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essays

October 1976

Galbraith, Money: Whence It Came, Where It Went

“Perhaps [Galbraith] longs once again for the incredible power [Keynes] possessed. We can only hope that he never gets it.”

Money: Whence It Came, Where It Went

By John Kenneth Galbraith

Reviewed by Bruce Bartlett / Houghton Mifflin, 1975 / $10

John Kenneth Galbraith is many things to many people. One of the things he is not, however, is a good economist. If his past efforts were not enough to justify this conclusion, then this, his latest book, certainly is.

Galbraith begins with a short history of money—so superficial as to be almost worthless. He goes through the emergence of precious metals as a medium of exchange (without a mention of Carl Menger), notes the development of paper money, the origin of the Federal Reserve System, and briefly discusses the great German inflation of the 1920s.

Then, Galbraith gets around to his true purpose for writing this book, which is another protracted polemic on the virtues of John Maynard Keynes. Once again the reader is subjected to a rehash of Galbraith’s The Great Crash, 1929. Galbraith condemns the Fed for not expanding the money supply and blames a reactionary fear of inflation on the part of business, Congress, and most economists.

His technique is to slur anyone who believes in gold or voices fear of inflation. For example, Galbraith makes a point of attacking Professor Edwin Kemmerer of Princeton by making it seem that he supported the gold standard only because he made a lot of money advising foreign governments on the subject. Galbraith also has contempt for the Austrian School and makes it appear as though Mises, Hayek, Schumpeter, Haberler, Machlup, and Morgenstern attack inflation and socialism only because they lived through the post-World War I inflation in Germany and Austria. Such ad hominem attacks by Galbraith are so blatant that Marxist historian Eugene Genovese felt obliged to defend the Austrians in his review for the New York Times.

The meat of Galbraith’s book begins, appropriately enough, with a chapter called “The Coming of J.M. Keynes.” It is a significant chapter, however, because Galbraith makes several admissions about Keynesian economics. First, he admits that the economic policy of Hitler and Nazi Germany was essentially one of Keynesian economics. Keynes himself admitted this in a famous forward to the German edition of The General Theory. What is interesting about Galbraith, though, is his implied criticism of the United States for not having followed Hitler’s lead!

“… the only thing that separates Keynes’ ideas from those of acknowledged cranks like Waddill Catchings, is the fact that Keynes is taken seriously.”

Galbraith goes on to state that “the effect of The General Theory was to legitimize ideas that were in circulation. What had been the aberations of cranks and crackpots became now respectable scholarly discussion.” In other words, the only thing that separates Keynes’ ideas from those of acknowledged cranks like Waddill Catchings, is the fact that Keynes is taken seriously.

Galbraith points out that the New Deal was not basically a Keynesian program. Rather, it was a disjointed hodgepodge of programs that reacted to individual problems but had no rational organization. “It was,” Galbraith says, “a policy in search of a rationalization, the rationalization that Keynes provided.” This seems very close to saying that Keynes wrote the General Theory as a justification for policies that the government was already pursuing—which helps explain its extraordinary popularity.

It was not enough, however, to have a theory that conveniently fit the times. Keynes also needed fellow conspirators. According to Galbraith, the chief American “conspirator” was Professor Alvin Hansen. His influence spread to the generation of students at Harvard that brought the Keynesian gospel to Washington. “Fortunately,” Lauchlin Currie (later accused of Communist connections) was chief economist of the Federal Reserve Board. Galbraith says that in this capacity, and later at the White House, Currie made a point of always filling slots for government economists with men “of assured Keynesian convictions.” Thus the bloodless revolution was achieved.

Finally, Galbraith is forced to deal with the consequences of the Keynesian revolution. Once again he drags out price controls as the only way to stop the inflation generated by vast government spending and monetary expansion. His devotion to this remedy probably stems not only from his inability to criticize Keynesian economics for causing all the problems, but also from his nostalgia for the Price Control Commission, where he served during World War II. Perhaps he longs once again for the incredible power he possessed. We can only hope that he never gets it.

“… this book … is another protracted polemic on the virtues of John Maynard Keynes.”