“The birth, development, and subsequent career of an idea is something like that of a human. The parents have measurable control over the first two stages, but not the third.”
John Kenneth Galbraith, American Capitalism (1952)Footnote 1
On a frigid day in late December 1953, hundreds of suited men (and fewer than five women) congregated in the luxurious lobby of the Hotel Statler, located steps from the nation’s White House where the Eisenhower family had taken up residence eleven months prior. The occasion was the sixty-sixth annual meeting of the American Economic Association (AEA), the premier professional organization for a discipline that was rapidly gaining both public prestige and private influence in the years following World War II.Footnote 2 Calvin Bryce Hoover—a Duke economist and that year’s AEA president—had developed a quite ambitious theme for the year’s meeting. From various angles, economists were invited to address the question, “where [do] we stand with respect to the nature of our economic system and whether or not it differs in essence from what it was say seventy-five or fifty or twenty-five years ago?”Footnote 3 The query engaged its audience in an exercise not merely of describing the American economy, but also of disciplinary and historical self-reflection. Had the theories that economists refined over the years lost their relevance amidst a newly transformed system? What was the institutional character of the changes, and could broad themes be identified? Did economists have the appropriate tools to earn their due as experts, or was consideration of new approaches necessary to maintain authority?
Hoover had predicted that these would be provocative questions.Footnote 4 And he was right. For a community increasingly preoccupied with being seen as “practitioners of a rigorous, dispassionate, and apolitical discipline,” a handful of economists at the 1953 meeting exhibited an unusual baring of fangs.Footnote 5 Ultimately, an arena was offered to engage in a battle of ideas—namely ideas about politics and ideas about method. Many of those attending the meeting could not have been fully aware, however, of how closely intertwined politics and method were at their precise moment, nor of the nature of their linked fate in the years to come. By pointing to one particularly illustrative episode, this article suggests that it was in the early 1950s that the seeds of American neoliberalism began to sprout. If we take neoliberalism to mean the economization of everyday life, the rise of market metaphors, and “thinking like an economist” in policy spheres and others, then the congealing of economists around a particular vision of their discipline in the 1950s is a wrinkle in the historical narrative worth unraveling.Footnote 6 Moreover, it allows us to glimpse the outlines of roads not taken, and account for why they were neglected. The decisive historical force, I argue, was a repressive political climate that raised the risk premium on expression of leftist and liberal politics. This not only emboldened conservative voices within the economics profession, but also stifled possibilities for solidarity and theoretical–methodological innovation in service of more progressive ideals. Fear, anxiety, surveillance, and silence cultivated an expanding segment of the profession’s “middle ground,” dominated by political neutrality, technicality, and neoclassicism.
These dynamics were on plain display at the 1953 AEA meeting. The center stage of conflict was the program’s opening panel, conceived of and organized by Hoover: a discussion of a highly reviewed book authored by a young, celebrity Harvard economist, John Kenneth Galbraith.Footnote 7 American Capitalism, published in the early months of 1952, was Galbraith’s first major work to achieve widespread acclaim. An early appraisal by Adolf Berle—whose (1932) coauthored book with Gardiner Means was groundbreaking in establishing the corporation as a central feature of the American economy—declared that Galbraith had “produced a theory of capitalism which cannot be disregarded by anyone, though it will disturb many … new territory he has sighted needs to be explored, mapped, and occupied.”Footnote 8 Dedicated to his youngest son, Douglas, whom Galbraith and his wife Kitty had tragically lost two years earlier to leukemia, the book was written with the verve of a mind with much to prove and one steeped in an era of liberal confidence (months after its release, the reins to executive political power would change hands from a Democrat to a Republican for the first time in two decades).
Long involved in progressive politics, a top administrator at the Office of Price Administration during World War II, and a speechwriter–consultant to several notable Democratic politicians, Galbraith had already been a target for conservative thinkers for years preceding his AEA spotlight. His engagement with economic policy making, along with a prolific five-year stint as an editor for Fortune magazine, meant that Galbraith had many powerful allies and audiences outside the halls of academe. This also meant, for a country dominated by partisan politics, that he had many powerful enemies. Galbraith was a public intellectual and liberal elite par excellence, and hence an unsurprising victim of ire for those not sharing his political commitments.Footnote 9 Moreover, he was a towering figure—six feet nine inches—with a measured yet commanding voice that spoke in lyrical metaphors not always accessible to communities beyond the highly educated (though he was, in some sense, accessible to individuals unfamiliar with technical economics—earning him the frequent characterization of “writing for the layman”).Footnote 10
It was perhaps easy to caricature Galbraith when it came time to discuss his 1952 contribution, and that is precisely what a few of Galbraith’s critics did as they responded to his “modest defense of a modest innovation” that December morning at the Statler. Economists knew they were in for some deliciously rare high drama as they poured into the conference room, taking seats on the ornately carpeted floor once all the chairs had been filled (see Figure 1). At the entrance to the room, one economist was heard whispering to a colleague, “Hey! Aren’t you coming to see ‘em clobber Galbraith?”Footnote 11
Economists gather (in chairs and on the floor) to hear Galbraith defend his theory of countervailing power at the 1953 AEA annual meeting in Washington, DC, 28 December 1953. From Businessweek, 9 Jan. 1954, 92–4.
Clobbering was an apt description for the unspooling of events at the panel, titled “Fundamental Characteristics of the American Economy: Degrees of Competition, of Monopoly and of Countervailing Power: Theoretical Significance.” Following a brief seven-page paper in which Galbraith addressed his critics, to whom he had “long been wanting to address a loving word,” flaws in Galbraith’s argument were pointed out by five economists. The challengers included George J. Stigler of Columbia University (later a core member of the Chicago school and staunch defender of neoclassical assumptions of free competition), John Perry Miller of Yale University (whom Hoover invited to present a kindly view, yet whose commentary was ultimately doubtful on the whole), David McCord Wright of the University of Virginia (who admitted in a 1952 review that he and Galbraith had a “conflict of values,” with Galbraith representing a legacy of “Hamiltonian paternalism”), M. A. Adelman of MIT (an energy economist who had been engaged in debates over industrial concentration since the late 1940s), and Frank J. Kottke of the Federal Trade Commission (whose work primarily entailed the enforcement of anti-trust regulations).Footnote 12 Put simply, there were no sympathizers seated onstage with Galbraith, despite Hoover’s best efforts at finding even one.Footnote 13 And given that this was a venue representing the beating heart of the profession, the absence of assenting opinions meant that Galbraith’s reputation as an idiosyncratic outsider would be cemented in the minds of many of his peers.
