Review: The Affluent Society

The Affluent Society by John Kenneth Galbraith
My rating: 4 of 5 stars

The two other distinctively American figures had more enduring influence. These were Henry George and Thor-stein Veblen. But so far from manifesting the exuberant attitudes of the frontier, both were prophets of a gloom that was, in some respects, more profound than that of Ricardo. Henry George (1839-1897) was like Marx the founder of a faith, and the faithful still assemble to do honor to their prophet. Like Adam Smith he made clear his view of the social prospect in the title of his remarkable book: Progress and Poverty. An Inquiry into the Cause of Industrial Depressions and of Increase of Want with Increase of Wealth. In the opening chapter he posed his basic questions: Why in a time of general economic advance-he was writing in the depression years following 1873-should so much labor "be condemned to involuntary idleness," should there be so much "pecuniary distress among businessmen," and so much "want, suffering and anxiety among the working classes?"3 Why, to press things further, should there be so little gain to the poorest classes from increased productive power? "Nay, more," why should its effect be "still further to sup-press the condition of the lowest classes?"

The reason for this perverse aspect of progress was again part of the almost infinite legacy of Ricardo. Labor and capital increased in productivity; the land supply remained constant in quality and amount. Rents, as a result, increased more than proportionately and made the landlords the undeserving beneficiaries of advance. The anticipation of rent increases and attendant speculation in land values was also the cause of depression. ...

trap

A word of summary is now in order. We are impelled by present attitudes and goals to seek to operate the economy at capacity where, we have seen, inflation must be regarded not as an abnormal but as a normal prospect. The same attitudes which lead us to set store by capacity use of plant and labor force largely deny us the use of measures for pre-venting inflation. Monetary policy collides with the process of consumer demand creation and, since it works on business investment, is in conflict with our emphasis on growth. It is also ineffectual, discriminatory and, possibly, dangerous. Fiscal policy is sharply at odds with the commitment to a level of output that insures full employment and the accompanying economic security. Direct controls, which in theory might reconcile high employment with price stability, are under a comprehensive ban. We assume that we must have them in unworkable mass or not at all. They are in ostensible conflict with the goal of efficient production, for that has anciently been identified with market allocation of resources.

These conflicts are partly obscured. The conservative dis-guises the conflict between monetary policy and production by his faith that his policy has occult or other transcendental effects not visible to the naked eye. The liberal, including the Keynesian economist, conceals the conflict between fiscal policy and production at full employment not so much by resort to mysticism as by a systematic refusal to face issues.

Fact check

Not all venders of professional services do suffer. Occasional groups have discretion over their prices and are able to take prompt advantage of the general increase in money wages and demand, to raise their own charges and revenues. Lawyers and doctors normally fall in such a category. There are others. In 1942 a grateful and very anxious citizenry rewarded its soldiers, sailors, and airmen with a substantial increase in pay. In the teeming city of Honolulu, in prompt response to this advance in wage income, the prostitutes raised the prices of their services. This was at a time when, if anything, increased volume was causing a reduction in their average unit costs. However, in this instance the high military authorities, deeply angered by what they deemed improper, immoral, and indecent profiteering, ordered a return to the previous scale.

In a free market, in an age of endemic inflation, it is unquestionably more rewarding, in purely pecuniary terms, to be a speculator or a prostitute than a teacher, preacher, or police-man. Such is what the conventional wisdom calls the structure of incentives.

Chase

the tensions and the dangers of a society in which the pursuit of goods is para-mount and which does not pause to reflect on the devices -mass persuasion leading on to mass encouragement to indebtedness-which further the chase.

Poverty

The first and strategic step in an attack on poverty is to see that it is no longer self-perpetuating. This means insuring that the investment in children from families presently afflicted be as little below normal as possible. If the children of poor families have first-rate schools and school attendance is properly enforced; if the children, though badly fed at home, are well nourished at school; if the community has sound health services, and the physical well-being of the children is vigilantly watched; if there is opportunity for advanced education for those who qualify regardless of means; and if, especially in the case of urban communities, law and order are well enforced and recreation is adequate then there is a very good chance that the children of the very poor will come to maturity without grave disadvantage. In the case of insular poverty this remedy requires that the services of the community be assisted from outside. Poverty is self-perpetuating because the poorest communities are poorest in the services which would eliminate it. To eliminate poverty efficiently we should invest more than proportionately in the children of the poor community. It is there that high-quality schools, strong health services, special provision for nutrition and recreation are most needed to compensate for the very low investment which families are able to make in their own offspring.

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