When Berle and Galbraith Revived Political Economy: A Study of Cross-Fertilization (1933–67)

Abstract

This article reconstructs the intellectual cross-fertilization between Adolf Berle Jr. (1895–1971) and John Kenneth Galbraith (1908–2006) to account for their institutionalist challenge to “conventional economics” that revived political economy. It goes back to the origins of The Modern Corporation and Private Property before analyzing Berle and Galbraith's answers to a set of fundamental questions. What is the nature of modern competition? What is the nature of the modern corporation? What is the role of the state? And how should American liberalism be reinvented to cope with the social issues raised by the transformation of American capitalism in the postwar era? Their answers to these questions reveal the deep affinities between the theoretical and political dimensions of their work. This research contributes, then, to the history of the institutionalist movement in the postwar period and its affinities with qualitative liberalism.

Introduction

On April 29, 1971, John Kenneth Galbraith wrote a letter of condolence to Beatrice Berle, widow of Adolf Berle.¹ Galbraith lamented the “absence of emphasis on Adolf's economic work” in tributes after his death. “Because Adolf was a lawyer and not an economist he never had the recognition in the economics profession that was accorded to others.” By “others,” Galbraith was referring to John Maynard Keynes on the one hand and Edward Chamberlin and Joan Robinson on the other. This letter to Beatrice Berle, like other writings by Galbraith, set out an original interpretation of the dynamics of economics in the interwar period. Galbraith considered that economics underwent three revolutions during the 1930s: the Keynesian revolution, the monopolistic competition revolution, and Berle and Means's revolution. To mark the thirty-fifth anniversary of the publication of The Modern Corporation and Private Property (Berle and Means [1932] 1991), Galbraith had paid an enthusiastic tribute to Berle and Means's “assault on established belief,” claiming that they “have not received credit for the revolution that they initiated.”²

This article provides the rationale behind this repeated judgment. Berle exerted a deep and durable influence over Galbraith's intention to construct an integral economics (Chirat 2022b). By “integral economics,” I refer to Galbraith's theoretical project, thought of as an alternative to “conventional economics,” which proposed integrated “pattern models” of the functioning of the economic system of postwar American industrial society.³ Galbraith (1973b) used the label of “conventional economics” to amalgamate highly diverse economic analyses, which nonetheless shared three core postulates. These were the hypotheses of consumer sovereignty, citizen sovereignty, and profit maximization. These postulates led to the exclusion of power from economic theory, one of the typical features of the move from “political economy” to “economics” (Backhouse and Medema 2009). In the course of writing his trilogy of American Capitalism ([1952] 1980), The Affluent Society (1958), and The New Industrial State ([1967] 2007), Galbraith challenged these three postulates. And in doing this, Berle and Means's ([1932] 1991) seminal contribution, as well as Berle's own postwar trilogy of The 20th Century Capitalist Revolution (1954), Power without Property (1959b), and The American Economic Republic (1963), proved to be critical resources. This is not surprising. Faced with the postwar transformation of economics, Berle shared Galbraith's intention to bring power back into economics.

Berle's impact on Galbraith was mediated by his postwar published works but also by permanent connections among liberal networks. Both were involved in the activities of the Twentieth Century Fund, one of the main liberal think tanks. In 1953 Galbraith participated in a collective project, promoted by Berle, on the allocation of power in America. As chair of the Twentieth Century Fund, Berle asked Galbraith to become a trustee to give “greater vitality and realism to the study and eventual practice of twentieth century economics.”⁴ Biographers of Berle (Schwartz 1987) and Galbraith (Parker 2005) mention the impact of the elder on the younger. This filiation is invariably recognized in the literature on the “managerial revolution.” It has, however, never been documented. This shortcoming explains another one. It has not been recognized that, in return, Galbraith also made a deep impact on Berle's evolving view of American capitalism. Consequently the study of their intellectual relationship is a study of cross-fertilization between two intellectuals sharing a common goal. They tried to build an alternative to the prevailing neoclassical synthesis. And to do so, they purposely short-circuited academic journals to write books targeting a wider audience, so that they were often recognized as public intellectuals only.

This article contributes to the literature on the institutionalist movement after 1945. I have accounted elsewhere for Galbraith's participation in original institutional economics and highlighted that, alongside Berle, Means, and John Maurice Clark, he belonged to its Veblenian tradition (Chirat 2022b).⁵ Malcolm Rutherford (2015a) identifies three main institutionalist research programs after 1945: one based on Commons, one based on Ayres and his followers from the Universities of Texas and Colorado, and one around Galbraith, Gruchy, and Means. Yet, Rutherford completely omits the significance of Berle's works in this latter strand. This omission might be because Berle did not maintain any notable relationships with institutionalist economists after 1945.⁶ Similarly, Galbraith, unlike Ayres, “did not produce many academic followers” (Rutherford 2015a: 101). Berle and Galbraith were nonetheless very active in pursuing Veblen's ambition, as summed up by Walton Hamilton, to provide “a generalized description of the economic order” as a “unified whole which is in the process of development” (Hamilton 1919: 311–15). To do this, both put the corporation at the heart of their pattern models. Their shared analysis of the mutations of capitalism and their common intention to bring political economy back to life is moreover indissociable from their involvement in the rethinking of liberalism. The affinities between institutional economics and American liberalism, as a political ideology, are well known (Tilman 1987; Kloppenberg 1998). This article highlights the point that both Berle and Galbraith promoted “qualitative liberalism” (Mattson 2006).

To account for Berle's and Galbraith's cross-fertilization, I propose to study their respective answers to a set of fundamental questions. This method deliberately emphasizes their economic analysis rather than their political recommendations. My reconstruction, based on archival work, involves five steps. First, I go back to the genesis of The Modern Corporation and Private Property and the influence the book exercised on Galbraith. Then I analyze their answers to a set of fundamental questions: What is the nature of modern competition? What is the nature of the modern corporation? What is the role of the state? How should American liberalism be reinvented?

The Modern Corporation and Private Property as a Revolution

In The Theory of Business Enterprise (1904), Veblen argued that owner-directors controlled modern business enterprise. In Absentee Ownership and Business Enterprise in Recent Times, he argued that their discretionary power of control, because of a process of bureaucratization in financial management, had gradually passed into the hands of financial administrators of corporations (Veblen 1923; Rutherford 1992: 270–71). By “absentee ownership,” Veblen highlighted the point that control had passed into the hands of men who were not involved in productive activities. He thus put forward a divergence of interests between, on the one hand, the shareholders and financial administrators, embodying the business dimension of an enterprise as a going concern, and, on the other hand, the engineers and workers, embodying its industrial dimension. With The Modern Corporation and Private Property, Berle and Means ([1932] 1991) emphasized another separation, that between ownership and “control.” Thus, unlike Veblen, they considered the corporation to be a “managerial organization” (Hill 1967: 282).⁷ This originality explains why The Modern Corporation and Private Property appeared to some as a revolution in interwar economics.

