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American Capitalism: The Concept of Countervailing Power
In his new introduction to this classic text on political economy, Galbraith reasserts the validity of the core thesis of American Capitalism: The best and established answer to economic power is the building of countervailing power. The trade union remains an equalizing force in the labor markets, and the chain store is the best answer to the market power of big food companies. This work remains an essential guidepost of American mores as well as that as of the American economy.
220 pages, Paperback
First published January 1, 1952
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About the author
John Kenneth Galbraith
205 books506 followersJohn Kenneth Galbraith was a Canadian-American economist. He was a Keynesian and an institutionalist, a leading proponent of 20th-century American liberalism and democratic socialism. His books on economic topics were bestsellers in the 1950s and 1960s. A prolific author, he produced four dozen books & over a 1000 articles on many subjects. Among his most famous works was his economics trilogy: American Capitalism (1952), The Affluent Society (1958) & The New Industrial State (1967). He taught at Harvard University for many years. He was active in politics, serving in the administrations of Franklin Roosevelt, Harry Truman, John Kennedy, and Lyndon Johnson. He served as US Ambassador to India under John F. Kennedy.
He received the Presidential Medal of Freedom twice: one in 1946 from President Truman, and another in 2000 from President Clinton. He was also awarded the Order of Canada in 1997, and in 2001, the Padma Vibhushan, India's second highest civilian award, for strengthening ties between India and the USA.
He received the Presidential Medal of Freedom twice: one in 1946 from President Truman, and another in 2000 from President Clinton. He was also awarded the Order of Canada in 1997, and in 2001, the Padma Vibhushan, India's second highest civilian award, for strengthening ties between India and the USA.
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Displaying 1 - 15 of 15 reviews
September 11, 2016
Writing in 1952, Galbraith argues that the prior 20 years (the great depression and Ameria's WW2-driven recovery) proves that we must reconsider a fundamental economic assumption. Namely, that perfect competition does not exist in the US economy, and that there is enough consolidation of businesses in most industries that companies do indeed have control over prices. This in turn limits optimal market efficiency, and "is different only in degree and precision" of a single-firm monopoly.
Galbraith goes on to argue that the most important power dynamic to study in American economics is therefore not how competitors interact to optimize prices, but how customers and suppliers interact to split profits. Instead of competition, he calls this "countervailing power". Namely, when one industry consolidates (say the US Steel industry), the important dynamic to understand is how labor organizes (one of the key vendors of US Steel is its employees) or how customers organize (e.g., the auto industry).
Galbraith then points out that the US Government plays a critical role in establishing countervailing power where there wasn't before, through laws and reforms like the minimum wage or workers' safety regulation. Obviously, this role for the US Government is controversial in practice
"Increasingly, in our time, we may expect domestic political differences to turn on the question of supporting or not supporting efforts to develop countervailing power. Liberalism will be identified with the buttressing of weak bargaining positions in the economy; conservatism - and this is its proper function - will be identified with the protection of positions of original power. There will be a debate over whether weak positions have been unduly strengthened"
Galbraith goes on to say where and why government intervention in the economy to establish countervailing power is important, but the conclusions to me ultimately feel pretty obvious.
Galbraith goes on to argue that the most important power dynamic to study in American economics is therefore not how competitors interact to optimize prices, but how customers and suppliers interact to split profits. Instead of competition, he calls this "countervailing power". Namely, when one industry consolidates (say the US Steel industry), the important dynamic to understand is how labor organizes (one of the key vendors of US Steel is its employees) or how customers organize (e.g., the auto industry).
Galbraith then points out that the US Government plays a critical role in establishing countervailing power where there wasn't before, through laws and reforms like the minimum wage or workers' safety regulation. Obviously, this role for the US Government is controversial in practice
"Increasingly, in our time, we may expect domestic political differences to turn on the question of supporting or not supporting efforts to develop countervailing power. Liberalism will be identified with the buttressing of weak bargaining positions in the economy; conservatism - and this is its proper function - will be identified with the protection of positions of original power. There will be a debate over whether weak positions have been unduly strengthened"
Galbraith goes on to say where and why government intervention in the economy to establish countervailing power is important, but the conclusions to me ultimately feel pretty obvious.