“It has been an eye-opener to me to see how widely and strongly held and how extreme what I call the position of the ‘Chicago School’ has become,” Hoover confessed to Galbraith months before the program. Hoover further wrote, “I do not care for conflict for conflict’s sake (I am the most peacefully inclined guy you will ever meet!) but I do hope that where conflict exists it will not be buried from public view as though it were indecent.”Footnote 14 Whether ideas of the Chicago school variety had in fact won as many faithful converts in the early 1950s as Hoover imagined cannot be known for certain, but the historiography suggests that the free-market ideological program moved from the margins to the mainstream of economic thought in later decades of the twentieth century.Footnote 15 Yet the fact that Hoover could identify no panelist who would express appreciation for Galbraith’s book was telling. The failure to secure vocal allies should not be taken, however, as straightforward evidence for the growing appeal of the Chicago paradigm. Rather, it was the broader political climate of the times that rendered Galbraith’s ideas untenable.
In other words, the debate sparked by Galbraith’s American Capitalism was not merely a coordinated offensive against Galbraith the person. Though Galbraith’s particularities are fascinating to consider, they are not the focus of this paper.Footnote 16 I am concerned, instead, with the reception of Galbraith’s main idea proposed in American Capitalism—namely his theory of countervailing power. More than just a catchy phrase, “countervailing power” was a radically new characterization of the American economy that flew in the face of the most fundamental assumptions of classical and neoclassical economics. Galbraith claimed that models of competition and efficiency could no longer account for the governing dynamics of the mid-century American system, which had seen the rise of large corporations and an increasingly interventionist state.Footnote 17 In Galbraith’s eyes, there were “gaps between the myth and the fact” of traditional economics. His ambition was not merely to critique conventional wisdom, but to offer an alternative theory seemingly more resonant with reality. Though his theory was ultimately “clobbered” and cannot be found among the gadgets comprising the mainstream economist’s tool kit today, it is the aim of this article to retrieve Galbraith’s concept from the dustbin of theoretical innovations.Footnote 18 I do so not to evaluate its validity then or relevance now, but to understand the terms upon which its merits were weighed by a community of experts who were grappling with ambiguities around their ideological and methodological commitments, while also striving to maintain epistemic authority and political influence. Gaining a firm grasp on the intricacies of Galbraith’s theory is a first step to appreciating the window this debate offers us into the politically charged world of postwar economists. In this world, a book that theorized economic power, domestic conflict, corporate organization, and enlightened government oversight struck, perhaps, one nerve too many in a body politic beset by anxieties.
The theory of countervailing power
American Capitalism began, in typical Galbraithian fashion, with a colorful analogy. Galbraith likened the American economy to a bumblebee, whose flight is considered impossible by scientific standards and yet manages to fly nonetheless. Similarly, “the quality of the performance of American capitalism” and “the absence of any plausibly enunciated alternative” was “remarkable.”Footnote 19 Galbraith’s assessment was made amidst significant economic expansion following World War II, a period some scholars have hailed “the Golden Age of capitalism.”Footnote 20 In the United States, high growth rates were accompanied by full employment, decreasing levels of economic inequality, and a growing middle class.Footnote 21 Median family income rose by 65 percent in real terms between 1939 and 1957.Footnote 22 These movements coincided with trends of swelling state and corporate power, elements that Galbraith argued created apprehension among conservatives and liberals alike.Footnote 23 With the economic turmoil of the 1930s still fresh in their collective memory, many Americans viewed their present prosperity as “fragile and evanescent,” fearing that another catastrophic depression was right around the corner. Galbraith diagnosed this general attitude as “the insecurity of illusion” and sought to inspire confidence among his readers in the resilience of the American system. To do so, he recognized that the standards by which the system was judged would need to be seriously rethought.
The source of anxiety, Galbraith posited, was that intellectuals “were the captives of ideas” that “derive their ultimate authority from men of such Newtonian stature as Bentham, Ricardo, and Adam Smith.”Footnote 24 According to classical economic principles developed in the eighteenth and nineteenth centuries, aggregates of power would destabilize capitalism, potentially even leading society down a “road to serfdom.”Footnote 25 The competitive model, consisting of many buyers and many sellers acting freely in their self-interest, was presumed by many of Galbraith’s peers to be the defining feature of capitalism. Efficiency was guaranteed in this system because producers, facing stiff competition, could not maximize profits by raising prices—their customers would simply go elsewhere. Rather, producers sought strategies to maximize profits by minimizing costs, and introducing new technologies or efficient practices that would soon be adopted throughout the market. In the model world of free competition, according to Galbraith, prices would be determined by the impersonal forces of supply and demand, with no economic entity holding outsize influence to shape the process in their favor. The ultimate beneficiary (and also the ultimate sovereign) of this decentralized mode of economic decision making would be the consumer, whose welfare would be maximized through the natural give and take of the market, resulting in a blissful equilibrium.Footnote 26
Galbraith identified in this depiction of the economy an important elision. “Given its rigorous prescription of competition,” Galbraith claimed of the classical doctrine, “there was very little scope for the exercise of private economic power and none for its misuse. And with the private exercise of economic power so circumscribed, there was no need for public authority to regulate it.”Footnote 27 Galbraith was heavily influenced by Joan Robinson and Edward Chamberlin’s studies of oligopolistic and monopolistic competition, which he considered to be revolutionary for economics.Footnote 28 In the spirit of their analysis, Galbraith’s book provided empirical evidence for the transformed nature of American competition. Citing a string of economic studies beginning in the 1930s that demonstrated high levels of concentration in American industry, Galbraith asserted that economic power had become an unavoidable feature of twentieth-century capitalism.Footnote 29 And yet the system was thriving despite major departures from the competitive model. An alternative interpretation was needed that viewed concentration in another light.
Contrary to the prevailing liberal perspective that regarded powerful corporations as dangerous, Galbraith’s take was uncommon. “Such organization, far from being inimical to the operation of a free society, is actually a buttress to it,” Galbraith contended.Footnote 30 In his view, large-scale enterprise had been the source of much technological innovation and progressive change, and the desire to curtail its strength solely through antitrust measures was ineffective and misguided. This argument reflected a decades-old debate in the field of industrial organization (IO), with Galbraith representing the Harvard tradition, as opposed to the Chicago tradition.Footnote 31 Galbraith’s contribution to IO and to economic theory more broadly was his elucidation of a novel mechanism through which corporate power could be checked, one that he claimed was already pervasive in the postwar business climate.
