Many banks which had speculatively invested their depositors' money in stocks also went bankrupt. Depositors, in the pre-F. Because of various weaknesses, the collapse of the bull market of the s took the entire economy with it. Galbraith also maintains that political and governmental factors must be considered if one is to truly understand the economy of the Roaring Twenties, the crash of the stock market, as well as the onset, duration, and severity of the Great Depression.
These considerations boil down to two basic points. First, Galbraith charges prominent government officials with partial responsibility for the runaway boom of the latter s. Mellon all realized that there were dire economic problems and dangers emerging but refused to move forcefully against them. Secretary of the Treasury Mellon laughed at those who charged that the bull market was getting out of hand, in part perhaps because he personally was speculatively investing millions of dollars in stocks. Warned by Harvard economist William Z. Ripley about the inherent dangers of the credit-based bull market, Coolidge asked: "Is there anything we can do down here in Washington,D.
Relieved, the President relaxed and put the incident out of his mind. Not long before he left office, President Coolidge announced that stocks were "cheap at current prices". Galbraith's point is that while government officials knew dangers were prevalent, they did nothing to deal effectively with them. Indeed, he argues that they made matters worse. By asserting that the economy was in good shape and that speculative credit trading in securities was normal and that everything was inevitably improving, they kept the boom and the Great Bull Market going.
This prevented a mild correction and recession in the middle twenties and guaranteed a drastic slump when it inevitably came. Second, Galbraith asserts that it was the nature of the American government itself, not just the actions of officials, that allowed the economic situation to roar out of control in the first place and then proved structurally incapable of limiting the depression once it began. The nature of the government was totally different in the pre-Depression era from what it is today. Americans of the s favored a non-active, non-interventionary, laissez faire government and Presidents Harding, Coolidge, and Hoover delivered.
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Therefore, many of the tools the government has at its disposal today to control and direct the economy were absent before There was no federal agency such as the Securities and Exchange Commission, as there is today, to regulate the New York Stock Exchange. There was no federal program such as the Federal Deposit Insurance Corporation, as there is today, to prevent "bank runs" and collapses by insuring bank deposits.
There was no federal program of unemployment relief, as there is today, to limit the financial ravages of unemployment. No government-sponsored housing programs. No expectation that the government serve as the employer of last resort. No government lending program to save home mortgages.
No government programs to save farms from mortgage foreclosures. All such programs are the product of the New Deal of President Franklin Roosevelt, enacted in the s after the economy had reached bottom. In order to understand why Americans abandoned laissez faire government in favor of large, interventionary, and expensive government during the s, one must have an appreciation of just how bad the Great Depression was. Just as the stock market had reflected the economic boom of the s, it reflected the collapse and depression which began in October, As panic selling began, stock values nosedived taking most speculative margin buyers with them.
The index of industrial stocks plummeted from in September to by mid-November; their value had been cut in half. The decline would continue in , , and as the economy searched for bottom. On July 8, , at the bottom of the depression, they would sink to 58 - worth just a little more than one-tenth of what they had been bought for at the peak of the bull market.
In three years General Motors plunged from 73 to 8, U.
Steel from to 22, Montgomery Ward from to 4! Speculative investments and margin buyers were wiped out together. As the market collapsed, investors who had overbought on the margin and couldn't meet margin calls lost the stock and everything the stockbrokers could get their hands on to pay off the debt. Banks and businesses also suffered tremendously from the market collapse.
It will be remembered that they had risked their money on speculative investments in stocks.
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They were now in no shape to weather the collapse. By late , in pre-FDIC days, many depositors feared for the security of their bank savings and franticly tried to withdraw their deposits. This guaranteed the failure of banks.
In , banks failed; in , 1,; in , 2, Millions of Americans who in had regarded banks as the epitome of security withdrew their money and hid it under flagstones. By the fall of , a billion dollars had been taken from the banks and put in safe deposit boxes or stuffed in old mattresses. Businesses also went under. The profits they had invested in the stock market were lost and many businesses were so drained of capital they were unable to weather the depression.