Two facts regarding the genesis of the book should be recalled. First, Berle began his academic career the decade before. Second, William Ripley, a specialist in the study of corporations and trusts at Harvard, had published Main Street and Wall Street (1927) five years before. He already gave an audience to the argument that it is the managers who concentrate the decision-making power inside corporations. Although Berle and Means acknowledged an intellectual debt to Ripley's work, that work was already based on papers published by Berle.⁸ Berle had been trained as a jurist and was a corporate lawyer as well as an academic. He had published a series of papers during the Roaring Twenties dealing with the financial practices of corporations, focusing on legal aspects and their economic consequences. In particular, Berle studied new practices such as the issuance of stocks with a different par value than the original one (Berle 1923, 1925), the issuance of nonvoting stocks (1926a), the segmentation of stocks into different classes giving different rights (1926b), the issuance of stock options (1927), and the issuance of stocks reserved for bankers and promoters in the event of mergers (1929). All these changes in financial institutions contributed to reducing the control of outsiders (absentee shareholders) and to reinforcing that of insiders (directors, managers, and main financial partners). The moral disempowerment of shareholders toward the company, as a corollary of their loss of power, reinforced speculative movements that finally led to the 1929 crash.

At that time, Berle was already arguing that the new financial designs developed in the United States during the 1920s contributed to the emergence of a “corporate oligarchy,” which subverted all ideals of public responsibility. In 1931, in a letter to Ripley, Berle stated that he was looking for economists who would work “on the project of making the stock exchange more like a savings bank and less like a roulette wheel” (Schwartz 1987: 57). Upon winning a Rockefeller fellowship to study corporations, Berle moved to Columbia in 1927. The project required the collaboration of an economist. He turned to Gardiner Means, who had just received a master's degree from Harvard.⁹ There is a notable continuity between Berle's earlier work and that done in collaboration with Means (Berle and Means 1930, [1932] 1991).

The years 1929 to 1931 were very productive for the two collaborators. Sixty days after the financial crash, Berle presented a paper written with Means at the December 1929 meeting of the American Economic Association (AEA). They set out the broad outline of their research agenda. And while Berle's early works had been published in law journals, he now directly addressed economists. Berle and Means argued that the joint-stock company had two functions. Its productive function was to facilitate the management of the company. It was the work of managers. Its distributive function was to facilitate the collection and distribution of capital, and consequently incomes. Their contention was that this power, formerly in the hands of owners, had largely fallen to management. Managers had “confiscatory power” over profits as well as the power to control the activities of the enterprise, unimpeded by the meeting of shareholders whose influence was waning—hence their claim, already stated by Marx, that the corporation led to the suppression of individual property and its rights (Berle and Means 1930: 58–64).¹⁰ They identified four factors that partially limited managerial discretion. These were external capital requirements; jurisprudence that considered shareholders to be the agents of managers; consumer protection; and public opinion, since popular beliefs established tacit rules that could guide managers' behavior. Their presentation ended with two major conclusions. The changes they discussed were not simply a “change in business” but “a major movement in civilization.” Like Veblen (1923), Burnham (1941), and Galbraith ([1967] 2007), they diagnosed the rise of a new cultural complex. And corporations were political as well as economic institutions, so that “a Machiavelli writing today would have little interest in princes, and every interest in the Standard Oil Company of Indiana” (Berle and Means 1930: 65–71).

On his own, Means published three articles in the Quarterly Journal of Economics and one in the American Economic Review (1930, 1931b, 1931c, 1931a). He produced statistics on the wide diffusion of stock ownership and the concentration of large-scale enterprises. He noted that 23 percent of corporations listed on the New York Stock Exchange controlled 80 percent of total assets and that the two hundred largest nonfinancial corporations controlled 44 percent of industrial production. He also observed that the earnings of the largest corporations grew two to three times faster than those of the others. Insofar as their profits were greater, retained earnings gradually became the main source for financing companies' growth. Means drew two conclusions. First, at the theoretical level, Marshall's “representative firm” had “ceased to be a useful tool” insofar as competition had “changed its character.” Second, the managers of the two hundred largest corporations exerted “a tremendous force which can harm or benefit a multitude of individuals.” That was why they were no longer “private enterprises” but “social institutions” (Means 1931a: 36–37).

Reaffirming the argument of the separation of ownership and management, Means (1931b) also presented for the first time the typology, reintegrated in The Modern Corporation and Private Property, of the five forms of control of a corporation. Berle and Means ([1932] 1991) distinguished between firms where control was exercised by (1) a small number of associated shareholders; (2) a majority of shareholders; (3) shareholders without a majority thanks to legal mechanisms; (4) a minority that nevertheless held enough shares to exercise domination; and finally (5) managers. The last two types of corporate control were those that were meaningful for understanding the transition toward managerial capitalism. Almost 65 percent of the top two hundred nonfinancial corporations were controlled either by a minority of shareholders (21 percent) or their management (44 percent) (Berle and Means [1932] 1991: 94)—hence the conclusion that “the position of the owner has been reduced to that of having a set of legal and factual interests in the enterprise while the group which we have called control, are in the position of having legal and factual powers over it” (119–20).

The year before, Berle (1931) argued, contrary to Edwin Merrick Dodd (1932), that managers would be prone to form a self-perpetuating oligarchy promoting their own interests against those of shareholders. Their debate about corporate social responsibility fostered the scenarios envisaged in the conclusion to The Modern Corporation and Private Property (Bratton and Wachter 2009). Although the tradition of running the corporation in the interests of its owners was gradually breaking down, nothing provided a basis for justifying that it should be run for the sole benefit of the group in control. Since neither “strengthening the rights of passive property owners” nor “leaving a set of uncurbed powers in the hand of control” satisfied Berle, he judged it “conceivable” that the group in control of the corporation “should develop into a purely neutral technocracy” who balance “a variety of claims by various groups in the community” (Berle and Means [1932] 1991: 356). But the state should probably be called upon to regulate their activities (1932). In The New Industrial State, Galbraith ([1967] 2007) welcomed this “formidable conclusion” that had been largely “overlooked” by Berle's “numerous critics,” especially those accusing him of being a “corporate liberal.”

Shortly after its initial publication, The Modern Corporation and Private Property was withdrawn from sale following criticism from an executive of General Motors. The initial publisher was a subsidiary of one of General Motors' best customers (Berle and Jacobs 1973: 21–22). Eventually published by Macmillan and generating a strong press following, Berle and Means's book was immediately described as “epoch-making” in the Nation and “the economic Bible of the Roosevelt Administration” in Time magazine (Schwartz 1987: 61–62). But it also drew fierce criticism. Not only was the claim of the separation of ownership from control challenged, but so were some of the conclusions drawn from it. Socialists and radicals refused to endorse the thesis of managerial control. In his 1968 review, Galbraith recalled that Berle and Means “cast doubt on the omnipresence of the capitalist in capitalism” so that “no Marxist communicator could tolerate it.”¹¹ As for the Republicans, they castigated the analysis of the malfunctions of the financial market that led Berle and Means to reappraise the classical model of competition and to argue in favor of national economic planning (Lee 1990a).¹²

In the 1930s, Galbraith was a young instructor at Harvard (1934–39) and then Princeton (1939–41). Berle's and Means's work often appeared in the syllabus or required readings of his courses. His handwritten notes of a lesson on “public regulation and the individual firm” contained a detailed discussion of the legal mechanisms put forward by Berle and Means to attest to the gradual end of shareholder control over the corporation.¹³ He explicitly endorsed the thesis that the separation between ownership and control was “inherent in the existence of a corporation with widespread distribution of stock” and then turned to the question of the “social consequences” posed by this transfer of power. Galbraith dealt with the issue of corporate social responsibility and the effect of firms' production and pricing policies on the distribution of incomes, business cycles, and allocation of resources. He added that “the separation of shareholder interest from control” increased the economic importance of the analysis of the administration of the firm. Thus, as early as 1940, the questions at the base of his integral economics had been raised. The Modern Corporation and Private Property that Galbraith would a posteriori describe as “one of the truly great documents in American social history” framed the worldview on which his trilogy and Berle's hinged. The first challenge they tackled was to reappraise the theory of competition.

