Week 2. Seminar 1: 'The New Industrial State' by John Kenneth Galbraith

This week it was my Seminar Paper, with topic being John Kenneth Galbraith's, 'The New Industrial State'. Below is my Seminar Paper.

John Kenneth Galbraith 1908-2006, he studied at the Ontario Agricultural College, graduating in 1931 with a degree in agricultural economics and afterwards went on to teach at both Harvard and Princeton University and in 1949 he was appointed professor of economics at Harvard. However, before he was appointed this position he had been studying in England and found himself greatly influenced by the economist, John Maynard Keynes, one of the most influential economists of the 20^th Century. In 1960, Galbraith turned down the job as economic administrator in order to become an ambassador for India; a country which was very close to his heart and one he felt very strongly about. It has to be said that amongst his many achievements the greatest has to be his job as deputy head of the office of price administration for the American government as at only 32, setting America’s prices was a fairly big responsibility and to be so successful at such an important job and at such a young age was a huge achievement.

Galbraith has written many successful books, with ‘The New Industrial State’ being just one of them. It was due to his numerous literary works that Galbraith was made one of the most well known economists of his time and he went on to win the Presidential Medal of Freedom Award; a very prestigious recognition for his contribution towards economics in both 1946 and 2000. Galbraith’s beliefs lay very much in the subject of the power structure in the economy and this is one aspect he focuses on in, ‘The New Industrial State’.

In ‘The New Industrial State’ Galbraith argues that the industrial systems (or the companies who control the output) are controlled by a Technostructure. Galbraith explains how, ‘There is no name for all who participate in group decision-making or the organization which they form. I propose to call this organization the technostructure’. This concept is explained by Galbraith in Chapter 6 as he explains this technostructure as being a method of not attempting to maximise profit but a method of ensuring that the business or subject is maintained correctly and that it expands further in the future. The power of the technostructure is not in the hands of one individual, but in the hands of groups of people within the organization. As Galbraith states, ‘It is not to individuals but to organizations that power in the business enterprise and power in society has passed’. This emphasises further how in organisations, decisions are made by specific groups of people and the only people able to alter these decisions are the groups of people who are higher in the organizations hierarchy. The technostructure, therefore is simply a term for all the people included in the decision making process for the organisation.

Galbraith was also well known for his price controls and Chapter 17 of his book explains this further as prices and the Industrial System are discussed. Galbraith explains how price controls are set to, ‘minimize the risk of loss, and therewith of damage to the autonomy of the technostructure, and secondly, to maximize the growth of the firm.’ Galbraith continues to explain how prices must encourage the expansion of sales but at the same time be high enough to facilitate earnings as well as to keep any stockholders content. Therefore, it is clear that Galbraith supports fixed price controls, as he believes this is what is best for the economy mostly because they provide more control and reduce the risk of a collapse in prices, which could result in risking the freedom of the technostructure. As previously mentioned, Galbraith was influenced by John Maynard Keynes however; it seems that it is within the boundaries of price controls where they disagree. This is because, unlike Galbraith, Keynes believes in selective price controls; thus meaning they are not fixed as Galbraith believes they should be. As a result unemployment levels can become quite high, whereas with Galbraith’s method helped to keep unemployment to a minimum. Furthermore, this explains how in Galbraith’s ideal world taxation would not exist, but Keynes believes that they should be used mainly due to them being more effective than price controls and this is the system we have in society today; taxation. From this we can see how both Keynes and Galbraith have influenced economics in society today in very different ways.

It could be said that Galbraith’s views and economic strategies made him the well known and respected economist that he is. Had Galbraith’s views and beliefs not been so influential, economics today could have been very different. He was one economist who at times questioned and disagreed with Keynes, thus giving us new economic views and strategies to consider.

Semester 2, Lecture 1: Economicsand Keynesianism

Our first Lecture back focused on the importance of economics and the ideas of Keynesian theory.

Chris began by discussing Adam Smith's views as he believed that we all want to maximise pleasure and avoid pain and therefore, maximise our utility, which Smith believed . could be read by the amount of pleasure/ pain they are experiencing at a certain point; in a similar way to a thermometer. Smith thought that people should be allowed to be free, in order for them to maximise their utility. However, J.S. Mill on the other hand, believed utility could be measured by price, and was only interested in the value.

Ricardo- He discovered the 'Labour Theory of Value' which was contrary to Smith's ideas as he believed that utility depends somewhat on labour.

Malthus- He believed in the 'Iron Law of Population' which suggests that population is what causes people to become richer or poorer over time. He said that by doubling food supplies, the number of babies will also increase. Unlike Smith, he was more interested in Economic growth.

Marx- Marx's beliefs were almost Richardo and Malthus' combined. He believed that as wages increase, families will grow and the amount of labour will decrease. He noted how this will constantly impoverish people who work for wages as people will never have enough money to buy what they produce as society cannot absorb the profit that's being made.

1848 was the first step towards the collapse of the western society and mass migration occurred. The gold rush followed in 1849, when the function of money was purely a means of exchange, as to classical economists, money is irrelevant. Gold is universally accepted. Until 1928 gold would be swapped for any amount of money. In 1844, this was when pound notes were first discovered, until this date banks issued bank notes depending on the amount of Gold it had, also known as the 'Credit Creation Ratio' which was 1/3 and this was how the banks created money and how they created bank notes.

Monetary Policy- Money is printed depending on reserves, thus printing enough for the deflationary gap.

Interest Rate- It the price of money, set by the issuing of government bonds which are determined by the activity in the bond market. The more bonds there are, the higher the interest rate will be.

Fiscal Policy- (Taxation and governement spending) The approach is to regulate the bond market, and therefore, interets rates.

For Keynesian's they use fuscal policy to regulate aggregate demand. PSBR (Public Sector Borowing Requirements) is the number of bonds planned to be issued for the year. There would be no taxation in a Keynesian's ideal world, as taxation is really about directing consumer behaviour.