John Kenneth Galbraith, who died last month aged 98, received very mixed obituaries. This was because he challenged some of the conclusions of mainstream capitalist economics while continuing to accept many of its assumptions.
Karl Marx divided the history of mainstream economics into two stages. The first he called "classical political economy". It was the product of thinkers, most notably Adam Smith and David Ricardo, who identified with the capitalist model of society when it was battling to establish itself in place of the feudal society that preceded it. Their desire to push capitalism forward led them to investigate its fundamental features-especially sources of value in productive labour and, by implication, profits in exploitation. For this reason, Marx insisted they had made scientific insights which he attempted to build upon.
But once the capitalist system was fully established, a different breed of economists emerged. They were concerned only with the day to day activity of capitalists in buying and selling on the market. While claiming that capitalism was the best of all possible ways of running things they disdained any concern with the dynamics of capitalist production. Marx dismissed their efforts as "vulgar political economy".
This version of economics reached its highest stage with the "marginalist" or "neo-classical" approach developed in the last decade of the 19th century by people like Menger, Böhm-Bawerk, Walras, and Jevons & Marshall.
But the huge economic crisis of the early 1930s changed everything. It produced a situation in which suddenly goods could not be bought and sold. Two of the world's biggest industrial economies, Germany and the US, saw output collapse, unemployment reach 30 percent and banks go bust. Even capitalists demanded answers. Governments as different as Roosevelt's in the US, Baldwin's in Britain and Hitler's in Germany took action which went against the precepts of the neo-classical theory.
Some economists brought up on neoclassical theory, and still accepting its assumptions, tried to make sense of what was happening. John Maynard Keynes in Britain was the best known. He came to the conclusion that capitalism was not an automatically self-regulating system. The state had to intervene to keep it running smoothly, even when this met opposition from powerful individual capitalists.
Galbraith was one of a number of younger economists who followed in Keynes's footsteps. They questioned some of the contentions of the old neo-classical system, and a few, like the British economist Joan Robinson, even played with the idea that a socialist economy might be better. But like Keynes, most maintained some neo-classical assumptions and saw state intervention as something required to save capitalism, not to overthrow it.
Galbraith could expose the system's warts brilliantly-for instance in his book, The Great Crash, on the financial crisis of 1929. Galbraith believed there was a need for "countervailing forces" to those of big capital, which included the state and a strong trade union movement. But the job of these forces was to help get rid of the warts, not the system.
Such ideas became part of the mainstream from the mid-1930s through to the mid-1970s. The US state intervened massively in its economy in order to protect capitalists from the crisis of the 1930s, to wage the Second World War, and then to sustain a very high level of arms expenditure through the Cold War.
Galbraith played a practical role in helping to implement such policies. His works were used to justify the idea that capitalism could be made to work in a benevolent fashion to generations of students studying economics in the 1950s and 1960s. Had he died 30 years ago his obituaries would have presented him as an establishment figure, albeit with a few eccentricities.
BBut then in the mid-1970s a new period of capitalist crisis began and dealt a blow to Keynesian orthodoxy every bit as serious as the blow dealt to its predecessors in the 1930s. As governments proved unable to deal with recurrent crises through state intervention, the most influential economists reverted to neo-classical theories that insisted that the system would work smoothly if only "artificial impediments" like union strength, state intervention and welfare benefits were removed.
Having lived through the 1930s, Galbraith could not accept such claims. He ridiculed the idea that economic crises would be magicked away if only tax rates on the rich were reduced to near zero, and in the 1990s he tore into the fashionable belief that a "new economic paradigm" had ended the boom-slump cycle. In his 1992 book, The Culture of Contentment, he went as far as to say that the widening gulf between rich and poor in the US could be the breeding ground of revolutionary discontent.
All this made Galbraith's writings of much greater interest than those who worship at the courts of George Bush, Tony Blair and Gordon Brown. Yet Galbraith never broke with vulgar economics to the extent of understanding that exploitation was at the root of the system. He was to economics what those who are nostalgic for Old Labour are to politics - unhappy with the present but unable to analyse what to do about it. The mainstream obituaries treated him as an interesting maverick, not to be taken too seriously. And, from the opposite standpoint, that is also how we should treat him.