American Capitalism

Plot

Galbraith's American Capitalism critiques the view that markets, left to their own devices, provide socially optimal solutions. he agrees with Hayek that "the price system will fulfil [its] function only if competition prevails, that is, if the individual producer has to adapt to price changes & cannot control them." He builds on work by Chamberlin of Harvard, Joan Robinson at Cambridge & Bain of the University of California arguing that the USA of the early '50s no longer complied to a textbook definition of perfect competition. He sets out the conclusions which result from the abandonment of competitive behavior in favour of oligopoly or crypto-monopoly: "The producer now has measurable control over his prices. Hence, prices are no longer an impersonal force selecting the efficient man, forcing him to adapt the most efficient mode & scale of operations & driving out the inefficient & incompetent. One can as well suppose that prices will be an umbrella which efficient & incompetent producers will tacitly agree to hold at a safe level over their heads & under which all will live comfortably, profitably & inefficiently." Just as the market at the micro-level won't always work to society's advantage, he concludes that Keynes was correct in his explanation of the deficiencies of the macro-model where an equilibrium was possible below the full employment level of output & that without outside intervention, this equilibrium might persist. He highlights the role of Countervailing Power in dealing with market failure & outlines its operation at the micro & macro levels. At the micro level, firms might merge or band together to influence price. Individual wage earners might also combine in unions to influence wage rates. Finally, government might intervene in the marketplace where required to provide regulation where countervailing power failed to develop but was nevertheless required. He concluded that Countervailing power was legitimate & welcome as the alternative of state control which would be less palatable to the business community. Without countervailing power: "private decisions could & presumably would lead to the unhampered exploitation of the public, or of workers, farmers & others who are intrinsically weak as individuals. Such decisions would be a proper object of state interference or would soon so become."