Blogs > Liberty and Power > Galbraith, Again

May 3, 2006 10:35 pm

Galbraith, Again

It occurred to me that I was too easy on the recently late John Kenneth Galbraith the other day. In the Wall Street Journal Tuesday, David Henderson reminded us:
He was also Kennedy's ambassador to India in the early 1960s. While there, Galbraith gave a series of speeches on economic development in which he hailed the role of government planning as opposed to economic freedom. In one speech, Galbraith stated,"The market cannot reach forward to take great strides when these are called for. . . . To trust to the market is to take an unacceptable risk that nothing, or too little, will happen." As is well known, the Indian government did not take the"risk" of relying on the market but, instead, stuck with its system of detailed controls over every industry. As is also well known, nothing, or too little, happened. India was mired in poverty which only began to lift after some decontrol started in 1991.
Where Galbraith says"the market" substitute"the ingenuity of free individuals." So, Galbraith is one of the people responsible for untold death, starvation, and misery -- and not just in India. Not bad for an arrogant elitist (and a collectivist moralizer masquerading as an economic"scientist") who probably never got his hands dirty.

Cross-posted at Free Association.
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Andrew D. Todd - 5/8/2006

By the way, if you want to respond, first click on the link immediately after the title, to put your post in the right place.

I find that very few intellectuals and very few politicians really understand technology well enough to understand technology-as-process, that is, in terms of what is possible, rather than merely what is conventionally done. For example, most market-libertarians have no real understanding of open-source software, and this makes them the natural prey of dotcom scamsters.

I suspect the only way to really understand technology is to be in the habit of regularly stretching your mind trying to solve technological problems, in other words, to be a working engineer. If you don't do that, you are likely to start saying things are impossible, simply because they are not commonly done.

There are certain conditions for government involvement. For example, considering the technicalities, does the existence of effective competition imply overcapacity of 300% or more? At present, the global automobile industry has about 40% overcapacity, and is in a state of fairly severe distress. What are the marginal costs of serving additional customers? My rough-and-ready estimate is that the marginal cost of producing an automobile is about $2000-3000, or about ten percent of list price. There are large sections of high-tech industry where the comparable figures are 1000%+ overcapacity and one percent marginal cost.

john j trainor - 5/8/2006

And thru it all Galbraith remained Galbraith, some things and some people evolve, some don't.

Andrew D. Todd - 5/7/2006

In the 1930's and 1940's, The Ford Motor Company was owned by one man, Henry Ford I. Harry Bennett was to Ford as Sejanus was to the emperor Tiberius. Bennett had "diplomatic relations" with J. Edgar Hoover. So it was not so much a choice between corporate and government power as the reality of them collaborating together, much as the house of Krupp worked with the Nazi regime. Even as late as the 1980's, the Ford family still held large blocks of Ford stock, to the point that Henry Ford II's position might have been comparable to that of the Holy Roman Emperor Charles V. By contrast, there were at least procedures for changing the government, eg. the Watergate investigations. The Supreme Court and Congress periodically told FDR than he could not do what he wanted to do. Democratic socialism, as practiced in Scandinavia, say, and experimented with in the Anglo-Saxon nations, meant a.system of boards of governors or regents to handle various activities, either independently elected or appointed with the consent of the legislature. The faults of democratic socialism usually tend to be those of bureaucratic inertia, not those of tyranny or despotism. It was a reasonable way of running an industry which formed a natural monopoly.

Now, of course, you can argue about what constitutes a natural monopoly. To take an obvious case, there are thousands of municipal water boards, and no one except a doctrinaire libertarian seriously wants to dismantle them. As a householder, you might only pay ten or twenty dollars a month for your water and sewerage, assuming you don't go in for lawn culture in a big way. The water is one of those things which simply work.

Looking back into the 1930's, "fordism" was probably about the only feasible method of producing large numbers of automobiles at low cost. This was long before computers, and long before robots. Fordism worked out to creating a specialized tool, corresponding to each motion a skilled mechanic would take, hundreds or thousands of tools in total, and then employing a displaced peasant to operate the specialized tool. The result was a factory, the natural output of which was something on the order of half a million cars per year. The peasants operating the tools wound up being kept in line by men very much like plantation overseers, Harry Bennett's "Social Department," as the Ford secret police was euphemistically named. There were automobile companies which employed skilled workers, and did not employ goons. Most of them went out of business during the Great Depression, because their costs were higher than Ford's were. Probably the most technologically advanced American automobile, circa 1930 was the front-wheel-drive Cord, or the affiliated Dusenberg. They folded. There wasn't a very great market for expensive "artisan cars." Surviving artisan firms generally found a "sugar daddy" of some kind, usually the military. For example, Rolls-Royce in England got into making aircraft engines, and developed a special "guaranteed employment" relationship with the Royal Air Force.

Similarly, if you look at steel mills or oil refineries, their size grew mostly out of considerations of thermodynamic efficiency. The "little man" would have to buy more coal to make a given quantity of steel, and he could not keep pace with the big firms. As long as one said that cheap was good, that meant the growth of large firms.

The electronics and computer industry is in the process of a shake-out. Anyone who is being paid for a mass-production product of a type which high-school students produce for their own amusement is ultimately at risk. In economic terms, a high-school student hobbyist is like a small businessman, only more so. We will have to see how many libertarians are really libertarians.

john j trainor - 5/7/2006

A Man of His Time, yes,but the problem was his time never changed. I don't know that he ever modified his overarching view of governement power or modified his belief in socialism.
"A state within a state". What state is the first state within? Why the central government of course. May I take it that you have reservations about heavy industry and it's size and influence, the first state, but not the second and largest state? About Ford's secret police but not the govt's? About market domination but not about nation domination?
Perhaps I'm jumping the gun, and correct me if I am, but it is not a wise move to trade up in power, a sort of " A has too much power,ergo, let's give more to B who already has more.
I am not a lover of corporate bigness but you might say it's the lesser of two evils, and not always evil at that.

Andrew D. Todd - 5/5/2006

Galbraith was a man of his time, which is to say, a man of the age of heavy industry. Free enterprise is not a very good description of a huge company, with a capital somewhere in the hundred billion dollar range, which buys and sells legislators and protects itself from competition by tariff barriers. The reality is that Henry Ford I had a subordinate named Harry Bennett

The reality is that the Ford Motor Company was a state within a state, complete with its own secret police. I suspect that your own unspoken economic assumptions work out to "Silicon-Valley-Dot-Com." That simply does not describe the way heavy industry works. Very often, in heavy industry, bigger is better, to the point that you wind up with one monopolistic firm. Do you know what the term "captive shipper" means in railroad practice?

john j trainor - 5/4/2006

Remarkable, and as an American citizen with the experience and history of this country's astounding growth up to the '60's he could make that statement.
The "risk" he was so worried about, did he mean the private investors who weigh opportunities and chances, who invest and reinvest the seed money for growth and prosperity? I didn't know he was so concerned with capitalists, a word of opprobrium in his circles.

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