High Noon for Galbraith

According to conventional economic theory, when unemployment is high and factories are running at less than full tilt, prices are not supposed to shoot upward. Increasingly, however, they have--as indeed they are doing now. That anomaly poses a formidable challenge to economists, and it is the paradox to which John Kenneth Galbraith addresses himself in his latest book: Money: Whence It Came, Where It Went (Houghton Mifflin, $10). His conclusion: "Corporate and union power" is the heavy; it "can defeat efforts to combine high employment with stable prices" regardless of the state of business, and can be curbed only by wage-price controls enacted and enforced not as a temporary expedient but as a permanent feature of the economy.

That is a theme Galbraith has argued many times before. Nonetheless, any new book by the retired Harvard professor and onetime (1961-63) Ambassador to India is an event--even if he is a compulsive overstater of his positions. Connoisseurs of civilized wit and stylish prose will be particularly pleased with this work. In recent books--notably Economics and the Public Purpose, published in 1973, which argued for a "new socialism"--Galbraith has seemed tediously preachy. In Money he has recovered the gently acerbic touch that he displayed as a reformist capitalist, and that made popular such books as The Affluent Society and the New Industrial State. Sample putdown: "Those who talk of money and teach about it and make their living by it gain prestige, esteem and pecuniary return, as does a doctor or a witch doctor, from cultivating the belief that they are in privileged association with the occult ... Though professionally rewarding and personally, profitable, this too is a well-established form of fraud."

Fool's Choice. Galbraith sugarcoats his familiar plea for controls with an engaging and eminently readable economic history that speeds through no fewer than 27 centuries in 300 pages. From 700 B.C. to A.D. 1975, says Galbraith, national leaders have wrestled ineptly with the problems of economic management--in recent years by trying to make "a fool's choice" between inflation and high employment. No such choice is necessary, says Galbraith, with an obvious eye on the 1976 U.S. elections: Government could stimulate the economy as much as might be necessary, without causing inflation, if only the public knew enough about the wonders that wage-price controls can perform to elect an Administration that would dare to impose them.

Alternative remedies to the problem of inflation in an underemployed economy are brushed aside with a few strokes of the pen. Keynesian faith in fiscal (tax-and-spending) policy to end recessions and damp down inflations is questioned in a chapter titled "The New Economics at High Noon." Galbraith argues that the reluctance of governments to raise taxes or cut spending during booms proves "the fatal inelasticity of the Keynesian system." Monetary policy is dismissed as "a perverse and unpredictable lever" and Economist Milton Friedman's carefully documented thesis that rapid expansion of a nation's money supply contributes to inflation is rejected as "breathtakingly simple."

Serious Problem. Those words might, with Galbraithian irony, be applied to the author's own belief in wage-price controls as a panacea. Corporate and union power is indeed a serious problem for any government trying to restrain inflation, and there are times when wage-price restraint must be enforced. But Galbraith-style permanent controls tend in the long run to suffocate economic life by distorting market forces, discouraging business investment and initiative, and creating shortages. They also breed worker resentment over lost wage boosts that translates into more social and political unrest than a popularly elected government can afford. On the one hand, Galbraith indicts government for unfailing economic mismanagement; on the other hand, he trusts government to save the day with wage-price controls. He thus seems to fall into an inconsistency he might relish in an opponent.

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