GALBRAITH AND THE POST KEYNESIANS

By

Paul Davidson, Editor, Journal of Post Keynesian Economics

Abstract: This paper first discusses the evolution of John Kenneth Galbraith from a young neoclassical economist to a strong advocate of Keynes's policies. Later it explains how Galbraith encouraged and supported the development of the Journal of Post Keynesian Economics.

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Shortly after he published his wonderfully interesting memoir "A Life In Our Times"[Galbraith, 1981], Ken Galbraith sent me a copy of this book. In this copy he wrote : "For the Davidsons from the pre Keynesian world (and after too)". In the book, Galbraith discusses an interesting exchange of ideas between himself and Henry Dennison in 1936 on the cause of unemployment that took place. According to Galbraith, Dennison was, at the time, "the most interesting business man in the United States" [ Galbraith, 1981, p. 61].

Dennison believed that income from production moved into two streams. One went to people of modest income [primarily wage earners] who were likely to spend all they earned. The other stream went to the affluent and to business enterprises [profit recipients] and was likely to be saved. This view was similar to that of Kalecki.

According to Galbraith, Dennison believed that the cause of the depression "was the nonspending of the income in the savings stream. ..... [Dennison's] remedy or partial remedy was to shift taxation from income that was being spent ... to income on its way to being saved -- from a sales tax, as one example, to the corporate or personal income tax." [ Galbraith, 1981, p. 64] . (This view is in direct opposition to economists in the current Bush administration who would favor eliminating the income tax in favor of a national sales tax.)

Galbraith tried to convince Dennison that unemployment was the result not of oversaving but rather due to the that "free competition had given way to oligopoly and monopolistic competition.... The shortfall in production from these defects caused the depression.... The remedy was more competition".

Galbraith wrote a lengthy paper explaining all of this to Dennison. Obviously, at this early stage of his career, Galbraith was a good neoclassical economist trapped by the teaching of his professors at Berkeley.

Galbraith writes, however, that "In the very same weeks that I was writing my brief for my views on competition and thus refuting the errors of Dennison, I was reading The General Theory. As I did, I discovered that Keynes was with Dennison and not with me." [ Galbraith, 1981, p. 65]. Galbraith recognized that Keynes's "explanation of oversaving was much more sophisticated" than Dennison's, "but in practical consequences precisely the same" [Galbraith, 1981, p. 65]. Galbraith tells the reader "I was shaken" by Keynes argument. Consequently, Galbraith told Dennison that Keynes was supportive of the Dennison position rather than Galbraith's competition vs. monopoly argument. Dennison response to this information was simply that he was not surprised since "Keynes has made more sense than most economists" [Galbraith, 1981, p. 66].

Yet, Galbraith's talent as a wordsmith extraordinary, had made such a persuasive argument in his paper that Dennison thought there might be something in the Galbraith position. Consequently, Dennison forwarded the Galbraith paper to Felix Frankfurter (then still a law professor at Harvard) . Frankfurter, believing that Dennison had given him the Galbraith paper as a proposal for a book, forwarded the paper to an Oxford University Press editor. The latter accepted this "proposal" and offered Galbraith a book contract.

Galbraith tells us that the "Dennison was delighted and I [ Galbraith] did not resist" the book contract. Dennison and Galbraith collaborated on a book entitled Modern Competition and Business Policy [1938]. Only an honest author like Galbraith would later write about this book "It is a bad book that should never been printed... But being an expression in slightly novel form of a superbly orthodox position, it attracted favorable attention". [Galbraith, 1938, p. 66].

From this anecdote about his life, what can we conclude about Ken Galbraith?

First and foremost, Ken Galbraith is one of those rare specimens -- an honest economist rather than an ideologue. Only such an economist can have a mind that, after receiving his Ph. D., is receptive to new ideas, theories and policy prescriptions as economic events unfold and as the economic system evolves.

This reminds me of another anecdote regarding the first biographer of Keynes, Sir Roy Harrod. Harrod had been passed over for the Drumond Professorship in economics at Oxford. Harrod visited the University of Pennsylvania while I was an Associate Professor there in the early 1960s. At social engagements at Pennsylvania, I would often introduce him to others as "Sir Roy Harrod of Oxford University". The usual response was "So glad to meet you Professor Harrod". To which Harrod would reply "I am not a Professor, my title at Oxford is Student of Economics at Christ Church". There would be an immediate question of why Harrod had such a title since he obviously was not an undergraduate. Harrod's response was "Professors merely profess what they have already learned years ago. As a Student of Economics, I continue to learn more economics each day". John Kenneth Galbraith is both Student and Professor. He continues to learn about the changing real world of economics and politics and continues to profess his knowledge and insights to his world wide audience.

