The Economics of Self-Congratulation
Rosenberg, Bernard
The latest discovery of certain intellectuals is a book called American Capitalism: the Concept of Countervailing Power by an exeditor of Fortune and a Harvard Professor of Economics, John...
...Nowhere does Galbraith show how the effects have been 'damaging to the economy, and the prestige of the antitrust laws had already reached a nadir in 1937 when Truman Arnold wrote The Folklore of Capitalism...
...Men who had not Winter 1954 • DISSENT • 101 been able to buy automobiles or refrigerators or homes for years, whose real income was higher than it had ever been, who had money in the bank, these men and their wives went on a national buying spree...
...This, indeed, is the case...
...A good dose of corrosive criticism may turn out to be more "constructive" than everything in the yea-sayer's repertoire...
...Since that time there has been a slackening of both trends...
...But Galbraith has already argued persuasively that such meliorist moves, however successful in eliminating every restriction, would not solve the basic problem...
...Crises of this sort are no longer averted, if they ever were, by the financial virtuoso...
...with equanimity...
...When nearly everyone from left to right senses economic instability, it is probably real, and in this case, demonstrably real...
...Its grip on the consumer is weakened considerably by mammoth distributors like Sears, Roebuck and Company which, in the thirties "was able...
...New Deal...
...The worker's relative immobility made him highly vulnerable in the past...
...Adam Smith propounded an economic theory that is hardly separable from his moral philosophy...
...To the end that competition be restored...
...But perhaps we have misunderstood that position even though it seemed to be unambiguous...
...Thus: There are producers of consumers' goods who have secured themselves from exercise of countervailing power...
...the market does not regulate itself...
...Yet almost no one feels secure in the present...
...Yet there was little evidence that businessmen viewed their prospects...
...Nevertheless, "high production and generous profits" continued...
...These it resold to thrifty motorists for from a fifth to a quarter less than the same tires carrying the regular Goodyear brand...
...To what end...
...Galbraith points out that a few builders have circumvented jobbers' and retailers' margins and thereby notably increased the satisfaction of their customers...
...monopoly, duopoly, and oligopoly are more often the rule than not...
...In between our two great periods of inflation, there lay a period of deflation which covered most of the thirties, a decade when our economic structure tottered so badly it almost collapsed...
...Not so 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...
...We find ourselves in these strange days with an economy which, on grounds of sheer physical performance, few are inclined to criticize...
...But for the North Korean aggression we would have to be facing them today as we may have to be facing them tomorrow...
...Given little dips and rises, the inflationary spiral has not abated since 1938...
...hence the need for a little legerdemain...
...But, countervailing power is impotent during inflation...
...Not unless we enter Never-Never Land...
...He sums up his experience in a chapter entitled, "The effect of the antitrust laws in encouraging large combinations," and appends a resume: In which it is shown how the antitrust laws enabled men to look to a highly centralized industrial organization and still believe that it was composed of individuals engaged in buying and selling in a free market...
...WHAT HAVE WE ACTUALLY EXPERIENCED in the second quarter of this century...
...This may be exactly termed a grotesque inversion of plain fact...
...When workers at a General Electric plant—studied to death by Elton Mayo and his associates —refused to increase output even though they were offered higher wages for extra effort, they were deemed to be irrational...
...Nevertheless we did inordinately well during that period...
...It is not only harmless activity, but it provides a splendid income for many lawyers and serves as a cohesive force in American society...
...For fifty years, we are told, this development has been practically manifested in the rise of chain stores, mail order houses, and co-operative buying organizations...
...One suspects that the composers of the following parody performed at a recent meeting of the Gridiron Club (reported in the New York Times, April 12, 1953) were closer to the mark...
...Galbraith's voice is but one in a mighty chorus of affirmationism that swells sonorously as it drowns out dissent...
...In short, when countervailing power reached its peak, much of our production ground to a standstill, consumption declined, and from ten to fifteen million men languished in unemployment...
...These unions are possessors of original market power and, therefore, in need of countervalence...
...There is a nonGalbraithian explanation for the enormous prosperity immediately following World War II...