What Is the Nature of Modern Competition?

Because of the separation between ownership and management, Berle and Means ([1932] 1991: 350–51) denounced “the inadequacy of traditional theory.” The view that competition is “the great regulator of industry” was obsolete. First, they put forward a change in the nature of competition because of the existence of “a few great enterprises.” A year later, Chamberlin (1933) popularized the term oligopoly to characterize this particular form of competition. Second, traditional theory proved inadequate because of the increasing importance of “overhead costs,” namely, “all costs not economically traceable to units of output,” such as wages, interest, or marketing expenditures (Clark 1923). Third, Berle and Means argued that, in markets with few sellers, competition was not an effective regulator since it led either to cut-throat price competition, which would be ruinous precisely because of the importance of overhead costs, or monopoly-like situations, at the expense of consumers. They were at that time more pessimistic than in their later works or than Clark (1940) and Galbraith ([1952] 1980), who would explain that oligopolistic competition could be “workable” under specific conditions.

The main reason why competition between oligopolists and pure competition differed lay in the pricing behavior of large-scale enterprises, which was a burning issue because of the Great Depression. It was through this prism that Galbraith began to seize upon the analysis of Berle and Means and to combine it with that of Chamberlin. Galbraith (1936) tackled the theoretical problem of explaining differential price rigidities, that is to say, the greater rigidity in industrial rather than agricultural sectors, that had been empirically observed by Means (1935). Whereas Means argued that prices in the industrial sector were more rigid because they were “administered” by large-scale enterprises, Galbraith specified that one should understand why a firm with discretionary choice over its pricing policy would prefer rigid prices. He put forward various explanations, such as long-run rather than short-run profit maximization; the existence of menu costs already discussed by Means (1935); and the hypothesis, drawn from Chamberlin, of the recognition of mutual dependence between oligopolists. Galbraith summed up his line of argument by stating that price rigidities acted in oligopolistic markets as a convention against the uncertainties of competitors' behavior. He would maintain this explanation throughout his trilogy. And Berle (1965a) would endorse it.

Means explicitly related his argument on “administered prices” to the main argument of The Modern Corporation and Private Property and was to develop this research agenda throughout his career (Samuels and Medema 1990; Lee 1990b). The control of the firm by directors and managers made the distinction between private and public property meaningless—a phenomenon Berle and Galbraith would insist on. From then on, large firms no longer allocated resources through market mechanisms. They exercised administrative control over the production process (Means 1935a). Means also linked his argument about administered prices to the idea—previously developed by Veblen (1904) and then taken up by Chamberlin (1933), Schumpeter ([1942] 2003), Galbraith (1948), and Berle (1954)—that competition in oligopolistic markets was competition by sales rather than prices. In this regard, he referred to “administrative competition” and “administrative inflation” (Means 1940, 1959, 1962). After World War II, these mechanisms were at the heart of Galbraith's ([1952] 1980, 1957a, [1967] 2007) explanation of the inflationary process, when he accounted for the cumulative loop between wage and price increases.

Berle and Means ([1932] 1991) and Chamberlin (1933) fostered the development of the field of industrial organization. Yet the issue of price rigidities was of the utmost importance in the development of this subfield of economics (Backhouse 2015). Following on from a paper dealing with the problem of price inflexibility addressed by Means (1935) and Galbraith (1936), Edward Mason (1938, 1939) then published a founding contribution to industrial organization. He suggested abandoning the idea of a perfect market in order to focus instead on firms' pricing policies. Discretionary pricing choices were determined by market power, which depended on “elements of market structure which include many more things than numbers and product differentiation.” It was necessary, therefore, to draw up a classification of market structures to explain firms' different pricing policies. But their pricing policies also depended on “the influence of the organization of a firm on the character of the firm's reaction to given market situations” (Mason 1939: 66). Consequently, it was crucial to determine whether an enterprise was governed by and in the interests of its owners or its director-managers. Galbraith's American Capitalism ([1952] 1980), which was built on a literature review of “monopoly power” that he published in A Survey of Contemporary Economics (1948), directly hinged on the research characterizing the emergence of industrial organization at Harvard (Chirat and Guicherd 2022).

For Galbraith ([1952] 1980: 26–27), the loss of realism of the classical competitive model was explained by its inability to adequately consider the phenomenon of market power. Yet his experience as a journalist at Fortune proved to him that business leaders actively sought it out. The big companies they ran had control over prices. They attempted to shape the consumers' psyche. They acted as a function of their competitors. In the competitive model, these three phenomena were unthinkable. Insofar as firms did not hold market power, they were not effectively assigned any strategic behavior. The decisions of entrepreneurs-managers were therefore dictated by market conditions. For Galbraith, such a situational determinism clashed with the growing concentration of the American economy, which he presented as an organic phenomenon of the American industrial system. His “theory of countervailing power” formed the heart of American Capitalism ([1952] 1980: 108–34). Competition was the main regulatory mechanism in the classical model, in the sense that it limited the market power of actors and thus promoted a balance of interests. In competitive sectors, the power of one firm was limited by the power of other firms on the same side of the market. Countervailing power was the regulatory mechanism of the oligopolistic sectors. This mechanism was different from classical competition. In an oligopolistic sector, the limitation on the power of one agent came mainly from the power of another agent on the other side of the market. For instance, the market power of a large-scale enterprise was not limited by its competitors but rather by the market power of its suppliers or unions. Galbraith believed that the trends that generated the emergence of big sellers favored the emergence of big buyers and vice versa.

The objective of American Capitalism was to show that oligopolistic regulation had supplanted competitive regulation. Berle's interest in Galbraith's attempt led him to write a review of the book (Berle 1953). He explicitly recognized the filiation with The Modern Corporation and Private Property and agreed with two arguments. First, competition among oligopolists was effectively competition by sales, not by prices. Second, the emergence of unions and the state as countervailing powers had indeed rendered the defense of antitrust laws by some liberals, such as Thurman Arnold, largely obsolete. In Power without Property, Berle (1959b: 13) wrote that “it was absurd for liberals to swallow the fiction that all virtue lay in smallness, and that all vice inhered in size.” Following Schumpeter ([1942] 2003), Galbraith also argued that oligopolistic industries had greater productive efficiency, in terms of output generated, than competitive ones. On this matter, Berle suggested there was no empirical evidence for the productive superiority of large firms. If “Harvard professor J.K. Galbraith seems to believe” that “power is indispensable to productivity,” he recalled that “this relationship has definitely not been established.” Berle (1954: 15) nevertheless agreed to assume that “power and productivity go hand in hand.” Later, he would argue that corporations had three essential qualities that could explain their productive superiority. These included the ability to organize production on a large scale, the ability to use large amounts of capital, and the ability to coordinate the activity of specialists and technicians (Berle 1959b: 124–25).