Such is one school that Mr. Reagan brought to town. With it came the monetarists. Inflation, we all agree, is the most persistent disorder of the modern economy. The monetarists seek to control inflation by a rigorous control of the money supply. There is no magic or mystery here, as people are frequently told and some believe.
You control the money supply by a strict control of bank lending, primarily through high interest rates. Unlike some of my liberal colleagues, I believe that monetary policy will work against inflation, in its own grim fashion is working now. It is only…. This is exclusive content for subscribers only. If you are already a subscriber, please be sure you are logged in to your nybooks. Now for the good: This "legendary" book "legendary" because it is mentioned without fail albeit only in passing in almost every US history textbook for college students makes a series of good points, some of which are irrelevant today but a few of which, largely because of the way they're packaged, make reading this book a worthwhile experience.
The continued obsession with "production" and the "starvation economics" of the 19th century is a bad thing. Furthermore, the creation of "wants" autos, comic books, cigarettes, pornography, etc. Keynesian fiscal policy will indeed curtail inflation and reduce unemployment, but only if the pump-priming is counterbalanced by restraint in times of plenty an unpopular political decision, to be sure. Social balance, rather than social justice, should be the objective of the "affluent society.
Because conservatives would undoubtedly resist higher progressive income tax rates, Galbraith advocates a sales tax. Sure, this will "soak the poor," but it will also force the poor to invest in the future of their children, thus alleviating poverty a dubious "pragmatic" argument, to be sure. In the part of the book that appealed most to me, Galbraith echoing a speech given by Richard Nixon during the '56 presidential campaign discusses the possibility of a four-day workweek and "cyclically graduated compensation" designed to make unemployment payments more attractive during periods where jobs are unavailable.
He also examines the so-called "New Class" of white-collar workers who want their children to work "intellectually fulfilling" jobs, and seems to think that this cohort can be expanded indefinitely. Despite Galbraith's best intentions, none of this really panned out. Yes, we don't care as much about production--but that's because most US-based production requires little manpower. His fears about monetary policy, the creation of consumer desires, the possibility of too much work six day workweeks for some! The notion of increasing public spending to achieve social balance remains a dream, rendered impossible by the fact that everyone seems to believe that the public sector is "inefficient" as opposed to, say, a more efficient private concern such as Enron or WaMu.
Jun 10, Bill rated it really liked it. It was really the first book I've read that allowed even a fleeting glimpse into the opaque and arcane realm of macro economics. It seeks to redefine priorities in a society that clearly has no trouble with the basics of feeding and sheltering itself. As far as books that attempt to shed some light on our economic circum I just finished reading The Affluent Society by John Kenneth Galbraith. As far as books that attempt to shed some light on our economic circumstances, I've tried others, but they have always been about as readable as Finnegan's Wake were it written by a three year old child I especially basked in the warmth of my new found knowledge.
I can now tell you the difference between monetary policy and fiscal policy, which I would have sworn were synonymous. Aggregate demand, business cycle as it relates to differeing economic systems My favorite part was in the beginning as Galbraith describes the difference between a poor society and an affluent society. A poor society, in my mind resembles a slowly grinding gear, struggles to achieve the basics of food and shelter for the majority of its citizenry. In an affluent society, more closely resembling a flywheel, the basics are so easily covered and subsequently taken for granted, that modern "want creation" cool word for advertising has taken over and is fueling a frenzy of goods production which compounds upon itself to create an ever more self-nourishing goliath of an economy.
It suggests that the challenges are different, the focus trending away from production and more towards social balance and education. I suppose this is one of those things that is self evident somewhere in the dustbin of our sub-conscience, but its plainly spoken in a way that's pretty easy to understand in this book. This book can be summarized by a well organized and simply stated guide to understanding our economy I read this book because? I truly can't remember. Its been on my shelf, having arrived there inexplicably ages ago. The big deal? Well, for the fleeting next few weeks before most of this recently acquired arcane economic terminology evaporates into whatever form of cerebral exhaust would expel it Rating: 4 1: I have no idea what I just read, I didn't get it.