Following his recognition of Keynes's insightful analysis, Galbraith decided to go to Cambridge to get, so to speak, infused in Keynes's general theory at its well-spring origin rather than from the Harvard seminars on Keynes that "were frequent and intense" with a difference of views on Keynes between the younger and elder faculty members. So in September 1937, Galbraith and his new wife, Kitty, departed for England to spend the year at Cambridge University. Unfortunately, Keynes was still recovering from his heart attack and so Galbraith's exposure to Keynesianism was left to informal discussions with Richard Kahn, Joan Robinson, Piero Sraffa, and even Michael Kalecki. Galbraith notes that the formal Cambridge lectures on money and banking by D. H. Robertson "were not memorable although spiced on occasion with a certain innovative meanness. Robertson, a gentle man, was deeply pained by the errors of Keynes and also possibly by his notoriety". [Galbraith, 1981, p. 76]. From this background, Galbraith indicates he "penetrated the thicket of technical controversy surrounding Keynes's work and became one of the acknowledged oracles" [ Galbraith, 191, p. 77]. So we can date the academic year 1937-8 as the point in time when the neoclassical Galbraith disappeared and the Keynesian Galbraith emerged.

It is interesting to see a common thread in the development of the father of American Post Keynesian economics, Sidney Weintraub. Sidney was born in1914 – some six years after Ken Galbraith. Sidney was the second son of an immigrant, Aaron Weintraub. Aaron was a grocer who lived and worked in the Coney Island section of Brooklyn, New York. As an undergraduate at New York University, Sidney became fascinated with financial markets when he became an assistant to Marcus Nadler, the famous NYU economics and finance professor.

Encouraged by NYU faculty members Sidney became a graduate student at NYU. For his Ph. D. degree, Weintraub chose to write a dissertation on the role of monopoly and imperfect competition in a dynamic setting. At this point of his life Weintraub was influenced by conservative classical theory – so much so that he claims to have voted for the Republican candidate for President in 1936.

In 1938 he was encouraged to go to the London School of Economics, which was still the citadel for conservative classical theorists. At LSE he realized that the intellectual activity in the UK was at Cambridge. Accordingly, he undertook to read and self-educate himself in Keynes's General Theory

Weintraub's first professional publications in prestigious professional journals such as the Quarterly Journal of Economics were adapted from chapters in his classical theory dissertation. Although these articles won critical acclaim from professional economists, Weintraub, like Galbraith, a year or so before him, had become a true Keynesian scholar by the end of the 1938-
39 academic year.

Galbraith returned to Harvard in September 1938. From 1935-1937, A young Canadian, Robert Bryce, who had attended Keynes's lectures at Cambridge between 1933 and 1935 was believed to be the authority on what Keynes really meant. But as Colander and Landreth pointed out in their book The Coming of Keynesianism to America [1996], Bryce's Harvard seminars on Keynes's analytical framework were originally developed to be given over four weeks to Hayek's seminar at the London School of Economics in 1935 -- before The General Theory was published. Bryce prepared his seminar series on Keynes from the notes Bryce took when he attended Keynes's lectures at Cambridge between 1933 and 1935. Bryce indicated that The General Theory "wasn't written to be easily understood.... Anyone who studies that book is going to be very confused" [Colander and Landreth, 1996, p. 44-5]. In other words, this missionary for Keynes at Harvard found Keynes's General Theory very difficult to understand and tended to rely on his lecture notes. And those of us who have taught large lecture sessions at Universities knows that very often what appears in a student's lecture notes can differ significantly from what we professed. Bryce left Harvard in 1937.

When Galbraith returned to Harvard in 1938, he inherit Bryce's mantle as one who understood Keynes's analytical framework. Unlike Bryce, however, Galbraith knowledge of Keynes came from studying The General Theory from cover to cover and discussing this framework with members of Keynes's Cambridge "circus" of Joan Robinson, Richard Kahn, etc. At the same time Galbraith returned to Harvard, Alvin Hansen, a recent convert to Keynesianism after being a severe critic of Keynes, joined the faculty and began giving lectures on Keynesian economics. Attending these lectures was Paul Samuelson. Hansen's version of Keynes filtered through the "simple mathematics of income determination" of Samuelson's 45-degree cross became, as Galbraith puts it, "the foundation of American economic thought, policy and instruction" [Galbraith, 1981, p. 91].