...Does it much matter whether the Robinson-Patman Act is invoked against A & P and goes unenforced or, alternatively, to suit Galbraith's preference, whether it is invoked against A and P's suppliers, and goes unenforced...
...This is a metaphysical process...
...A boom and a slump of unparalleled scope, followed by participation in a world war, a cold war, and a limited war with only three or four years of interwar "normality...
...Then all the rules are off...
...it was again treated with marked courtesy by the government...
...It would not trouble the old-fashioned economist who has a ready-made answer which alternately repels Galbraith, attracts him for a while, and finally fractures his theory...
...We won the war, and many of us experienced sinking sensations about what would happen after the initial boom wore off...
...Galbraith plumps for the former and inveighs against the latter, only to fuse them when he tackles a concrete case...
...This Galbraith proves in convincing detail...
...Is it accidental that Presidential candidates must outbid each other in promising not to relinquish control over the farmer and that the candidate who bids highest will often get elected...
...From that time to this, all Galbraith's rules are off...
...The custodians of our culture urge us to be "positive...
...Galbraith perpetuates the tradition of his great 98 • DISSENT • Winfer 1954 predecessor and extends it, by viewing a world we never made with the utmost satisfaction...
...Presently, one is hard put to it to differentiate between rule and exception...
...We persist in regarding bigness as a curse and go through the make-believe of fighting it...
...The result was that countervailing power would be judiciously applied in some cases and misapplied or misdirected in others...
...at sharp variance": the retailer wants to drive prices down and the manufacturer wants to keep them up...
...Galbraith's argument is of the opposite order...
...This ceremonial affirmation of our faith makes us feel better while the big get bigger...
...Who is less of an independent entrepreneur and more of a government beneficiary than the American farmer...
...except at election time (and this has been rectified—B.R...
...When men are fearful in face of success, when they suspect that "private capitalism is inherently unstable," then it is they who are inherently unstable and their behavior which is irrational...
...Less competition, not more, is clearly in order, since even if all the restraints were swept away prices would probably remain too high and customers would be no more satisfied than they are today...
...Win the War supplanted Dr...
...In short, American capitalism is like the maiden who has been deflowered but retains her virginity...
...THE AUTHOR FURNISHES US WITH A FURTHER EXAMPLE Of successful resistance to countervailing power, namely the residential building industry...
...Previously-established positions of power have thus been counteracted...
...Galbraith, for all his realism, has been taken in by the myth makers...
...Hence we need fewer and bigger firms like Levitt & Sons of Long Island who have established their own building-supply company to buy materials for large-scale production of homes...
...Galbraith's theory may be symbolically represented in this way: x produces z; y produces z; neither x nor y produces z. Whatever the logical magnificence of this formula, it is of doubtful scientific value...
...What is the major limitation which Galbraith places upon his theory...
...There is no doubt that General Eisenhower struck a responsive chord in the American public when he promised it "peace and prosperity," something he obviously cannot deliver so long as prosperity is dependent upon war and war threatens ultimate exhaustion...
...Strong sellers have produced strong buyers...
...No Magic Hand can benignantly interpose itself among competitors who in an earlier age unwittingly served the commonweal by serving themselves...
...In this we never succeeded...
...The effects have been damaging to the economy and also to the prestige of the antitrust laws...
...American Capitalism purports to be an explanation of why our economy works so well in spite of the Cassandras who regularly predict its collapse...
...But Galbraith does not rest content with it...
...Deflationary conditions are especially conducive to the emergence of countervailing power...
...And at that point Galbraith makes a leap into Idealism...
...THE COMPETITIVE MODEL CONSTRUCTED BY ADAM SMITH and his followers does not apply to contemporary America where a small 92 • DISSENT • Winter 1954 number of industrial giants rule the roost...
...He crosses over to the liberal's side by advocating selective use of antitrust legislation specifically against "workers in the building trades" who, "although they are not highly organized or exceptionally powerful in any absolute sense, are strong in relation to the small-scale employers with whom they do business...