I get it This book will go on my shelf. I will likely read this again. Mar 28, Jeff rated it it was amazing Shelves: science , favorites. Until the later stages of the industrial revolution, no society had achieved a level of productive capacity sufficient to eliminate privation, or a serious possibility of privation, from the lives of its people. Before that time, scarcity was the unbroken rule of history.
That is the world in which Smith, Ricardo, Malthus, and others developed the core conceptual tools of economic analysis. Not surprisingly, in their work, we find that production is the highest goal—for by it alone can the needs Until the later stages of the industrial revolution, no society had achieved a level of productive capacity sufficient to eliminate privation, or a serious possibility of privation, from the lives of its people.
Not surprisingly, in their work, we find that production is the highest goal—for by it alone can the needs of the world be met. The assumption that increasing production is the chief object of the science of economics as well as the principal aim of good public policy has remained in spite of the fact that the victory over privation was convincingly won long ago.
Result has been an irrational pursuit of ever greater production of goods whose actual utility is ever shrinking. The rise of marketing as a means of creating the wants that are to be satisfied is the surest sign that we're devoting enormous resources to the wrong projects. The assumption also results in the political advantage of the "man of production"—the business man, and a disadvantage for public institutions which do not directly produce tangible consumer goods. As a consequence, we find that while private production is enjoying an unprecedented level of overabundance, public institutions are as poor as they ever were, or at least nearly so.
Our economy priortizes the availabili of automobiles with features of dubious utility over the availability of well-kept and less crowded roads upon which to drive them. Our values are such that we ask no justification for investments in new anti-baldness technology, but demand absolute justification for the building of a new school, or an expansion of public provisions for the aid of the indigent.
Galbraith argues that what is needed is "social balance. We ought to tax private production handsomely, and so reduce the rate at which it destroys the environment, while acquiring badly needed resources with which to educate people, to clean up the environment, to drive the pace of technological change while shielding workers from the caprice of the market. The entirety of the book is well-argued and the style is of the very highest quality that can be found in English non-fiction.
Sep 14, Vance rated it it was ok Shelves: keynesian-socialism-economics. Many of the claims about income inequality, class warfare, and the like were discussed in this classic by Galbraith. Unfortunately, his explanations for the causes of these are based on his view of a failed system of capitalism and solutions based on government action through fiscal policy were misguided then and are today. The underlying factor driving these concerns is most often government itself that then makes the problem worse with more government intervention.
He does get some of it right Many of the claims about income inequality, class warfare, and the like were discussed in this classic by Galbraith. He does get some of it right by noting the costly effects of inappropriate Federal Reserve actions by manipulating the money supply and therefore interest rates. However, his claim to run up massive deficits and for large transfers of income and wealth through redistributionary taxes are similar to the recent claims by Pickety, which both fail to see the error of believing that a small group of people has sufficient information and knowledge to turn the right wheels of an economy or that government created the environment for these ills to occur.
The less we focus on voluntary exchange i. Free markets , the more problems there will be. Most of the problems Galbraith noticed then and we see today are not caused by free market capitalism but rather crony corporatism in a socialist-dominated economic system.
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Overall, I'm glad I read this book to get another perspective on Keynesian-types of economic thinking. I was not convinced that there was much credibility to the views offered, as I believe strongly that voluntary exchange of humans to satisfy their desires given scarce resources with minimal government has been historically proven to be the best path towards greater economic opportunity to prosper. Check it out for yourself. Jul 15, Terry Clague rated it really liked it. I recommend this book as an introduction to economics as well as just being a good read - especially in current "turbulent" times.