In the last part of his review, Berle questioned the idea that power necessarily generated the emergence of countervailing power. Galbraith indeed gave to his regulatory mechanism a self-generating character that was dismissed by many commentators. Its presumed automaticity paradoxically recalled the metaphor of the invisible hand of competitive markets. Berle judged this part of the book the “least satisfactory” though deeply interesting. He thus concluded his review by arguing that “Galbraith has written an important book” and that “the new territory he has glimpsed must be explored, mapped, and occupied” (1953: 83–84). His own book The 20th Century Capitalist Revolution directly followed Galbraith's research agenda on the oligopolistic functioning of American capitalism and the political issues it raised. Berle (1954: 53–54) indeed wrote,

What Is the Nature of the Corporation?

The questions of the nature of the corporation and the nature of competition were linked in The Modern Corporation and Private Property. Accepting the thesis of the separation between ownership and control without further inquiry, Galbraith was first interested in rethinking the nature of competition. In American Capitalism, he provided his alternative model in terms of countervailing power without grounding his argument on a deeper analysis of the nature of large-scale enterprise. In The Affluent Society, he provided a theory of consumption built against the principle of consumer sovereignty, but still without investigating the power relationship inside the corporation. As soon as this second opus was published, Galbraith, however, felt that there was still a piece missing from the alternative theoretical framework he was trying to construct. On June 20, 1958, he mentioned to Berle a work in progress on the “personality of the corporation.”¹⁴ What was missing from his previous work was a theory of the enterprise as an organization and not solely as a productive entity, whose behavior was analyzed in relation to the characteristics of its environment, in particular given market structures. Galbraith also told Berle the book was “designed to be the third of a group of three of which American Capitalism was the first. . . . I must have a talk with you about this enterprise at some early stage. As you can imagine, I am drawing heavily on your work.” A year later, Berle wrote that he was “more than thrilled” to know that Galbraith was “proposing to tackle the job of a general theory of economics.”¹⁵

Berle (1959b: 59) saw the emergence of joint-stock companies as the “first great twentieth century change.” In the preface to The New Industrial State, Galbraith ([1967] 2007) argued that we live in “a world of great corporations in which people increasingly served the convenience of those organizations which were meant to serve them.” Both Berle and Galbraith emphasized that, historically, it was the successful entrepreneur, gradually becoming a captain of industry, who gave rise to corporations, and in so doing contributed to his own destruction (Baudry and Chirat 2018). Sarcastically, Berle (1963: 21) stated that if “Marx with his Communist Manifesto undertook to destroy property,” it was rather “corporation promoters and managers” who had “without any manifesto” changed “the nature of the beast.” The enterprise in the form of a corporation underwent a qualitative transformational process, so that economic theories of the firm had to be rethought.

In his trilogy, Berle constantly reaffirmed the need to study big business with the help of concepts of political science, in particular that of power. Galbraith systematically integrated this vision from The New Industrial State. He summoned and syncretized the contributions of managerial (Baumol, Marris) and behaviorist theories (March, Simon) of the firm. Contrary to neoclassical theory, which postulated that the conflict of interest between the managers and the owners “is assumed always to be resolved in favor of the owners” (Arrow 1971, 70), Galbraith sought to determine who controlled the firm. But although he told Berle that he had drawn on his work, his perspective was slightly different. Berle and Means ([1932] 1991) used the term “management” to describe those who controlled the activities of the firm. Their concept of “managers” had a legal existence, namely, the persons mandated by the owners of the corporation. Galbraith ([1967] 2007) emphasized the existence of a new group in charge of controlling the corporation's activities, which he called the “technostructure.” Galbraith's technostructure had no legal existence. And although it included managers, it encompassed a wider range of occupations within the enterprise. The technostructure included “engineers, scientists, the plant manager, the sales manager, the marketing specialists, the advertising manager, the controllers, the lawyers” (Galbraith 1973a: 119). In his review of the book, Berle highlighted this singularity. “Galbraith accepts the theory of the corporate revolution. But he goes further” (Berle 1967: 29).

Despite this difference, Berle and Galbraith shared the view that the large-scale enterprise was a planning authority. And if a corporation actively desired market power, it was precisely in order to plan out its activities and to be able to best control its environment. In Managerial Capitalism, where he referred to Berle (1954) and Galbraith ([1952] 1980), Robin Marris (1964: 232) argued that the management of the firm strove for a planning process for its expansion that “aims to minimize uncertainty, to minimize the consequences of uncertainty, or both.” Galbraith endorsed this view. He emphasized in particular that the planning of business activities, which enabled mass production and consumption, was required by the application of technology to the production process, which contributed to the lengthening of production deadlines. The planning function performed by members of the technostructure aimed at “minimizing uncontrolled market influences.” To do this, the technostructure used various means to “supersede” (vertical integration), “control” (exercise of market power), or “suspend” (long-term contracts) the market (Galbraith [1967] 2007: 29–38). The limitation of market influences allowed for administered prices, stable expectations, and reduced uncertainty, and so made it easier to carry out the production plan. One major component of a firm's environment was expected demand. To control it, the technostructure supported Keynesian state regulation of global demand to avoid sudden falls in consumption and tried to condition specific demand through advertising expenditure. Galbraith's famous concepts of the “dependence effect” (1958) and the “revised sequence” ([1967] 2007) were intended to convey the claim that large-scale corporations rather than sovereign consumers governed the allocation of resources within the planning system (Chirat 2020).

Galbraith's vision of the corporation as a planning unit was also rooted in the works of Berle and Means. During the interwar years, Means asserted that the phenomenon of price administration, which favored price rigidity, was essential in order to consider the problem of industrial planning, which he viewed as a third way between the free market and socialism (Means 1935a: 63). Means's perspective was interesting because he soon stressed that price administration was a source of stability in economic activity, a stability that would be highlighted by Berle (1954, 1966) and Galbraith (1952, [1952] 1980, [1967] 2007). In 1970, Galbraith acknowledged his intellectual debt to Means. He told him that his argument on administered prices was a starting point for his analysis of the corporation. The Affluent Society had proposed to investigate the control that the firm sought to exert on the level of demand. The New Industrial State broadened the study to all the elements of its environment that the firm endeavored to control.¹⁶

Berle's postwar vision converged with that of Means and Galbraith. He argued that “in a system of corporate concentration the result of competition is some sort of planning” since “great corporations, their labor and their suppliers” all wanted “the job of producing goods at a roughly predictable cost, under roughly predictable conditions, so that goods can be sold in the market at a roughly predictable price” (Berle 1954: 52). Prefiguring Galbraith's analysis of the bureaucratic symbiosis, he wrote that “in non-statist Western Europe effective planning power was factually located in the business, industrial and banking groups rather than in the state.” Yet, “their planning operations are permitted and commonly assisted by their national governments” (131), which accepted a high level of concentration despite the existence of antitrust laws (Berle 1963: 41–42).¹⁷

As Berle and Galbraith shared a vision of the corporation as a planning agency, they questioned the objectives of this planification. These objectives were explained by studying the motivations of the members who made up the group that controlled the firm. As stated before, the writings of Berle and Galbraith were part of the managerial theories of the firm, especially alongside those of Baumol (1959) and Marris (1964). These theories hinged on two main observations. Ownership of corporations no longer necessarily entailed the power to control the firm. The complexity of the production process, especially due to the development of technology, meant specific skills were required. Therefore, coordination of the company's different activities was a crucial function within the firm. Such a function gave to managers a discretionary power over the objectives of the firm as a complex organization. Each managerial theory of the firm has its own particularities. Yet, five main propositions characterized those of Berle and Galbraith.

