Conversations of the Rich: The Central Tradition of Economics in The Affluent Society

I presume from the outset that this should be one of only few works of non-fiction I will ever write about. I think valuable non-fiction to be found not on the pages of a book, but rather in the messy and mundane realities of life as it is truly lived. Of course, as with many other views I have held, I am wrong. If philosophical discourse ultimately aims to expound us with ideas of what it means to live a good life, then downplaying its value amounts to a desperate acceptance of the status quo and whatever ill-fated ideas it expresses indifference towards, or perhaps even advocates. So much of this introduction is owed to Galbraith’s warning, aptly arranged at the beginning of his book The Affluent Society. Discourse, he says, is constantly in servitude of acceptance rather than of truth. Such discourse Galbraith calls the ‘conventional wisdom’, a term which has since penetrated through not just into economic discourse, but rather into discourse in general.

Contemplate this for a second: what would give you most material happiness? A fifty-dollar pair of shoes, or one of those pairs whose team of producers fixes its quantity so that its ‘resell’ value reaches not shy of a thousand? They are of vastly different economic values, but they have similar intrinsic values. Here we see the age-old but authoritative law of diminishing marginal utility manifest itself. Diminishing marginal utility on paper captures the idea of changing urgencies in real life. Because we already have too many fifty-dollar pairs in our spacious closet to count, the next best consumption is the pair whose quantity is artificially restricted, no matter its intrinsic value. By the same token, bread and diamond-studded watches are subject to the same phenomenon. While the central tradition successfully explicates diminishing marginal utility over quantities of the same good, on matters over variety it is silent and void of conclusion. While there is no diminishing marginal utility over variety, so too must there not be any reduced sense of urgency between the production of bread and of diamond-studded watches. As a result, the bread of the poor not being nutritious enough is as urgent a problem as the watch of the rich not having many enough diamond studs. Such attitude the conventional wisdom justifies, and since the post-war economic boom in the West, much of economics has become a conversation for the rich, and a science of becoming richer.

Such attitude, Galbraith argues, broods in the new society a paramount position of production. In the affluent society, value arises from the existence of markets. Markets don’t exist as a result of value. So how do we add value? The central tradition first calls for capital accumulation so that any existing market can produce more with less resources, including labour. As a result, the central tradition finds out that employment is gravely jeopardised — an unintended consequence for which the tradition nevertheless has to find a remedy. Why it then calls for the expansion of markets into new realms and frontiers is precisely the need to dampen this calamitous effect of increasing rates of capital accumulation on unemployment. The economy needs to brew new demand as a function of this very rate to offset for the net flow into what Marx coins the “reserve army of labour” — the pool of the unemployed. Any demand becomes a net plus for the economy, save for those that are subject to the analysis of externalities, which, in turn, is a feeble attempt in justifying the levying of taxes on tobacco products and pollutive production processes. Then, society, in its rise to affluence, directs its efforts to promoting new breakthroughs in engineering and creativity, the very machinery that allows for the invention of refrigerators with more gimmicks and pieces of clothes that better please the eye. Such a mood of consumerism justifies itself in its tribute to employment and non-idleness.

Yet, the central tradition cannot justify the same mood, if the mood is to be found in the public sector. Extravagant spending on roads and bridges is, in the eye of the conventional wisdom, inferior to private sector consumerism purely by virtue of the public sector’s involvement. Shortly before the emergence of the welfare state, the central tradition especially portrayed public sector economics as the chief source of waste and inefficiency, either forgetting or ignoring the fact that, much like private sector consumerism, good public spending has the effect of reducing the size of the “reserve army of labour”. From there we see a contradiction in thought: if private consumerism justifies itself only in its tribute to employment, then so too must the schemes and programmes of the public sector. The central tradition opines itself to the former, but receives the latter with a shake of the head and a tone of indignation. While the substance of one’s opinions roots itself in definitions, and therefore, cannot be proven right or wrong, any overarching opinion that leads to a contradiction is indefensible, regardless of its substance. Nevertheless, the central tradition has stood the test of time. The student of economics is taught to exhibit scepticism when the size of public spending reaches a certain proportion of GDP.

So many problems have arisen in recent times, and problems that owe itself to the penetration of the central tradition. For one, no postulation confirms the likely fact that public spending on education is superior to private spending on expensive booze and opulent parties. Moreover, public investments on the healthcare system, including preemptive purchases of personal protective equipment and rents for its storage, would have made for great insurance policies against potential viral pandemics. Ultimately, such is the point of insurance. But the central tradition of economics will hardly concern itself with causes such as that.

While the central tradition succeeds in defusing the imperatives of public sector economics, it turns its attention back to the imperatives of consumer demand. At this point, the consumer’s utility function ceases to be of relevance in economic reasoning, for demand no longer arises intrinsically from the individual. Instead, there are two sources of power: the firm and the mass of consumers. The firm needs less to survey the conditions of consumer demand, and more to first produce anything conceivable in their imagination, and then let clever salesmanship do the rest. Such is the new blueprint of demand creation, and thus the new source of value. The consumer surrenders their eccentricity in desire to the hands of the firm, and so, as far as consumer-firm dynamics are concerned in the affluent society, the firm is marked by a disproportionate amount of market power in relation to consumers. Such phenomenon manifests itself in reality and can be seen exercised by ‘multi-level marketing’ campaigns the world over: the producer concocts a product and sustains demand only sufficiently so that the products finally end up in some unfortunate distributors’ garage. The second source of market power lies in the hands of the mass of consumers. Suddenly, unlike how things used to be in the old and impoverished society, the demand of one person is a function of the demands of some other individuals, their neighbours, perhaps. Galbraith’s observation in this matter is a nod to the Keynesian classification of goods, explicated during the early stages of the West’s rise to affluence in his essay Economic Opportunities for Our Grandchildren.

All the while, the poor, unable as they are to participate in market activity, remain a concern in the footnotes of economic principles. Their demand for basic shelter, food and sanitation are not binding market forces, and so, the market fundamentals of these goods, given its abundance in the affluent society, become gravely understated. If much of economics is about the dynamics between investors and financial instruments, if much of it is about the creation of value through “clever salesmanship and advertisement”, then much of it is about the interactions between the rich and the rich. The fact of rising inequality is testament either to a disproportionate representation of interests in economic debate, or an unfortunate necessary condition for any extent of total growth. If widening inequality is not a necessary condition for total growth, then more of debate should be centred around efficient mechanisms of food allocation, and that of other things that one need not be reminded by TV commercials or a billboard somewhere that they so desperately need in their lives.