January 27, 2024
Galbraith describes and defends American capitalism since Keynes, mostly against conservatives fearing the new keynesian paradigm. I can imagine this book had quite some impact in the US of the 1950s, but I wouldn't be able to tell people why you should read it in 2024.
Galbraith argues that conservatives & liberals, thinking within the framework of the traditional competition model, ignore the question of economic power. Fair enough, but he then reintroduces "power" as essentially market power (oligopoly and monopoly), ignoring structural power relations in capitalism (as the neo-republican marxists have pointed out). The conclusion from this book still is: If capitalism would be "competitive", their wouldn't be any hierarchy in power. Galbraith, battling the 'outdated' classical competition view, hasn't shaken off its assumptions sufficiently.
His concept of countervailing power is a term used to argue against conservative discourse of Keynesianism leading to socialism. Since monopoly is part of American capitalism, the question of power comes to the fore. However, rather than using brutal socialist force to win the battle of power, the "other side" builds a countervailing power. He tries to define it in economic terms first (a monopoly of the buyers' side of the market emerges to counteract), but then only uses the concept to analyse the labour market (and agriculture). Aka, "countervailing power" is basically class struggle. Fair enough, again. Institutionalising and pacifying class struggle is something different than socialism. But it's a fairly easy point.
Then he tries to allocate a role for the state within this countervailing power. This was kind of annoying, because he assumes that the state is independent from class struggle, being able to intervene as the technocratic actor between supply and demand. There is no investigation as to which degree the state is able to be "independent" from class struggle, and how constraints on government intervention are created.
Galbraith argues that conservatives & liberals, thinking within the framework of the traditional competition model, ignore the question of economic power. Fair enough, but he then reintroduces "power" as essentially market power (oligopoly and monopoly), ignoring structural power relations in capitalism (as the neo-republican marxists have pointed out). The conclusion from this book still is: If capitalism would be "competitive", their wouldn't be any hierarchy in power. Galbraith, battling the 'outdated' classical competition view, hasn't shaken off its assumptions sufficiently.
His concept of countervailing power is a term used to argue against conservative discourse of Keynesianism leading to socialism. Since monopoly is part of American capitalism, the question of power comes to the fore. However, rather than using brutal socialist force to win the battle of power, the "other side" builds a countervailing power. He tries to define it in economic terms first (a monopoly of the buyers' side of the market emerges to counteract), but then only uses the concept to analyse the labour market (and agriculture). Aka, "countervailing power" is basically class struggle. Fair enough, again. Institutionalising and pacifying class struggle is something different than socialism. But it's a fairly easy point.
Then he tries to allocate a role for the state within this countervailing power. This was kind of annoying, because he assumes that the state is independent from class struggle, being able to intervene as the technocratic actor between supply and demand. There is no investigation as to which degree the state is able to be "independent" from class struggle, and how constraints on government intervention are created.
December 6, 2014
I read this along with several other Galbraith books for the Capitalism, Democracy, Socialism class taught under the Philosophy Department at Loyola University Chicago during the first semester of 1981/82. It is one of Galbraith's weaker texts, and one of his earliest, being effectively the first volume of a series including The New Industrial State and Economics and the Public Purpose.
December 7, 2014
Galbraith's criticisms are valid and eloquent, but his solutions are broad and largely undefined. The text is certainly an interesting read for anyone who feels discontented with American Capitalism, but don't expect anything radically new or invigorating.
March 6, 2023
This work has aged, but the point is still a fair one. Monopolies are dangerous for the health of the economy.
If we only still had the countervailing power. But the Dems and the Publicans both fell sway to the happy talk of neoliberalism, and now all we have are banana republicans.
If we only still had the countervailing power. But the Dems and the Publicans both fell sway to the happy talk of neoliberalism, and now all we have are banana republicans.
September 3, 2020
This book gave me some exposure and insight into the Keynesian economic theory and how the Depression helped mold the American perspective and policies on our economy, both at home and within our foreign policies.
