Copyright: 1958

Publisher: New American Library

In the Affluent Society, Galbraith offers up his view of the world, or rather how he feels the rest of the world views it wrong!  He points out that when much of the early economic literature was written, there had begun a fundamental shift in world economics.  Up until that time, poverty was the norm... bare sustenance was the primary economic problem to be solved.  About the time Adam Smith began observing the pin factory, the world was changing to become what Galbraith calls, an "Affluent Society".  It is from this new perspective that Galbraith molds his economic theories and contrasts then with what he calls the classic tradition.

Why is the Affluent Society important to recognize?

In a nutshell, in the Poverty Society caused economists to focus on production as the primary measure of growth.  If production increased, that was good.  If production increased more efficiently, given a fixed set of inputs, that was better.  Prices, wages, technology... all of it was studied in light of how it affected productivity. 

Galbraith argued that we no longer need all the goods we produce.  Summing it up he said "Few people at the beginning of the nineteenth centurey needed an adman to tell them what they wanted."  People who are hungry do not need to be prodded to buy a certain brand of food.  People who have an abundance to eat must be bombarded with ads proclaiming the various utilities you might gain by eating certain foods.  Nutrition, taste, ease of preparation or even the prestige of being able to afford certain foods all play a part in our decision of what food to eat.  The absolute necessity of food rarely crosses our mind when we are at the grocery store or restaurant.

How does wealth change us?

One consequence of wealth that Galbraith points out is that the more you have, the more you have to lose.  He contrasted the world view of farmers in Iowa versus the farmers in Kentucky.  Of course this book was written in the late 50's so things have changed but even today there persists a different way of viewing the world between the two types of farmers.  Iowan farmers during the Great Depression were far more vocal in their distress at the state of the market than their counterparts in Kentucky or Tennessee.  This is because a depression hits wealthy people harder than it does poor people.

So our sensitivity to economic depressions is heightened as we get more wealthy. This affects the way we vote, the way we spend our money and the way we seek employment. 

Another problem with having more is the diminishing returns of protecting what you have.  As Ben Franklin so famously said, a penny saved is a penny earned.  So a possession protected is a possession earned.  Unfortunately, as we gain more and more possessions, there is a diminishing return to the investment of protecting your possessions.  On the flip side however, there are linear difficulties in making more gains.  So as we gain more and more possessions, the effort to gain them remains constant (in theory!) but the effort to protect them becomes more difficult (as measured by the utility of doing so.) 

The argument can be made that the incredibly wealthy are less careful with the choices they make with their wealth than are the poor people who also spend their meager wealth. 

Security... good or bad?

Employment is something most of us have to concern ourselves with.  Unless you are independently wealthy or own your own business, you depend on your employment to provide sustenance for yourself and your dependents.  So at some level, security in your employment is important to you.

However, from an economists standpoint, job security means a largely immobile labor force.  Unfortunately (for us!) a mobile labor force is a good thing as it provides a market mechanism for balancing wages across localities and balancing labor needs across changing and diverse industries.

So, security for "me" is a good thing!  But security for "others" is a bad thing. 

Galbraith of course takes a fairly liberal approach to employment insurance.  One interesting idea he had was to raise and / or lower the level of employment insurance depending on the level of employment in the economy.  As we approach full employment (and thus full production) we apparenlty don't need more products.  (After all, we have so many products now we spend billions just telling people how much they need the latest cell phone.)  So Galbraith suggests that as a society, rather than risk the inflationary pressure of increasing wages as the competition for labor heats up, it would be more beneficial to raise the unemployment insurance to lessen the desire for the unemployed to seek positions. 

This of course goes against the sensibilities of most conservatives (of which I am one!) but on some level it does make sense.  The problem (as Galbraith points out) is that liberals would be very unwilling to lower the level of unemployment insurance in times of higher unemployment.  After all, the argument would go, people need this money now more than ever! (I can hear the political ads now...  Senator X wants to cut your unemployment even as your family needs this money!)  The net effect of this of course would be for more people to seek employment at potentially lower wages which would act as a market balancing effect for both prices and wages.

Quotes

Here are some interesting passages I collected:

• The man who makes his entry by leaning against an infirm door get an unjustified reputation for violence.  Something is to be attributed to the poor state of the door.
• These are the days when men of all social disciples and all political faiths seek the comfortable and the accepted; when the man of controversy is looked upon as a disturbing influence; when originality is taken to be a makr of instability; and when, in minor modification of the scriptural parable, the bland lead the bland.
• To proclaim the need for new ideas has served, in some measure, as a substitute for them.
• Ideas are inherently conservative.  They yield not to the attack of other ideas but to the massive onslaught of circumstance with which they cannot contend. 
• Vacuum cleaners to insure clean houses are praiseworthy and essential to our standard of living.  Street cleaners to insure clean streets are an unfortunate expense. (Sarcastic!)
• It is a far, far better thing to have a firm anchor in nonsense than to put out on the troubled seas of thought. (On why people cling to conventional wisdom)

Value of Exchange vs. Value in Use

An interesting passage compares the worth of diamonds to water.  Adam Smith noted that since there are few diamonds, they have high value in exchange.  Water however is more widely available and thus has a lower value in exchange.  On the other side of the coin, diamonds (in his day) had very little value in practical use.  Water of course is essential and thus invaluable in use. 

Diminishing marginal utility is an important concept in economics.  Galbraith takes this to a new level by pointing out that at some level of consumption, people will no longer want more goods.  Interestingly a series of recent articles in Fortune magazine highlight the difficulties that have been had in the high end luxury markets.  Brands such as Prada and Gucci have taken hits in recent years.  I wonder if the people of America and the world are reaching the saturation point when it comes to luxury goods that we must be convinced that we need. 

Conclusion

John Kenneth Galbraith is a powerful author and as such I always enjoy reading his books.  I do not always agree with his economics or his politics, but I do enjoy reading his intellectually stimulating work.  I would recommend anyone interested in understanding the liberal mindset of economics to read this book.  In fact I would encourage most liberals that I know to read this book since most of them don't seem to know what they really should believe!