The Affluent Society

by John Kenneth Galbraith

Cover image

Publisher: Houghton Mifflin
Copyright: 1958, 1969, 1976, 1998
Printing: 1998
ISBN: 0-395-92500-2
Format: Kindle
Pages: 291

This is an ebook, so metadata may be inaccurate or missing. See notes on ebooks for more information.

Buy at Powell's Books

This is a difficult book to review, particularly after a single reading, because it's so well-argued and so dense with ideas, and so methodically constructive in its presentation, that it's hard to either record all of its key points or to put it into appropriate context. That's also why it's an important book to read. Like Jane Jacobs, it's an iconoclastic challenge to the status quo, a call to arms that argues that the basis of our economic thought and planning has gone badly astray. Unlike Jacobs's writing on economics, as opposed to urban planning, it's gone on to be very influential in the economic beliefs of political liberalism.

Galbraith's agenda here is to argue that much of conventional economics is based on assumptions and beliefs about the average wealth of the humanity that were formed in the infancy of economics in the 18th century, assumptions that have become obsolete. He starts by defining "conventional wisdom" (this is the work that coined that term and made it a common phrase) in an analysis that matches the feelings of persecution of iconoclasts everywhere, but which carries a lot of truth regardless. More recent writing on the same topic usually approaches from the angle of cognitive bias: problems of induction, confirmation bias, and similar ideas. Galbraith doesn't use those terms, but he presents a similar picture of the momentum of entrenched ideas and the difficulty of reconsidering accepted wisdom, one that closely matches Paul Krugman's recent exasperation at economists or the frustration felt by nearly anyone who watches the major US news media.

The point of this discussion in the context of The Affluent Society is, of course, to attack the conventional wisdom in economics, but Galbraith starts out by sketching his picture of what that conventional wisdom looks like. A key part of his thesis is that economics came of age in a world where nearly everyone was desperately poor, where eliminating poverty was basically unthinkable, and where providing some opportunity for people to become less poor was the highest calling of economics. But early economists believed in iron laws of economics that would always keep workers poor. Even when that weakened in the late 18th century, it didn't lose its grip on economic thought. Although the wages of workers weren't as remorselessly reduced to survival levels, they still weren't thought capable of rising far.

This also, according to Galbraith, suited the conventional wisdom of Marxists, the other major school of thought in 18th-century economics. Marxists believed that the fall of capitalism was inevitable, and would be brought about by worker revolt against that capping of their wages, against the economic forces that kept those wages at a subsistence level while the property owners captured the profits. Both conventional liberal (in the Adam Smith sense, as opposed to mercantile) economics and Marxism therefore formed an alliance of sorts in support of the conventional wisdom: the wages of workers across the economy would always be poor relative to the property owners under capitalism. This suited the Marxists, who saw Marxism and class revolution as the answer; the liberals instead took refuge in increasing productivity. Productivity gains seemed to be the perfect solution: not only did increased worker productivity prove quite effective at making everyone better off, it avoided the highly controversial issue of redistribution of wealth (and thereby the taint of Marxism).

On top of this foundation, Galbraith builds a model of an economic system that has pursued a useful metric past the point of revolutionary change and continues to pursue it for reasons that are partly obsolete. The problem of 18th-century economics was how to produce enough basic food, clothing, and shelter for the population to prevent people from dying of starvation and exposure. To that end, every increase in productivity contributed directly to alleviating human misery by producing more basic stuff of life. It also provided a chance of social mobility; economists thought that workers would generally always be poor, but exceptional workers who were far more productive than average could demand a higher wage, or earn more through product they sold, and thereby join the property-holding class. And none of this was wrong; for the time, it was a reasonable theory.

But the economy has long since passed the point where the marginal labor of an additional worker is used primarily to create more basic economic goods like food. Marginal labor is now producing items much higher up Maslow's hierarchy of needs. Useful and desired items, to be sure, but not things that are required for lives and health of the population. And, when that transition happened, a change in the way we think about employment also happened. Previously, everyone had to be employed because that was the only way to grow enough food to feed everyone; now, everyone has to be employed because the job is how they are paid to feed themselves, but the entire population is fed, clothed, and housed by a small fraction of the work in that society. The relationship between their work output and the subsistence of the community has changed considerably.

