“The affluent society” is one of the most famous non-fiction books of the 20th century, it was written by the Canadian-American economist John Kenneth Galbraith(1908-2006) and published in 1958.
One of the key concepts introduced in this book is “Conventional Wisdom”, which is today widely used to refer to commonly held and accepted ideas and beliefs. According to Galbraith, the conventional wisdom of economic thinking in the USA, at that time, was based in the nineteenth-century European economic theory which was no longer suited to the post-World War 2 US society.
Galbraith criticized the classical political economy: Smith, Ricardo, and Malthus lived in a time of widespread poverty and basic goods were most people’s concern. And this did not apply to the USA after world war 2, most production in the USA at the time aimed to provide luxury and satisfy “wants” instead of “needs”.
He explains that what makes an affluent society different is that the production is oriented to satisfy desires, not needs that are essential to survive, so the demand works differently. The demand in the affluent society is not organic, organic demand would be, for example, basic food goods. But in an economy based on consumerism demand is generated by corporations through advertising, it’s not natural demand. And this is why he claims that large corporations have a huge influence, if not control, on our societies, since they often create demand for products when there is no natural reason for it to exist.
Galbraith, in the affluent society, rejected the use of technical analysis and mathematical modeling in studying economics because, according to him, it doesn’t represent reality. He also criticized the overemphasis on the high rates of production as a measure of economic prosperity. For him, economic growth is not always the answer to all problems.
Professor John Kenneth expressed his opposition to the use of Gross Domestic Product (GDP) to measure our wellbeing. As an example, he shows how GDP treats the government expenditure on schools and public education and expenses on tv programs the same way, while education is of a crucial importance for the development of the nation and tv programs are just a means of entertainment, according to him, this demonstrates how GDP fails at giving a realistic view of the situation.
Galbraith advocates a higher expenditure on public services because the USA must transition from a private production economy to a public investment economy by:
- Eliminating poverty
- Massive government investment in education.
- Actively promoting the growth of the “New Class”, which is formed by educated people who have a large impact on a society’s progress (teachers, professors, doctors, lawyers, engineers…)
He ultimately emphasis on sales taxes and VATs over property taxes because sales tax and VATs are about taxing plentiful private goods in order to make public goods more abundant.
The affluent society marked the 20th century because John Galbraith did what we might call “thinking out of the box” and came up with a completely new view of the economy and the American society in particular, and exposed new ideas way different from what was commonly accepted and believed in that time. Till this day, this book is still considered a reference in the world of economics.