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Farming out economics with J.K.Galbraith

By Richard Parker - posted Thursday, 19 May 2005


This led to a very important split in Harvard's Economics Department. It broadly followed generational lines, with Galbraith and a dozen or so young instructors and graduate students on the opposite side of the argument to their senior colleagues.

Shortly after Galbraith’s book was published several of those young instructors had the courage to write a letter directly to Franklin Roosevelt praising Roosevelt's economic program and calling into question the economic reasoning of their elders. Three years later, all but one of these junior instructors were gone from Harvard. The lesson was not lost on Galbraith, who in his analysis of economics has always returned to the themes of power and conventional wisdom.

It's important to understand that Galbraith takes a very particular view of liberalism and liberal economics. He is the essence of a liberal pragmatist. He recognised that the federal financing of farm mortgages was not a theory optimal concept in neoclassical terms. But he maintained that it carried a higher value in the reduction of authentic economic and social pain that was being inflicted on a majority of those in the farm community.

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Galbraith wasn't simply acting out of compassion, but out of an intellectual desire - a pragmatic desire - to accommodate those stresses in an actual functioning modern economy, where, he believed, the ideals of the market, semi-markets, and non-market forces operate simultaneously.

Galbraith argued against the adoption of pure market-based solutions in this kind of mixed or messy economy. It’s important to highlight the young Galbraith’s liberal pragmatic inventiveness. This is not the caricature provided by conservatives of the liberal who simply gives handouts to farmers. The mortgages were meant to be repaid. But the inventiveness came in finding the boundary conditions between the implications of the market and the market's reasoning (which was for efficiency) and the ideals of equity, which are so important in a healthy and functioning economy. That was Galbraith’s view then: it remains his view today.

So, for example, he proposed that when loans are repaid, the payment terms be geared to the essential business cycle of the farm community, going upward in dollar amounts when times are good, going downward when times are bad: and that simultaneously a business cycle approach towards the use of land sales - of land taken over by the government - be modulated by the conditions that are found in a particular moment of the business cycle as it exists in the real world.

Now, the policy implications for this were that he wanted to see a sectoral market; that is, he wanted agriculture to be helped to better function in a larger macro economy governed by the permanent messy rules and outcomes that he saw everywhere else. He thought the particular social Darwinism of the very sector of the US economy which operated closest to neoclassical tenets - agriculture - should be moved away from, because both the social logic and the moral logic of the outcomes of that market were unsupportable in an affluent democracy.

Galbraith is also someone who sees pragmatic benefit in a manufacturing sector that does not adhere to standard neoclassical models. Importantly, here again, as a pragmatic liberal, he doesn't endorse earlier notions of simply breaking up large concentrations of power. He looks to find ways to use concentrated power in the manufacturing and business sectors in general to create an optimised combination of outputs that can't simply be measured by in terms of allocative efficiency.

We can see now that in his rural mortgage study he was taking up - and would later take up much more clearly in American Capitalism - Schumpeter's idea of innovative efficiency. This postulates that the large corporations by virtue of their size, their ability to invest down a long road to finance research and development and the like, have advantages over the hurly burly of the smaller entities - the world of millions of small producers and small consumers.

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But he also is laying the grounds for a claim to distributive efficiency. Distributive efficiency, I believe, lies at the heart of what is most significant about John Maynard Keynes' adaptation of neoclassical economics. It is, ultimately, the ability to put money into the hands of consumers across a failed distribution of income structure that accounts for Keynes' model of how one grows an economy out of recession or depression.

Linking the young economist’s observations are his attentiveness to power and his attentiveness to the conventional wisdom. Galbraith has long faulted economics for concealing the element of power embedded in economic relations, structures, and decision making, and he has hectored all and sundry for too often embracing what he calls the conventional wisdom. We can sheet these abiding concerns home to the lessons he learned in a forthright way in this early period.

One of these lessons came from a study of farm finance for the Agricultural Adjustment Administration. This was an agency established as one of the many “alphabet agencies” of the 1930s, and among other things it was charged with overseeing operation of the various domestic allotment programs of agriculture.

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Article edited by Margaret-Ann Williams.
If you'd like to be a volunteer editor too, click here.

Extracted from a speech to a Brookings - New America Foundation briefing entitled The Legacy of John Kenneth Galbraith at the Brookings Institute, Washington DC on April 4, 2005. The full transcript can be found here.



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About the Author

Richard Parker is a lecturer in public policy and a senior fellow at the Shorenstein Center at Harvard's Kennedy School of Government. He has worked as an economist; was a co-founder of Mother Jones magazine and has served many members of Congress.

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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