The Economics of Self-Congratulation

American Capitalism purports to be an explanation of why our economy works so well in spite of the Cassandras who regularly predict its collapse.

The latest discovery of certain intellectuals is a book called American Capitalism: the Concept of Countervailing Power by an ex-editor of Fortune and a Harvard Professor of Economics, John Kenneth Galbraith. Hard-boiled eggheads of what might be called the devitalized center, like Arthur Schlesinger, Jr., have welcomed this work, and that perennial faddist, Stuart Chase, has hailed its author as the American Keynes, and more, a man who has taken the gloomy discipline of economics and restored it to “an objective science” (The Reporter, March 4, 1952). Keynes used to write highly esoteric treatises which required popularization whereas American Capitalism is directed at “the intelligent layman.” Chase nevertheless succeeds in simplifying its contents still further, presumably for the somewhat less intelligent layman. The book stands as a specimen of popular culture. Galbraith has become a darling of such organizations as the ADA (Americans for Democratic Action), a major speech writer for their Presidential candidate (Stevenson, that is, not Eisenhower) and a teacher whose thinking elicits gratitude among those “baffled by the failure of other theories” to provide a pattern “that so well explains the stubborn facts” (Chase).

American Capitalism purports to be an explanation of why our economy works so well in spite of the Cassandras who regularly predict its collapse. The adjective “American” is essential because this form of capitalism is like none other on earth. The free play of economic forces has virtually disappeared; monopoly, duopoly, and oligopoly are more often the rule than not; the market does not regulate itself. In short, American capitalism is like the maiden who has been deflowered but retains her virginity. This is a metaphysical process; however the higher transcendentalism has always been an integral part of American thought. Nor is any harm done if we take an institution, strip it of nearly all its key characteristics, and go on calling it by the same name.

THE COMPETITIVE MODEL CONSTRUCTED BY ADAM SMITH and his followers does not apply to contemporary America where a small number of industrial giants rule the roost. This Galbraith proves in convincing detail. There has been a marked shift of power from the finance capitalist to the huge impersonal corporation. The former’s decline is symbolized for Galbraith by J. P. Morgan, Jr., whose impotence in 1929 is contrasted with his father’s spectacular success in overcoming the panic of 1907. Crises of this sort are no longer averted, if they ever were, by the financial virtuoso. Galbraith, like practically every other economist save Ludwig Von Mises, Frederick Hayek, and other members of their Eighteenth Century school of thought, sees this situation as one in which bigness has replaced individualism. Instead of countless small entrepreneurs, t...