Starting with a skate through the development of economics - which JKG characterizes as having been born "in a world of poverty and privation" - the book introduced the world to the term "conventional wisdom" though I've heard a few right of centre economists dispute this before going on to kick back against the mindless pursuit of "production" GDP Growth as an e I recommend this book as an introduction to economics as well as just being a good read - especially in current "turbulent" times.
Starting with a skate through the development of economics - which JKG characterizes as having been born "in a world of poverty and privation" - the book introduced the world to the term "conventional wisdom" though I've heard a few right of centre economists dispute this before going on to kick back against the mindless pursuit of "production" GDP Growth as an end in itself. In this sense the book was well ahead of its time and a new edition would surely make more of the happiness angle as well as the sustainability issue which has been all a buzz in recent years.
Chuck in some barbs at the rate at which society invents wants to justify and consume new production and you're singing from my own hymn sheet. Finally, there's some words of wisdom for the purveyors of other people's austerity who currently find themselves in power throught Europe: "Complaint about waste and ineffiency It is far easier to cut the function than the waste, and this is what occurs The Importance of cutting expenditure, however much is may be urged on the more vacuous margins of the conventional wisdom, may on occassion sustain hope.
But the actual accomplishment will be negligible. Jan 13, Loren added it. Goodreads The Affluent Society Galbraith is the creator of the term "conventional wisdom. He suggests back in good old that "In the Communist countries stability of ideas and social purpose is achieved by formal adherance to an officially proclaimed doctrine.
In our society a similar stability is enforced far more informally by the conventional wisdom. I must say Galbraith is over my head. His word associations and even metaphors are tenuously grasped by me due to my lack of institutional instruction in relation to history and politics. It is frustrating for me in a way that doesn't challenge me to continue as reading complicated text in my second or even third language might motivate.
I actually want to stop, not to reflect pensively, but to throw it against a wall! I find it easier to read aloud and it helps maintain a rhythm I silently lack maintaining. Oct 02, Patricia rated it liked it Shelves: non-fiction , newsweek-s-top This book was on Newsweek's list of the top books, which I am currently reading through.
I don't have much of an interest in reading about economics, which accounts for a mere three stars in this review, but as far as economics goes, The Affluent Society was well-written and easy to read and contained quite a bit of interesting information, even if I didn't always agree with the author. In some ways it seems he really has a handle on the post WWII economic society in America, not only at the This book was on Newsweek's list of the top books, which I am currently reading through.
In some ways it seems he really has a handle on the post WWII economic society in America, not only at the time he wrote the book in but even today. However, many of his ideas sound good on paper but do not necessarily work in practice. I am all for keeping our public roads in good shape and our parks clean and, most importantly, open, but heavy taxation today may not result in any better care of our roads or parks and may just end up lining the pockets of our government leaders. Also, his ideas on unemployment insurance and social welfare which basically have been put in to practice , may be good ideas in a society where idleness is frowned upon, but this no longer seems to be the case and the system is often abused at taxpayer expense.
He challenges many prevailing views on economics including economic security and production, as well as marginal utility and consumer demand. Rather, Galbraith suggests that advertising and consumer demand are inseparable. Furthermore, he analyzes the relationship between consumer spending, debt, the economy, inflation, as well as other issues. Galbraith offers some useful insights in this book, such a paradox in income inequality: income inequality has gotten worse yet simultaneously attracted less concern.
The need for production, which he suggest is not always the most important, tends to conflict with the need for full employment. Most intriguing of all may be his observation that as the United States has become more affluent the nature of work, as an identity, has shifted. In the past most people identified work as something to pay the bills, whereas increasingly everyone—from CEO to the lowest laborer—is expected to love their job instead of focusing on the monetary aspects.
Dec 04, Ronnie rated it it was amazing. I first read this book in when I was in the Army and I was all of If it was stunning then He writes to be read and understood. I could never cease to be amazed by these individuals who write to be so pleasantly read. I who hungered to comprehend what was happening around me found solace in writers such as this. St I first read this book in when I was in the Army and I was all of Finding ones' place in the miasma of humanity that can be a functionable contributing element.. Military based society Reading the writings and driving over bumpy roads So if your reading in a coffee shop or in a library and start laughing Just giggle a little more say your sorry and keep reading..