First, managers had their own interests, which potentially diverged from those of the shareholders. Second, and by virtue of the first proposition, profit maximization was not necessarily the end pursued by firms. All theorists of the managerial firm put forward objectives in terms of seeking security and fostering the growth of the firm's activities. They nonetheless considered a profit constraint, since a minimum of profit avoided the interference of shareholders in the management of the firm.¹⁸ While the firm of neoclassical theory could only maximize its profits since it was constrained by competitive forces, Berle (1965a: 34–36) argued that large modern firms wanted market power, as an uncertainty-reducing factor guaranteeing their existence. Third, Berle and Galbraith claimed that managers formed a social group in their own right within the firm, and even a social class within society. Fourth, the large modern company operated using centralized decision-making, which was a matter of group action. Managerial methods were becoming more professional and uniform. This explained why they supported the idea of a convergence in the functioning of Soviet and American companies. Fifth, studying the process of internal coordination within the firm and questioning the effectiveness of hierarchy and market as coordination devices are required.

There is one major difference between their works. As evidenced by the importance he ascribed to the role of engineers and scientists, Galbraith focused on the industrial dimension of the firm. But he overlooked its financial dimension. This criticism cannot be leveled at Berle. In line with his articles of the 1920s, he had cowritten a book on the liquidity of financial assets (Berle and Pederson 1934). This growing liquidity contributed to the breakup of the individual property regime since it implied the absence of an enduring link between the object of property and the owner. Following the crash of 1929, a series of legal measures, such as the Glass-Steagall Banking Act (1933) and the Public Holding Company Act (1935), helped to regulate the functioning of financial markets and thus contributed to reducing the power of shareholders. But this did not prevent Berle, following Veblen, from continuing to deplore the fact that this “passive property” was often considered as a productive investment, whereas it merely “distributes wealth” (Berle 1963: 24–29, 221–23). Although Berle never failed to deal with the financial aspect of the joint-stock company, he adhered to the idea that the power of bankers and shareholders had gradually disappeared. “You are right about stockholders. They cannot administer anything,” he wrote to Galbraith in a letter of July 31, 1968.¹⁹ One of the main reasons was that retained earnings were the primary source of financing for capital accumulation by large firms (Berle 1959b: 32–43). This explained why Galbraith largely neglected the external constraint of the capital market. Berle, however, perceived the inexorable growth of the power of financial institutions as a result of the pension fund system developed in the United States (48–56). And Galbraith precisely emphasized this point in a draft of his review of Berle's book. “There is one looming threat to the autonomy of the professional managers and that is the accumulation of common stock (along with voting rights) in the hands of trustees or managers of pension funds, mutual funds and, to a smaller extent, of the life insurance companies.”²⁰ Ownership had become diffused, but the element of power associated with it tended to be concentrated again in a few hands.

Mason ([1959] 1966) presented Berle and Galbraith, together with Carl Kaysen (1957) and Means (1957), as representatives of the “apologetics of managerialism.” Mason referred to “managerialism” as the argument that managers had taken over the firm and, for a variety of reasons, were driven by a form of social responsibility, so that the behavior of large oligopolies did not necessarily have the harmful effects that neoclassical economic theory suggested. It was because they had dealt with the question of the goals of the firm on the one hand, and the relations that the large firm had with other organizations in the economic system on the other, that Berle and Galbraith took up the theme of corporate social responsibility. This expression suffered from many ambiguities. The first reason lay in the value attributed to it. The notion sometimes had a descriptive value. In this case, the idea was that the corporation assumed as a matter of fact a social responsibility. Such an assertion was explicitly made by institutionalist economists such as Berle, Clark, Galbraith, and Means. They believed, like Franklin Roosevelt, that by virtue of its size and power, the large corporation had a social responsibility since its decisions had consequences for the economic system as a whole. But the notion of social responsibility also conveyed a normative value. Yet, when it came to defining what the notion contained, by defining the contours of this responsibility, businessmen and intellectuals necessarily discussed the question of public purpose.²¹

What Role for the State?

The issues of planning, corporate responsibility, and the “social control of business” (Rutherford 2015b) raise the problem of defining the notion of the “general interest” or “public purpose.” Because of the influence of John Dewey's instrumentalism on institutional economists, many of them considered social ends as “ends-in-view”—in consequentialist rather than deontological logic. This might explain why Berle and Galbraith did not provide any clear-cut criterion on which their normative economics, or specific policy prescriptions, were based. So one way to better grasp their views on the concept of “general interest” is to understand their analysis of the role of the state in society. On this matter, Berle and Galbraith's views are perfectly representative of the main tension running through the institutionalist movement. Participants in the various generations of the movement have all stressed the positive role that the state can play in regulating the economic system—hence the elective affinity between institutionalism and American liberalism. Nevertheless, two major conceptions of the nature of the state emerge from the thinking of institutionalist economists. These are the “radical conception” and the “liberal conception” (Tilman 1987; Stanfield 1991).

The radical view mainly comes from the influence of Veblen, whose thought took root at a time when public agencies played only a relatively minor role in American economic life (Gruchy 1974). Veblen saw the state in democratic regimes as an instrument in the service of business interests (Leathers 1989). This radical view leads to a corollary, namely, the rejection of the possibility of capitalism being reformed. Capitalism cannot be transformed without radical changes in the institutional structure of the economic system. Yet the latter is not amenable to change by decree of reason, as it arises as a result of a complex evolutionary process. Despite being representative of the Veblenian tradition of institutionalism, Berle and Galbraith distanced themselves from Veblen on this matter. The experiences of the New Deal and World War II, reinforced by the deep influence that Keynes's reformism had on Galbraith, had definitely convinced them of the effectiveness of exercising social control over business.

The radical conception of the state was partly supplanted within the institutionalist movement, precisely in the interwar period, by the liberal conception, which is seen as a direct descendant of Dewey's political philosophy (Rutherford 2011). Rutherford (2011: 39) points out that the focus of the Wisconsin school on legal institutions and legal change tends to move institutionalism away from “Veblen's radicalism” and therefore to connect it to “a reformist and pragmatic philosophy.” In this view, the state is essentially seen as a tool for institutional change. For institutionalist economists, the institutional structure is a major determinant of the distribution of power within society. The state is thus seen as a body that can mediate conflicts between different vested interests and limit their influence (Petr 1984). This liberal view generally calls for policy recommendations at the federal level, especially in terms of national economic planning (Gruchy 1939a; Copeland 1967). This helps in explaining the involvement of many institutionalists in the various public administrations and in accounting for their faith in the possibilities of rationalizing beliefs and habits in order to promote social reforms (Tilman 1984). In the face of these two conceptions, historiography does not adopt an unequivocal position. While Tilman criticizes some institutionalists for not making a choice between these two conceptions, Stanfield (1991: 775) indicates that they are in no way antithetical. The conception of the state developed by Berle and Galbraith rather corroborates Stanfield's judgment.

