Man and the multitude; John Kenneth Galbraith, part two

Man and the multitude of. This University of Illinois Centennial symposium presented by the College of Liberal Arts and Sciences studies contemporary man poised between past and future and between isolation and the community of the world. Guest speakers and panel members comment on the conflicting forces which push men apart from others. And into communion with others. Lectures in this series will be followed by discussions involving speakers visiting professors and University of Illinois faculty members as well as interested students. The keynote speaker John Kenneth Galbraith is presently Paul M. Warburg professor of economics at Harvard University. During World War Two He was deputy administrator of the office of price administration and was principally responsible for the wartime system of price control. Later Mr. Galbraith was head of the Office of Economic Security Policy in the Department of State. He is the author of American capitalism the Great Crash of 1929

and the affluent society the Liberal our. Economics and the art of controversy. Economic development. And the Scotch. Mr. Gold breaks political activities include a post as chairman of the Americans for Democratic Action and a position as ambassador of the United States to India from 1961 until 1963. He will speak on individual and organization in the industrial state. The modern role of man in economic life as an individual and as a participant in organisation requires that we examine the changing map it's about an economic life and the bias of the economists. I'm going to argue that the changes are associated with changes in the position of the great economic construction the factors of production.

That the relationships between land and labor kept on and on of production. And that one could understand one man man's role in relation to organisation must one must first see the changes in the command position associated with these several factors. By exercise of authority I feel that nothing very complicated in mind is the part that the goal of the business enterprise of the business for and the power to make the decisions that serve the goals and then the further power. In the society at large that is associated with the power within the business enterprise. To repeat I think we can all understand that in that the individual in modern economic society as we have after we have first examined the

nature and the location of the authority by which the individual is affected is control. Matters more fully explored by economists than the technical relationships between the factors of production until very recently. The problem of fish and sea in economic production was in their entirety as one of finding the best combination between capital labor land and the ongoing Arielle talent which brought the top together and managed their prime the elucidation of these solutions these various combinations by means of diagram they manged to this day one of the prime pedagogical rights elementary economics. It is conceded that technology is more important than the proportioning is between the factors of production

and determining what can be obtained from any given stock. But there is no equally good supply of theory on this. So it remains that the economic textbook in the economic classroom often after conceding the greater importance of technology and with the matters less important matters on which the doctrine and what those curves on the other hand the question of power power comes to be associated with a factor of production. Not very much at first glance this is a puzzling omission. Power is always an interesting step because party is always an interesting first coming on any form of organized activity. The church government the political

organisation I was at Padua pleasure instinct is immediately to enquire who is in charge. Then we inquire as to the qualifications or credentials which required such authority to command I do that and the path which gave the man who supplied the capital more than the man who supplied the labor is that our permanent and immutable in the economy or is it tending to give away this power associated with capital to give away to the Associated with labor or those who supply neither giving way to those who supply neither capital nor labor but those who manage or could it be as indeed I will eventually. That is giving way not to any of these things but to a new

leader. Run reason to question a lighted economic that for a long time in classical economics no right exercise of power by one individual or other individuals. Let's recognise that in the classical tradition of economics that of Adam David Ricardo and Michael and increasingly as the concepts were better Dema defined. The business enterprise like that of the ordinary commercial farmer today was a stone could be small and individualistic in relation to the market which is the price that the entrepreneur or the individual received was him personally and competitively determined by the market. So are the prices that he paid to his suppliers. So are the wages that he pay. They were not determined by him but by the market there was the interest he

paid. Prophet in this tradition being to reduce themselves over time to a competitive are normal and the idea of production in this firm was assumed to be extremely established by the relation of cost to the market at various levels of up record lows. Curves the field of study such was the situation under conditions of competition or more precisely what was later raped by women came to be competition. The power to influence prices wages interest. Even the firm's ideal output is extremely determined and his property accepted to the leavening effect of competition. The subject of power is not worth much study and the subject of the individual is

not written in relation to the economic system is not worth much so that the individual is not subject to the authority of any other individual. And it was this a looming absence of power that are in the market system that lay back at the great libertarian appeal of this system. The absence of authority by one individual over another and it still has an appeal to this day at some of the economic communities. That's why I'm concerned for our continued in the classical tradition until well into this century having been excluded in the beginning it has had a hard time winning a foothold but it very

early achieved some prominence in other currents of the Sepik me in the middle of the last century mark. The subject of power into economic discussion and with a passion that man Havel have only recently ceased to deplore the notion of a system of competitive individualistic and pastor and economic entities. He dismissed the barbaric apologetic. He said that there is power and it belongs as a matter of right as a matter of natural right to those who supply capital farting in economic life and these are marked with words wrath with a constantly diminishing number of the magnets of capital from monopolize the advantages of industrial production. You will recognize the familiar leopard mark to mark his words and the part of the magnet extends to the state. The

end state is an executive committee serving the way out and convenient. The capitalists in the classical tradition had been excluded in the time there was a strong tendency to accept certain of the basic features of the Marxian system. The notion of the competitive market which numerous producers who were passively subject as individuals has largely disappeared even from the modern textbook. Prior to the business enterprise are now routinely accorded the power over prices and output that is associated with monopoly. Are some numbers going under that fascinating cache which is associated with some unique and they have far less that they monopolistic feature of the product. Only propaganda through our hire professionals to make the case for modern business.

