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The Economics of Innocent Fraud: Truth For Our Time Hardcover – April 26, 2004

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Editorial Reviews Review

John Kenneth Galbraith has been immersed in economics for most of his long and remarkable life. The purpose of this extended essay is to illuminate examples of "innocent fraud" or the gulf between perception and reality in the modern American economic system--a system he had a hand in creating during his tenure in FDR's administration. Though tackling serious subjects, the book sparkles with wit and sly understatement. "A marked enjoyment can be found in identifying self-serving belief and contrived nonsense," he writes, clearly enjoying himself.

The dominant role of the corporation in modern society is one such form of innocent fraud, and he explains how managers hold the real power in our system, not consumers or shareholders as the image would suggest. Despite the "appearance of relevance for owners," capitalism has given way to corporate bureaucracy--"a bureaucracy in control of its task and its compensation. Rewards that verge on larceny."

He also explains how the public realm is effectively controlled by the private sector. The arms industry is but one example of this: "While the Pentagon is still billed as being of the public sector, few doubt the influence of corporate power in its decisions." He also looks at the financial world which "sustains a large, active, well-rewarded community based on compelled but seemingly sophisticated ignorance," and in particular the Federal Reserve System, "our most prestigious form of fraud, our most elegant escape from reality." In essence, Galbraith says that the Fed, for all of its power and prestige, effectively does nothing. And he has little problem with this: "Let their ineffective role be accepted and forgiven."

Both a guide to the present and an aid to shaping the future, this slim, satisfying book is a font of wisdom, conventional and otherwise, from a respected elder statesman in the twilight of his life. --Shawn Carkonen

From Publishers Weekly

In this thin volume, Galbraith, the noted economist and presidential adviser, serves up a pessimistic view of today's U.S. economy. Drawing on the omnipresent headlines of corporate scandal and greed, Galbraith explains that as the economy suffers, the overall state of American society declines as well. He points to a number of cases of "innocent fraud," or the gap between reality and conventional wisdom. The author bemoans the emphasis on gross domestic production, or GDP, rather than cultural or artistic advances. Companies, not the public, decide what products to make. Galbraith believes that decisions in various corporate arenas are made based on profits, rather than sound business strategies. Furthermore, he says that shareholder meetings, with a few rare exceptions, are pointless because "Shareholders-owners-and their alleged directors in any sizeable enterprise are fully subordinate to the management.... An accepted fraud." He also calls the rapid Internet growth and subsequent bubble another example of fraud as millions of analysts predicted rapid growth for so many companies, but ultimately many employees were laid off. Even more dismaying to Galbraith is the power of the Federal Reserve, which is credited with prompting economic resurgence when, in his view, the institution has limited real power. This brief treatise is a well-written, logical argument about the state of the economy. However, readers may be disappointed because the short concluding chapter offers few realistic solutions.
Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved.

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Product Details

  • Hardcover: 80 pages
  • Publisher: Houghton Mifflin Harcourt; First Edition edition (April 26, 2004)
  • Language: English
  • ISBN-10: 0618013245
  • ISBN-13: 978-0618013241
  • Product Dimensions: 5.5 x 0.2 x 8.2 inches
  • Shipping Weight: 8 ounces
  • Average Customer Review: 4.2 out of 5 stars  See all reviews (30 customer reviews)
  • Amazon Best Sellers Rank: #740,473 in Books (See Top 100 in Books)

More About the Author

John Kenneth Galbraith who was born in 1908, is the Paul M. Warburg Professor of Economics Emeritus at Harvard University and a past president of the American Academy of Arts and Letters. He is the distinguished author of thirty-one books spanning three decades, including The Affluent Society, The Good Society, and The Great Crash. He has been awarded honorary degrees from Harvard, Oxford, the University of Paris, and Moscow University, and in 1997 he was inducted into the Order of Canada and received the Robert F. Kennedy Book Award for Lifetime Achievement. In 2000, at a White House ceremony, he was given the Presidential Medal of Freedom. He lives in Cambridge, Massachusetts.

Customer Reviews

4.2 out of 5 stars

Most Helpful Customer Reviews

77 of 78 people found the following review helpful By Dennis Littrell HALL OF FAMETOP 500 REVIEWERVINE VOICE on December 11, 2004
Format: 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.
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13 of 13 people found the following review helpful By Rehan Dost on July 5, 2005
Format: Hardcover
Although professor Galbraith has little proclivity for numbers not all economic ideas are best expressed as such. To reach the masses one must present simple valid arguments with suitable justification for assumptions.

Dr. Galbraith does just this in his essay.

He makes explicit what the masses know implicitly especially in light of Enron, Worldcom, ad infinitum.

Contrary to what some readers have posted ( I sometimes wonder if they actually read the book ) the author does not advocate "socialism, marxism," etc ( as if these terms had an unambiguous meaning ) but simply points out certain beliefs prevalent in society and proceeds to show that they are indeed myths. Some beliefs he clearly states are "innocent" by-products of circumstance.

I thoroughly enjoyed the book unable to put it down until it was read. I can only hope Dr. Galbraith continues to publish and provide us with his unique perspective.
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49 of 62 people found the following review helpful By Celia Redmore on April 11, 2004
Format: Hardcover
John Kenneth Galbraith says he had fun writing this compact treatise, but it makes for painful reading. The much-honored Harvard professor claims that the gap between common wisdom about national economics and reality has widened alarmingly in recent years.
The center of the book's thesis is that what we once called "capitalism", and now usually call a "Market System", has morphed into a "Corporate System" controlled by management bureaucracy. Here are two short fragments to give the flavor of Galbraith's tract:
Myth: Shareholders own corporations.
"No one should be in any doubt: Shareholders-owners-and their alleged directors in any sizable enterprise are fully subordinate to the management. Though the impression of owner authority is offered, it does not, in fact, exist."
Myth: The public sector is entirely independent of the private sector.
"At this writing, corporate managers are in close alliance with the President, the Vice President and the Secretary of Defense. Major corporate figures are also in senior positions elsewhere in the federal government; one came from the bankrupt and thieving Enron to preside over the Army."
In earlier times, this book would have been burned in the public square. These days, it may simply be pushed off the bookshelves by a blizzard of withering reviews.
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9 of 10 people found the following review helpful By E. David Swan VINE VOICE on July 22, 2005
Format: Hardcover Verified Purchase
There is certainly fraud in economics however I question the innocence. Mr. Galbraith points out a handful of accepted truths about economics that are, quite frankly, false. Perhaps the biggest fraud is the idea the shareholders are part owners of the companies they invest in. This idea has been pushed most recently by internet trading companies who like to give small investors the impression that they literally own a piece of the company. You might as well claim to own part of the moon. Despite being an investor and `part owner' of the company I worked for they still laid me off without my permission or consultation. Even the board of directors is created by and for management. Mr. Galbraith describes the annual shareholder meetings as resembling a "Covenanted Baptist Church service". What further proof do you need of the impotence of the shareholder than the continuing and inexorable rise in management salaries through the early part of the decade as the market tanked. Imagine sports athletes being in charge of setting their own salaries and it becomes clear how CEO's can now earn 470 times the salary of the lowest paid worker in the company they manage.

Another fraud discussed by the author is the idea of public and private policy. These two spheres have become increasingly irrelevant as government officials jump back and forth between corporate management and policy making. How many public appointees have suddenly found themselves with lucrative lobbying careers the moment they leave an administration? Mr. Galbraith points to the military industrial complex as a particularly egregious merging of the two and even argues that the Pentagon is as much in the private sector as the public.
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