In American Capitalism, Galbraith presented the state as a countervailing power to the power of big business and an actor that could support the emergence of other countervailing powers. In his review, Berle (1953: 83–84) reminded him, however, that the government was not a unit. It sometimes supported those who already enjoyed market power. Moreover, lobbies were important political actors. Regarding the dichotomy between the radical and liberal conceptions of the state, Galbraith was unquestionably on the side of the latter in the early 1950s. Earl Latham, contrasting Galbraith's vision with that of the sociologist Charles Wright Mills, considered that American Capitalism proposed an “artificial separation between government and the social and economic groups it regulates” (Latham 1957: 305).²² The Yale economist Charles Lindblom, although appreciative of the book as a resource for Politics, Economics, and Welfare, which he was then preparing with Robert Dahl, suggested that including the state among the countervailing powers ultimately weakened the idea that this mechanism automatically minimized tensions between social groups.²³ In the course of writing his integral economics, Galbraith took on board these criticisms of the somewhat idealistic, reductive, and even naive nature of the vision of the state he had proposed in this first opus. He would increasingly borrow from the radical conception.

Berle's view of the role of the state was deeply influenced by his active involvement in the New Deal. Retrospectively he argued that the “American government changed direction” under Roosevelt since “for the first time in its history, it assumed direct responsibility for the functioning of the American economy” (Berle 1965b: 209). During World War II, Berle argued, as Clark (1916) already had during World War I, that the “modern state is under an irresistible pressure to assure opportunity for economic activity substantially to all of its able-bodied citizens” (Berle 1943: 38). This pressure led government to undertake, more than ever before, both indirect and direct public interventions to stabilize the economy. For this reason, he considered that economics “as a technical subject can no longer be divorced from the scientific study of governmental theory” (32). In the postwar period, Berle observed that the American economy was gradually evolving into a mixed economy in which “private and state ownership will be inextricably mixed.” He added that “this is not the result of any creeping socialism. Rather it is a direct consequence of galloping capitalism” (Berle 1954: 109). The best example was the military-industrial complex, where “there is no definite boundary between government operations and private business” (Berle 1954: 82; 1959b: 127–29). In a preface to Power without Property addressed to his fellow liberals, he invited them, like Galbraith ([1952] 1980), to recognize that the large-scale enterprise was the source of wealth, so that it was absurd to want to return to competitive capitalism between small production units. This is why Tilman (1987) denounced Berle's “ambiguities” and his apology for the corporation. Nevertheless, Berle never stopped pleading for public control of the behavior and the accountability of corporations.

Like Berle, Galbraith ([1967] 2007) insisted on the merging of public and private organizations. At the end of the nineteenth century, the dominant figure in the economic system was still the individual entrepreneur. According to Galbraith, entrepreneurs had a rather conflicting relationship with the state and generally identified with the values promoted by the conservative party, so that their political influence was closely dependent on the party in power. The emergence of corporations managed by technostructures transformed the nature of this relationship (Galbraith [1967] 2007: 378–89). Galbraith (1973a) coined the concept of “bureaucratic symbiosis” to refer to the close bonds between the members who controlled the large corporations and the members who controlled the public agencies. Galbraith's constantly renewed analyses of successive wars and public procurement orders for armaments in support of the planning system inform us of his critical view of the role that the state could play. The New Industrial State was an explicit warning against the tendency to alienate the objectives of the state for the benefit of large private companies and autonomous public agencies.

The issues raised by the close relationship between regulated organizations and regulatory agencies, namely, regulatory capture, were not unique to schools critical of economic interventionism, such as public choice. Hamilton (1957) dealt with this problem in The Politics of Industry. In his view, there was a “strategic game” between business and the regulator, so that the only way to ensure “economic control in the public interest” was “eternal vigilance” (Rutherford 2011: 95). Galbraith reviewed Hamilton's book and highlighted the description of the blurring of the separation between business and public activities. But he depicted Hamilton as having a “nostalgic affection” for antitrust laws, while being “too realistic” to see them as a real instrument of reform. Finally, he stressed Hamilton's fear that the state and its agencies might be mere instruments in the hands of the new ruling class (Galbraith 1957b). This stance affiliated Galbraith with the radical tradition. At the same time, however, it reflected his conception of what the state should be: the representative of a general interest transcending particular interests by balancing powers—hence his conclusion that “the government is a major part of the problem; it is also central to the remedy” (Galbraith 1973a: 242).

His radical approach was particularly evident when he dealt with the military-industrial complex, the functioning of which he observed during his missions within the United States Strategic Bombing Survey and then the State Department. On June 22, 1952, he argued in the New York Times that military spending was not necessary for American growth. Galbraith expressed his opposition to what was known as “military Keynesianism,” notably promoted by Truman's former chair of the Council of Economic Advisers (CEA), Leon Keyserling (Cypher 2015). Since the outbreak of the Second World War, the subject of arms spending as a means of countering the risk of secular stagnation and promoting full employment had featured prominently in the macroeconomic debate (Barker 2019). In The New Industrial State, following Berle's analysis, the analysis of the military-industrial complex fitted into Galbraith's overall analysis of American capitalism via three links. First, arms spending represented a substantial share of federal government expenditure and was therefore an important sector of activity when it came to stimulating aggregate demand. Second, the relationship of the state to the defense industry tended to favor firms in the planning system at the expense of smaller ones, as shown by Kaysen (1959). Third, there was a ratchet effect of military spending that took the opposite form of the political asymmetry of Keynesianism. It was difficult to reduce the defense budget because there was a worldview that provided a rationale for military spending. Galbraith ([1967] 2007: 398–418) saw the Cold War as the required belief that ensured the development of the planning system in the United States and the Soviet Union.

From their respective analyses of the role of the state, we can observe that Berle and Galbraith generally endorsed the idea that the state should act as an arbiter of particular interests with the aim of promoting a balance of power. After the war, they called for national economic planning measures to solve the problems of inflation, distributional inequalities, and environmental degradation while warning of the dangers of the merging of political and economic power. The potential consequence of such a merger was, however, partly unthought of in their works. Arthur Schlesinger Jr. wrote to Galbraith, after reading the manuscript of The New Industrial State, that while Galbraith suggested “the gradual and mutual assimilation of the technostructure and the state,” the reader could not “come away with a clear picture of the implications of all this for democracy.”²⁴ To gain a clearer view, one must turn to their liberal political philosophy.

How Should Liberalism Be Reinvented?

Berle's and Galbraith's ambition to revive political economy is indissociable from their involvement in the rethinking of liberalism, as a political ideology, in the postwar period. Their research within the Twentieth Century Fund directly converged with the topics of their trilogies, in which they often addressed their fellow liberals directly. Despite the absence of an ideological backbone, the New Deal was an experiment that was largely inspired by that of the Progressive movement in that it involved striking a balance between big government, big business—that is, Theodore Roosevelt's Square Deal—and a third entity, big labor. Even though this necessity of balancing powers was at the heart of their analysis, the true originality of Berle's and Galbraith's postwar liberalism thus lay elsewhere. Because of his involvement in Roosevelt's brain trust, Berle was one of the main figures of the New Deal era (Thompson 2019). Belonging to the next generation, Galbraith was a transitory figure between the New Deal and the emergence of the New Left in the 1960s. Galbraith's intellectual relationship with the New Left was, however, ambivalent. His criticism of neoclassical economics converged with the political economy of many radicals (Lindbeck 1971). But he was criticized by them, as Berle had been, for being a representative of “corporate liberalism.” In a letter to Galbraith of May 8, 1969, Berle explicitly dismissed that categorization.²⁵ Yet, Berle and Galbraith were considered as “corporate liberals” since both emphasized the economic success of America under the reign of great corporations concentrated in oligopolistic markets.²⁶ Their defense of big corporations was, however, anything but unconditional, so the label “corporate liberalism” proves misleading.