...Of these, none works so well as the "ultimate sanction" to develop his own sources of supply, something, "the food chains, Sears, Roebuck, and Montgomery Ward have extensively done...
...What Sears, Roebuck and Company can do with tires, the Great Atlantic and Pacific Tea Company does with cornflakes, and so with other articles bought and sold by Montgomery Ward, Woolworth's, Kresge's, and the department store chains...
...While the whole species is threatened with extinction Homo Americanus summons his writers and his scholars to sing his praises, to reconstruct his past and glorify his future, to whistle in the dark...
...No one will question the sanity of him who points to the danger...
...Through the all-out war years, consumer demands could not be met...
...He believes that it was unconsciously on the right track...
...Even if underpaid and dissatisfied, he needed work and ordinarily could not move...
...Even Galbraith refers to their invocation, not their implementation...
...our productive capacity increased and passed all prior peaks...
...If doubts and suspicion and pessimism are based on illusion, this is surely a sound diagnosis and colossal psychotherapy would cure economic ills whose center is not in the market but in the minds of men...
...Ideas which cause us "to view the world with misgivings and alarm" were never more in order than at the present apocalyptic moment in history...
...to procure tires from Goodyear Tire and Rubber Company at a price from twenty-nine to forty percent lower than the going market...
...Galbraith serenely passes over them to the distributive industries which exercise another kind of countervailing power, that of the retailers as opposed to the suppliers...
...What law of laissez faire economics is illustrated by the government's purchase of nearly $2,000,000 worth of butter a day for an indefinite period so that the price of this commodity will not drop in open competition with oleomargarine...
...This might be construed to mean that labor organization is on the march, and that weak or strong, no one 94 • DISSENT • Winter 1954 can resist it...
...The professional economist, with his habitual gloom, had foreseen many difficulties and dislocations which did not materialize...
...Much improvement was achieved, not through government intervention on behalf of builders but by the creation of bigness where there was smallness...
...This is the stated purpose of all antitrust legislation no matter what its target may be...
...His answer is relatively simple...
...And the businessman had felt a deep, but ostensibly unwarranted, uneasiness about his situation...
...When this consolidation of retailer and supplier takes place, as it does most extensively, there is no "sharp variance," but rather a total identity of interest...
...Following World War II: Business had recovered much of the prestige it had lost during the depression...
...Builders are frequently in alliance with each other, the unions, and local politicians to protect prices, wages, and to maintain established building techniques...
...The classical economist could say that he was merely conceptualizing, that his model was not to be confused with reality, that perfect equilibrium was a useful fiction, and that therefore, he did not blind himself to such factors as war and depression which constantly upset his well-ordered universe...
...It supports the governing mythos without altering economic behavior...
...Since it is enormously difficult for individuals to coalesce and organize countervailing power, government assistance is frequently needed in performing this task...
...This makes "the restrictive practices of master plumbers or plasterers a proper object of interest by the Department of Justice...
...The experience of the years from 1945 to 1950 [which is stretching it a bit—B.R.] showed that the economy possessed what may loosely be termed a deflationary potential...
...THE FIRST CHAPTER OF American Capitalism is entitled The Insecurity of Illusion by which Galbraith means the Illusion of Insecurity...
...Thus, as a general rule, there are strong unions in the United States where there are strong corporations, that is, the automotive, steel, electrical, rubber, farm machinery, and smelting companies all of which bargain with powerful CIO unions...
...If we accept his premise that the present system works beautifully, there is no need for an alternative and we may rejoice with him in its absence...
...What puzzles him is that all this inspires no confidence...
...He does not deal in abstractions, manipulate concepts, build a continuum, and deliberately isolate one sphere from another for purposes of scientific analysis...
...It seems probable that in a few industries, tobacco manufacture for example, the members are strong enough and have sufficient solidarity to withstand any pressure applied to them even by the most powerful buyer...
...On the other hand, if we accept the facts of life, there is nothing to stop us from adopting an experimental approach to problems that may be susceptible of solution...
...The imputation of irrationality is a familiar one...
...The book stands as a specimen of popular culture...