April 20, 2018
Curious it seems why Galbraith was as popular and celebrated as he was. In this book, American Capitalism, Galbraith argues how companies functions inefficiently by misallocating resources and spending wastefully on advertisements. Moreover, as companies continue to merge and accumulate larger proportions of the market share, these companies will, undoubtedly, be able to affect price and form a monopoly. In such monopolistic position, companies will be able to charge almost as much as they want and will have large power over the workforce. As such, Galbraith finds there are countermeasures, what he calls 'countervailing powers,' which will balance the scale of power. These countervailing powers include labor unions, government legislation, and social safety nets. Thus, Galbraith concludes government has an important role in regulating the economy and to help the workers.
Yet as complete as Galbraith's analysis of American capitalism seems, nearly every point is incorrect. American Capitalism contains arguments from essentially an armchair economist who remains ignorant of the real world. He provides no real examples whereby companies are able to control the entire market within an industry--and it is clear why: there are almost no cases! There is essentially no company that came to buy every other company and then proceeded to raise its prices. If one such company initiated purchasing of other companies in the industry, the remaining companies will take notice. If these remaining companies are still operating with a competitive edge, the cost of purchasing these companies will become larger and larger, thus also encouraging new companies to enter the market. Now even if one company came to completely dominate an entire industry, there will be still alternative resources. For example, if one company came to own all the orange farms and all orange-related production, there remains apple, lemon, grapefruit, milk, water and so on as competitors. Simply obtaining a large--or entire--market share of an industry does not necessarily mean monopolistic power. Differing sizes of companies are due to differing efficient sizes of serving consumers for each industry.
On Galbraith's criticism of wasteful advertising, simply because he may not find smoking or liquor terribly important does not mean other people may not enjoy these products. The purpose of advertising is to inform consumers of new products. If someone invented an innovative, cheap, and clean alternative to our current gas-powered engines, then advertising is used. If someone invented meat derived from plants that is cheaper and healthier than our current food, then advertising is used. Moreover, advertising does not persuade consumers of ineffective products over the long run. If a product fails to deliver promises from advertising, the company's reputation will be rightfully tarnished, and fewer people will accept their claims or buy their products. People are not simply brainwashed into buying whatever ad is on TV or radio; people are not brainless zombies.
Finally, on Galbraith's thesis of countervailing power, even if it were true workers are crushed under corporate power, it does not follow that government is the solution. Indeed, if government attempts to manipulate and manage businesses, who already has company, power, and influence over government agents? It is of course the CEOs, the lobbyists, and the cronies of politicians. Workers may form voluntary unions if they feel they are being treated unfairly but they are in no position to halt other individuals who are willing to work under such conditions. Galbraith's over-optimism on the role and action of the government remain unsatisfactory and unsupported.
American Capitalism, while interesting and written clearly, demonstrates how even an extremely influential economist may not know economics and is out of touch with reality. The book is fraught with historical inaccuracies, statistical misrepresentations, over-generalizations, and unsupported statements. Those who have studied America's Great Depression, monopolies and antitrust, government economic regulations, inflation, and other supposedly Keynesian 'remedies' will consequently find this book greatly mistaken. To better spend your time, read instead What Has Government Done to Our Money by Murray Rothbard, In Defense of Deflation by Phillipp Bagus, and The Causes of Economic Crisis by Ludwig von Mises.
Yet as complete as Galbraith's analysis of American capitalism seems, nearly every point is incorrect. American Capitalism contains arguments from essentially an armchair economist who remains ignorant of the real world. He provides no real examples whereby companies are able to control the entire market within an industry--and it is clear why: there are almost no cases! There is essentially no company that came to buy every other company and then proceeded to raise its prices. If one such company initiated purchasing of other companies in the industry, the remaining companies will take notice. If these remaining companies are still operating with a competitive edge, the cost of purchasing these companies will become larger and larger, thus also encouraging new companies to enter the market. Now even if one company came to completely dominate an entire industry, there will be still alternative resources. For example, if one company came to own all the orange farms and all orange-related production, there remains apple, lemon, grapefruit, milk, water and so on as competitors. Simply obtaining a large--or entire--market share of an industry does not necessarily mean monopolistic power. Differing sizes of companies are due to differing efficient sizes of serving consumers for each industry.