As early as the 1950s, my mentor and co-founder of the Journal of Post Keynesian Economics, Sidney Weintraub was arguing that the Hansen-Samuelson US version as well as the Hicksian ISLM version of Keynes were perversions of Keynes's analysis. [Weintraub would often tell his students that Hicks's analysis had become the ISLMic religion of economists.] It is in fact the reaction to Samuelson's neoclassical synthesis Keynesianism, which attempted to stitch together classical microeconomics with Keynes's macroeconomics, that gave birth the Post Keynesian movement. Accordingly it is interesting to speculate that if Galbraith had remained the most esteemed Keynesian at Harvard in the 1930s, would there have been any need for a separate Post Keynesian reaction to the Old Keynesianism of Samuelson, Solow, Tobin, etc.

I should note that Samuelson's neoclassical synthesis Keynesianism was partly induced by the McCarthyism politics of the time. Immediately after the war Lorie Tarshis, a Canadian student who attended Keynes's lectures (with Bryce) in the early 1930s, wrote a textbook based on his notes of Keynes's lectures. The book began selling very well, until William F. Buckley, a student at Yale, attacked Tarshis's book as being communist inspired. Sales of the book began to falter. In his book God and Man at Yale, Buckley devotes a whole chapter to trashing Tarshis's book. Tarshis's book sales went into a tailspin .

Samuelson is quoted in the Colander and Landreth book [1996, p. 131] as recognizing the effect of Buckley and others condemning the "Marxist-Keynesian position" of Tarshis book. Samuelson indicates that he therefore wrote his textbook in a "lawyer-like" mode. It is interesting that the term "neoclassical synthesis Keynesianism" does not appear in the early editions of Samuelson's textbook, but only later when the Buckley attack on Tarshis and the prominence of Senator McCarthy's witch hunts become prominent. This suggests to me that Samuelson was trying to avoid the Communist smear tactics by suggesting that his brand of Keynesianism was built on good solid conservative neoclassical microeconomics.

During this same McCarthy period, Weintraub was developing his aggregate demand and aggregate supply function approach to Keynes's General Theory in a series of articles in major professional journals In 1956 these were incorporated into Weintraub's masterpiece book An Approach to The Theory of Distribution. Unfortunately this book was reviewed by Bob Solow who complained that the shape and position of the aggregate supply curve involved Weintraub into all sorts of "implicit theorizing". With such a dismal review coming from the MIT bastion of Keynesian economics, Weintraub was written off by most professional economists. Accordingly like Galbraith before him, Sidney started writing more for the enlightened public than for professional economists. His famous tax based incomes policy (TIP) argument was joined by Henry Wallich of the Federal Reserve Board of Governors in the popular press. Clearly both Galbraith and Weintraub saw some form of "incomes policy" as the proper way to fight inflation.

I first saw Galbraith when I was a graduate student at the University of Pennsylvania and Ken came to give a seminar on "The Affluent Society". I was thoroughly enthralled with the Galbraith thesis and therefore even more amazed and dismayed at some of the hostile reaction of the older faculty members -- except Weintraub.

I did not meet Ken Galbraith again until I spend the academic year of 1970-71 at Cambridge University while working on my manuscript Money And The Real World [1972]. It was my good luck to find that Ken Galbraith would spend the first two terms of the same academic year at Cambridge giving lectures on what was to become Economics and the Public Purpose [1973]. Louise and I diligently attended all his lectures. By early October, I was having "elevensies" and afternoon "tea" with Ken, Austin Robinson, and Richard Kahn on almost a weekly basis.

At one of these elevensies, the talk turned to the second world war and the official secrets act. Ken Galbraith indicated that although the US did not have an official secrets act during the war, there was an ethical question as to what one could tell one's spouse. Ken noted that one week there was a decision to ration shoes beginning the following week. Rationing announcements were usually made on a Sunday because most stores were closed. That Friday before the announcement when Ken went home, his wife, Kitty, told him that she was going to go shopping for shoes on Saturday. When Kitty went shopping she usually bought two or more pairs of shoes. Consequently Ken was worried that someone would find she bought several pairs of shoes the day before the rationing announcement and think he had told her to stock up before shoes were rationed. "What did you do Ken?" we asked. Ken could not bring himself to tell Kitty about the rationing decision. Instead Ken found all sorts of things that he had to have her do for him on Saturday, so she did not go shopping.