...The adjective "American" is essential because this form of capitalism is like none other on earth...
...The number of Koreas, the number of World Wars, we can stand is certainly finite...
...among businessmen who are the chief beneficiaries of that system He concludes not that the system is defective—how can it be?—but that the minds of businessmen are diseased...
...they have been swallowed up and superceded...
...It is precisely in the thirties that Galbraith sees countervailing power at its best, that is to say, when the country was economically at its worst...
...Some, like the automobile and the oil industry, have done so either by integrating their distribution through to the consumer or because they have an organization of small and dependent and therefore fairly powerless dealers...
...This, however, rests on the illusion that a competitive situation can obviate such shortcomings as are present in the building industry...
...WHITE COLLAR WORKERS IN AMERICA are among the notoriously unorganized despite their membership in a new middle class whose recent growth has been fantastic...
...Winter 19S4 • DISSENT • 99 It leaves the period just after World War II and just before the war in Korea...
...The latest discovery of certain intellectuals is a book called American Capitalism: the Concept of Countervailing Power by an exeditor of Fortune and a Harvard Professor of Economics, John Kenneth Galbraith...
...This former assistant attorney-general had striven to enforce the antitrust laws as a New Dealer...
...Thus, with the benevolent cooperation of FDR, unions quadrupled in size and made their power felt across the bargaining table, while the early depression years were particularly favorable to chain stores...
...In it, although the specific mechanism is changed, such old trappings as automaticity and equilibrium remain, and they still inspire a state of euphoria...
...Here, with many thousands of small firms, we have a close approximation of the competitive model...
...He has many weapons at his disposal to use against the market power of his supplier...
...He is concerned with the organization and management of an economy that not only works but, in defiance of established rules, works quite brilliantly...
...102 • DISSENT • Winter 1954...
...Galbraith indicates that the operation of this principle is to be seen most clearly in the labor market, its locus classicus...
...It consists in the emergence of "countervailing power," a new form of restraint which is nurtured by concentration and produces an automatic antidote to corporate control...
...Here then is the remarkable problem of our time...
...When one adds the cigarette or soap manufacturer and all those others whose retail outlets are numbered in hundreds of thousands to, let us say, the film maker with his unbroken control over distributors, it is scarcely possible to entertain Galbraith's image of American capitalism as something close to an enormous consumers' cooperative...
...Liberal critics of 96 • DISSENT • Winter 1954 the building industry, when they see poor performance combined with criminal collusion, simply favor the removal of what they regard as artificial restraints...
...The typical builder would still be a small and powerless figure" contending against unions that are, inexplicably, far stronger than he and buying his materials "in small quantities at high cost from suppliers with effective market power...
...It had come after World War I—and brought disaster in its wake...
...In other words, prices and wages were going up, but these are merely conventional criteria of inflation which must be subordinate to what may loosely be termed a deflationary potential...
...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...
...That it does not apply during periods of inflation...
...The free play of economic forces has virtually disappeared...
...When there is word of a "peace scare" or a "Malenkov depression" and the stock market falls, this is a barometer of our justifiable apprehension about the day after tomorrow...
...Adam Smith would have regarded this development as a calamity...
...Keynes used to write highly esoteric treatises which required popularization whereas American Capitalism is directed at "the intelligent layman...
...This is one possible answer to the problem...
...Intellectual agnosticism, the precondition for all fruitful scientific work, was never harder to maintain...
...More than one Great Power has gone bankrupt in the winning of such wars...
...The very dearth of preconceived plans can be converted into an asset by those who welcome experimentation, innovation, synthesis or reform...
...Just so...
...For there is a simple fact that he leaves unmentioned: the anti-trust laws are unenforceable...
...The boom was perfectly predictable...
...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...
...Almost uniquely in the United States, that region has been marked by persistent attempts at organization by farm workers...
...For a decade after the Crash of 1929 we were struggling under New Deal auspices to regain our economic balance...
...This type of retailer takes on such importance because he can exploit his role as a large and indispensable customer...
...yet that power goes unexercised...