On Galbraith's criticism of wasteful advertising, simply because he may not find smoking or liquor terribly important does not mean other people may not enjoy these products. The purpose of advertising is to inform consumers of new products. If someone invented an innovative, cheap, and clean alternative to our current gas-powered engines, then advertising is used. If someone invented meat derived from plants that is cheaper and healthier than our current food, then advertising is used. Moreover, advertising does not persuade consumers of ineffective products over the long run. If a product fails to deliver promises from advertising, the company's reputation will be rightfully tarnished, and fewer people will accept their claims or buy their products. People are not simply brainwashed into buying whatever ad is on TV or radio; people are not brainless zombies.
Finally, on Galbraith's thesis of countervailing power, even if it were true workers are crushed under corporate power, it does not follow that government is the solution. Indeed, if government attempts to manipulate and manage businesses, who already has company, power, and influence over government agents? It is of course the CEOs, the lobbyists, and the cronies of politicians. Workers may form voluntary unions if they feel they are being treated unfairly but they are in no position to halt other individuals who are willing to work under such conditions. Galbraith's over-optimism on the role and action of the government remain unsatisfactory and unsupported.
American Capitalism, while interesting and written clearly, demonstrates how even an extremely influential economist may not know economics and is out of touch with reality. The book is fraught with historical inaccuracies, statistical misrepresentations, over-generalizations, and unsupported statements. Those who have studied America's Great Depression, monopolies and antitrust, government economic regulations, inflation, and other supposedly Keynesian 'remedies' will consequently find this book greatly mistaken. To better spend your time, read instead What Has Government Done to Our Money by Murray Rothbard, In Defense of Deflation by Phillipp Bagus, and The Causes of Economic Crisis by Ludwig von Mises.
August 23, 2023
American Capitalism starts with a chapter on the “Insecurity of illusion”. Galbraith challenges us to examine our perceived fears in the economy. This examination is as worthwhile now as in 1952, when posited. On the right, people believe the government to be too powerful, our freedom at risk, and socialism around the corner. And on the left: big business is too powerful and these monopolies will destroy our way of life. "Conservatives and liberals, both, are the captives of ideas which causes them to view the world with misgivings or alarm."
Galbraith then remarks “Yet in the years in question we survived." Reality is that performance of American capitalism has been remarkable. And more people were content than unhappy.” Our economic models are just that, models but not perfect representations of reality.
Most original economic ideas of the late 1700s and early 1800s, came not from America but from economists and political philosophers of England, Scotland and France including Adam Smith, David Hume and Jean-Baptiste Say. “Say's Law of Markets” the basis for supply side economics of Ronald Regan (essentially since Keynes well disproven at least by intellectuals).
American Capitalism introduces us to the concept of countervailing power. We live in a world dominated not by monopolies but by oligopolies. Multiple large companies operating shoulder to shoulder to the benefit of all. The idea is that economic entities be they buyers or sellers serve as a counter balance to monopoly power more so than competitive capitalism. These large companies, think US Steel, many share a balance of their power with a large customer, perhaps GM in the automotive industry. Additional countervailing power are in the unions and overseas competition. This coupled with the extraordinarily high efficiency of technological change has benefited everyone. So customers buy, at fair prices, products and services and food from customers of customers that use hot-rolled, cold-rolled, coated sheet and strip-mill plate steel from US Steel.
Galbraith then remarks “Yet in the years in question we survived." Reality is that performance of American capitalism has been remarkable. And more people were content than unhappy.” Our economic models are just that, models but not perfect representations of reality.
Most original economic ideas of the late 1700s and early 1800s, came not from America but from economists and political philosophers of England, Scotland and France including Adam Smith, David Hume and Jean-Baptiste Say. “Say's Law of Markets” the basis for supply side economics of Ronald Regan (essentially since Keynes well disproven at least by intellectuals).
American Capitalism introduces us to the concept of countervailing power. We live in a world dominated not by monopolies but by oligopolies. Multiple large companies operating shoulder to shoulder to the benefit of all. The idea is that economic entities be they buyers or sellers serve as a counter balance to monopoly power more so than competitive capitalism. These large companies, think US Steel, many share a balance of their power with a large customer, perhaps GM in the automotive industry. Additional countervailing power are in the unions and overseas competition. This coupled with the extraordinarily high efficiency of technological change has benefited everyone. So customers buy, at fair prices, products and services and food from customers of customers that use hot-rolled, cold-rolled, coated sheet and strip-mill plate steel from US Steel.
