John Kenneth Galbraith on the "market system" and related frauds

One of my all-time favorite books is a short one, less than 60 pages of text, is the last book John Kenneth Galbraith published during his lifetime, The Economics of Innocent Fraud (2004). In it, he talks about how "capitalism" earned a dubious reputation over time:

Capitalism emerged in Europe from the merchant era with the manufacture, buying, selling and transport of goods along with the rendering of services. Then came the industrialists, with power and prestige given by ownership, direct or indirect, and workers who suffered from their undoubted bargaining weakness - life as the alternative to often painful toil - and the resulting oppression. Marx and Engels, in some of history's most influential prose, outlined the prospect and the promise of revolution. At the end of World War I, in Russia and on its borders, the threat became the reality. Especially in Europe, the word "capitalism" affirmed too stridently this power of ownership and the magnitude of worker and larger subjugation. So came the more than plausible possibility of revolution.

Galbraith was heavily influenced by the great economist Thorstein Veblen and the "institutionalist" school of economic thought associated with him also known as "evolutionary" economics  but definitely not in the Social Darwninist sense. Galbraith's ironic prose style also shows a debt to Veblen, particulary his most famous work, The Theory of the Leisure Class (1899), which Galbraith cites in this book as "a deathless tract" on the pretensions and attitudes of the wealthiest Americans. Continuing in Veblenian mode, Galbraith elaborates his point on the economic system's label:

During World War I, sophisticated thought, extending to belief, held that the source of the conflict and its mass death and destruction had been the rivalry between the great arms and steel combines of France and Germany. In back of the slaughter were those who, for profit, made the guns.

Later, and more destructive to the reputation of capitalism in the United States, was the visibly insane Florida real estate speculation, the rising corporate and industrial voice and, most important, the stock market explosion of the late 1920s. Then came the world-resonating crash of 1929 and, for ten long years, the Great Depression. Capitalism all too obviously did not work. So denoted, it was unacceptable. [my emphasis]

Alternative labeling included the free enterprise system and social democracy, the latter in the form of the post-Second World War welfare state version, not the overtly revolutionary version of the late 19th century. Galbraith mocks the term that eventually became fasionable, the Market System. "There was no adverse history here, in fact no history at all. It would have been hard, indeed, to find a more meaningless designation - this a reason for the choice."

Galbraith always set himself apart from his more conventional economist colleagues by his focus on the importance of advertising and marketing - which effectively don't exist in the standard economic models - and by his willingness to point to social and financial influences on the analysis and recommendations of the economics profession. His discussion about the use of the Market System as a label for 21st century capitalism wasn't just an op-ed rhetorical flourish. It was part of his critical perspective on how the influence of corporate power and great wealth leads economists and the business press to favor positions that obscure the existence of those very interests.

Market fundamentalists typically present the Market as something like a sentient, intelligent subject. Mitt Romney once famously argued to a audience member, "Corporations are people, my friend." (Quoted by Philip Rucker, Washington Post 08/11/2011) The Market is more like a deity. But this Market is not assumed to be a moral agent. As Galbraith put it, "There is only the impersonal market, a not wholly innocent fraud." And he explains more about how the symbol of The Market functions, "No individual firm, no individual capitalist, is now thought to have power; that the market is subject to skilled and comprehensive management is unmentioned even in most economic teaching. Here the fraud."

The remainder of Galbraith's brief book covers some closely related assumptions about economic and political power that obscure the actual power relationships at work: the dominant role of corporations in the economy; the predominant power of corporate managers over shareholders; stigmatizing government as "bureaucracy" but pretending corporate organizations are something other than "bureaucracy"; the celebration of small business and family farms though their power is radically less than that of corporations; the extent to which the "public sector" is also effectively a part of the "private sector" in America, particularly in military matters; the questionable but conventional faith in the power of the Federal Reserve to guide the US economy.

Galbraith is clear that the current "corporate system" is "based on the unrestrained power of self-enrichment," resulting in "an economic system where those favored have freedom to fix their own reward, a not entirely innocent fraud."

2004 was the era where "Enron scandal" was a prime symbol of recent revelations of large-scale corporate corruption, crime, and irresponsibility. Since then we have had the financial and economic meltdown of 2008 with far more wide-ranging revelations of the same. And in 2019, we have the dystopian reality of a corporate-and-Mob crime family heading the US Government. So this observation of his is more relevant and urgent than ever:

Management authority, its abuse and personal enrichment, will continue. The prime hope must be full recognition by the public and by public authority of the opportunity it affords for socially undesirable behavior. Accordingly, there must be surveillance of the reputable enterprise and general attention to managerial self-reward. This is in the interest of both the public and the corporate world. The corporation, to repeat, is an essential feature of modern economic life. We must have it. It must conform, however, to accepted standards and requisite public restraints. Freedom for beneficial economic action is necessary; freedom should not be a cover for either legal or illegal misappropriation of income or wealth. Corporate management must have authority for action but not for seemingly innocent theft. Here the most challenging and, given corporate power, the most urgent need. A society of corporate economic misadventure and crime will not usefully survive and serve. [my emphasis]

He closes his book with an observation that reminds us that we are missing a very important perspective now that most people like Galbraith who experienced the Second World War as adults are now gone, referring to what he calls a "sadly relevant fact":

Civilization has made great strides over the centuries in science, health care, the arts and most, if not all, economic wellbeing. But also it has given a privileged position to the development of weapons and the threat and reality of war. Mass slaughter has become the ultimate civilized achievement. The facts of war are inescapable - death and random cruelty, suspension of civilized values, a disordered aftermath.

Thus the human condition and prospect as now supremely evident. The economic and social problems here described, as also mass poverty and starvation, can, with thought and action, be addressed. So they have already been. War remains the decisive human failure. [my emphasis]