Rising corporate power induced what Galbraith saw as an overlooked tendency in American capitalism: mobilization on the other side of the market into similarly large entities. “The existence of market power creates an incentive to the organization of another position of power that neutralizes it,” he explained.Footnote 32 Labor unions, trade associations, and mass retailers were the expected responses to business consolidation; they provided the countervailing forces that restrained the potential for market manipulation in corporate hands. In Galbraith’s system, competition was thus reframed as being not between sellers and other sellers, but rather between powerful sellers and powerful buyers. “Competition which, at least since the time of Adam Smith, has been viewed as the autonomous regulator of economic activity and as the only available regulatory mechanism apart from the state, has, in fact, been superseded,” Galbraith averred, referring to the mechanism of countervailing power.Footnote 33
The notion of countervailing power recognized the possibility for collective action among American citizens and was a unique attempt to codify the function of this group behavior into economic theory. It also provided justification against central planning in that it illuminated another market force capable of taming the transgressions of capitalist enterprise.Footnote 34 “Unrestrained economic power is still an enemy of the good society,” Galbraith affirmed during his AEA presentation. Nevertheless, large-scale enterprise had become sufficiently widespread and gone “far beyond the limits set by the classical concepts.” “The practical question,” Galbraith asked his colleagues,
is what is practical? … Are we, by legislative and judicial action, going to work a revolution in the American economy? The answer is no. The answer being no, we must then cherish the safeguards by which inherently weaker groups have found protection … the economy is far more viable and its tensions are greatly alleviated because this protection exists.Footnote 35
That American workers and consumers had found protection through countervailing power did not mean that the role of the state was erased from Galbraith’s system, however. Where groups lacked sufficient resources to organize or negotiate on behalf of their interests, the government would step in to restore the balance. Galbraith turned to recent history to suggest the extent to which this had occurred:
Labor sought and received [countervailing power] in the protection and assistance which the Wagner Act [1935] provided to union organization. Farmers sought and received it in the form of federal price supports to their markets—a direct subsidy of market power. Unorganized workers have sought and received it in the form of minimum wage legislation … These measures [were] all designed to give a group a market power it did not have before.Footnote 36
The assumption that the government would intervene in accordance with certain social objectives was thus embedded in Galbraith’s theory. As one of his colleagues who shared Galbraith’s enthusiasm for the labor movement wrote in private correspondence, “gains can be achieved only, as you have pointed out in your book, if and when disadvantaged groups organize themselves as a reform movement that continuously requires governmental support for its effectiveness.”Footnote 37 As economic policy and public attitudes shifted after American Capitalism’s release, however, Galbraith’s original perception of countervailing power as a timeless, “self-generating regulatory force” was dampened, even in his own mind.Footnote 38 That the success of countervailing power was contingent on a government that embodied ideals of balance and fairness became apparent gradually—and then precipitously—over the course of the latter half of the twentieth century. By the 1980s, Galbraith admitted that, “in 1952, carried away by the idea [of countervailing power], I made it far more inevitable and rather more equalizing than, in practice, it ever is,” and that he had “taken an unduly sanguine view of the resulting equilibrium.”Footnote 39 To understand the forces that set such a declinist trajectory in motion, let us find our way back to the stuffy conference room at the Statler, where a younger and more optimistic Galbraith was not only challenged by his peers, but labeled by one of them “one of the most effective enemies of both capitalism and democracy.”Footnote 40
The political blasphemies of countervailing power
Galbraith knew, before arriving in Washington, DC, that he was in for a shelling.Footnote 41 In the early stages of American Capitalism’s release, Galbraith admitted that he “had a vision of hundreds of hungry critics waiting only for the publication date in order to pounce on my hopeless product.”Footnote 42 This despite an abundance of praise and favorable reviews in the popular press and from several heterodox economists.Footnote 43 Though countervailing power enjoyed success in other spheres, including business and policy schools, Galbraith expected that his book would stir up the academic economists’ nest.Footnote 44 This was a sound prediction, given that they were, after all, so explicitly castigated throughout American Capitalism’s two hundred pages. What he may not have foreseen, however, was how overtly political the AEA reception came to be.
As he had written in the introduction to his book, Galbraith was aware that his argument would trouble both liberals and conservatives alike. Not directly addressed was how his account would be controversial in its relation not only to contemporary discourses of partisan politics, but also to other long-standing debates in American political life. The conglomerates of power that comprised the three-legged stool of Galbraith’s theory—corporations, labor, and government—were all phenomena whose merits had been fiercely debated by Americans for centuries.Footnote 45 Thus countervailing power brought many of these debates to the forefront, at a time when the sorting out of where thinkers stood on these issues seemed pressing. The urgency can be glimpsed in the fervor with which Galbraith was assailed at the Statler.
What is important to note is that the tone of the panel, and the panelists who spoke, were themselves not quite representative of the model 1950s economist. The period’s most prolific economists, including Paul Samuelson, Kenneth Arrow, Gérard Debreu, and Tjalling Koopmans, did not participate in debates or reviews of American Capitalism. Engaging in normative discussions around governance is perhaps precisely what the discipline encouraged postwar economists not to do. Galbraith’s respondents were those who were keen to engage in dialogue about politics, even if they framed themselves as protecting the discipline from the wrong kind of political biases: Galbraith’s. In other words, the AEA panel empowered those with an alternative, conservative set of political claims to make their case, and to do so in terms that resonated with the disciplinary and methodological standards of mid-century economics.
The panelist who was most direct about the normative stakes of Galbraith’s book was UVA economist David McCord Wright. Wright attempted to spell out the moral foundations of Galbraith’s model political economy. Beginning with an acknowledgment that he had already taken issue with countervailing power on technical terms in previous outlets, Wright shared that what he wished to do at the AEA meeting was to focus on the “underlying philosophy” of Galbraith’s book, what he eventually called “the philosophy of stalemate”: Galbraith’s “few big business units countered by a few big unions, locked in a perpetual balance which neither side dares disturb, form a picture about as far removed from creative, democratic, competitive development as one can well conceive,” Wright declared.Footnote 46 He placed Galbraith’s ideas within a Platonic social structure wherein the enlightened few would determine what was best for the polity; these contradicted, in Wright’s view, the American democratic tradition, the Jeffersonian ideal, and the ideas of the New Testament. Wright reiterated the tenets of a Protestant ethic: “the desire to use one’s talents to the best of one’s ability is neither ungenerous nor unchristian.”Footnote 47
Whereas Galbraith viewed countervailing power as an interactive force for the disruption of stabilized power, Wright in a previous review associated Galbraith’s idea with the “stagnationist economics of the labor movement” and doubted that it left sufficient scope for “social fluidity.”Footnote 48 Wright accused Galbraith of having a “purely nominal” commitment to capitalism, claiming that Galbraith’s economic structure seemed more like syndicalism than capitalism. For Wright, “genuine capitalism … is a regime of independent, competitive (though not purely competitive) units with a wide measure of independence of policy, a great deal of social turnover and a reasonable chance for independent development.”Footnote 49 Competition was what accounted for American success. In an earlier 1953 University of Chicago roundtable radio interview with Galbraith and Milton Friedman, Wright admitted why the issue felt so consequential: “My trouble is that I am historically minded. I see the movements in other countries.”Footnote 50
Wright’s impassioned critique vocalized a concern that occupied the minds of many economists in the conference room, regardless of their political leanings. What was the fate of freedom and democracy in a time of global political turbulence? And what were the consequences of accepting a theory like Galbraith’s, which assumed that concentration had become a permanent feature of American society, to the exclusion of competitive forces? Whereas figures like Wright were naturally opposed to Galbraith’s political perspective, the discipline’s ultimate rejection of countervailing power was not achieved at their witting hands alone.
