Review of The Economics of Innocent Fraud: Truth For Our Time (Hardcover)

This book is a 62-page essay on fraudulent aspects of the current economic and political reality in the United States as seen by an illustrious economist and one of the most influential men of our time.Noteworthy is the fact that John Kenneth Galbraith was 95-years old when he wrote this a year ago.Judging from the wisdom and clarity of his expression, I can only say (to recall a line from a Meg Ryan movie, if you will): "I'll have what he's having."

I identified ten "frauds" as I was reading, but I think I may have missed one or two.Before I list them and comment, let me quote the last line in the book because I think it is important: "War remains the decisive failure."

Why Galbraith chose the word "decisive" is something of a puzzle.Decisive for what or for whom?Is he implying some sort of "decision" as regards humankind?Does he think we are going the way of the dodos?For myself it is clear that unless the war system is ended, most human beings will never progress beyond a tribal mentality, and will continue to suffer what Galbraith calls "death and random cruelty, [and the] suspension of civilized values..." (p. 62)

The "innocent" frauds that Galbraith calls to our attention are actually not all that innocent. What he means by "innocent" is that for the perpetrators, there is "no sense of guilt or responsibility" as though the fraudulent were children.Indeed from the perspective of Professor Galbraith's extensive experience and learning, many of the people who run our economies and our political systems are children.At any rate, there is a somewhat lofty and even grandfatherly tone to this treatise.

The first "fraud" is the use of the euphemistic "market economy" instead of the slightly stained "capitalism" to describe the present economic system.(By the way, Galbraith does not number his frauds.I do it for the sake of keeping them straight in my mind.)

The second is the fact that in the modern corporation, ownership--that is, the stockholders--have little to no authority while the professional managers call all the shots including setting their own compensation (fraud #7).Galbraith attributes this to the fact that corporations have become so vast and complex that the relatively unsophisticated ownership cannot really understand how to run the enterprise and so must yield to management.

Fraud number three is one that interests me a lot.Galbraith writes, "Reference to the market system as a benign alternative to capitalism is a bland, meaningless disguise of the deeper corporate reality--of producer power extending to influence over, even control of, consumer demand." (p. 7)This really is one of the most pressing problems of our time because the corporate power, through its ability to influence and control its legions of employees and the media, also has "influence over, even control of" who runs for office and who is elected in national and state governments.Indeed, in fraud #8 Galbraith notes that "A large, vital and expanding part of what is called the public sector is for all practical effect in the private sector." (p. 34)He specifically identifies the "defense" industry as being largely controlled by defense contractors in the private sector.Elsewhere in the essay, Galbraith refers to "the control of consumer choice and sovereignty" indicating that he understands that the control extends to the electorate. (p. 13)

Fraud number four is the way we hypocritically value "work."For some it is toil and for others it is a pleasure and indeed largely the reason for living, and yet how differently we are compensated, with those who need it least often getting the most in financial reward.

Fraud five refers to the corporate bureaucracy.While corporate people sneer at government agencies as being bureaucratic, large corporations have become just as bloated or even more so.(Chapter V: "The Corporation as Bureaucracy.")

Fraud #6 is the phony celebration of small businesses and family farms in the political rhetoric.Galbraith comments, "For the small retailer, Wal-Mart awaits.For the family farm, there are the massive grain and fruit enterprise and the modern large-scale meat producer." (p. 25)

Fraud #9 (I've mentioned numbers 7 and 8 above) is the fraud of economic predictions.Galbraith observes: "The financial world sustains a large, active, well-rewarded community based on compelled but seemingly sophisticated ignorance" (i.e., stockbrokers, stock analysts and other financial prognosticators). Headds, "...those...who tell of the future financial performance of an industry or firm, given the unpredictable but controlling influence of the larger economy, do not know and normally do not know that they do not know." (p. 40)

Finally there is the quaint fraud of the actions of the Federal Reserve Board, which Galbraith claims have no real effect on the economy.

For an interesting book on the corporation as a psychopathic entity (yes, psychopathic) see, The Corporation: The Pathological Pursuit of Profit and Power by Joel Bakan.In fact Galbraith should read this book.It would further part of his thesis.

In part this modest book is a succinct warning about how corporations are becoming more and more powerful as they gain greater and greater control over our lives.Perhaps what Galbraith is saying in his laconic way is that there is a very real danger that bit by bit we are on the way to a nation controlled not by a democratic electorate or even by republican checks and balances, but by an oligarchy of corporate power.




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