Austin Robinson indicated he had an even better story to tell. One week when he was in Whitehall, intelligence was received that the Germans were going to invade England on the south coast. It was decided that if the Germans invaded there was not enough resources to defend the whole coast. According the decision was made to let the Germans take Devon and Cornwall, and for the armed services to defend the home counties.

When Austin went home that weekend, his wife, Joan, told him that a bomb had fallen on Cambridge and killed someone they knew. Accordingly Joan had talked to a neighbor who had a house in Devon and they both agreed that to keep their children safe, they should take their children to live for a while in the neighbor's Devon house. Joan indicated that she and the neighbor with the children were planning to travel there next week.

Austin was torn by the question should he disobey the Official Secrets Act and tell Joan if she followed that plan, she, the neighbor, and the children would probably end up being in German occupied territory, or should he obey the law and not tell her. What did you do. Austin's response was a simple " I let her go!"

While at Cambridge I once asked Ken why he had no Galbraithian graduate students in the profession and no Galbraithian school had been founded. His response was that he had written a technical thesis "A Theory of Price Control" which was either devastated or ignored by his professional colleagues at Harvard and elsewhere. Ken then felt that the only alternative way to force what he believed were important issues that he wanted to raise into public discussions in order to affect policy was to write directly to the enlightened public. This would force professional economists to examine the issues.

Another incident stands out in my mind. On 27 November 1970, Kitty Galbraith came up from London. Ken invited Louise and me to have lunch with Kitty and himself. We discussed many things, even Vietnam. I remember Ken saying he would have liked to be Secretary of State during the early days of the Kennedy Administration. Galbraith's opposition to military force in Vietnam is of course well known. But it was Dean Rusk, a strong hawk on Vietnam, who was Secretary of State. An interesting exercise is to try to think how the world would be different today if Galbraith rather than Rusk had been Secretary of State during those fateful days.

One final anecdote from my Cambridge periods with Ken Galbraith. One day, Ken informed Louise and myself that the AEA nominating committee had proposed him for the next President of the American Economic Association. Since the only alternative on the ballot was for a write-in candidate, nomination is equivalent to election. Nevertheless Ken had heard that Milton Friedman was so opposed to the Galbraith nomination that people at the University of Chicago were trying to organize a write-in campaign to defeat Galbraith. Of course, Galbraith won, but this tells how fearful conservative free market economists were of having a liberal Keynesian like Galbraith in this office. No such campaign has ever been launched against the more traditional neoclassical synthesis Keynesians. Perhaps this fear of Galbraith and his economics might help explain why he has never been awarded the Nobel Prize in Economics, although he clearly deserves it.

By the early 1970s, Monetarism had begun to dominate the Old Neoclassical synthesis Keynesianism of Samuelson, etc. in the economics profession. Keynes was becoming a dirty word. Sidney Weintraub argued that the effect would be that Keynesian theory would no longer be acceptable material for publication in professional economic journals – especially those published in the United States. Accordingly, Sidney approached me regarding the start of a journal that would be open to research and debate based on Keynes's analytical framework. Since I was, at the time, the area-wide Chairperson of the Economics discipline at Rutgers University, Sidney felt that I could mobilize some secretarial and typing resources necessary to get such a journal off the ground.

What would we name this journal? Sidney thought the obvious title would be the Journal of Keynesian Economics, but when I pointed out that the abbreviation of this title would be JOKE, that name was quickly discarded. Accordingly we chose the name Journal of Post Keynesian Economics– the JPKE.

We quickly discovered however, that the resources that I could muster at Rutgers University would not be sufficient to produce a journal that had high-quality publishing appearance. I suggested that perhaps we merely mimeograph each issue of the JPKE and mail it off to subscribers that way. But Sidney would have none of this. He decided that we should make a list of people who we would offer to make members of the Board of Editors of the JPKE. Then we would write to these people indicating why we thought there was a professional need for this new journal. We would ask them to not only be willing to let us use their names as members of the Board of Editors but also to ask them for a donation of at least $50 as seed money to get the journal off the ground. Our original list of potential contributors consisted of some 75 names. We hoped to get positive answers (and money) from at least 25 people on the list. To our amazement 67 of the 75 names accepted our invitation and sent us checks.

