J. K. Galbraith (1908–2006) rose to prominence during the Second World War when the US government appointed him to lead their inflation-combatting Office of Price Administration. Its work may have antagonized many, but it allowed Galbraith to test economic theory, begin a prolific writing career, and create an international platform (particularly during President Kennedy’s era) for him to advocate a “post-Keynesian economy.” In his 1952 book, American Capitalism: The Concept of Countervailing Power,15 Galbraith noted that the US economy was totally (and probably best) managed by the combination of big business, a strong labor market, and an activist government. He saw their interplay as countervailing power—in marked contrast to the virtual laissez-faire 1920s and 1930s. Galbraith wanted to call his 1958 book Why the Poor are Poor but was dissuaded by his wife and his publishers, and it came out as The Affluent Society.16 It revealed Galbraith’s central argument that a capitalist economy, such as the USA’s, had to create a demand for products (however useful or not), engendering continual acquisition through advertising, despite Galbraith being personally critical of that. He argued that taxation must be used to enable the social infrastructure (e.g., education, road networks, “safety net provision”) of the nation to grow apace. Galbraith was interventionist and described as a “post-materialist.”
The Second World War had left a huge agenda. The Communist revolution in China isolated the then second-largest nation from the rest of the world. Its Maoist (rather than Marxist) economics saw its people ruled by a pampered, self-perpetuating oligarchy, which brutally suppressed the people, using food supply, fear, and mass starvation to control them.17 Stalinist hardening of attitudes in the Soviet bloc led to the Cold War. The world was actively witnessing the rise of both Communism and individually powerful nations, with alternative economic models that did not retain simply peasant economies. The 1948 partitioning and independence of India heralded the end of the old colonialism and the beginning of a new economic world order.
The free world had its own problems; European nations had bankrupted themselves in their war efforts. President Truman’s US administration recognized the potential to take control again of the free world economic system, having no desire to restrain its own capacity to run large trade surpluses with as many other nations as possible. A new fixed exchange rate, known as the “Bretton Woods system,” was instigated, linking afresh other currencies to a known dollar rate; thus again controlling international money supply. To enable this, two organizations were set up. One was the International Monetary Fund (IMF), which became the capitalist world’s “fire brigade”—and still is—despite Bretton Woods’ 1970s demise. The second was a US-European partnership to create what subsequently became the Organization for Economic Cooperation and Development. In the USA, all this created room for Galbraith’s post-Keynesian economic models to be exported throughout the free world.
The Marshall (George, not Alfred’s!) Plan set out to dollarize Europe. It underfinanced Britain’s renewal, causing the UK to have little involvement in the future control of Middle Eastern oil reserves, progressively “developing” other European economies at the USA’s speed and expedience, while rehabilitating (western) Germany and Japan in its own capitalist modeling. In Jesus’ days, the denarius and Roman domination created a Pax Romana; by the 1950s the USA was using its dollar clout and global muscle to declare a Pax Americana.
In the second half of the twentieth century, Milton Friedman (1912–2006) was among those leading economists who argued that the central bank would always have difficulty in forecasting the nature of both national and international money supply, leading to vast fluctuations in regional economies. Friedman saw direct links between inflation and money supply, having been harshly critical of the “Bretton Woods system,” the Federal Reserve system, and Keynesian policies, then later such policies’ creation of homeland “welfare dependency.” His many writings clarifying his economic theories, called “monetarist,” and his libertarian overview of social policies (e.g., gay rights, no military conscription, and negative taxation) helped him win the 1976 Nobel prize for economics.
Perhaps surprisingly, it was the monetarist Alan Greenspan, later chair of the Federal Reserve, who enabled both Thatcher and Reagan to utilize Friedman’s monetarist thinking to determine transatlantic laissez-faire economic policies for the 1980s. From his earliest days, following the 1987 stock market crash, Greenspan’s lengthy Federal Reserve tenure saw him rightly criticized as a “loose monetarist,” allowing currencies and systems to fail before offering to clear them up, only then using US liquidity with hindsight. Despite criticism, Greenspan was a smart cookie, becoming a chief adviser to Deutsche Bank after his Fed days, and in early 2007 rightly predicting a 2008 global recession, which would profoundly affect the USA.
This brief, historically subjective essay is now almost too close to the present sufficiently to analyze changing theory in this generation. We look at some of the main issues and problems in the next chapter. But there are new voices and expressions about how things could be done and economies managed. Like Friedman, Friedrich Hayek (1899–1992) was a penetrative analyst and Nobel laureate, who recognized that economic theory had to be advocated within a broader social and philosophical framework.
That broader approach is essential to this book’s trajectory, finding support in the writings of E. F. Schumacher and the “Ecological Economics” school. As we discover in chapter 3, the well-argued commitment of Jeffrey Sachs, Joseph Stiglitz, and Herman Daly, all renowned World Bank economists, are also within it. However, in Europe, the writings of economists such as Molly Scott Cato and Thomas Piketty, alongside those of popular commentators (e.g., Naomi Klein), build upon Schumacher’s beginnings, establishing an alternative, if not an eco-, economic school. In chapter 10, I offer conclusions about how important all these writers are in forcing economic theory to turn another corner.
Key economic practices
We can choose to advocate a society like the Wild West frontier or the Scottish Border Reivers’ territory, when what you have and can keep, normally by force, allows you to be “king of the castle,” creating your own wealth to provide literally everything you and your dependents need.
The world is not like that. In various configurations we live in society with each other, with varying levels of interdependence. In that mutual reliance, there have to be some rules (e.g., looting or taking by force is wrong), and once we step beyond subsistence agrarian societies, something will become currency, be it furs, slaves, food, salt, or gold. Economic principles and practices develop.
Until recent decades, the Westernized nations of North America, the UK, and Eurozone as well as Australasia have effectively acted together as a control and a brake on the global economy. They have had the ability to control both the growth of nations such as Japan, and also the restrictions upon the prices of products from the developing nations, such as those from Southeast Asia or Africa. They have done this by extending their own principles of taxation, by commodifying almost everything, yet inadvertently creating an uncontrollable global monetary system and not truly recognizing the power of “the new kids on the block.”
Taxation
Was it not Benjamin Franklin who said, “In this world nothing can be said to be certain, except death and taxes”? The previous part of this chapter affirms how taxation is a necessary part of society. If we want roads (and road repairers), education for our children or a judicial system, these have to be paid for and some system of federal or city taxation is required to do so. The key principle is how such taxation should be applied: should it be progressively applied to income or to the amount of one’s possessions? Should we have a “purchase tax” upon some (or all?) goods and services? All civilizations have had taxation of