John Kenneth Galbraith was born on October 15, 1908, a Canadian Scottish. He graduated from the University of Toronto and so received a Maestro of Science and a Ph.D. from the University of California. In his early life of analyzing, he taught in Harvard University, University of Cambridge, where his idea was influenced by John Maynard Keynes, and Princeton University. Apart from his function as a celebrated economic expert, he was besides the station of head economic expert for the American Farm Bureau Federation, high places with the U.S. authorities during World War II, rank on the board of editors of Fortune magazine, embassador to India during the Kennedy disposal, and president of the Americans for Democratic Action. Galbraith is besides a novelist and an expert on Far Eastern art ( Brue, 1999 ) . Although he was influenced by Keynesi??i?? theory in early life, his ulterior major plants started to reject neoclassical economic sciences by saying that the maths theoretical account and proficient analysis attack to it were far from world. For this evident ground, Galbraith was an image breaker in other economistsi??i?? point of position ( Stanfield, 2002 ) . Galbraith ( 1973 ) knock neoclassical economic sciences is a i??i??conventional wisdomi??i?? , Brue ( 1999 ) so explicate it is i??i??a set of thoughts that is familiar to all, widely accepted, but no longer relevanti??i?? . Galbraith challenged Orthodox economic sciences by his two institutional theories: the dependance consequence and the behavior of the house. This essay will concentrate on these two impressions, discuss Galbraithi??i??s thought about it and so deduce the unfavorable judgment arise from them, eventually pull to a decision.

The Dependence Effect

In the neoclassical economic sciences theory, consumers are sovereign in the society. It is their demand which creates the demand for goods and services so pass on to production to fulfill such demands ( Schor, 2006 ) . However, Galbraith and his theory do non acknowledge this procedure of maximising consumersi??i?? public-service corporations. He argues that ( 1958 ) as we are traveling from an age of poorness to an age of richness, there is no pressing wants in the society. Alternatively of that, as resources are abundant, consumer demand is now created by the attempts from manufacturers such as advertisement and salesmanship. In that instance, the neoclassical public assistance theoretical account prostrations ( Schor, 2006 ) , as public assistance in a society does non needfully lift when production is increased. Because a higher degree of production leads to an even greater wants which requires for a greater satisfaction ( Brando, 2009 ) . This is what Galbraith called i??i??The Dependent Effecti??i?? : more wants is created when depending on production to fulfill it ( Brando, 2009 ) . Brando ( 2009 ) cited that John Maynard Keynes support Galbraithi??i??s theory i??i??the production as a Godhead of wantsi??i?? by stating i??i??one mani??i??s ingestion becomes his neighbouri??i??s wishi??i?? .

Besides the concern about i??i??The Dependent Effecti??i?? , the overprovided private goods and services subtract the resources allocated for populace sector which consequences in i??i??private richness, public squalori??i?? ( Brue, 1999 ) . Galbraith called this state of affairs i??i??social imbalancei??i?? . A authoritative illustration for this is that the increasing purchase and usage of vehicles requires for more roads, main roads, insurances, pollution control governments and traffic control system. In order to repair such instability, Galbraith suggests enforcing heavier ingestion revenue enhancements on certain goods and services instead than set down revenue enhancements or laboring revenue enhancements ( Brue, 1999 ) . However, the struggle does non merely exist between private sector and public sector, but besides between powerful private sector and general involvements ( Galbraith, 1958 ) . Some groundss for this are authorities might pass much more on defense mechanism and highways instead than poorness alleviation, wellness and instruction. Because it might alter the societal category construction ( Stanfield, 2002 ) . This great market power can mention back to firmsi??i?? behavior in the debut.

Galbraith ‘s Theory of the Firm

In neoclassical economic sciences theory, houses have different behaviors due to different aims. For illustration a self-run businessi??i??s aim is to maximise its net income, so their will sell the goods and services at fringy cost. This type of concern is categorized by Galbraith into market sector ( Brue, 1999 ) . However, there is a far more complex and of import type of concern called planning sector, control and ownership are separated. These big or even elephantine houses have legion proprietors, they are stockholders. Most of these stockholders merely take a negligible portion of the whole company, therefor they have no control over the company. Alternatively, big corporations normally hire a group of experts in different country such as directors, interior decorators, applied scientist, or economic expert. These people will organize a board of manager to direct the whole company. On the other manus, stockholders can merely exchange their money from one companyi??i??s portion to another. Therefore, in order to maintain the financess, board of managers will seek their best to maximise shareholdersi??i?? return or dividend. Their aim is much more complex than net income maximizing. Brue ( 1999 ) cited that Galbraith categorized their aims as protective and affirmatory.

The chief thought of protective intent is to stay in the market, in other words, endurance. So they make a sufficient net income returning to the stockholders to maintain their money stay with the company. And maintain the maintained net income as the financess for companyi??i??s growing. Under such circumstance, many big houses will seek to get away from competition by either hole the monetary value straight or by its apprehension of other similar companies in the industry ( Brue, 1999 ) . A neoclassicist will see this as maximising joint net incomes by limit the measure of production, while Galbraith dainty this less-than-maximizing net income as an confidence for challengers to last.

The nucleus of affirmatory intent is to maintain the company turning in gross, gross revenues and net incomes for fillip to the board of managers like the managerial behavior to some extent. In Orthodox theory of firmi??i??s behavior, oligopolists lower their end product to increase net incomes, nevertheless, Galbraith ( 1973 ) pointed out net income maximizing is non these firmsi??i?? purpose. Alternatively, their immense investing in advertisement and hardware purpose to derive market portion, which absolutely match its growing aim.


Galbraithi??i??s onslaughts on Orthodox economic sciences were rejected by many other economic experts. The thought of inactive consumers believe in advertisement denies their active willingness. An illustration cited by Schor ( 2006 ) is cultural merchandises. Artist might present his idea when make the work, but audiences will non merely take the words instead than digest them and plot a new image in their ain heads. Same thing happens in advertisement, consumers are active taker, transform and construe the significance of the advertizement by their ain is more likely to go on.

The non-profit maximizing intent besides draws critics. A house with non-profit maximising intent in long tally will give the populace a negative image about their ability to do future net incomes. So that its portion monetary value will lower than it could be because of the non-profit maximizing intent. In such circumstance, if any company would wish to offer an higher monetary value to the stockholders, the whole company will be easy taken over.


Galbraith was one of the first Orthodox economic experts, his onslaughts on conventional economic sciences theory cause more back fire made him an economic expert with public stance. His chief thoughts made neoclassicists pause to believe about their survey, though it is non that powerful. As an Orthodox economic expert, he needs more complete theoretical accounts and theories to developed new members. The inspiration his thought gave us as the populace is to be cautious to the media and advertizement. Although people are non inactive and barren to take any thought others promote. But how can one do certain his or her free pick is i??i??freei??i?? plenty after so many old ages of i??i??brainwashi??i?? .