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Citation: The Progressive Jan 1999, v.63, 1, 54(1)
Author: Galbraith, John Kenneth
Title: Free Market Fraud.(the myth of capitalism)(Brief
Article)(Column) by John Kenneth Galbraith
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COPYRIGHT 1999 Progressive Inc.
This excellent month I'm called upon for two celebrations--one for the
distinguished career of Robert Heilbroner, the most interesting, innovative,
and influential of liberal economists, and the other for The Progressive
magazine, now ninety years young. I here venture the same theme for both. It
is this: Most economists commit what I, in a professionally cautious way, call
innocent fraud. It is innocent because most who employ it are without
conscious guilt. It is fraud because it is quietly in the service of special
interest.
Let's begin with capitalism, a word that has gone largely out of fashion.
The approved reference now is to the market system. This shift
minimizes--indeed, deletes--the role of wealth in the economic and social
system. And it sheds the adverse connotation going back to Marx. Instead of
the owners of capital or their attendants in control, we have the admirably
impersonal role of market forces. It would be hard to think of a change in
terminology more in the interest of those to whom money accords power. They
have now a functional anonymity.
But most of the people who use the new designation--economists, in
particular--are innocent as to the effect. They see nothing wrong with their
bland, descriptive terminology. They pay no attention to the important
question: Whether money--wealth--accords a special power. (It does.) Thus the
term innocent fraud.
The fraud also conceals a major change in the role of money in the modern
economy. Money, we once agreed, gave the owner, the capitalist, the
controlling power in the enterprise. So it still does in small businesses. But
in all large firms the decisive power now lies with a bureaucracy that
controls, but does not own, the requisite capital. This bureaucracy is what
the business schools teach their students to navigate, and it is where their
graduates go. But bureaucratic motivation and power are outside the central
subject of economics. We have corporate management, but we do not study its
internal dynamics or explain why certain behaviors are rewarded with money and
power. These omissions are another manifestation of fraud. Perhaps it is not
entirely innocent. It evades the often unpleasant facts of bureaucratic
structure, internal competition, personal advancement, and much else.
This innocent or not-so-innocent fraud masks an important factor in the
distribution of income: At the highest levels of the corporate bureaucracy,
compensation is set by those who receive it. This inescapable fact fits badly
into accepted economic theory, so it is put aside. In the textbooks, there is
no bureaucratic aspiration, no reward for bureaucratic achievement, no
bureaucratic enhancement by merger and acquisition, and no personally
established compensation. Bypassing all of this is not a wholly innocent
fraud.
A more comprehensive fraud dominates scholarly economic and political
thought. That is the presumption of a market economy separate from the state.
Most economists concede a stabilizing role to the state, even those who
urgently seek an escape from reality by assigning a masterful and benign role
to Alan Greenspan and the central bank. And all but the most doctrinaire
accept the need for regulation and legal restraint by the state. But few
economists take note of the cooptation by private enterprise of what are
commonly deemed to be functions of the state. This is hidden by the everyday
reference to the public and private sectors, one of our clearest examples of
innocent fraud.
Take the common outcry about corporate welfare. Here the private firm, as it
is called, receives a public subsidy for its product or service. But what is
called corporate welfare is a minor detail. Far more important is the
full-fledged takeover by private industry of public decision-making and
government spending.
The clearest case is the weapons industry. Given the industry's command of
the Congress and the Pentagon, the defense firms create the demand for
weaponry, prescribe the technological development of our defense system, and
supply the needed funds--the defense budget. There is no novelty here. This is
the military-industrial complex, a characterization that goes safely back to
Dwight D. Eisenhower.
Any notion of a separation between the public and a private sector--between
industry and government--is here plainly ludicrous. Nonetheless, the
absorption of public functions by the arms industry is ignored in all everyday
and most scholarly economic and political expression. And what is so ignored
is in some measure sanctioned. I hesitate here to speak of innocent fraud; it
is far from being socially benign.
What we must seek in these matters is reasonably evident. It is the use of
plain language to express the clear truth. We can then take pleasure from the
discomfort the truth so often evokes.
John Kenneth Galbraith, emeritus professor of economics at Harvard
University, is the author of "The Affluent Society" and many other works.
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