- -- -- -�------"'--��--=--- -�- --...._.-........� - �C RITIHCIASLT O� Economics as now taught and read and as it serves to guide both public policy and pri­ vate decision is very much the product of the past. It cannot be understood apart from its history. And that history cannot be understood apart from the circumstances that shaped the economic beliefs of the time, including the powerful influences that bent those beliefs to what best served the financial advantage of those who espoused them. Such is the essence of this important, intensely interesting, and highly func­ tional book. Nothing quite like it has ever been attempted before. The history of eco­ nomic ideas has often been written. This book puts those ideas securely in the life of their times and it tells especially of those ideas that have survived to influence our present beliefs and action. Here are the ethical judgments that remain from the household and slave economies of the Greeks, from biblical thought and from the feudal world of St. Thomas Aquinas, from the pre­ revolutionary French philosophers in defense of agriculture, and from the mer­ chant capitalists in the infant days of mod­ ern capitalism. There is Adam Smith, viewing the beginning stages of modern industrial life, and Marx, reacting to the cruelties of nineteenth-century capital­ ism. The book continues to Keynes, the Great Depression, and the modern welfare state. Economics in Perspective is a work that reflects years of effort and the special advantage of a scholar who has known per­ sonally nearly all of the major players of the last fifty years. It also demonstrates that a history such as this need not be tedious or dull. Indeed, the story is alive with interest. Finally, as Galbraith shows, there are no important ideas in economics that cannot be phrased in clear, understandable lan­ guage. This book is fully as available to the concerned layman as to the professional economist. 10194587 -395-35572-9 ECONOMICS IN PERSPECTIVE BOOKS BY JOHN KENNETH GALBRAITH American Capitalism: The Concept of Countervailing Power A Theory of Price Control Economics and the Art of Controversy The Great Crash, 929 I The Affluent Society The Liberal Hour Economic Development The Scotch The New Industrial State The Triumph Indian Painting (with Mohinder Singh Randhawa) Ambassador's Journal Economics, Peace and Laughter A China Passage Economics and the Public Purpose Money: Whence It Came, Where It Went The Age of Uncertainty Almost Everyone's Guide to Economics The Nature of Mass Poverty Annals of an Abiding Liberal A Life in Our Times The Voice of the Poor The Anatomy of Power A View from the Stands Economics in Perspective: A Critical History ECONOMICS IN PERSPECTIVE A CRITICAL HISTORY JohKne nnGeatlhb raith HOUGHTON MIFFLIN COMPANY BOSTON 1987 Copyright© 1987 by John Kenneth Galbraith All rights reserved. No part of this work may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, or by any information storage or retrieval system, except as may be expressly permitted by the 1976 Copyright Act or in writing from the publisher. Requests for permission should be addressed in writing to Houghton Mifflin Company, 2 Park Street, Boston, Massachusetts 02108. Library of Congress Cataloging-in-Publication Data Galbraith, John Kenneth, date. Economics in perspective. Includes bibliographical references and index. r. Economics - History. 2. Economic history. I. Title. HB75.G274 1987 330'.09 87-3644 ISBN 0-39 5-3 5 5 72-9 PRINTED IN THE UNITED STA TES OF AMERICA 9 8 7 6 5 4 3 P OI 2 I FoErr Riocl l, frioeffin fdyt eya rs, whogsuei doannt cheem saet ters wiblele vidteoan ltl . And, ouotfe nduarfifnegc tion, foFrr eRdoal l. TO ACKNOWLEDGE ALL WRITERS are more in debt to friends than they usually know. My obligation is especially great, and without doubt even greater than I realize. Two of my Harvard colleagues, Robert Dorfman and Henry Rosovsky, gave me help on particular points, and Professor Dorfman read the entire manuscript through in an earlier form. Therese Horsey managed my office affairs while I was writing it and absorbed a myriad of distractions that would otherwise have engaged my time or aroused my temper. Eric Roll, Lord Roll of lpsden, my friend for many, many years, to whom this book is ded­ icated, has been an enduring source of ideas on all these matters. But special in all respects is my debt to two beloved allies. Edith Tucker typed and then retyped these pages and did the infinity of research and checking that was required. I once asked her if she was not tired of the task; with great skill she evaded the question. Andrea Williams, my partner in all writing enterprises for nearly thirty years, read and reread the manuscript and, as ever, persuaded me to the clarity of expression and rules of grammar from which I too often lapse. To her, my exceptional word of thanks. And, finally, my love and thanks go to Catherine Galbraith, who over the three years of this writing gave me the encouragement, affection and, above all, the tolerance for which all writers yearn and which only the fortunate are accorded. CONTENTS I. A Look at the Landscape 1 II. After Adam 9 III. The Enduring Interim 20 IV. The Merchants and the State 31 V. The French Design 46 VI. The New World of Adam Smith 57 VII. Refinement, Affirmation - and the Seeds of Revolt 73 VIII. The Great Classical Tradition, 1: Around the Margins 89 IX. The Great Classical Tradition, 2: The Mainstream 103 X. The Great Classical Tradition, 3: The Defense of the Faith 113 XI. The Grand Assault 126 XII. The Separate Personality of Money 140 XIII. American Concerns: Trade and Trusts; Enriched and the Rich 155 XIV. Completion and Criticism 178 XV. The Primal Force of the Great Depression 193 XVI. The Birth of the Welfare State 210 XVII. John Maynard Keynes 221 XVIII. Affirmation by Mars 237 XIX. High Noon 25 1 XX. Twilight and Evening Bell 266 XXI. The Present as the Future, 1 282 XXII. The Present as the Future, 2 292 Index 301 ECONOMICS IN PERSPECTIVE