...Not only does power generate power, but weakness generates power: x and its opposite, y, yield the same result...
...Obviously they cannot countervail anyone or anything...
...Only then is the buyer important to the seller and this is an obvious prerequisite for his bringing his power to bear on the market power of the seller...
...Chase nevertheless succeeds in simplifying its contents still further, presumably for the somewhat less intelligent layman...
...For instance, says Galbraith, the rubber industry, dominated by four big firms, is a clear-cut oligopoly...
...After all, what is countervailing power if not the opposite of competition...
...His objective is rather to describe the operative economic processes of our society, to delineate and to exalt conditions as they are in their totality...
...the post war years were inflationary...
...Or does it make better sense to admit our perilous position and cast about for means to better it...
...It is far more cogent, and not the less so for being a product of common sense...
...Will it help to emancipate the American from his so-called illusions when they are actually grounded in reality...
...Corporations have enormous power which could be, and if Smith were right could not but be, abused...
...He deplores the judicial precedent which disallows antitrust prosecution of labor and farm organizations whose restrictive practices should be vigorously combated by the federal government...
...But what does this mean...
...There was no good reason for refusing to cooperate with management except that if they did these workers would have jeopardized their jobs at a time when jobs were not come by so easily...
...And how can it be reconciled with the "theory of countervailing power...
...There has been a marked shift of power from the finance capitalist to the huge impersonal corporation...
...The goods were in demand and, for a while, they could not be supplied fast enough...
...The wretched undernourished migrant pitted against a coequal force and successfully neutralizing it...
...The libertarian who is not afraid of Soviet totalitarianism today should have his head examined...
...however the higher transcendentalism has always been an integral part of American thought...
...Moreover, he asserts, "Few can doubt that the future of the industry, if its future is to improve on its past, lies with such firms...
...Under Roosevelt it became the major domestic function of a government whose leaders did not fully understand what they were doing...
...Galbraith finds it remarkable that there is no "plausibly enunciated alternative to the present system...
...It is unkind to thrust the harsh real world on so rosy a dream world, but one is constrained to do so when Galbraith makes the transposition...
...Thus, "Private economic power is held in check by the countervailing power of those who are subject to it...
...By contrast," writes Galbraith, "there is not a single union of any consequence in American agriculture, the country's closest Winter 1954 • DISSENT • 93 approach to the competitive model...
...Surely this does not support the Galbraithian position...
...It is to this "paradox" that the author addresses himself...
...But, be it noted that for many months before Korea, that market was reaching a saturation point...
...Can this be countervailing power...
...Hence, the retailer has "both a protective and profit incentive to develop countervailing power whenever his supplier is in possession of market power...
...Galbraith's criticism of New Deal clumsiness centers upon the antitrust laws which "have been indiscriminately invoked against firms that have succeeded in building countervailing power, while holders of original market power .. . have gone unchallenged...
...The countervailing power of the buyer, however great, disappears with an excess of demand...
...All the ominous prewar problems were beginning to reappear...
...the standard of living went up...
...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...
...For, I do not advance the theory of countervailing power as a monolithic explanation of trade union organization...
...Yet, "The industry does show many detailed manifestations of guild restraint...
...Winter 1954 • DISSENT • 97 THIS CONFUSION IS MOST EVIDENT in Galbraith's appraisal of the New Deal...
...The military machine was reduced to minimal peace-time proportions and arms production came to a halt...
...Indeed, the first begets the second...
...Properly understood, Galbraith says, this was a period in which countervailing power achieved its crowning glory, vindicating American capitalism and definitely establishing its healthy character...
...The golden mountain of grease, turning rancid, first inedible, then unusable even for industrial purposes, is an excellent symbol of the new mercantilism actually governing American agriculture...
...Only professional apologetics for an unsatisfactory status quo can bar the way...
...Pangloss has been apotheosized and his spirit, transmuted into a kind of Coueism, pervades the land...
...That world—in which countervailing power works perfectly and everyone prospers—is of Galbraith's own creation...
