1. `Prophet of the old time religion` by Milton Friedman
Leonard Silk portrayed Friedman as “prophet of the old-time religion” This evokes the question, “what is the old-time religion?” For Silk, it is the “Smithian creed” that “an economy functions best when it operates on the basis of the forces of self-interest and competition. Such an economic system . . . has no need of altruism; on the contrary, altruism—a rare human trait—is less reliable and powerful a force than self-interest in creating social wealth and serving the needs of others” (p. 47).
Silk reinforced the incompatibility of capitalism and altruism in the Smithian creed that he attributes to Friedman with an epigram from Ayn Rand— “Capitalism and altruism are incompatible; they are philosophical opposites; they cannot co-exist in the same manor in the same society’’ (p. 45). After so classifying Friedman, Silk gives an account of his life, following Friedman through his boyhood, college and graduate education, and his professional career. Friedman’s identity as “prophet of the old-time religion”—defender of capitalism and economic freedom—is the context for this biography.
2. John Maynard Keynes
John Maynard Keynes (1883-1946) is the most celebrated twentieth-century economist and argued that the mere existence of opportunities for efficiency gains is not enough to motivate markets to work well. In an uncertain world something else is needed: trust. Thus, it is perfectly possible for producers not to invest and to cut production for no other reason than an irrational fear that the demand for their products will not be there. Consequently workers will not be employed, investment will not take place and thus the level of demand for commodities will indeed be low. In the end, the producers’ fears, driven more by their psychological state than by objective reality, will have been confirmed by the low level of demand (Henry, 2001, p. 633).
It is clear that Keynes’ major contributions are the bold use of aggregates as the pillars of a new form of analysis that we call macroeconomics; the central placement of expectations and uncertainty; the emphasis on liquidity. John Maynard Keynes removed economics from the neoclassical terrain and reinstated concepts and techniques dating back to classical economics; e.g. an interest in what happens when the economy is out of balance, a conviction that economies can remain imbalanced for long periods of time, the concept of an aggregate (or economy-wide) demand for commodities, involuntary unemployment, the emphasis on capital accumulation and the distribution of income in society.
3. `Economics and the Tradition of Despair` by John Kenneth Galbraith
According to Galbraith, economics, like social life, does not conform to a simple and coherent pattern. This is because economic and social phenomena are so forbidding. Galbraith agreed that the decline of economics is due to the peculiar place accorded with production in the conventional wisdom of our time. Conventional wisdom is the system of ideas interpreting social life which are accorded with acceptability. Thus, acceptability is the test of conventional wisdom. Acceptability is confirmed by predictability and both reinforce stability. Moreover, Galbraith proceeded to root out that modern economics began with a “tradition of despair”: “Economists would indeed have been indifferent to both history and environment had they not taken the privation and desolation of the masses for granted. In economics, misfortune and failure are normal. Success, at least for more than the famed few, was what to be explained. This was the legacy of circumstances to ideas” (p. 24).
Q1: What did Galbraith mean by “conventional wisdom”?
According to Galbraith, conventional wisdom is the system of ideas interpreting social life which are accorded with acceptability (p. 8-9). The conventional wisdom in economic thought has at its core the competitive market which empowers the sovereign consumer or household. In this original sequence, the flow of causative influence in the production process is from households, as ultimate consumers of commodities and ultimate suppliers of resources, to the productive organisations. With the revised sequence concept, Galbraith sought to shift the analytical focus to the flow of influence from producers to consumers—though he took pains to emphasise that the reverse flow of influence from the household cannot be ignored. The interest of the administered sector is put forward via advertising and other public relations activities as well as by corporate influence on the political process.
Q2. According to Galbraith, what can change the conventional wisdom of a society?
According to Galbraith, conventional wisdom had been shadowed by the increased private production and consumption that led to heavier burdens being placed upon public services. The consequences of such an unmitigated trend are, to say the least, troublesome. “Failure to keep public services in minimal relation to private production and use of goods is a cause of social disorder or impairs economic performance” (p. 193). While Galbraith’s main focus in The Affluent Society was upon the diminishing returns of private investment as opposed to the appreciably larger potential return on public investment, the pathological dilemma of the capitalist state. Of particular concern to Galbraith was the privatization of human capital and the socialization of the investment necessary to its development. Without a properly funded education system, the calibre of employees required by corporations and the state to administer the ever more complex apparatus of modern social life would fail to keep pace with technological development. Thus, microeconomic themes and issues such as the business enterprise, pricing, the organisation, the nature of competitive activities, co-ordinations of economic activity, and technical innovation could alter conventional wisdom in competitive models that change originating from the producer is spontaneous and not the result of deliberative human agency and intentionality.
Galbraith, J.K. (1969). The Affluent Society, Boston:Houghton-Mifflin.
Heilbroner, R.L. (1972). The Worldly Philosophers; The Lives, Times, and Ideas of the Great Economic Thinkers. New York: Simon and Schuster.
Henry, J. F. (2001). Keynes’ Economic Program, Social Institutions Ideology, and Property Rights. Journal of Economic Issues, 35(3): 633.
Silk, Leonard. 1974. The Economists. New York: Basic Books.