Unfortunately I never kept a copy of this letter of invitation so I do not know exactly what we said. But I do know we argued that we had to promote a return to the analytical framework that Keynes developed where

(1) Money was never neutral (even if wages and prices were perfectly flexible) .

(2) The elasticity of substitution between liquid assets and producible goods was zero so that if individuals held their savings in liquid assets no change in relative prices would move their savings out of these non-producible liquid assets into the products of industry. In other words, a decision to save out of income was a decision not to employ labor.

(3) The future was uncertain, i.e., unpredictable. (Later I was able to demonstrate that Keynes's uncertainty required nonergodic circumstances.)

When he received his copy of our letter of invitation, Ken Galbraith contacted us and indicated that he would match dollar for dollar whatever we received from the other contributors. He only asked that we have an editorial policy where we did not wait for manuscripts to, as he put it, "come over the transit". Instead we should also organize symposiums on important policy matters for publication in the JPKE. We immediately accepted this idea and have tried to faithfully follow it. With the Galbraith matching grant we were almost certain we could launch the JPKE.

But Galbraith ended up making another generous contribution. One late autumn day, the president of economics graduate student association at Rutgers came to me with a problem he were having. The association had received a grant of $2000 from Rutgers University to pay a name economist to come to the university to give a public lecture. He told me that they had originally invited Milton Friedman (who had been an undergraduate at Rutgers). After some time, Friedman declined the invitation. Then he had invited Arthur F. Burns (who had been Friedman's professor at Rutgers in the 1930s). Burns also declined. If the students did not get a name economist to come within the next three weeks, they would have to return the $2000 grant. The students had heard that I knew Galbraith and so they asked me to invite him. I suggested that three weeks is not a big window of opportunity for someone as well known as Galbraith. Nevertheless I would try.

I phoned Ken and invited him. He indicated that his calendar was very full and he did not think he could make it. I then said to him "Ken if you come, I will let you donate the $2000 honorarium in addition to the matching money you had promised to start up the JPKE". Without a moment's hesitation, Ken replied "Great! Contact my secretary and if she can possibly work out a time period in my calendar within your time constraint, I will be there." Within a few hours, the details had been worked out and Galbraith came within the week. He even paid his own travel expenses so that the entire $2000 could go to help launch the JPKE.

With these Galbraith augmented resources, Sidney Weintraub and I no longer had to worry about financing the JPKE and could concentrate on providing the reader the best possible manuscripts we could get.

Another anecdote about this Galbraith visit to Rutgers. Before his evening presentation, Louise and I had a small dinner for graduate students and my young assistant professor colleagues. At dinner one of the latter indicated that several years earlier, the college he had attended had a series of public lectures by famous economists. The first talk was by Walter Heller, the second by Milton Friedman, and the third by Ken Galbraith. When Friedman was asked what he thought of this particular series of presentations, Milton responded that he was the meat in the sandwich. Almost instantaneously Galbraith's concise retort was "Baloney".

The first issue of the JPKE contained a symposium discussing "what is Post Keynesian economics?". In his contribution, Galbraith wrote: "Post Keynesian economics, like the great Keynesian revolution of forty years ago, is amendatory and not revolutionary. It holds that industrial society is in a process of continuous and organic change, that public policy must accommodate to such change, and that by such public action performance can, in fact, be improved. Its commitment is to reformist change, not revolution, but it does not consider this commitment a slight passive thing" [Galbraith, 1978, p. 8].

In this expression, Galbraith held the torch so that Post Keynesians the world over could see their way forward. We Post Keynesians owe a considerable debt to John Kenneth Galbraith. I am proud to say he is my friend and my hero.

REFERENCES

Colander, D. C. and Landreth, H (1996) The Coming of Keynesianism to America, Elgar, Cheltenham.

Davidson, P. (1972), Money and the Real World, Macmillan, London.

Dennison, J. and Galbraith, J. K. (1938), Modern Competition and Business Policy, Oxford University Press, Oxford.

Galbraith, J. K. (1973), Economics and the Public Purpose, Houghton Mifflin, Boston.

Galbraith, J. K., (1978), "On Post Keynesian Economics", Journal of Post Keynesian Economics, 1.

Galbraith, J. K. (1981), A Life In Our Times, Houghton Mifflin, Boston.

Weintraub, S. (1986), An Approach To The Theory of Income Distribution Chilton, Philadelphia.