Postwar American Economics and the Fate of Countervailing Power

In 1952, Harvard economist John Kenneth Galbraith published one of his earliest best sellers, American Capitalism . Despite impressive traction among the public, the book sparked controversy among mainstream economists. Not only did Galbraith attack the failure of neoclassical economics to capture reality, but he also offered an alternative: the theory of countervailing power. Galbraith’s vision of an economy of competing aggregates was cast aside, but the political and methodological grounds for this rejection merit a closer look. In this article, I reconstruct the academic debate sparked by the book’s publication to demonstrate how thoroughly Cold War conformist politics influenced American economics in the postwar period. This had consequences both for Galbraith’s theory and for the trajectory of economic methodology thereafter. As this episode suggests, a “neoliberal” economics shorn of ethical and social context congealed in the early 1950s—a historical hinge point with powerful reverberations into our present day.