The Legacy of John Kenneth Galbraith: An overview of his contributions

Brief overview of the contributions of John Kenneth Galbraith.

Introduction (Via Umb.edu)

John Kenneth Galbraith may have been one of the wisest economists of his time, writes his biographer. He anticipated the limits of modern-day economics and made politics, corporate power, and psychology central issues in understanding it. But the questions he raised still haunt us.

Excerpts (Via Umb.edu)

Economics before the 1950s was not the mathematical discipline it has since become—and yet remarkably it produced its fair share of
better-than-average economists. Smith, Ricardo, Marx, Marshall, Pigou, Ely, Veblen, Commons, Keynes, and Schumpeter cannot simply be dismissed as “sociologists”—the epithet that modern economists like to fling about when they mean to dismiss an opponent. Sadly, though, I would guess that 90 percent of economics graduate students nowadays could tell you nothing about half those names, and know little beyond the names—and perhaps the title of a work or two—for the other half.

The Neoclassical Synthesis—that shotgun marriage of Keynesian macro-theory and pre-Keynesian micro-theory—reigned, and the cross in front of which we learned to bow was the IS-LM cross that Sir John Hicks had taught as the essence of what Keynes meant. Those were the heady days of game theory, of econometrics, of computer-based forecasting (done, I might add, with punch cards on mainframes, a horror I hate even to mention to students today).

First, that mathematicization of economics—not the individual techniques so much as the belief that we were the new physicists of human relations—was a dangerous assumption that carried risks at leastas large as the clear opportunities we saw. Human beings, he said, were not simply atoms or electrons, or whatever else was considered the fundamental unit of physics before pi-mesons or string theory. They (we) were not quite rational either—especially when in groups— in the strict ways that the micro-assumptions of the Neoclassical Synthesis, even when it tried to tuck this problem behind the veil of Revealed Preference, said they (we) were.

Most Notable Quote (Via Umb.Edu)

Human beings, he insisted from his own observation and experience, were subject to all sorts of “irrationalities”—passions, miscalculations, misunderstandings, pressures to conform and pressures to obey—that made our models (especially when too tightly drawn) unstable, and our predictions prone to error. We needed, he said, to understand that in large groups, especially nations, human beings acted out of collective beliefs (“conventional wisdoms,” he called them) that reflected and reinforced both the unequal distributions of power and wealth that everywhere and always exist, and the ideological justifications that groups, especially dominant groups, impose on the rest of a society and era.

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04. August 2009 by Miguel Barbosa
Categories: Curated Readings, Finance & Investing | Leave a comment

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