Competition as a reiterated or recast ideal
The debate around countervailing power served as an entry point for a broader question that motivated the agenda of the 1953 AEA meeting: to what extent could the American economy still be characterized as competitive? And if it were still competitive, was competition more individualistic or organizational in nature?Footnote 51 Galbraith had proposed not only that had the economy become highly institutionalized and corporatized, but also that traditional notions of competition (sellers versus sellers and buyers versus buyers) played less of a role in determining prices, wages, and outputs than did interest group forces in the form of countervailing powers. His alternative vision was not adopted by the overwhelming majority of the papers presented in the sessions following his panel, however. Instead, most economists engaged with more traditional theories of competition in their discussions of the American tax structure, the savings-investment process, international trade, and other themes. Some pointed to the number of studies since the publication of Galbraith’s book that argued for the persistence of competition in new forms, such as interindustry and inter-product variations.Footnote 52 Competition may have come to look differently at mid-century, many economists suggested, but it was still alive and well. As one concluded, “the old-fashioned apparatus of competition works in new ways to save us.”Footnote 53
Though he did not take Galbraith by name, G. Warren Nutter, in his paper “Competition: Direct and Devious,” lamented a recent trend among economists to emphasize the aberrational. “We have been gradually losing interest in the orderly, the regular, and the general aspects of economic relationships, so well summarized in Alfred Marshall’s use of the word ‘normal’; we have instead become preoccupied with the disorderly, the irregular, and the specific.”Footnote 54 Only about 10 percent of national income was produced in sectors displaying conventional competition—mining, large segments of agriculture, and some manufacturing, Nutter illustrated through empirical testing. However, he clarified his understanding of competition: sometimes, competitive forces were delayed and discontinuous. In other words, while a firm may be able to capture profits temporarily due to behavior that seemed monopolistic in the short run, it would be a matter of time before other firms modified their processes to compete. Ultimately, Nutter concluded that genuinely noncompetitive conditions, whether caused by patent protections (i.e. government interference) or internal economies of scale, accounted for only 20 to 25 percent of national income.
Nutter’s empirical conclusions were compatible with new perceptions of antitrust, industrial organization, and competition that were developed primarily at the Chicago school and taking hold more broadly in the 1950s.Footnote 55 A majority of economists in the early twentieth century were skeptical of antitrust policies, often recognizing that the regulatory environment for industrial concentration had to go beyond antitrust and that concentration required a case-by-case policy approach.Footnote 56 Such a stance was especially characteristic of the Harvard tradition of IO. By mid-century, however, theoretical innovations that elaborated the mechanisms of competition had turned perfect competition into a holy aspiration, with the aim of economic policy being reoriented toward making the world accord with theory. Galbraith later argued that the antitrust approach to addressing economic power assumed passivity on the other side of the market. “In theory it is open to the seller of labor to hope that through public policy buyers or employers of labor will be made as numerous and as weak in the market as they are themselves. In practice no one thinks this is possible.”Footnote 57 In contrast, Galbraith’s concept of countervailing power had “legitimatized fully the trade union, which had always enjoyed in the … orthodoxy a slightly insecure position as an impairment of the otherwise pure current of competition.”Footnote 58 Yet this line of analysis would find no place among the mainstream.
Nutter’s paper was one of many at the 1953 meeting that claimed that competition was still a sufficient model to characterize the American economy. Arnold C. Harberger, after reaching a similar empirical conclusion to Nutter’s, claimed that “our economy emphatically does not seem to be monopoly capitalism in big red letters. We can neglect monopoly elements and still gain a very good understanding of how our economic process works and how our resources are allocated.”Footnote 59 Why were economists in 1953 so keen to emphasize and insist on competition? What alternative were they imagining?
Reading between the lines: Cold War as historical frame
As they approached the motivating question of the 1953 AEA meeting—what was the state of competition in the American economy?—many economists turned to a defense of competition as a crucial realm for the exercise of individual freedom. This was, of course, not a novel line of argument. Freedom and the market were intimately associated within the tradition of classical liberal economic thought.Footnote 60 What made the arguments in 1953 distinct, however, was how often they were made from a comparative vantage point.
“It is of interest to note that, in times when production expansion is needed, the very competitive, American type of agricultural organization appears to be much more responsive than the authoritarian structure which prevails in some of the European countries,” stated M. R. Benedict, for example, in a paper on agricultural policy. His presentation took an even darker turn when he asserted that “if a reduction of output is desired … their methods of removing unwanted production and unwanted producers are far more effective than ours.”Footnote 61 There was a gap between the competitive ideal and the reality of capitalism, admitted Gottfried Haberler, but this gap was much bigger for models of the socialist system: “the gulf which separates ideal planning of the Lerner and Lange type from actual economic policy as practiced in large parts of the world today is as wide as the Pacific Ocean compared with the discrepancies [in the competitive model].”Footnote 62 In a discussion on the state of entrepreneurship, Frank H. Knight also offered his audience a peek through the Iron Curtain. “The alternative to private entrepreneurial ‘competition’—to make a gain and avoid a loss—would be the assumption of the function by ‘the state,’ using the sanctions of the criminal law, as we have seen undertaken in Russia.”Footnote 63 Centralized state power, exemplified by totalitarian regimes across the sea, became for many economists a contrasting background against which the relatively benign forces of competition were thrown into relief. “Government spending is inherently coercive and rests upon a transfer of economic power from the people to political authorities,” claimed George Hildebrand.Footnote 64 And Glenn L. Johnson said, “The competitive system becomes an end in itself largely because of its efficiency in reflecting non-coerced consumer choices to producers as a basis for resource allocation.”Footnote 65
Anxious references toward totalitarian systems among a group of social thinkers living amidst the height of McCarthyism should not, on the one hand, surprise us. Some economists were themselves émigrés from totalitarian regimes.Footnote 66 Others were applying their economic expertise directly to Cold War objectives via employment at think tanks and agencies like the Rand Corporation and the Institute for Defense Analysis.Footnote 67 Several were associated with a concerted political effort to reinstate classical liberal principles and defend free markets, epitomized by the Mont Pèlerin Society founded by Friedrich Hayek in 1947.Footnote 68 Economic thinkers, like other intellectuals of their time, were anxious about the state of geopolitics and the future of capitalist democracy.