Argue for the continued existence of your competition. That being the one path that most signally modern business would not be able to pass. So this represents a readmission of the notion of authority of one individual over another entity into economic ideas. And with that has gone one further assumption which is identical to that of Mark and it is that if there is power naturally and inevitably the capital. This is true within the firm and it is true in the society at large. Power over the other people is the natural prerogative of ownership. The claims of the other factors of production are inherently subpart and the assumption that belongs as a matter of course to capital

are in some sense Marxist and that's in fact the conceded in the last three decades. Most observers would agree that there has been a shift of power from owners to managers within the modern large corporation. Not many stockholders any longer than the very large corporations that think of themselves as participants in the actual management of the corporation. A few stockholders assemble an annual meeting a much larger number of return proxies ratifying the decisions of the management including its price for board of directors to speak for the stockholders. And while they may be a RA maybe or like to happen only if the management fails to make money. This is a curiosity of the modern large corporation that is of dated the notion of the even of most economists which is the very few who fail to make money

in 1964. None of the largest hundred industrial corporations in the United States fail to make money and only 7 of the largest 500 accounting for about two thirds of the gross national product outside of agriculture. Only seven of the largest 500 lost money yet. Nonetheless this trend in car from owners from capital to managers. Most economists as offer the most lawyer seems to be a matter of questionable legitimacy. Some economists in accordance with a fairly customary reaction to an inconvenient truth have sought to maintain the myth of stockholder power and there is some mystique associated with that vote even though the votes don't count. You had other economists including Mark at the end. I agree with that.

Any change of rice in the cap of our ownership and power is superficial and that capital retains the deeper and somewhat mystical but buried real and definite control. Must say I was possibly reminded of this yesterday. I first ventured to explore some of these ideas last year and they are on the BBC in the Reith Lectures and these were picked up and Republican in part by Bestia and then they engaged in a study the economists that take them apart and nothing will provoke his wrath so much as my suggestion that there had been some shift of power in the modern American corporation. Ownership management. That's the

thing about human rights and the namesake of this kind of art. Yet others concede that there's been a change but they're reluctant to suggest or assess its significance. And there are some others waiting for better Burley who can see the change and say that it is no one of whom I am aware has questioned the credentials of capital where power is concerned. No one has suggested that the right that it confers in modern economic society may be durable in Eclipse. There is power the individual is subject to authority then it is he is meant to be subject to the authority of those who own the enterprise. And yet over a longer range of time power over the productive enterprise has shifted radically

remarkable thing is how unstable this authority over the individual has been. The economic foundation of this eminence of the land and the incentive to its acquisition which led to this enormous outpouring from Europe. The foundations were exceedingly firm until comparatively modern times agricultural production deliberate the provision of food and fiber accounted for a large share of economic production as it still accounts for 70 to 80 percent of output in countries such as India today. Are you doing gauging agricultural production depended on the possession of land thus land license license access to a very large share of economic activity. Meanwhile the other factors of production were not of decisive importance

agricultural technology was stable and made small use of mechanical power or other capital equipment. That's until a couple of hundred years ago a sparse supply of capital was matched. This is an important and much neglected point by an equally me a great opportunity for the use of calf and implements work. Work stock are seed working capital were lost. This was not decisive. These could ordinarily be replaced and the same was true of labor. Its historical tendency had been to keep itself in a condition of abundance. Riccardo having regard for the experience of that time observed in 1817 and here I quote At no point is better established that the supply of laborers well always ultimately be in proportion to the means of supporting.

In other words all the labor that might be required would be forthcoming or about the subsistence wage. This meant that labor to that easily be replaced are increased. But to get more land was something else. And where at last it was likely to be to replace them. So we see that land was strategic and we see that not even the philosophers who whose ideas I should in the Industrial Revolution math and especially Ricardo and mouth us were able themselves to envisage a society where this was otherwise. Then in the last century and what we all agreed to call a advanced countries the land was dethroned. The search for a land set in motion by its strategic role uncovered a remarkably minute munificent supplied the Americas South Africa and Australia. Or are discovered to have