In When America Was Great, Kevin Mattson (2004: 153) convincingly argued that Galbraith, being preoccupied by the cultural and social impact of capitalist growth on social ends, was rather a representative of “qualitative liberalism.” Schlesinger Jr. defined qualitative liberalism as opposed to quantitative liberalism, the latter being the idea that economic growth could be a sufficient answer to social problems such as poverty and inequality. Galbraith's opposition to quantitative liberalism was manifest in his controversies with other liberal economists such as Keyserling, Heller, Samuelson, and Solow under the Kennedy administration (Parker 2005; Cherrier 2019). Highlighting Berle's influence on the activities of the Twentieth Century Fund, Mattson (2004: 162) argued that “his thinking started to become remarkably similar to the qualitative liberalism of Schlesinger and Galbraith.” Berle indeed gradually endorsed Galbraith's social and cultural criticism of corporate capitalism.

In 1950, the Harvard economist Seymour Harris ([1948] 1950) edited Saving American Capitalism, which brought together contributions from liberals such as Berle, Keyserling, Schlesinger, and Alvin Hansen to build a structured program of reforms. Berle ([1948] 1950) conceived liberalism in opposition to “reactionary circles” and “the extreme left.” In the same vein, Schlesinger (1949) wrote The Vital Center. Published by Houghton Mifflin, this book was an attempt to build an ideological construct of postwar liberalism as a credible alternative to communism and the political power of business. Schlesinger wanted to define a “pragmatic liberalism” as opposed to a liberalism that was considered “utopian,” because of its belief in human goodness and reason to produce a convergence of interests (Lasch 1991). American Capitalism followed in its wake. Galbraith received a $1,000 advance from Houghton Mifflin to work on it. After reading the manuscript, Schlesinger declared that the book “ought to have a great impact on American economic and political thinking.”²⁷ Galbraith attacked both conservatives and liberals, whose policy recommendations he saw as deriving from their common belief in the competitive model. The former were still worried about the power of the state, which they wanted to see minimized. The latter were still worried about the power of big business, which they wanted to see dismantled. Yet the liberals “have made scarcely a new proposal for reform in twenty years,” even though the nature of American capitalism had radically changed (Galbraith [1952] 1980: 9–10). A better understanding of the nature of these changes, thanks to his new model based on his theory of countervailing power, should help redirect government policy. Schlesinger agreed with Galbraith's complaint about “the programmatic bankruptcy of the liberal.” But he did not find much “programmatic help” in his friend's book, except for the very general use of his “countervailing criterion.”²⁸

The year before the publication of American Capitalism, Galbraith (1951) wrote a draft titled “Individualism, Collectivism, and Economists” in which he discussed extensively the arguments of the representatives of the “old individualism”—Adam Smith, John Stuart Mill, and Alfred Marshall—and the “new individualism”: Friedrich Hayek, Frank Knight, and Henry Simons. Galbraith argued that his contemporaries who quoted the old individualists “in defense of private enterprise” had not understood their message. They wanted “truly private” enterprises that were not collective entities with a legal personality. But the “modern individualist” had no choice. He “must accept the corporation as a fact,” even though he deplored its existence. It echoed Berle's ([1948] 1950, 1959b) lament that some liberals condemned economic bigness per se. As stated before, Tilman (1974) argued that the “reformist potential” of Berle's thought was hijacked by “excessive ambiguity” and “unjustifiable apologetics” in favor of big business. This is, however, questionable. As Galbraith recalled, “To concede the key role of the corporation in the economy is not, necessarily, to argue the universal value of its contribution to our culture.”²⁹ On the other hand, Tilman rightly criticized Berle for his equivocal definition of the public purpose. In addition to the widespread determination to adopt an instrumentalist posture à la Dewey among institutionalists, the lack of a stabilized definition of the notion of the general interest also had a normative and political function in their thinking. It allowed them to adapt, according to circumstances, and then legitimize their public policy recommendations at a lower cost. Yet, this absence could have been one of institutionalism's weaknesses in its age-old struggle against neoclassical economics, where the principle of consumer sovereignty had the merit of providing a far less equivocal normative criterion—even though it was a highly challengeable one.

As suggested by Schlesinger, Galbraith's American Capitalism, like Berle's work, suffered from this weakness. At the annual meeting of the AEA, George Stigler (1954)—a fervent opponent of the Berle-Galbraith-Means research agenda (Stigler 1962)—highlighted that Galbraith did not explain his rejection of the traditional criterion of welfare economics. This was all the more unfortunate since the heart of the book, as Berle (1953: 84) himself pointed out, was about how and why countervailing power could be “socially useful.” Galbraith was forced to acknowledge this absence. In a letter to Stigler dated November 4, 1953, he clarified this point. His “value criteria involve minimization of social tensions rather than maximization of consumer real income.”³⁰ He believed that the neoclassical criterion was appropriate for a world of widespread poverty. “Increased real income of consumers was the simple test of improved welfare.” But he believed this was no longer the case. “An opulent society can afford to sacrifice material well-being for social contentment” (Galbraith 1954: 2–3). However, it was not until The Affluent Society that he fully developed his conventionalist approach to welfare, this time explicitly opposing the principle of consumer sovereignty that underpinned welfare economics (Chirat 2020).

The Affluent Society was a manifesto for qualitative liberalism. Galbraith's vision hinged on the concept of the “dependence effect,” that is, the idea that “wants are increasingly created by the process by which they are satisfied.” Therefore, “it can no longer be assumed that welfare is greater at an all-round higher level of production” (Galbraith 1958: 129). In Poverty Knowledge, Alice O'Connor showed how Galbraith's view of poverty alleviation contrasted with that of the CEA chaired by Heller. For the latter, the key to poverty reduction was still increased production. For Galbraith, it required “a complete reordering of economic priorities” (O'Connor 2001: 146). In a memo to Kennedy dated 1962 and sent in the context of the tax rate cut, Galbraith bluntly stated his opposition to quantitative liberalism. “The matter of great urgency is not growth but to get the kind of setting in which growth is good. Economists of the old-fashioned Keynesian type have always had a fixation on furnishing more goods. This was once important. But it is no longer the problem” (Holt 2017: 234). From Galbraith's point of view, it was the supply side of the market that drove the economic process. This “revised sequence” had two main consequences. First, growth could pave the way to more unsatisfied wants. Second, it generated a social imbalance in favor of private goods and services rather than public ones. Galbraith lamented this and argued that the state was duty bound to promote the services that would contribute to satisfying basic needs, namely, those that a society conventionally considered necessary for the existence of its members (Penz 1987). Thus, when Berle and Galbraith—like Clark, Hansen, or Keynes—argued in favor of public investments, they targeted sectors of activity to be prioritized such as infrastructure, education, and housing. In this regard, their view echoed the normative ideal of “merit wants” in the thinking of Galbraith's colleague Richard Musgrave (Desmarais-Tremblay 2016).