In his American Capitalism, Galbraith had offered a theory that was optimistic about aggregated power and the ability of an enlightened, activist state to ensure harmonious economic conditions. Instead of looking back through time at the ways in which power had served as a source of American prosperity alongside Galbraith, however, many economists opted to look across space at the ways in which power elsewhere had served as a source of terror and destruction. Understanding the anxieties plaguing Galbraith’s peers in the early 1950s allows us to see the “clobbering” of countervailing power in a slightly more nuanced light. Applying this historical frame lets us sense the mental imagery that economists may have conjured when processing a question like the one posed by James M. Buchanan at the 1953 meeting: “do not all theories of countervailing power reduce to apologetics for power itself?”Footnote 69
Several historians have taken a long view in analyzing developments in economic, political, and social thought across the twentieth century. Many agree that whereas conceptions of the social sphere (including markets, political organizations, or cultural communities) were “thicker” in earlier periods of the century, this mode of thinking eventually gave way to a more atomized approach to scholarly inquiry—a “thinning out” of the social.Footnote 70 Mutualistic and communal conceptions of society are largely thought to have receded most dramatically in the 1970s, in what Dan Rodgers famously calls the “age of fracture.” The widespread legitimation of free-market ideology in both economic policy and the public sphere fundamentally foreclosed the possibility of ambitious proposals about what humans could achieve when they saw themselves as collectivities rather than solitary units navigating tightly prescribed systems.Footnote 71
The seeds for this dramatic shift in social thought were planted decades earlier, however, argues Dorothy Ross. It was in the long 1950s that “communal–governmental vision[s] of the social unraveled and the project to socialize liberalism decisively changed direction.”Footnote 72 Ross demonstrates the ways in which totalitarianism was weaponized to legitimate critiques of socially progressive ideals, and how it served as a forceful filter for political discussion, even through the momentous 1960s. “With totalitarianism now constructed as America’s Other, liberal theory revived and re-anchored society in liberalism’s foundational political individualism, and recast conceptions of the social to fit within that narrowed space.”Footnote 73 In other words, a transmuted liberalism (“neo-”liberalism) was taking hold in the Cold War era, as social thinkers shied away from mutualism in their intellectual works. Such withdrawals were not always conscious or intentional.
In the early years of the Cold War, the Second Red Scare had reached a fever pitch with the hysteria of Senator Joseph McCarthy’s investigations and the hearings conducted by the House Un-American Activities Committee. Anticommunism had migrated from a fringe element of American intellectual life to informing its federal channels of power, its very core.Footnote 74 The effect, in the words of one historian, was to “unmake the New Deal left,” placing any reform-oriented social liberal proposals as points on the slippery slope to totalitarianism.Footnote 75 In an era of loyalty oaths, public humiliation, and threats of exile and violence, “many liberals and leftists sought more to differentiate their ideas from communism than to make bold bids for social reconstruction.”Footnote 76
A year after American Capitalism’s publication, Galbraith noted an “admitted increase in conformist and repressive pressures … a conservative press … and pallid dissent” when asked “what has happened to liberalism?”Footnote 77 And yet, according to his biographer Richard Parker, Galbraith continued to judge the “dark belief” that welfare measures would lead inevitably to serfdom as “an anachronism hardly worthy of comment,” a view that Parker says Galbraith did not seriously revise until the Reagan era.Footnote 78 Indeed, decades later, Galbraith would concede that it would be a “mistake to make light of [anticommunist] fears in their time … they were, or certainly seemed, very real.”Footnote 79 In the early 1950s, Galbraith viewed a “leaning over backward not to be wrong about Russia” as mainly a foreign-policy issue and doubted that it had serious consequences “on domestic questions with which I am concerned.”Footnote 80 If this expressed view reflected what Galbraith truly believed, this suggests that perhaps he did not fully appreciate the grip that anticommunism held on Americans in the postwar period and how such sentiments would influence the trajectory of American political development, including the fate of his own ideas. From the 1950s to the 1970s, far-right extremists, US Senators, and academic economists would secretly offer information on Galbraith to FBI director J. Edgar Hoover, resulting in an eight-inch-thick security file on Galbraith (but never a formal investigation).Footnote 81
In a 1958 televised interview with Sir Huston Smith as a part of the Search for America series, Galbraith was asked questions that ostensibly captured the concerns about political economy plaguing the minds of everyday citizens. “Is it possible to establish a line up to which the government should intervene in our economy but beyond which it should not go?” and “Do you think our government has intervened too far in our economy to date?” Galbraith was probed. “Ah, these questions are getting more and more, uh, penetrating,” responded a mildly flustered Galbraith when Smith inquired, “are all the capitalisms in the world becoming more socialistic?” When asked about the biggest public misconception regarding the economy, Galbraith said that it was that any modification of the capitalist system would lead to socialism; the capitalist system was, in Galbraith’s view, a “very rugged piece of machinery,” capable of meeting the twin tasks of economic prosperity and social welfare.Footnote 82
Here, the irony becomes apparent: while those on the right were quick to paint Galbraith as a red, Galbraith himself was at pains to elaborate the strength of capitalism. His social liberalism was not socialism or communism, made apparent by his leadership in the Americans for Democratic Action along with his friend Arthur Schlesinger Jr, his participation in the CIA-backed Congress for Cultural Freedom, and his ambassadorship to India under John F. Kennedy at a time when Prime Minister Nehru was artfully adhering to a policy of neutralism between the Soviet Union and the United States. Galbraith may have exhibited some coyness about the influence of anticommunism on his book’s reception, but it is clear that he was involved in anticommunist posturing himself, especially in the 1950s and 1960s.Footnote 83 By 1973, Galbraith was to advocate for a “new socialism” (social democratic rather than Marxist or revolutionary in the traditional sense), but at the time of conceptualizing countervailing power, Galbraith certainly saw it as a feature and strength of capitalist enterprise.Footnote 84 As one early reviewer of American Capitalism claimed, “no one could possibly accuse J. K. Galbraith of being a carrier of ‘creeping Socialism.’”Footnote 85
If Galbraith’s critics could agree with him that capitalism was not so bad, they were less likely to echo Galbraith’s stance that government could help secure its promise. Galbraith noted that support for public services had been replaced by support for private goods, because private production, he argued, “raised no specter of serfdom, socialism, or other economic perdition.”Footnote 86 In the postwar period, championing free enterprise and a consumerist economy had become associated with the “American way.” According to some scholars, consumerism served as the new basis for general consensus.Footnote 87 All Americans were sovereign consumers, a far more peaceful picture of economic agents than the one imagined by Galbraith’s universe of competing interests and countervailing powers. And pushing this rhetorical and symbolic understanding of consumerism was, unsurprisingly, business interests.Footnote 88
Rather than casting democracy as the essential counterimage to totalitarianism, a majority of mid-century American liberals emphasized individual liberty and capitalism as the beating heart of the liberal faith.Footnote 89 And yet freedom, according to Galbraith, was a “multidimensional conflict” involving both choice and the scope for choice; he argued that the government was not the antithesis to liberty but rather, often, a guarantor of it.Footnote 90 Nevertheless, Galbraith’s view of freedom would not fit with the dichotomy of market versus state that was heavily trafficked in postwar American culture.
