''American Capitalism: The Concept of Countervailing Power'' is a book by

John Kenneth Galbraith John Kenneth Galbraith (October 15, 1908 – April 29, 2006), also known as Ken Galbraith, was a Canadian-American economist, diplomat, public official, and intellectual. His books on economic topics were bestsellers from the 1950s through t ...

, written in 1952. It contains a critique of the view that markets, left to their own devices, will provide socially optimal solutions. Galbraith agrees with

F. A. Hayek Friedrich August von Hayek ( , ; 8 May 189923 March 1992), often referred to by his initials F. A. Hayek, was an Austrian–British economist, Jurisprudence, legal theorist and philosopher who is best known for his defense of classical lib ...

as far as the assertion goes that "the price system will fulfil tsfunction only if competition prevails, that is, if the individual producer has to adapt to price changes and cannot control them." The book presents Galbraith's account of the inter-relationship between politics and economics which for Galbraith is based on a theory of competition guiding a capitalistic democratic society.

Synopsis and summary

Galbraith builds on work by Prof. E. H. Chamberlin of Harvard and

Joan Robinson Joan Violet Robinson (''née'' Maurice; 31 October 1903 – 5 August 1983) was a British economist well known for her wide-ranging contributions to economic theory. She was a central figure in what became known as post-Keynesian economics. B ...

at Cambridge, as well as the work done by Joe S. Bain of the

University of California at Berkeley The University of California, Berkeley (UC Berkeley, Berkeley, Cal, or California) is a public land-grant research university in Berkeley, California. Established in 1868 as the University of California, it is the state's first land-grant univ ...

, arguing that the America of the early 1950s no longer complied to a textbook definition of

Perfect competition In economics, specifically general equilibrium theory, a perfect market, also known as an atomistic market, is defined by several idealizing conditions, collectively called perfect competition, or atomistic competition. In Economic model, theoret ...

. On page 66 he sets out the conclusions which result from the abandonment of competitive behaviour in favour of

oligopoly An oligopoly (from Greek ὀλίγος, ''oligos'' "few" and πωλεῖν, ''polein'' "to sell") is a market structure in which a market or industry is dominated by a small number of large sellers or producers. Oligopolies often result from ...

or crypto-monopoly:

"The producer now has measurable control over his prices. Hence, prices are no longer an impersonal force selecting the efficient man, forcing him to adapt the most efficient mode and scale of operations and driving out the inefficient and incompetent. One can as well suppose that prices will be an umbrella which efficient and incompetent producers will tacitly agree to hold at a safe level over their heads and under which all will live comfortably, profitably and inefficiently."

Just as the market at the micro-level may not always work to society's advantage, Galbraith concludes that

Keynes John Maynard Keynes, 1st Baron Keynes, ( ; 5 June 1883 – 21 April 1946), was an English economist whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originally trained in m ...

was correct in his explanation of the deficiencies of the macro-model where an equilibrium was possible below the

full employment Full employment is a situation in which there is no cyclical or unemployment#Cyclical unemployment, deficient-demand unemployment. Full employment does not entail the disappearance of all unemployment, as other kinds of unemployment, namely Structu ...

level of output and that without outside intervention, this equilibrium might persist. Galbraith highlights the role of "

Countervailing Power Countervailing power, or countervailance, is the idea in political theory of institutionalized mechanisms that the wielding of power within a polity having two or more centers can, and often does, provide counter-forces that usefully oppose each ot ...

" in dealing with

market failure In neoclassical economics, market failure is a situation in which the allocation of goods and services by a free market is not Pareto efficient, often leading to a net loss of economic value. Market failures can be viewed as scenarios where indiv ...

& outlines its operation at the micro, and at the macro levels. At the micro level, firms might merge or band together to influence the price. Individual wage earners might also combine in unions to influence wage rates. Finally, government might intervene in the market place where required to provide regulation where countervailing power failed to develop but was nevertheless required. He concluded that Countervailing power was legitimate and welcome as the alternative of state control would be much less palatable to the business community. Without countervailing power, Galbraith concluded (p181):

"private decisions could and presumably would lead to the unhampered exploitation of the public, or of workers, farmers and others who are intrinsically weak as individuals. Such decisions would be a proper object of state interference or would soon so become."

Notes

{{Authority control 1952 non-fiction books Books about capitalism 1952 in economics Houghton Mifflin books Books by John Kenneth Galbraith