THE ECONOMICS OF INNOCENT FRAUD

J.K. GALBRAITH

PENGUIN BOOKS              2004/2005

PART III

 

Chapter 3: The Economics of Accommodation

In the age of admitted capitalism there came a socially modifying reference. That was to the ultimate economic authority: consumer choice as to expenditure, meaning consumer sovereignty. Here the power of the public at large: economic democracy exercised by the market.

• But the monopolist had authority over his customers, and it extended over workers with no other job opportunity.
• With economic development, expanding incomes, more diverse consumption and, notably, new sources of supply, monopoly power and the concern therewith diminished.

As the ballot gives authority to the citizen, so in economic life the demand curve accords authority to the consumer. In both instances there is a significant measure of fraud. With both ballot and buyer, there is a formidable, well-financed management of the public response. And so especially in the age of advertising and modern sales promotion. Here an accepted fraud, not least in academic instruction.

• Just as no mentally competent politician in the United States would contemplate running for a significant office without thought as to the requisite persuasion and its cost, so, to a far greater expense, the control of consumer choice and sovereignty.

As does the voter, the buyer has the right to exercise independent choice, to opt out. This some do; they resort to a lifestyle outside the system that is thought eccentric, even slightly insane. The existence and exercise of such choice does not lessen the force of market persuasion. Economics as taught and believed lags well behind the reality in all but the business schools.

• Belief in a market economy in which the consumer is sovereign is one of our most pervasive forms of fraud. Let no one try to sell without consumer management, control.
• From the size, composition and eminence of the GDP comes also one of our socially most widespread forms of fraud.
• The composition of the GDP is determined not by the public at large but by those who produce its components.
• Good performance is measured by the production of material objects and services. Not education or literature or the arts but the production of automobiles, including SUVs.
• The best of the human past is the artistic, literary, religious and scientific accomplishment that emerged from societies where they were the measure of success.
• Today it is only in the protected cultural, artistic, educational and scientific aspects of life that we have more compelling tests of human achievement than money.
• The more than minimal fraud is in measuring social progress all but exclusively by the volume of producer-influenced production, the increase in the GDP.

 

Chapter 4: The Specious World of Work

• The problem is that work is a radically different experience for different people.
• The word ‘work’ embraces equally those for whom it is exhausting, boring, disagreeable, and those for whom it is a clear pleasure.
• Already fraud is evident in having the same word for both circumstances.
• Those who most enjoy work are all but universally the best paid. Low wage scales are for those in repetitive, tedious, painful toil.
• Not until recently did the inflated compensation and extensive perquisites of functional or nonfunctional executives lead to critical comment.
• That the most generous pay should be for those enjoying their work has been fully accepted.
• Work is thought essential for the poor; release therefrom is commendable for the rich.

It remained for the often perversely articulate John Maynard Keynes to cast doubt on the pleasure of toil. He quotes the words of an aged charwoman that were preserved on her tombstone. She had just been released from a lifetime of work:

Don’t mourn for me, friends,

Don’t weep for me, never,

For I’m going to do nothing

For ever and ever.

 

Chapter 5: The Corporation as Bureaucracy

Chapter 6: The Corporate Power

Chapter 7: The Myth of the Two Sectors

Chapter 8: The World of Finance

Now a well-recognized area of innocent fraud. And here some that is legally less than innocent. This is the world of finance – of banking, corporate finance, the securities markets, the mutual funds, organized financial guidance and advice….

Chapter 9: The Elegant Escape from Reality

Chapter 10: The End to Corporate Innocence

Chapter 11: Foreign and Military Policy

Chapter 12: The Last Word

One thing, I trust, has emerged in this book: That is the now-dominant role of the corporation and corporate management in the modern economy.

• Celebrated were the financial magnates, not for their economic performance but for their latent or active economic power and, not exceptionally, for their well-celebrated public good – the great foundations.
• In its market position and political influence, modern corporate management, unlike the capitalist, has public acceptance.
• The Gross Domestic Product with the corporate contribution thereto is the acknowledged measure of economic success.
• Corporate power has shaped the public purpose to its own ability and need. It ordains that social success is more automobiles, more television sets, more diverse apparel, a greater volume of all other consumer goods. Also more and more lethal weaponry. Here is the measure of human achievement.
• Negative social effects – pollution, destruction of the landscape, the unprotected health of the citizenry, the threat of military action and death – do not count as such.
• When measuring achievement, the good and the disastrous can be combined.
• The corporate appropriation of public initiative and authority is unpleasantly visible as regard the environmental effect, dangerous as regards military and foreign policy. It accord legitimacy and even heroic virtue to devastation and death.
• Power in the modern great corporation belongs to the management.
• There is a movement from public acceptance of the corporate system to its being seen as a military threat to all human life.
• There is unemployment and economic discontent, a contributing factor to recession or the more fearsome depression.
• There is no indication that tax relief has an ameliorative effect on recession. For the corporate elite, tax reduction enhances income that is already more than ample.
• A recession calls for a reliable flow of purchasing power, especially for the needful, who will spend. Here there is an assured effect, but it is resisted as unserviceable compassion.
• The needful are denied the money they will surely spend; the affluent are accorded the income they will almost certainly save.

A final word. We cherish the progress in civilization since biblical times and long before. But there is a needed and, indeed, accepted qualification. As I write, the United States and Britain are in the bitter aftermath of a war in Iraq. We are accepting programmed death for the young and random slaughter for men and women of all ages. So, overwhelmingly, it was in World Wars I and II. So more selectively since, and still at this writing in Iraq. Civilized life, as it is called, is a great white tower celebrating human achievements, but at the top there is permanently a large black cloud. Human progress dominated by unimaginable cruelty and death.

I leave the reader with the sadly relevant fact: Civilization has made great strides over the centuries in science, health care, the arts and most, if not all, economic well-being. 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.

• War remains the decisive human failure.