Despite the growing skepticism toward big government in the 1950s, many economists were not immediately converted to the doctrine of antigovernment and free markets. Of course, their own influence in government at a time where economic policy making was still dominated by the Keynesian paradigm meant that they were not wholesale dissenters to a political culture driven by administration. But many of these economists, such as the AEA’s president Calvin Hoover, also had anxieties about moving away from competition as a disciplinary standard. Hoover did not reject Galbraith’s hypothesis of countervailing powers, nor Galbraith’s assessment that the American economy had diverged fundamentally from the classical model. He in fact agreed with Galbraith.Footnote 91 He expressed as much in his presidential address to the AEA. “We can say that by the beginning of World War I our economy had become sufficiently characterized by concentration in industry, imperfect competition, oligopoly, administered industrial prices, price leadership and other departures from or modifications of the rule of the free, fully competitive market for us to consider the change fundamental,” he declared. Yet Hoover also conceded that “competition, if we stretch the term enough, covers almost completely some aspects of our economy and affects in some degree every part of it.”Footnote 92
Regardless of how one chose to define American capitalism or the nature of competition within it, however, what did not change was its superior status to alternative systems. Hoover concluded his speech with the following statement: “Of far greater importance than what we call our economic system is the fact that, whatever the logical difficulties in analyzing it and in characterizing it, this organizational economy has, up to now, served us far better both in terms of goods produced and … human liberties preserved than has any other system, in any other country.”Footnote 93 Thus the comparative glance, the stoking of totalitarian fears, played an important hand in the fate of Galbraith’s theory. Born amidst a climate of anxiety, conformism, and an international conflict with a symbolic Other, a theory that gave importance to domestic power struggles and the principled involvement of government did not find many enthusiastic endorsements. Like other social scientists with progressive visions at mid-century, Galbraith saw his work “constrained by the political horizons of American empire.”Footnote 94
While Galbraith’s concept did not gain traction among mainstream economists, the 1950s were by no means a period lacking in theoretical innovations within the discipline. While the focus of this article has thus far been on what the postwar period prohibited, a fuller picture of the context of the debate must include what this period instead enabled. I shift now to a discussion of how economic method was transformed following World War II, starting first with where our story began, at the Statler.
The methodological “blasphemies” of countervailing power
According to news coverage of Galbraith’s panel at the 1953 AEA meeting, the most relentless critique of countervailing power was delivered by George Stigler.Footnote 95 In a paper cleverly titled “The Economist Plays with Blocs,” Stigler tested what he saw as Galbraith’s two key claims against “the empirical evidence.” Both claims, namely that countervailing power arose as a natural response to market concentration and that its presence led to socially useful outcomes, were ultimately rejected by Stigler. For the two main areas in which Galbraith identified countervailing power—labor unions and retail trade—Stigler found contradictory examples; not only was countervailing power not a comprehensive explanation of American industry, said Stigler, it was “the exception to the rule.”Footnote 96
The rule, of course, was competition, and Stigler was vigorously committed to its defense throughout his career. Trained under Frank Knight and Jacob Viner at the University of Chicago, Stigler was steeped in a commitment to the neoclassical framework and belief in a tight prior equilibrium.Footnote 97 Before Galbraith’s theory, Stigler had criticized other studies that challenged the automaticity of competitive markets.Footnote 98 He lamented the rise of Keynesian ideas, which he saw as producing “a bundle of paradoxes and heresies,” and remained committed to classical liberal ideas of limited government and individual liberties as a core member of the Mont Pelerin Society.Footnote 99
While his political commitments diverged considerably from Galbraith’s, Stigler’s critique at the 1953 panel did not advance an argument for the ethical superiority of the free-enterprise system. Stigler’s own politics could be glimpsed when he questioned “the desirability of this type of organization” in his discussion of “government-sponsored” labor unions, but his rejection of Galbraith’s thesis was crafted primarily on empirical grounds. Galbraith’s attempt to reclassify the evolution of American economic structure was “ambitious,” but ultimately “romantic,” for it failed to disclose its “logical antecedents” and lacked “rational development.” After conducting his empirical tests, Stigler deemed it “premature and even irresponsible to talk in detail of possible policy applications of so tentative and unplausible [sic] a hypothesis.” In Stigler’s assessment, countervailing power was not a market force but rather the consequence of the interventionist policies that Galbraith evidently supported. His ill-formed idea could be dismissed by his peers, because it was not motivated by rigor and technicality (which economists ought to be motivated by), but by politics. Countervailing power, Stigler posited, could very well be viewed as “a political rather than an economic dogma.”Footnote 100
Stigler was not the only discussant to label Galbraith’s work political rather than economic. “All political power is countervailing power in that it exists to push against any obstacle between desire and fulfillment,” said Adelman, questioning whether Galbraith had really identified a distinctive concept of power. “There seems no need to postulate any original power to countervail against,” Adelman further wrote, dismissing Galbraith’s work as “purely political” and therefore not of relevance to serious economists.Footnote 101 Given that Galbraith wore his political commitments on his sleeve, the charge that his theoretical work was politically inspired was perhaps inevitable. But this characterization of Galbraith’s efforts was not merely an ad hominem; it was also an act of boundary work. Miller, the only discussant to recognize that power could be an important dimension of analysis for economists, nevertheless concluded that “we do not have the tools to do it and it is questionable whether our associates in the other social sciences are as yet well prepared.”Footnote 102 Miller admitted that labor unions and agricultural policies could have achieved Galbraith’s new welfare criteria of social harmony, but unfortunately Galbraith had failed to “marshal the evidence.” Galbraith’s “reification of the relations” in American agriculture and industry “may be good politics” but was not “good analysis,” Miller further stated.Footnote 103 These retorts emphasized a particular image and methodology of the ideal economist, relegating such issues as political power to falling beyond the confines of the discipline.
Stigler’s critique that countervailing power was insufficiently widespread to constitute a generalizable theory was a charge that Galbraith frequently fielded. Since American Capitalism’s argument was constructed mainly through discussion of personal observations and illustrative examples, reviewers and correspondents could poke holes in the theory by pointing to observations of their own.Footnote 104 Packaged in such a way as to be accessible to the nontechnical reader, this meant that Galbraith received illuminating counterexamples from lawyers, farmers, union leaders, and other noneconomists.Footnote 105 Typically, these were shared as resources for Galbraith to add further nuance to his concept. But in some cases, counterexamples were used to posit that countervailing power was a fruitless idea entirely. Galbraith took issue with this view, for he saw it as one of the essential flaws of the prevailing orthodoxy. If competition was not dismissed for failing to apply universally, why should countervailing power? In a response to a review written by the dean of the Business School at Syracuse University a month before the AEA meeting, Galbraith wrote,
I wonder if my generalizations are in fact as broad as are customary in our field. In any case, I surely avoid one of the oldest simplifications of economics which is to assume one level of markets in which producers sell to consumers. In dealing with hierarchies of markets I am surely coming a good deal more closely to reality than is customary in theoretical discussion.Footnote 106
Kottke’s comments on the AEA panel provided some reasoning as to why generalization was permissible under a competitive framework but not a countervailing-power framework. “Firms in competitive markets have so little discretion to follow an independent price policy or to ignore improvements in technique that it is possible to simplify discussions by the assumption that they have no discretion whatever,” Kottke claimed. In other words, the elimination of power as a variable allowed for generalization. On the other hand, a theory of bilateral power positions could not be formulated “in the precise and elaborate manner of the theory of competition.”Footnote 107 Competition was, in Kottke’s view, theoretically convenient.