February 17, 2020
Much too brief a study of its seminal thesis, containing neither a thorough theoretical analysis nor a historical study of countervailing power. Even so, the concept — that market institutions will develop (occasionally with state support) that check the excess power of other market institutions — remains compelling today. The labor unions which Galbraith cites as a paradigmatic countervailing power have largely withered away, albeit in part through the withdrawal of state support (via "right to work" laws). How can countervailing powers develop to tech giants whose supply AND consumers are both us, its users?
I picked up this book interested in the idea of large institutional investors as countervailing powers to corporate negative externalities. I now see this does not strictly fit Galbraith's thesis, which focuses on counterparties in market transactions.
I picked up this book interested in the idea of large institutional investors as countervailing powers to corporate negative externalities. I now see this does not strictly fit Galbraith's thesis, which focuses on counterparties in market transactions.
December 5, 2022
It appears that Amazon.com has managed to circumscribe what Galbraith has hypothesized as a "countervailing power" in order to short-circuit the power of an economic system where the concentrated action of buyers can cause a decrease in the level of prices. Whether Amazon.com's stock price will increase significantly in the coming years, as it seeks to maintain a level of market dominance bordering on a capitalist monopoly, (and it has truly earned a monopoly in terms of its responsiveness to the desire of consumers to find a product most in conformity with their previously inexpressible wishes,) is something that is currently in flux. I, myself, have elected to go with Amazon.com all the way; this company has truly changed my life for the better.
May 15, 2019
He doesn't mention land, rent, Henry George, or single tax.
to-keep-reference
November 23, 2018Sobre poder y democracia, citado en La idea de justicia.
There is today much anxiety about the positional power of large multinational corporations, but this is not new. A concern with the dominance of modern corporations led John Kenneth Galbraith, in his
1952 book American Capitalism, to explore the notion of the “countervailing power” of workers and consumer groups.
Inequality Pág.99
There is today much anxiety about the positional power of large multinational corporations, but this is not new. A concern with the dominance of modern corporations led John Kenneth Galbraith, in his
1952 book American Capitalism, to explore the notion of the “countervailing power” of workers and consumer groups.
Inequality Pág.99
October 24, 2020
A Classic. Very interesting to see the role of competition as an element from a Macroeconomics perspective. The author emphasizes the role of countervailing power in a concentrated economy as a disciplinary factor to restrain abuse in prices to consumers and reduction in wages — what competition would do in less concentrated markets. This is true when there is no inflation; otherwise, both supplier and buyer tend to “ally” themselves to extract the most income possible from consumers. The author recognizes that there would be a lack of resources for the economic agents to invest and innovate in overly pulverized markets. The author also comments on the eternal debate between liberals and conservatives on the best economics policy, recognizing that Keynesian ideas may have practical importance in times of economic depression.
June 30, 2011
Un libro fundamental para entender las transformaciones de la economía de Estados Unidos de la gran depresión a los años de la posguerra. en una postura fundamentalmente Keynesiana se critica la postura del capitalismo clásico y su modelo competitivo y como el Keynesianismo salvo pese a las criticas de los grupos conservadores el sistema económico en Estados Unidos.
El libro resulta una lectura muy interesante pues se pueden encontrar símiles con la estructura de economías como la nuestra y en general las que se encuentran en desarrollo, plagadas de injerencias privadas en asuntos públicos con grandes conflictos de intereses. Muy recomendado para aquellos que deseen entender algunos de los vicios y fenómenos mas comunes en estas economías.
El libro resulta una lectura muy interesante pues se pueden encontrar símiles con la estructura de economías como la nuestra y en general las que se encuentran en desarrollo, plagadas de injerencias privadas en asuntos públicos con grandes conflictos de intereses. Muy recomendado para aquellos que deseen entender algunos de los vicios y fenómenos mas comunes en estas economías.
January 23, 2010
I don't agree with him, but he is an important American economist (Canadian born, but spent most of his life in the U.S.), and this is one of his two classics.
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