been used and you Isabel supplied. Meanwhile mechanical inventions in the growth of metallurgical and engineering knowledge or prodigious lead expanding opportunities for the employment of capital. From this greater use of capital came greater production and from that production came greater income and earnings. And from the greater earnings came greater opportunities for saving it. It is not a top player that in the last century the demand for capital grew more rapidly than the supply and the new countries including the United States capital was generally scarce and the cost of capital interest rates were very high. But in England over most of the last century interest rates were very low even by modern standards. Perhaps I should say especially by modern standards. It is clear what is clear however that a diminishing proportion of the expanding production consisted of agricultural

products. And therefore a diminishing proportion it was dependent on this license given by land ownership. Iron and steel ships locomotives textile machinery buildings and bridges increasingly dominated the gross national product for producing these command of capital not land was what counted labor continued to be abundant through the last century in most places. So awk. Accordingly the man who formed our supply of the capital now had the strategic factor of production. And now presumably as a result we must surely assume as a result starting over the enterprise and authority over the people in the enterprise path to the man who owned the capital. So I also did the larger prestige and authority in the society. The beginning of the 19th century the British Parliament

was still dominated by the land of great. By the middle of the century the great landed families and given way to the pressure of the industrialists for lower wages and cheaper food repeal the current laws. By the end of the century the premier figure in the British Parliament was the great Birmingham industrialist a pioneer screw manufacturer of the world. Joseph Chamberlain at the beginning of the century the United States government beginning the 19th century was dominated by the Virginia gentleman the Virginia landowners. By the end of the century the government the United States was profoundly influenced by depending on the point of view the man of enterprise or the malefactors of great wealth. As had become a commonplace to refer to the Senate of the United States as a rich man's Klopp. This change and this

is a point of much importance for the case I'm arguing here tonight did not seem natural. George Washington Thomas Jefferson James Madison landowners seemed much more appropriate to the position of public power then J Collis B Huntington J. J.P. Morgan. Albert age Gary or Andrew Mellon. I never mentioned Gary at least not in the Middle West. By the time it was so well-known and so they were reminded of what I think is one of the greatest throwaway lines in the in American literature. And Benjamin Starbuck's reference to Gary in his his biography of him Gary as you know as Americans man fire running the steel company was a liar. And he was in some ways they that put him in a way absentee owner

and Stuart Berg says of him that he never saw a blast furnace until after his death. The great Virginia landowners were credited with capacity for action apart from their own interest. You're credited with dissent a disinterest of capacity to govern in accordance with the common good. And they were accorded a measure of disinterest even when they were defending their own interests as in AZ for example and defending the institution of slavery. The capitalists were not credited with action apart from interest and their interest seemed less legitimate. This contrast impression has not yet been exercised from public attitudes

are they. History books we may lay it down as a rule that the order of the exercise of any authority the more benign it will appear and the more recent its assumption the more on natural and dangerous it will seem. Captain the last century as I said was not scarce at least in the great industrial centers at least in Britain. It was not in surplus. But in the present day economy capital is recurrently overly abundant. The central task of modern economic policy as it is most commonly defined in peacetime is to ensure that the intended savings at a higher level of out but are offset by investment. This is what has come to be call'd a Keynesian or new economic policy. Failure to invest all savings

means what. Means unemployment means an excess of labor so capital and labor can joined in a tendency in the modern economy to abundance to excess. Back of this tendency of savings to surpluses this is Sidey which increasingly emphasizes not the need for frugality but the need for consumption saving so far from being painful reflects a failure in efforts by the industry and the state and the advertising agencies to promote adequate consumption. Saving is also the product of a strategy by which the industrial enterprise seeks to exempt itself from dependence on Capital Markets. One of the great central thrusts of the modern large industrial enterprise is to secure within itself the powers relative to its own planning and its own authority. And one of the most important is to secure within itself

itself and its supply of capital. This is an effort which enjoys very great success in our time. Nearly three quarters of all capital investment last year was derived from the internal savings of corporations. Capital like land before it already has power over the Enterprise to the difficulty of replacement or addition especially at the margin. What happens to that bargain is what happens to that when supply is not only abundant but on occasion. Excess at what will happen when it is an important game of social policy to offset savings and promote consumption and thus insure against redundancy in the supply of capital. What will happen when it is a basic and successful purpose of business enterprise to win control over the supply of capital and thus be independent of the authority exercised by the banks or other sources of funds.

Well a plausible answer is that it will lose its power to a more strategic factor one with greater bargaining power at the margin just as land did before provided always there is one. And this I would argue there is. I am going to argue this evening that power has passed to what anyone in search of novelty might be for for a given for characterizing as a new factor of production. It is not. I shall argue merely management. Rather it is the whole structure of argan ization the whole structure of organisation which is the theme of the theme of these lectures. The whole structure of organisation embracing the core range of technical knowledge talent and experience that modern industrial enterprise requires embraces engineers scientists sales and

advertising specialists other technical and specialized talent as well as the conventional leadership or management in the industrial enterprise. It is on the effectiveness of this structure as indeed most business doctor and now agree that the success of the business enterprise depends.