This position was taken by numerous economists throughout the 1953 AEA program. While some economists—like Nutter and Harberger, discussed above—sought to argue that competition remained an apt description for the American economy, others maintained that descriptive accuracy was not in fact the purpose of economic theory. This argument was famously made by Milton Friedman in his 1953 “Methodology of Positive Economics,” claiming that the purpose of economic theory should be aimed at predictive capacity, logical simplicity, and formal elegance.Footnote 108 Though Friedman did not present a paper at the 1953 AEA meeting, his philosophy on method was represented by other economists friendly to his position.Footnote 109 Buchanan, for instance, opened his comments for a session on trade unionism with the assertion that “the sole test of the true realism of theory lies in its ability to help us make predictions.” He further explained that theories of perfect competition or perfect monopoly “may be discarded only if and when other theories appear which provide better results.”Footnote 110 In a different session on interregional economic diversity, Ben Rogge posited that deviations from the classical assumptions in the actual economy made “the classical policy warnings more rather than less significant.”Footnote 111 True wisdom was found in classical economics, which still informed the core of neoclassical economics and the neoclassical–Keynesian synthesis. Following classical prescriptions would yield analytically powerful results and hence concise policy prescriptions. Elsewhere, John H. Adler put the sentiment in more colorful language. “The simple forms of the classical gown, though ornamented nowadays with curlicues of propensities and multipliers, is still worn at all occasions, by friend and foe alike, simply because no other garb covering all limbs has been designed as yet.”Footnote 112 Theories like Galbraith’s countervailing-power hypothesis may have been illuminating for some corners of American economic life, but nothing would be as universally applicable or theoretically comprehensive as the tools economists inherited from classical and neoclassical forebears. As more economists coalesced around this understanding, they concretized the transition from “interwar pluralism to postwar neoclassicism,” crowding out an earlier brand of economic theorizing and methodology that typified Galbraith’s work.Footnote 113
The institutionalist and Keynesian paradigms
Galbraith’s vision of an activist state resulted from decades of New Deal and Fair Deal policy measures, measures that Galbraith and many of his peers present at the 1953 meeting (including Calvin Hoover) had been involved in. The interwar and World War II periods saw a dramatic rise in macroeconomic management by the government, guided by emerging tools of statistical inquiry and economic measurement.Footnote 114 In one historical telling, this interventionism was linked with the rise of Keynesian ideas. To comprehend the Great Depression, British economist John Maynard Keynes had elaborated new understandings of the relationship between aggregate demand, economic output, unemployment, and inflation in his landmark 1936 General Theory of Employment, Interest, and Money. Keynes illustrated the volatility of demand, especially in times of recession, and suggested that carefully guided economic policy could play a critical role in stabilizing national economies. His principles were to become foundational among American economists, many of whom found new spaces to put their expertise into action at federal and state agencies.Footnote 115 They were also accepted as necessary by much of the business community and left largely unchallenged by the Eisenhower administration.Footnote 116
Galbraith embraced the new Keynesian ethos, but his approach held more in common with the tenets of an earlier set of related approaches now commonly referred to as American institutionalism.Footnote 117 Pioneered by key figures of the early twentieth century, including Thorstein Veblen, John R. Commons, and Wesley C. Mitchell, institutionalism prioritized observation and the evolutionary nature of economic change, and, according to one recent scholar, was grounded in pragmatist philosophy.Footnote 118 Given the complexities and contingencies in economic life, institutionalists were critical of “leaving it to the market” and were inclined to support government intervention. Though institutionalism was a broad tent that included an array of methodologies, they most often relied on inductive or abductive as opposed to deductive reasoning.Footnote 119 Put differently, most institutionalists preferred to derive generalizations from broad trends and patterns rather than assess reality through the lens of pre-developed postulates.Footnote 120 Calvin Hoover, who expressed enthusiasm for Galbraith’s work in private correspondence but not openly, was also trained as an institutionalist (under Commons). Nevertheless, Hoover’s and Galbraith’s methodological affinities would not be enough to overcome the political wedge drawn between them by Cold War anticommunism.Footnote 121
Coalescence around a neoclassical paradigm
Later in his life, Galbraith was to describe Keynesian economics as a significant revision of classical macroeconomics, but argued that it essentially left the neoclassical core intact by providing no major amendments to Marshallian microeconomics. Indeed, American economists succeeded in reconciling Keynesian macroeconomic ideas with established microeconomic precepts into a “neoclassical synthesis” embodied most systematically in Paul Samuelson’s classic 1948 textbook.Footnote 122 The Keynesian revolution in economics, in Galbraith’s interpretation, had not destroyed the “old regime.”Footnote 123 Universalizing assumptions about individual behavior aimed at utility maximization and self-interest continued to inform theoretical innovations, including the pathbreaking analyses of Lionel McKenzie, Gérard Debreu, and Kenneth Arrow that led to the immensely popular general-equilibrium (GE) theory. In GE models, markets would always clear, meaning that supply and demand would find their meeting points through natural forces, with no government interference necessary.Footnote 124 Market economies were capable of achieving perfect allocation, if left to their own devices. A selective reading of Arrow’s work on welfare economics provided fodder for those wishing to argue that markets were the most effective allocators of public welfare provisions.Footnote 125
Contrarily, the theory of countervailing power, though not stated by Galbraith explicitly, posed a challenge not only to the overall picture of the American economy, but also to some of its assumed microeconomic foundations. It denied the universality of competition as a regulatory mechanism, replaced the maximization of consumer welfare with the “minimization of social tensions” as a main purpose of economic activity, afforded agency to the role of the buyer, and disputed the idea that prices were expressions of unhampered supply and demand.Footnote 126
Importantly, it took aggregates of power—and not individual agents—as its units of analysis. In Galbraith’s universe of countervailing powers, “constant negotiation and bargaining in decision making ensured that goals and preferences were subject to frequent and dramatic reevaluation and change.”Footnote 127 This mode of inquiry contradicted numerous long-standing norms within his discipline; accepting it would have meant a considerable reevaluation of already entrenched practices. Alternative pathways identified by more “rigorous” economists like Kenneth Arrow and Paul Samuelson would ultimately seem more attractive to the profession, at a time when its priorities were shifting from ethics, reform, and reason to scientificity, rationality, and the maximization of efficiency.
Indeed, many historians of economics have documented the remarkable “formalist” and “mathematical revolutions” affecting economics in the postwar period.Footnote 128 While these revolutions took root in the early decades of the twentieth century, World War II and the postwar political climate intensified economists’ retreat into the technical. Such a move was promoted by the patrons of social science—including the military, philanthropic foundations, and think tanks—who demanded that their consultants exhibit practices of political objectivity and methodological instrumentality.Footnote 129 Even for their engagement in the public arena, economists began to adhere to standards of technicality and neutrality. “Postwar policymakers defined a much narrower economic role for the federal government than advocates of national planning had foreseen in the 1930s, but the effect was to create a much more secure place for economists in the government and to justify their advisory role not in terms of generalized knowledge, but as a consequence of specific professional skills,” writes Richard Parker.Footnote 130 Moreover, it “became fashion to offer consensus advice,” unlike earlier generations of economists who were more vocal about their disagreements with government policies (especially those engaged in government service during the New Deal and Fair Deal eras).Footnote 131 What made these professional standards desirable at this precise moment in time was that they evaded political controversy. In the pressure chamber created by Cold War anticomnunism, “political economy” became economics, methodologically trimmed of its political edges. This was not a momentary mutation, but a defining one, straining out not only Galbraith’s idea of countervailing power but also any subsequent one bearing hints of progressive reform. What we now think it means to “think like an economist” was a meaning consolidated in the 1950s, under the disciplining force of the Second Red Scare.
