Monday, March 30, 2009


One of the better essays I've read recently was John Kenneth Galbraith's "Power and the Useful Economist", the presidential address he gave to the American Economics Assosciation in 1973 (no link, but you can find it in The Essential Galbraith).  The basic point of the essay is as straightforward and obvious today as it was in 1973; he criticizes neoclassical economics for ignoring the concept of power.  The vast weight of the whole edifice of modern economics rests, according to Galbraith, rests on the classic image of a competitive marketplace where firms take prices and are ultimately at the mercy of the consumer, and a political system where the state takes orders, and is thus ultimately at the mercy of the voters.

He goes on to point out what anyone with two fingers of forehead already knows, which is that big firms work awfully hard to cultivate and manage the desire for their products, that they often manage the prices of their inputs and the conditions of their labor, and that even the regulations meant to contain or control them comes to be part of their routine management of the environment.  Naked apes toiling under an inhospitable sun no longer.

Galbraith points all this out much more eloquently than I; he gives examples; he attributes this to the very complexity of specialized modern production.  Building something like the iPhone is a multi-year project requiring the organization of people with all kinds of skill sets.  Hence undertaking production of the iPhone requires calculating in advance what the demand for it might be, or better yet, simply creating and controlling that demand, in a way that producing something like, say corn, does not.  This type of production, what he calls the planning organization or the technostructure, has very little to do with the neoclassical image of the market, and yet we all know that most large corporations work like this -- they are price setters rather than price takers, and have a degree of power over the market and over the state that traditional economics is unable or unwillng to incorporate.

Organizations answering to this description of the oligopolistic planning strucuture include not only corporations, but, he also admirably admits, the unions as well.  In fact, in his view, they are the strict symbiot of these corporations, ordered according to a(nother) principal of competition left out of classicl economics, which he calls "countervailing power".  This is, in short, the principle by which monopoly propagates vertically, from distributor to manufacturer to workers and suppliers, each level consolidating in response to the growing power of the one above it.

Your humble blogger has belabored the not-at-all-very-market-like nature of contemporary capitalism so many times that, on this one occasion, he will take pity on you and merely toss in a few links to others who have had related reflections.  Suffice it to say that I agree with Galbraith, though I believe he stops short of realizing the full power of his own idea (at least it isn't in this essay) and maybe doesn't realize just how long this has been going on.  As Deleuze points out in this lecture, capitalism has never been liberal, it has always been state capitalism.

So we are all happily in agreement. 

Christ, what  boring fucking blog post that would make ¿no? 

Actually, Galbraith is wrong wrong horribly wrong.  Not in his diagnosis, with which I certainly agree, but in his proposed cure.  This is a guy, after all, who was one of the chief architects of the Office of Price Administration during WWII, the agency responsible for setting wages and prices so that the monster deficit and easy fiscal policy of wartime didn't set off on inflationary spiral in the domestic economy.  So, naturally, after outlining a situation in which classic liberal economics (in the old school Chomsky-ian, Smith-ian sense) fails to adequately describe a large portion of the economy because it is in fact a privately managed command and control economy and not a free market -- naturally, he proposes to improve things by making it all a command and control economy.  Talk about getting high on your own supply. 

Controlling prices and incomes may work in Vietnam, and it may even work for a few select staple products, but that's no way to run a modern, innovative economy.  Why on earth would you believe that your little command and control planning system would work?  What on earth makes you believe that this lever of power would not also acquire a mechanism that some group would be able to capture for their own nefarious self-interest once your enlightened dictatorshipness is born away on the dusky wings of perfect equilibrium? 

In short, he suffers from the same disease as so many liberals (in the contemporary terrorist-hugging sense) -- a penetrating critque of the structures of power that corrupt our current theories and practices, and an utterly ludicrous and literally fantastic proposal for their solution. 

If the problem is that the large organizations who command and control the economy manage to manipulate supply and demand to their own benefit without thereby being forced, a la Adam Smith, to work towards the benefit of everyone -- then perhaps it's the large organizations that need to go, rather than trying to invent an even larger organization that controls them.  This seems to me especially obvious when you start to realize that this largest organization is itself both the largest predator, and a clumsy dinosaur easily exploited by the more nimble wildebeests of corporate america. 

No comments: