The Affluent Society John Kenneth Galbraith Fortieth Anniversary Edition A Mariner Book HOUGHTON MIFFLIN COMPANY BOSTON • NEW YORK Copyright © 1958, 1969, 1976, 1998 by John Kenneth Galbraith All rights reserved For information about permission to reproduce selections from this book, write to Permissions, Houghton Mifflin Company, 215 Park Avenue South, New York, New York 10003. Library of Congress Cataloging-in-Publication Data Galbraith, John Kenneth, date The affluent society / John Kenneth Galbraith p. cm. Includes bibliographical references and index. ISBN 0-395-63751-1 ISBN 0-395-92500-2 (pbk.) 1. United States—Economic conditions—1945— 2. United States—Economic policy. 3. Economics—United States. I. Title HC106.5G32 1998 330.973 dc20 94-4816 CIP Printed in the United States of America Book design by Robert Overholtzer QUM 10 9 8 7 6 5 4 3 2 1 To Alan, Peter and Jamie The economist, like everyone else, must concern himself with the ultimate aims of man. —ALFRED MARSHALL Contents Introduction to the Fortieth Anniversary Edition [>] 1. The Affluent Society [>] 2. The Concept of the Conventional Wisdom [>] 3. Economics and the Tradition of Despair [>] 4. The Uncertain Reassurance [>] 5. The American Mood [>] 6. The Marxian Pall [>] 7. Inequality [>] 8. Economic Security [>] 9. The Paramount Position of Production [>] 10. The Imperatives of Consumer Demand [>] 11. The Dependence Effect [>] 12. The Vested Interest in Output [>] 13. The Bill Collector Cometh [>] 14. Inflation [>] 15. The Monetary Illusion [>] 16. Production and Price Stability [>] 17. The Theory of Social Balance [>] 18. The Investment Balance [>] 19. The Transition [>] 20. The Divorce of Production from Security [>] 21. The Redress of Balance [>] 22. The Position of Poverty [>] 23. Labor, Leisure and the New Class [>] 24. On Security and Survival [>] Afterword [>] Index [>] INTRODUCTION TO THE FORTIETH ANNIVERSARY EDITION PUBLISHING A NEW EDITION of a book after forty years one faces a serious question: How much should one change to reflect later thought? How much should remain to tell of the earlier mood and beliefs? I have opted, not exceptionally, for compromise. Much of the original text still has my approval. Nothing, for example, gives me more pleasure than the chapter on the concept of the conventional wisdom. That phrase has now passed into the language; I encounter it daily, used by individuals, some disapproving of my general stance on economics and politics, who have no thought as to its source. Perhaps I should have taken out a patent. More seriously, I still adhere to one of the book's main conclusions —that, sadly, economic writing and teaching instill attitudes and beliefs that resist accommodation to a changing world. In consequence, the early chapters stressing the importance of the history of economic thought and its continuing effect are as I would now write them. A grim view of the human prospect emerged from the writing of David Ricardo, Thomas Robert Malthus and, until his inevitable revolution, of Karl Marx. That matters have improved in the more fortunate countries of the world is not in doubt. A certain inherent pessimism remains. It is with a durably improved condition that The Affluent Society is primarily concerned. Central to the improvement has been a greater security in economic life and in its pecuniary return. This has been enhanced by the corporate managerial structure, the growth of the professions, employment in the arts and entertainment, social security, medical insurance, and much else. I would now, however, more strongly emphasize, and especially as to the United States, the inequality in income and that it is getting worse—that the poor remain poor and the command of income by those in the top income brackets is increasing egregiously. So is the political eloquence and power by which that income is defended. This I did not foresee. As the major theme of the book, I urged that the production of goods and services is the measure of civilized success. This I would still stress. The Gross Domestic Product remains the accepted measure not only of economic but of larger social achievement. It also wonderfully rewards the fortunate, especially the business executive, who, in the common case, effectively sets his own pay. (When someone seeks to sound a humane note, he stresses that the real social reward of production is not the increased income but the jobs provided. This establishes the speaker as a man* of compassion.) In the real world, as I tell, the productive process incorporates the means by which wants are created, and these are further sustained by fashion, social aspiration and simple imitation. What others do or have, one should do or have. The most important and intrinsically most evident source of consumer demand is the advertising and salesmanship of those providing the product. First you make the good, then you make the market. This is deeply in conflict with accepted economic thought. In that, nothing was so fundamental as the concept of consumer sovereignty—the according of final economic authority to those the economic system serves. In the years after this book appeared, those who spoke for the established view, for consumer sovereignly, were not pleased. They were adamant, even angry, in opposition. The textbooks, as they were revised, took note of my heresy, rejected it and told that Ford had once tried to market a new and radically designed car called the Edsel. This the consumers, being sovereign, would not buy. Here was the true sovereignty. In time the opposition mellowed; that the consumer is, in fact, less than sovereign is, I judge, now accepted. Producer advertising and salesmanship are recognized forces. The Edsel seems to have disappeared from the textbooks. On two matters this book was right, and before its time. On one, time and economic changes have shown it to be wrong. I begin with the error. Running through the early editions of The Affluent Society was a strongly expressed warning about inflation. It was the prime threat hovering over a society of general well-being. Inflation or unemployment. This is no longer so clearly the case. The principal cause of inflation then was the interaction of wages and prices. Management and unions negotiated; wages were increased, in part because of past price increases; prices were then raised further in compensation. From the higher prices came new