Postwar economic “styles of reasoning” began to pervade other social sciences as well, in a trend some have referred to as “economics imperialism.”Footnote 132 By the 1970s, for instance, “public administration” had given way to “public policy,” and fifteen of the twenty-two top law schools began requiring courses in economic theory.Footnote 133 In the social sciences more broadly, current issues of social or policy concern appeared less frequently as topics of discussion in leading journals—from about 20 percent of articles in the years leading up to 1950 to less than 5 percent in the years after.Footnote 134 These trends support, for the social sciences at least, Ross’s thesis that the “thinning” of American social thought occurred not in the 1970s, but in the long 1950s. For economics, this contraction in the territory of economic analysis was calcified not only through the political discourses occurring in the period, but through the translation of those politics into something more enduring: method.
Conclusion
Optimization models, linear programming, operations research, game theory, general equilibrium—these were all notable conceptual innovations in economics that we inherit from (mostly) American economists in the 1950s. A significant amount of scholarship has explored the developments of these programs, which involved many economists, policy makers, and funding bodies. But what of the theories that failed to take hold, failed to gain allies? What of ideas like countervailing power, which were catalyzed in the same political crucible of the Cold War, and yet receive little attention from economists or historians today?
One lesson this resuscitation teaches us, I hope, is that it is worthwhile to interrogate the intimately entangled nature of politics and method for the history of the social sciences. As economists were gravitating toward the neoclassical paradigm in the 1950s, they were not, by necessity, consciously deviating from a left liberal politics to a free-market one. Very few economists in the 1950s could have predicted the remarkable changes in American politics that were to transpire as the twentieth century progressed from a New Deal order to a neoliberal order.Footnote 135 The political exigencies of the 1950s affected the way they approached their discipline, seeking both “tools for practical usage and neutral language for expression and safe professional argument.”Footnote 136 In order to stay relevant, secure funding, avoid political persecution, maintain their university positions, and affirm their patriotism, the vast majority of American economists found sanctuary in the neoclassical apparatus and its idealization of free competition.
But the distinction between politics and method remains key if we wish to understand the fate of countervailing power and other progressive economic ideas. The distinction helps explain the irony behind a quintessentially neoclassical economist like Paul Samuelson chiding his fellow economists for not paying enough attention to Galbraith during his 1961 AEA presidential address, yet elsewhere questioning how “a jury [could] prove [Galbraith’s] attitudes and insight right or wrong.”Footnote 137 It can also add color to the case of Kenneth Arrow, whose impossibility theorem and rational-choice models became hallmarks of postwar neoclassicism, and yet who in 1978 made a “cautious case for socialism.”Footnote 138 “I do feel that there are few of the younger economists who have not made the market and property rights axiomatic rather than frequently but not universally useful instruments,” Arrow confessed to Galbraith in a 2005 letter. “I was talking recently to a very able economist, aged about 50. He said, ‘your generation was more interested in equality than ours; we think, ‘finders, keepers,’ plays a role.’” Arrow lamented this trend, and emphasized to Galbraith “the values which you and I hold in common.”Footnote 139 That economists like Samuelson and Arrow could diverge so significantly from Galbraith on method, but not necessarily on ethics and politics, raises questions about how we treat the ethics and politics of method in both historical research and contemporary society today.
In a foreword to a 1990 reprint of American Capitalism, Galbraith referred to his original text as “a book of its time and place.” He admitted in a 1997 interview that if he were advising any young economist entering the field, he would urge them not to follow the route he himself took.Footnote 140 Although Galbraith was one of the most notable economists in the public sphere in the latter half of the twentieth century, few economists today are familiar with his theoretical arguments (and if they are, they almost certainly do not discover Galbraith through their standard economics curriculums). Indeed, in an analysis of modern economic textbooks, one scholar found no references to Galbraithian concepts; “his ideas are still too radical to be regarded as part of the canon.”Footnote 141 But as this article has queried, how “radical” was Galbraith really in 1952, and do we mean “radical” in terms of method, or politics? Framing Galbraith as an individual whose ideas were in contest with those of influential figures like Milton Friedman or George Stigler misses important dimensions of how the debate around countervailing power was actually mediated.
American political culture in the postwar period was significantly more textured than the two poles of debate suggest. Most economic thinkers found themselves somewhere between the spectrum of Galbraithian and Friedmanite politics, and their actions (or inactions) decisively shaped the trajectory of economic method and the space granted for ethical inquiry thereafter. As the historical episode in this article has demonstrated, the 1950s fostered an anxious middle ground that crucially played a hand, as much as Galbraith or the Chicago school themselves, in determining the fate of economic ideas like countervailing power. It was what economists held in common—not merely their disagreements—that influenced the path of change. And what nearly all agreed on was this: that totalitarianism was far from a desirable way of life, that the preservation of American ideals was paramount, and that economic expertise could play a role in such safeguarding through the development of “neutral” methods. Economists then may not have understood what only the anguished eye of history submits to us now—that fear of failure can be as potent a force in the history of knowledge as a spirited quest for truth. For a discipline still preoccupied with analyzing individual agents and “microfounding” social phenomena, the acknowledgment that its own history abounds with the imprints of collective sentiments may be uncomfortable for economists today. And yet this acknowledgment is essential if we wish to have an economics aligned with the collective sentiments of our own day and age.
Acknowledgments
Many kind and thoughtful readers engaged with this paper through its numerous stages. In particular, Angus Burgin, Alexandre Chirat, Glory Liu, Dorothy Ross, Nicolas Jabko, Lou Galambos, Ali Khan, Bruce Caldwell, Steve Medema, and reviewers at Modern Intellectual History honored me with their constructive questions and brilliant suggestions. This article began as a first-year paper, a tradition for new doctoral students in the Johns Hopkins History Department. To that end, my JHU colleagues, especially those in the Modern America seminar, provided much-needed guidance, friendship, and assurance through the difficult process of producing research at a time of profound self-doubt. Chloe Hawkey and Ellie Palazzolo deserve special mention. Additionally, Jamie Galbraith and Richard Parker offered encouraging feedback, and graciously attended meetings of an international Galbraith reading group begun by my friend Nic Johnson and myself in 2022. Ultimately, I am indebted to this article itself, and the generous, warmhearted intellectual community that emerged around it, a community for which I remain immeasurably grateful.
Competing interests
The author declares none.
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