The reception of The Affluent Society created deep divisions within the American Left. In The New Republic of October 27, 1958, Keyserling attacked Galbraith for having neglected poverty. He had already clashed with Schlesinger the previous year, condemning his promotion of qualitative liberalism.³¹ For Davis (1963), the simultaneous publications of Michael Harrington's The Other America (1962) and Gabriel Kolko's Wealth and Power in America (1962) invalidated the abundance thesis, which was based on four challengeable assertions: income was more equally distributed; the concentration of wealth had decreased; poverty had been drastically reduced through welfare programs; and government action was a major factor in the redistribution of resources.³² Unlike Keyserling, Berle explicitly recognized that he was strongly influenced by Galbraith's arguments in The Affluent Society. He claimed that it was now known that living in an affluent society did not in any way equate to freedom (Berle 1959a, 1959b). Emphasizing his ability to reach a wide audience, Berle sent a letter of congratulations to Galbraith on September 17, 1958.³³ He was also grateful to Galbraith for showing that economists still mistakenly believed that “men do live chiefly on the economic plane,” in a world necessarily marked by scarcity, and that this would always be the case (Berle 1963: 8). Postwar American society was qualitatively different from its predecessors. Economic problems had necessarily to be posed in new terms in an age of plenty. Berle indeed stressed that “a system of political economy is only an instrument—a means to an end. It is not an end in itself.” Thus, growth could be seen as a condition for the process of civilization, but it “does not by itself create either a good life or a good society” (5).

The influence of Galbraith's qualitative liberalism on Berle was also apparent in a little-known paper published in Les Études philosophiques. Berle (1964) observed that American economics was won over by a movement of contestation, which would be gradually institutionalized within the Association for Evolutionary Economics and the Union for Radical Political Economics. Berle pointed out that many economists were challenging the naturalization of the laws of economics, the abstractionism of reasoning, or the simplifying view of individual motivations (569–570). The “institutionalist school,” which embodied this contestation, had in his view gradually gained a predominance that “was officially sanctioned by the economic revolution of 1935 known in history as President Franklin Roosevelt's New Deal” (573). While historians of economic thought agreed, in retrospect, that institutionalism entered a phase of decline after the war, Berle, as a contemporary, did not share this view. There was much work done by various heirs of the original institutionalist movement, and Berle considered that Galbraith acted as a “spokesman” for this group of economists:

Highlighting the need for freedom from state control over “public tastes and desires,” Berle (1964: 579) emphasized here that the difficulty lay in “balancing individual freedom with planning for social justice.” Institutionalist liberals argued for state intervention to meet basic needs because they believed that an individual could be free only if these needs were met. They defined freedom as the ability to choose or the power to act free from the constraints of material life. In this sense, the implementation of national economic planning was not opposed to the freedom of the individual (Berle 1935; Galbraith 1953). In contrast, Hayek rejected such a definition of freedom as a capacity, the origin of which he precisely associated with the “leading philosopher of American left-wingism,” John Dewey (Hayek 1944: 19). The conflicts among twentieth-century economists on the issue of planning were largely rooted in opposing normative ideals, especially with regard to the meaning of freedom as a fundamental value.³⁵

In The New Industrial State, Galbraith addressed the formation of social goals, in the same way that he had been interested in the formation of consumer preferences. “To know how and to what ends we are governed, we must know what the goals of the technostructure are” ([1967] 2007: 121). This was the point of his study of the motivations of the technostructure that Berle welcomed in his review of the book and in a letter of July 10, 1967. “Your ‘General Theory of Motivation’ seems a long thrust in the right direction.”³⁶ It allowed Galbraith, through a “principle of consistency,” to derive a study of the “goals of the industrial system” as a whole. But to what social ends did the objectives of the technostructure identified by Galbraith lead? The mature corporation sought to increase its output and sales by attempting to control a continuous increase in specific and aggregate demand. The purpose of the economic system dominated by large firms controlled by the technostructure was incidentally economic growth as such. This analysis was consistent with the study of social beliefs proposed in The Affluent Society. “The growth of the firm as a goal of the technostructure is strongly supported by the principle of consistency. No other social goal is more strongly avowed than economic growth” (Galbraith [1967] 2007: 180). Here we can see the integrated nature of his pattern models. The analysis in terms of producer sovereignty enabled him to unify his microscopic analysis (the goals of the technostructure within the corporation) with his macroscopic analysis (the dominant beliefs within the industrial society).

Conclusion: Bringing Power Back into Economics

With the publication of Power in 1969, Adolf Berle offered a study devoted exclusively to this subject, which as we have seen was already present in all of his work on corporations. On May 27, 1969, Galbraith told him that this was his “best book” along with The Modern Corporation and Private Property.³⁷ As in his writings from the 1930s to the 1950s, Berle's Power invited the reader to conceive of the corporation as a political institution. In his framework of thought, institutions were a structure for the exercise of power. As such, they predetermined the purpose for which decision-making power was allocated. In other words, an institution always delimited the space of objectives that could be pursued by those in control. While Berle (1969: 95–98) believed that managers held power in the corporation, if they were to use it in a way that was contrary to their mandate, they would necessarily lose it; or the organization that sustained their power would disappear. A second limitation came from another foundation of all power, namely, the system of ideas on which it rested. “Without an idea system, institutions cannot be constructed and certainly cannot endure” (84). This being the case, Berle concluded that a power holder would not be able to make decisions that went against the system of ideas underpinning the institution that gave rise to their power. It was precisely in terms of the system of ideas, which was a necessary support for all power, that intellectuals had the possibility of changing a society's power structure. By formulating social problems and addressing their criticisms of existing institutions, they had the opportunity to question the idea systems that supported the institutions that were part of a society's power structure (124–26).

Berle's book provided Galbraith with a key intellectual resource for his further research on this concept that enabled him to unify the pattern models of his integral economics (Chirat 2022b). In “Economics as a System of Belief” (Galbraith 1970), he endorsed Berle's emphasis on the power of ideas. In The Anatomy of Power (Galbraith 1983), he claimed that “it was Berle who, more than anyone else, stimulated [his] interest in the subject.” Moreover, he placed as an epigraph Berle's statement that the subject of power was not “remote, philosophical or esoteric.” The Anatomy of Power also fitted with Berle's claim that to study power was to study its sources, especially its organization, and its forms (Chirat 2018). But here again, there was a cross-fertilization. First, Berle (1969: 230, 242–43) argued that Galbraith had shown perfectly well that big business and trade unions as organizations pursued their own interests and not some higher public purpose. Second, he argued that The New Industrial State was “the most ambitious recent exploration” of economic power (577). Reciprocally Galbraith (1973b) found in Berle the idea that the realism of political economy implied dealing with the issue of power. The Anatomy of Power was thus an opportunity to stress that he shared a common desire with Berle to break intellectually with the preconceptions of modern economics (Galbraith 1983: 69, 148). It was in this work, and not in the more sanitized entry written for The New Palgrave Dictionary of Economics (Galbraith 2008), that Galbraith paid him the tribute that seems to be the most consistent in terms of the influence Berle exercised on his thought. Galbraith described his friend as being concerned “more deeply than any other American writer with the nature of power” (Galbraith 1983: 48).

A previous version of this article was presented at the Summer Institute of the Center for the History of Political Economy at Duke University, June 5, 2021. I thank all the participants for their feedback. I also warmly thank Paul Dudenhefer, Steven Medema, Malcolm Rutherford, Aurélien Saïdi, and the two referees for their comments. The usual disclaimer applies.

Notes

References