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inflation, as well as on the possible means of regulating it, conservatives being primarily concerned with the level of product demand in the economy and liberals with the ‘‘wage-price spiral,’’ according to which increased wages have a snowball effect on the growth of inflation. Galbraith examines the role of the Federal Reserve System of monetary policy in the United States with which attempts are made to regulate inflation. He goes on to note that the Federal Reserve’s primary method of raising interest rates does more to harm small businesses than to protect the consumer against inflation. He concludes that monetary policy is ‘‘a blunt, unreliable, discriminatory and somewhat dangerous instrument of price control.’’ He describes the relative merits of monetary measures (as advocated by conservatives) and fiscal policy (as advocated by liberals) in regulating inflation.

Social Balance Galbraith elaborates upon his argument that the conventional wisdom of American economic thought values high production in the private sector as a measure of a strong economy while denigrating the value of goods and services provided by the government. Thus consumer expenditure on personal goods and services is valued above government expenditure funded by taxes. Galbraith coins the term ‘‘social balance’’ to describe an acceptable relationship between private and public expenditure. He argues that an affluent society is dependent, for the public good, on state expenditures in the areas of the police force, education, public sanitation, public transportation, roads, and the regulation of safety standards for air and water. He argues that public education is an area of government expenditure that is ultimately an investment in private-sector industry. In an age of technology, citizens with a higher education in the areas of science and engineering are necessary to the advance of industry. However, the conventional wisdom, Galbraith observes, does not consider public education to be a valuable investment in economic prosperity. Galbraith further asserts that finding employment for the unemployed is not the best way to cure economic downturns or high inflation. Rather, he argues, an increase in unemployment benefits provided by government would accommodate the unemployed without adding to the problem of inflation. He further contends that a greater emphasis on sales taxes (rather than income taxes) would lead to a greater social balance of private and public sector production. He makes clear that income taxes should remain but that greater sales taxes would fund government at the state level, thus enabling greater expenditure on such vital public services as education. He asserts that greater government spending in the public sector is the most important factor in reducing poverty.

Education and the New Class Galbraith puts forth the idea that a ‘‘new class’’ of workers has emerged in the ‘‘affluent society’’ of twentieth-century American life—a class characterized by the opportunity to seek enjoyable employment. He argues that the enjoyment of work is of greater value than either increase in pay or decrease in total hours spent at work. He suggests that the expansion of the class of people who are able to find work they enjoy—rather than the senseless expansion of production rates—should be a national priority. He argues that the most important factor that makes the expansion of this new class of workers possible is increased access to quality education for all citizens. He points out that while the conventional wisdom regards excessive spending on military as a necessity, spending on education is considered a waste. However, he argues that spending on education ultimately increases quality of life while spending on the military—particularly the build-up of nuclear arms—hastens the mass destruction of life.