...To "invoke" the antitrust laws, including the Robinson-Patman Act which Galbraith likes least because it was "invoked" against A & P, is to engage in ritual behavior...
...This leads him into bold generalizations that are either disemboweled by qualification or nullified by illogicality...
...Similarly Galbraith is dismayed by the fact that men exposed all their lives to shock, panic, slump, bust, recession, and depression—punctuated by war—should be wary of present appearances and future prospects...
...However, Galbraith realizes that the labor force is far from being fully organized and he suspects that the times are not propitious for further unionization...
...During all of this time except for the depression era, we have been plagued with inflationary pressures...
...CAN THE ECONOMICS OF SELF-CONGRATULATION SAVE US...
...This is no less true of economics than of politics...
...Instead of countless small entrepeneurs, there is a limited number of small businessmen, totally eclipsed by the few large corporations that are in control...
...The economy flourished, but its workings were misunderstood, and therefore fear and free-floating anxiety prevailed...
...wages and profits were high and savings considerable...
...He may not understand that basis, but he is aware of its existence...
...And it cannot be reconciled with the "theory of countervailing power...
...In the long run our survival may depend upon devising a system that will take us through, around, or out of this maze...
...It is possible, and in the case of Levitt, probable that federal housing could have produced even more satisfaction—without legal proceedings against plasterers and plumbers...
...What can one say about countervailing power as the key to an understanding of our economy when it is inoperative in inflation and ineffective in deflation...
...It means that in this instance the distributors have become the producers...
...Competition, as an effective regulatory mechanism, is gone and, with it, all traditional restraint on private power has disappeared...
...With it goes the regulatory or restraining role of countervailing power in general...
...This never occurred to anyone in the entire Harvard School of Business Administration...
...Galbraith pursues his point...
...Surely no segment of our economy is more removed from the competitive model than agriculture with its subsidies, parities, regulated prices and guaranteed profits...
...What does this leave for further analysis...
...It can only be that there is something wrong with the current or accepted interpretation 100 • DISSENT • Winter 1954 of American capitalism...
...in the case of bituminous coal mining and the clothing industry, for example, the unions have emerged as a supplement to the weak (!) market position of the operators and manufacturers...
...This poses a theoretical problem of considerable magnitude...
...there were jobs aplenty...
...For, in his judgment, it has worked out to our universal advantage...
...Conversely, when countervailing power did not function at all, as Galbraith would admit it does not today, production and consumption shot up and unemployment was nearly liquidated...
...Earmarks of the liberal appear on this anti-liberal economist, fully half of whose book is a diatribe against the classical school to which he is fitfully committed...
...When Winter 1954 • DISSENT • 95 A & P manufactures cornflakes and helps oligopolize the cereal market, when Big Production and Big Distribution are wedded, what force mediates between them to maintain this best of all possible economic systems...
...The interests of these two groups are "normally...
...There are many important areas in which the worker has not organized to confront the weak or the strong employer...
...The conservative, and for that matter, the liberal, is captive to a body of illusory ideas which cause him "to view the world with misgivings or alarm...
...Here the "American Keynes" comes a cropper...
...then, we geared up for peace-time production...
...Emile Durkheim has pointed out that when an "illusion" is shared by virtually every member of the society it is likely to have a substantial basis...
...Here we enter the domain of psychopathology...
...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...
...There is an elementary difference between rational fear and irrational fear...
...Not often has the power of one man over another been used more callously than in the American labor market after the rise of the large corporation...
...Galbraith puts it to us with great lucidity: Countervailing power as a restraint on market power only operates when there is a relative scarcity of demand...
...No such power is exercised today and for the reason that its earlier exercise stimulated the counteraction that brought it to an end...
...Galbraith's technique is to lay down a fixed rule, and then riddle it with exceptions...
...We've got to keep butter up Poor little butter up Since those elections are nigh, So buy all the butter up Price-support butter up Or kiss the farm vote goodbye...
...Therein the "is" and the "ought to be" can seldom be disentangled...
...In the Great Valley of California the large farmers have had considerable power vis-a-vis their labor force...
Vol. 1 • January 1954 • No. 1
