As a schoolboy, I read The Great Crash, John Kenneth Galbraith's account of the stock market boom of the 1920s and the bust that followed. It helped to persuade me that business and finance were interesting, even if many of the people who prospered from them were not, or were interesting only for their foolishness. How could so many people have been so stupid for so long, I wondered?
Twenty years later, in 1999, I picked up the book again, and was startled by how the new economy of the 1990s paralleled the new economy of the 1920s—not just in broad outline, but in specific detail. I had first encountered the name of Goldman Sachs in a chapter of Galbraith's book entitled "In Goldman Sachs we trust." In 1999, we trusted in Goldman Sachs again, and again our trust was misplaced.
The new economy boom replayed the process in which uninquisitive minds reiterate and amplify the prattle of those around them. Bankers are motivated by the prospect of fees and commissions, academics flattered by the attention they receive. Dissent interferes with this rewarding process, and dissenters are marginalised. Thus emerges the consensus which is universally known but not necessarily true—the "knowledge" Galbraith christened "the conventional wisdom."
Only Keynes bequeathed more aphorisms to the modern commentator on economic affairs than Galbraith (who died on 29th April). Galbraith's elegant phrases and dry wit mean that, even 50 years after first publication, The Great Crash is a book you will read at a single sitting. It was, he said, the book he most enjoyed writing. But his contribution to economics was mainly to be judged on his two large works, The Affluent Society and The New Industrial State. History has not been kind to The New Industrial State. Its central claim was that modern corporations enjoyed a scale and control over the markets which rendered them independent of changes in technology and tastes. The companies Galbraith most had in mind in elaborating this thesis in the 1960s—such as IBM and General Motors—subsequently fell victim to market forces they could not or did not control. Galbraith was right to worry about the nexus between politics and business, but mistaken in his revisionist view of how a modern economy works.
Galbraith was a better political commentator than economic theorist. The Affluent Society is as powerful a liberal manifesto today as on publication almost 50 years ago. Never has the contrast of private affluence and public squalor been as forcibly demonstrated as after Hurricane Katrina.
Galbraith was a public intellectual and a consummate prose stylist who lived in a time when it was not fashionable for a professor of economics to be either of these things. Galbraith was certainly not the only economist of his generation to stray far outside the narrow confines of his subject. But he did so not in the evangelical manner of the rational choice theorists, for whom every human action is explained by incentives, but in the style of someone who knows that there is more to life than money even though money influences most corners of life. In an age when obscurity of style was associated with rigour, Galbraith wrote clearly enough to be found out, and his reputation suffered accordingly.
But what goes around comes around. The events of 1928-32 would replay themselves in 1998-2002. And the role of economist as commentator on everyday affairs, as comfortable with words as with symbols—a role rarely filled since Keynes—is being revived. Paul Krugman does not turn as elegant a phrase as Galbraith, but his directness of style and clear framing of complex issues has turned him into a leader of the opposition to George W Bush. Economists step up to roles once reserved for the scions of the financial establishment: Larry Summers as treasury secretary, Mervyn King and Ben Bernanke as central bankers. The rise of behavioural economics nudges the profession away from the insistence that models not only explain what people should do but describe what they actually do. Stephen Levitt's Freakonomics (written with Stephen Dubner) has got the top slot in the New York Times bestseller list, one which, for a generation, Galbraith was the only economist to attain. Economists are learning again, as Keynes knew and Galbraith never forgot, that economics derives value only from its contribution to public affairs and to everyday life.
