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Summary

(Nonfiction Classics for Students)

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 inflation, as...

(The entire section is 1,202 words.)