thegreatdivide
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From a brilliant article by prof. Steve Keen, entitled: How does JK Galbraith’s 'The New Industrial Estate' hold up after 6 decades?https://email.telstra.com/webmail/index-rui.jsp?v=1479958955288#app/mailEven Karl Marx was aware of the evil power possessed by "independent' central banks; here Keen directly quotes Marx: Talk about centralisation! The credit system, which has its focus in the so-called national banks and the big money-lenders and usurers surrounding them, constitutes enormous centralisation, and gives to this class of parasites the fabulous power, not only to periodically despoil industrial capitalists, but also to interfere in actual production in a most dangerous manner—and this gang knows nothing about production and has nothing to do with it. (Marx 1894, Chapter 33) Galbraith commented on the sad state of conventional economic theory in the 60s, as outlined by Keen here: Reading The New Industrial State (Galbraith 1967) again, six decades after it was first published, highlighted for me just how far economic theory has retreated from reality since the 1960s.
The New Industrial State (hereinafter called TNIS) described the actual structure of a modern industrial economy. It has nothing to do with Alfred Marshall's vision of a market economy, in which a multitude of small entrepreneurial firms sold homogenous goods directly to consumers in anonymous markets, and in which prices were set by the intersection of supply and demand. Instead, the economy is dominated by large corporations, which themselves are run by a bureaucratic "technostructure"—the term Galbraith invented—that attempts to manage everything, from input costs to final consumer demand which they manipulate via marketing. Prices are tamed by long term contracts, and the only source of instability in prices comes from wage demands on the one hand, and the vagaries of agricultural and energy production on the other.
This was the reality of the mid-1960s on which Galbraith commented. At the time he wrote, Galbraith was confident that this reality would supplant the Marshallian fantasy of supply and demand curves, which dominated economic theory.
Fat chance! Galbraith's optimism about his profession of economics was misplaced: faced with a conflict between reality and theory, mainstream economic(s) elevated theory over the inconvenient facts of the real world. The main real-world changes since Galbraith's time have been the crushing of trade unions, which has largely eliminated the capacity of workers to bargain for wage rises, the development of globalization, which has created long and extremely fragile supply chains, with much production occurring offshore rather than in American factories, and the financialization of near everything. But a "technostructure" is still in charge, and the realities of production, management and marketing are the same as he observed in the mid-1960s.
None of this realism has seeped into (neoclassical) economic theory.
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