"American Capitalism" was John K. Galbraith's first best-seller. This book has several valuable historical and practical insights and remains a significant theoretical contribution, still relevant today. It was not the popular and academic success of "The Affluent Society," "The New Industrial State," and "Economics and the Public Purpose." However "American Capitalism" would be the theoretical groundbreaking of Galbraith's later efforts.
In this book Galbraith maintained the fundamental character of American Capitalism had transformed. The economic system was riddled with big firms and market concentration. Galbraith's book was an application and further development of Edward Chamberlin's and Joan Robinson's arguments and theories of imperfect competition.
Galbraith counters traditional market economists on the ideological mantra that markets equal political freedom. According to Galbraith, markets do not necessarily generate political freedom. If market competition leads to economic concentration then the result of market competition may be far from "freedom." Likewise Galbraith suggests that noncompetitive firms and industries can be more productive and efficient, not less efficient as suggested by textbooks of his era (a position still held in today's textbooks). Against his fellow liberals, Galbraith maintained that big firms (or oligopolies) did not necessarily threaten American democracy (a position he would continue to maintain in his later works; his son James K. Galbraith has radically challenged this position, not as having been wrong, but a political institutional transformation has occurred, giving rise to the "Predator State").
For Galbraith economic concentration and big business was a function of competition and a permanent feature of the American capitalistic system. Economic concentration was not all bad, nor all good, but had certainly changed the macroeconomic dynamic of United States, along with the political system required to mediate and manage the new system.
Galbraith argued competition between small entrepreneurs and producers still had a significant presence, but it no longer explained the macroeconomic dynamic. Instead Galbraith argued the rise of giant producers beget "countervailing powers." These countervailing powers to big business were not competitors producing similar products, but the suppliers (including big unionized workers) and the bigness of buyers (for example big automobile manufactures countervailing the power of big steel).
Galbraith's theory of "countervailing power" was simultaneously seen as a serious challenge to hitchless market (i.e. price) adjustments and to the new rising orthodoxy of Keynesian intervention. The challenge to market adjustment Galbraith made quite explicit and deliberate. The challenge to Keynesian was more implicit, to be made most explicit and deliberate in "The New Industrial State." Antitrust law had become all but useless because for it to be used effectively against big business it "is to suppose that the very fabric of American capitalism is illegal" (55).
The expansion of government was itself an example of "countervailing power." As Galbraith stated it: "We can now see that a large part of the state's new activity - the farm legislation, labor legislation, minimum-wage legislation - is associated with the development of countervailing power" (151). The rise of big government was a logical and necessary outgrowth of big industry, big retail, and big labor. The feature of bigness and economic concentration now constituted the institutional character and macroeconomic dynamic of American Capitalism and would remain a foundational analysis of his (highly influential) later work.
Also in this book Galbraith sees the boundary between economics and politics as artificial, hence false. For Galbraith economic analysis necessarily incorporates political analysis. It is not that Galbraith was unwilling to separate economic analysis from political analysis; rather it is erroneous to do so. This may also help to explain Galbraith's desire for a non-mathematical approach. After all mathematical models are only as precise as the stability of both economic and political institutions. Because economic institutions change, and political legislation change even faster, an institutional and philosophical methodology is more powerful and more accurate than mathematical modeling. Galbraith's elegant and potent prose complements his institutional and philosophical analysis beautifully.
"American Capitalism" will be sought by economic historians, historians of economic thought, and other specialists. A wider audience would surely enjoy reading this book. It is written with a beautiful prose, great wit, a critical mind, and very powerful theoretical analysis. For whatever reason you seek interest in this book, purchase it, enjoy it.