Apr 21, Steven Peterson rated it really liked it. John Kenneth Galbraith was a liberal economic thinker. This book was one of his best-known works. He argues that the widening gap between richest and poorest citizens threatened economic stability. He made suggestions as to how this might be addressed. Some of his predictions turned out to be dead wrong.
Nonetheless, his analysis, though somewhat dated, addresses some long-term issues that still bedevil us. May 22, Katya rated it it was amazing. A fantastic, relatively light economics book that's great for beginners. While it's obviously outdated, with historical context on the American economy before and after the s it becomes an interesting glimpse into past economic theory.
Paul Krugman I think said or he might have been paraphrasing someone else that understanding the modern economy involved reading very old books. The Affluent Society is about sixty years old now. Galbraith is viewed rather shabbily by most academic economists, but his style is very suited to the lay person. Galbraith starts with an explanation of the conventional wisdom, a term coined in this book I believe, and says: 'Audiences of all kinds most applaud what they like best.
And in social comme Paul Krugman I think said or he might have been paraphrasing someone else that understanding the modern economy involved reading very old books. And in social comment the test of audience approval, far more than the test of truth, comes to influence comment. The speaker or writer who addresses his audience with the proclaimed intent of telling the hard, shocking facts invariably goes on to expound what the audience most wants to hear.
John Kenneth Galbraith
The broad thesis is this, that society has reached a level of affluence such that to increase wants and so demand, they have to be artificially created by advertising etc. When something new is produced, the producer also has to create the want for it. This separated them from things like food, clothing, shelter, etc. This means that these wants are of marginal importance.
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Economists usually say that you cannot determine between legitimate wants and illegitimate wants and that should be decided by the individual consumer. Galbraith argues that this is basically absurd, and because I already believed it was so, I found the argument more persuasive than it might appear to others. Historical tendency has for societies to be so poor that almost all production is of these inbuilt desires and so increasing production meant increasing production of these important goods. Thus, efforts to increase production were generally good. However, he argues that in a richer society, where production is made for goods for which there is no inbuilt desire, that we would not miss it when we didn't have it because we didn't even know we wanted it in the first place, this effort to increase production can lead to perverse outcomes.
These perverse outcomes being an alarming increase in personal debt creation from artificially high production, a social imbalance created by neglected public services for which there are no advertisers artificially increasing demand for, and runaway inflation. Each of these, he says, can lead to both societal dysfunction and even to collapses in production itself think, for instance, of a debt deleveraging crisis.
He says that one of the chief reasons an untrammeled belief in production has gained political traction is because of the need for economic security. Actually, this passage is quite funny because he punctures the self serving way that many business people portray the seeking of security as something only workers do, and at the cost of productivity, whilst themselves organising in limited liability companies. When you are not producing, you have no income, and your living standards deteriorate.
Thus, everyone wants to keep production high. Galbraith comes up with one or two solutions for the issues. These basically come under arguing for a bigger state again, I already believed in this, so found his arguments persuasive. One interesting idea was that for cyclically graduated compensation, basically unemployment benefits that increased when unemployment was high whilst decreasing when it was low.
He also makes an argument for the sales tax, although really it could be changed to a type of VAT. He makes the point that these are generally argued against in the context of inequality because the poor do most of their spending on goods and so the incidence would fall disproportionally on them. But despite this, they are important for redressing the issue of social balance. Indeed, we generally see that those countries with higher VAT rates are more equal than others, probably because of the way they can spend this on more social services which directly fight against inequality.
Indeed, sales taxes increase whilst production is increasing, and so keeps up with this race for private goods. There is a final comment on the 'New Class', by which he means people who work and enjoy their work. These people have different incentives than those who work for pay alone, and would generally work even at a very high marginal tax rate. The increasing importance of these people is, I think, one of the more prophetic passages. I liked his style of writing, though some might find it a bit patrician.