wage demands. The process continued—the wage-price spiral. Monetary and fiscal policy were effective in controlling it only so far as they curtailed investor and consumer expenditure, thus reducing production, increasing unemployment and so limiting the wage demands and the resulting price increases. It was a remedy decidedly worse than the disease. This dismal sequence is now less of a threat. Production has shifted away from traditional industry where unions once were strong. The services, the professions and the arts, the entertainment and communications industries have become increasingly important areas of employment. So also the higher technology. Here the unions are less important or unimportant. And in the older industry, they are less aggressive, perhaps less forcefully led. Accordingly, the wage-price spiral is no longer a strongly motivating economic force, and so there is less inflation even when employment is high. For some time, as this is written, we have had low unemployment and little inflation, a circumstance much celebrated. This I did not foresee. I have quietly deleted some paragraphs that no longer apply. The two matters on which I can reasonably claim foresight are the distribution and maldistribution of money and effort between the public and the private living standards and the important question of the environment. Forty years ago I stressed the compelling difference between public and private living standards. We had expensive radio and television and poor schools, clean houses and filthy streets, weak public services combined with deep concern for what the government spent. Public outlays were a bad and burdensome thing; affluent private expenditure was an economically constructive force. My case is still strong. The government does spend money readily on weaponry of questionable need and on what has come to be called corporate welfare. Otherwise there is still persistent and powerful pressure for restraint on public outlay. In consequence, we are now more than ever affluent in our private consumption; the inadequacy of our schools, libraries, public recreation facilities, health care, even law enforcement, is a matter of daily comment. The private sector of our economy has gained enormously in role and reward and therewith in political voice and strength. No similar political support is accorded the public sector, the weaponry and corporate welfare as ever apart. In civilized performance it has lagged even further behind the private sector, as it is now called. Forty years ago I did not fully foresee the extent to which affluence would come to be perceived as a matter of deserved personal reward and thus fully available to the poor, were they only committed to the requisite effort. The resulting solution is to have them take charge of their own well-being; government aid is a damaging intrusion, the enemy of individual energy and initiative. It must be resisted, which, though unmentioned, also saves money and protects the affluent from taxation. Given such social attitudes, it could be better to be poor in a poor country than poor in an affluent one. Views on the environment have also changed since I first wrote. Here attitudes are at least mildly better. When I finished the original manuscript, I concluded that one piece of prose on this subject was too rich; all sensible authors should react similarly to their occasional extravagance. The dubious passage, which I take the liberty of quoting here in full, was as follows: The family which takes its mauve and cerise, air- conditioned, power-steered and power-braked automobile out for a tour passes through cities that are badly paved, made hideous by litter, blighted buildings, billboards and posts for wires that should long since have been put underground. They pass on into a countryside that has been rendered largely invisible by commercial art. (The goods which the latter advertise have an absolute priority in our value system. Such aesthetic considerations as a view of the countryside accordingly come second. On such matters we are consistent.) They picnic on exquisitely packaged food from a portable icebox by a polluted stream and go on to spend the night at a park which is a menace to public health and morals. lust before dozing off on an air mattress, beneath a nylon tent, amid the stench of decaying refuse, they may reflect vaguely on the curious unevenness of their blessings. Is this, indeed, the American genius? In the end, I let the passage stay—it is still here. Never have I more narrowly escaped error. Apart only from my reference to the conventional wisdom, this was by far the most cited (and quoted) passage from the book. On occasion, it still crops up. It helped, how much one can never know, the movement to clean up the highways and perhaps the parks. My writing of The Affluent Society coincided more or less with my service on a commission appointed by the governor of Vermont (where my wife and I are part-time but devoted residents) that brought most roadside advertising to an end. It made the beauty of that state more fully available to its inhabitants and also brought an increasing and rewarding flow of scenically sensitive tourists. A larger concern for the environment, if still too weak, has become evident since the original edition. I began this book with a grant from the Guggenheim Foundation to make a study of poverty. Such grants often go astray; this one was no exception. What emerged was not a treatise on the poor but one on the affluent. I did conclude with a chapter on poverty and another on those who have escaped to what I call the New Class. All this is still relevant. There is no blight on American life so great as the enduring poverty in our great cities and of the still unseen poor in the rural and mountain regions. And, of course, in the larger world. Untreated, however, in my excursion into affluence is the privation and death among the poor of the planet, particularly in Africa and Asia. Perhaps from a sense of guilt I have, since writing this book, devoted a considerable part of my life to these problems. It is not, alas, something on which one has a rewarding sense of solution. Mass deprivation remains the most shocking aberration of modern times—the many who live short and misery-dominated lives in lands of abject poverty. A companion volume, The Non-Affluent Society, would have had a yet more urgent message.