Put another way, Galbraith argues that "he who does not work shall not eat" made sense as a macroeconomic policy in the 18th century, but no longer makes any macroeconomic sense. He further argues that the pursuit of that policy, and the overriding importance of full employment for individual economic stability in the current economy, leads to attempting to run the economy continuously at maximum capacity to provide as many jobs as possible. This, he argues, makes it more fragile and therefore makes economic downturns both inevitable and more severe.

It's easy to follow this logic into a black-and-white attack on consumerism, such as an argument that the products of the economy shouldn't be produced. Galbraith avoids that with a much more nuanced discussion. It's not that the many products of the current economy are not valuable, but rather that they may not be urgent. They aren't basic necessities; they're optional, and therefore the choice between those goods and other human desires is subject to individual preference. In particular, he argues that if we were not attempting to generate jobs for full employment and instead taking a step back and evaluating other possible tradeoffs and alternatives, it may make more macroeconomic sense to value leisure or to strike a different balance between private enterprise and public goods. But the private creation and consumption of goods that can be marketed and advertised for individual sale has, in effect, run away with the broader economy, creating a self-perpetuating engine of job creation, demand, and consumption that's out of balance with the goals and desires of individuals.

Now, Galbraith makes the macroeconomic argument and then stops; he does not go on to address other reasons why people commonly believe everyone should have a job (free rider problems, moral beliefs, and so forth). His prescriptions for putting more slack and flexibility into the economy and supporting everyone at a minimum standard of living are therefore not going to be universally persuasive. But even if one believes in the virtues of hard work in a capitalist system for non-macroeconomic reasons, Galbraith develops other angles of this argument that I think would be of broad interest.

For one, he argues persuasively that the effect of advertising, marketing, and a focus on individual products for sale has created a systemic imbalance between public and private goods. We have more automobiles than roads, more homes than schools, more evening destinations than street lights, because our economic system undervalues public goods. Corporations have billions of dollars to pour into creating demand for private goods, but there is no corresonding marketing of public goods. If advertising is worth those dollars poured into it, this of necessity means there is an artificial imbalance of demand. Making the imbalance worse, individual consumers cannot easily vote with their spending in favor of more public goods, since the public goods are not available for sale (and hence individual choice) and can only be funded collectively.

This argument should be very familiar to libertarians, who often agree with Galbraith's analysis but propose a different solution: mechanisms to turn more public goods into marketable products so that they can be incorporated into the economic system. Galbraith doesn't engage with this argument beyond asserting this is not, in general, possible. He instead discusses political policies that could rebalance public and private spending, such as tax schemes that scale by economic growth (including an interesting defense of the sales tax).

I've still barely outlined the main thrust of Galbraith's argument, and have left a great deal out, including a compelling analysis of the role of economic security in the economy (precis: each economic player pursues it for themselves while arguing the virtues of creative destruction for everyone else) and an analysis of the politics of wealth inequality. Galbraith does a wonderful job of anticipating and addressing objections, particularly once he gets through his economic history and introduction. This is the sort of book where I kept saying "but" only to find my objection addressed in the next chapter.

Paul Krugman, with whom I normally tend to agree on economic issues, is famously derisive of Galbraith and his economic theories, and now I want to read Krugman's Peddling Prosperity to understand the argument better. However, based on what I've seen of his objections, I think Galbraith may be arguing at a different level than Krugman's objections. The Affluent Society is not really a book about economics. Although Galbraith occasionally touches on some related issues, it's not truly about Keynsian stimulous, the balance between inflation and full employment, IS-LM models, or similar economic details. Rather, Galbraith is tackling a different question: what are our individual and collective goals, what do we want from an economy, and is the economy serving those goals? Are individuals in the economy actually empowered to use their time and resources in pursuit of their personal priorities, rather than artificial priorities created by the economy? It is, in short, more about politics than about economics, and a defense of productivity growth and its corresponding impact on the general standard of living as measured by the tools of conventional economics rather misses the point.

This is a fascinating book about which I could have written even more, but I'll stop here and just recommend that everyone read it. Even if you don't agree with Galbraith's position on the role of government in macroeconomics, there are substantial insights here into the way we make economic decisions between goals of different priorities and urgencies, and into the decisions that we make by default. It's made me think hard about the tradeoffs between public and private goods, and between having more and working less (or less hard, another fascinating chapter that I didn't discuss). Highly recommended.

Rating: 9 out of 10

Reviewed: 2012-04-27

Last modified and spun 2017-01-01