Also, there were numerous withering comments he included at the expense of economic right wingers which show me that adequate responses to their arguments have been around for at least sixty years such as the relative moral standing in their eyes of privately and publicly provided goods. It provided a consistency in its main message that productivity isn't everything in the modern economy, and that there are other things too, that is a useful corrective nowadays and as well, the idea that productivity is everything is often a belief hypocritically held.
Dec 03, James rated it really liked it Shelves: society. Economics can often be a slog, but this was easy to follow, and did challenge some of my ideas despite preaching to the choir to a large extent. And remarkably given its age, a lot of the points it made were relevant, even allowing for revisions of a later edition which is in itself 20 years old. The central premise is that Economics, and ruling policy, is focused on maximising production of goods and services, but the conditions in which this was once a valid pursuit are no longer applicable t Economics can often be a slog, but this was easy to follow, and did challenge some of my ideas despite preaching to the choir to a large extent.
The central premise is that Economics, and ruling policy, is focused on maximising production of goods and services, but the conditions in which this was once a valid pursuit are no longer applicable to the modern first world. Policy and society still acts under the guide of classical economics, a school of thought that was applicable to its time but still enjoys approval by consensus now.
Galbraith's work challenges this convention, but warns that the 'conventional wisdom' prevails and that the world would be resistant to new ideas. To start with, Galbraith has to justify that production is the target we measure performance by, and despite the quaint use of the now rather archaic word, his point is still relevant today. Growth is all important to countries, and GDP is still the metric used to gauge the economic success of a country, even if services have long overtaken physical goods as the majority of Western economic activity.
The remainder of the book is spent questioning whether this mindset is still applicable to modern society, and the fairly strong conclusion is that it isn't, but that in order to keep people employed, it is necessary. Galbraith discusses the economic and social consequences of such an emphasis on production,and the conclusion is that goods are not made to satisfy demand, but that demand for goods is created so that we can produce more and ensure societies are a success.
We also value private consumption over public service, and Galbraith was very pursuasive in arguing that all public spending is viewed in the context of waste in a way that doesn't apply to private consumption, as that is due to a decision made by the individual rather than the collective. Galbraith has unusually proposed a solution to this, in the form of a sales tax. He correctly, as it turns out envisages that political Liberals will be against this as the poorer in society will end up paying a higher share of income, but his argument is that as most spending is non-vital, this is a contribution at a marginal level, as society is not so destitute that the taxes force people to go hungry or unclothed.
On this, his points are well argued, and being most familiar with the Guardian for my current affairs, I was previously of the opinion that such a tax was more of a stealth tax against the poor. However, history has not been kind to Galbraith. He explicitly stated that a sales tax should not replace income tax, however, it very much has done when used. Margaret Thatcher increased the average amount of tax paid by the poorer half of society in the UK, and decreased the average for the wealthier, by lowering income taxes.
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Raising VAT enabled her to increase tax receipts but gave the impression of a low-tax country, and has proven that the liberals were right to be wary of the use of sales taxes. They have not enabled the state to provide better services, but enabled the state to provide minimal service at less of a burden to those who pay more income tax. And that's depressing. A well thought out idea, with a workable solution from a more left-inclined writer, has been adopted in economic policy but not had the desired effect.
With the possible exception of Marx, this was rare in that the theory had been tested in mainstream economic policy, and made a good read even more interesting in context. Jun 18, May Ling rated it it was amazing Shelves: economics. This book rocks, given it was written in At the time of the writing it was a huge discourse between capitalism vs.
Galbraith notices that the production capacity that arose through the period does in fact lead to a type of abundance, but that two unexpected things happen. First, the economy splits in two between a working class and an affluent class. There is a a need by the latter to inspire the former to want more. This in term drives the engine to This book rocks, given it was written in This in term drives the engine to increase accumulation.
Still, he realizes that overall, the production increase itself results in all individuals being better.