In Praise of the Conventional Wisdom

The author is Associate Professor of Finance and Economics at the University of Denver and is the current editor of Business Economics.

Since its invention in 1958 by John Kenneth Galbraith, the phrase "conventional wisdom" has developed into an insult of broad and devastating power. Call an idea a part of the conventional wisdom, and far too many people, including many businessmen and college professors, are reluctant to pursue the thought any further. Who, after all, wants to sound archaic?

This development is thoroughly deplorable, for much of the con­ventional wisdom, although an­cient and often neglected, is as valid today as ever. It deserves both defense and praise in face of the onslaughts against it.

Here are seven propositions drawn from the conventional wis­dom, the attacks against them, and some of the ways they might be protected and preserved for use in the political debates ahead.

·   You can’t have everything—re­sources are scarce.

Old hat, say many of our most popular critics. So marvelous is the U. S. productive machine that we actually can have everything. Automation has made work obso­lete. People who prefer not to work should be put on the dole and encouraged to roll around heaven all day.

The facts of the matter are the reverse, of course. Median family incomes in the United States now run about $8,000 annually; and, if we push ahead as diligently as we can, they may reach $20,000 annually by the year 2000—a sum most intellectuals who disparage the need for economic growth al­ready earn or at least aspire to.

The key problem confronting the United States is still how to increase output, not how to redis­tribute what we already produce. Our major and continuing goal should be to bake a larger eco­nomic pie so that everyone can eat a bigger piece, not to reslice what­ever pie is already on the dish.

·   It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from regard to their own interest.

Most people today, our intellec­tuals insist, work primarily for honor and wisdom, security and status, blue ribbons and letter sweaters. Their desire for money is strictly secondary.

While the foregoing view may be partially correct, it is equally correct that given the current status of human nature we also need monetary incentives.

We need high wages and sal­aries to foster personal pride and dignity. We need high profits to encourage saving and risk taking. And we need tax rates that let us keep a senior partner’s share of whatever rewards our efforts gen­erate.

·   Consumers are kings.

Many social critics find this no­tion terribly quaint. Consumers are enslaved by the hard sell and the soft sell, say the critics, by planned obsolescence and a com­pelling impetus to waste. Let ad­vertising croon its seductive tune, and consumers will tumble all over one another in a psychedelic scramble to buy any shabby con­trivance sung about.

The truth is that no amount of advertising can sell consumers what they don’t actually want—at least not for long. The Ameri­can economy abounds with ex­amples of massive marketing and advertising campaigns that failed. The sad saga of the Ford Motor Company’s Edsel is the most re­nowned. And there are many others—including General Foods’ inability to promote corn flakes with freeze-dried peaches even after advertising expenditures of more than $3.5 million in 1966 alone. Not even the nation’s dogs can be euchred into consuming what they don’t genuinely enjoy, a point demonstrated by General Mills’ decision to phase out Speak dog food after spending over $1 million annually on advertising.

Consumers, being neither phi­losophers nor saints, naturally make mistakes. But by and large they do an excellent job of man­aging their own affairs—no mat­ter what the critics claim. Heavy-handed emphasis on laws to "pro­tect consumer interests" will ulti­mately reduce both consumer pleasure and consumer choice.

·   Build a better mousetrap, and the world will beat a path to your door.

If consumers really were sub­liminally driven to buy whatever advertising men tell them to buy, then the search for new and bet­ter products would prove super­fluous. Consumers, the silly sheep, would enjoy being sheared. Be­sides, like the vast majority of sheep, they couldn’t tell a superior mousetrap from an inferior door knob.

But U.S. businesses are en­gaged in a never-ending quest for new and better products, as is at­tested to by their $7.5 billion an­nual expenditures on research and development. Businesses don’t spend these sums out of altruism; they spend them in order to keep alive and growing in our hotly competitive economy.

What really affronts and frus­trates many intellectuals is not the economy’s failure but its smash­ing success in providing a bounti­ful array of mouth-watering items. It simply sets some intellectuals’ teeth on edge to see most of the American people enjoying new automobiles and color TVs, vaca­tion trips and football games, when, in their view, these people should be writing poems, paint­ing pictures, and playing lutes.

The market caters to consumers not to the whims of reformers.

·   Higgling and haggling in the market place determine relative prices.

Not so, according to some of the most fashionable thinkers of our time. The market, like God, is dead. Five hundred or so giant firms dominate America’s econ­omy, and these firms set prices at whatever levels they please.

If businessmen completely com­manded prices, then presumably the prices of individual products might sometimes rise but would never, never fall. From the many thousands of possible examples, here are just two showing that such command is absurdly exag­gerated. One, from consumer mar­kets, concerns TVs, which fell from around $300 for a 12-inch table model in 1950 to around $130 for a decidedly superior 17-inch set today. The other, from industrial markets, concerns basic aluminum, which fell roughly 30 per cent be­tween 1961 and 1965. Surely, if TV and aluminum producers held absolute power over their prices—if they could safely ignore pres­sures from rivals who covet a piece of the action—then they used their power in the wrong di­rection.

Government, not business, con­stitutes the most immediate threat to free markets. And one of the most progressive steps we could take today would be the ending of government control programs, many of which were introduced during the bad-old-days of the 1930′s and most of which constrict the sway of competitive forces. For instance, minimum-wage laws, far from helping the poor, have pushed workers on the bottom rungs of the achievement ladder out of their jobs altogether; re­strictions on agricultural output, far from preserving the family farm, have helped force down the number of farms from seven mil­lion in 1935 to three million in 1968.

·   Government should do for the people only what the people can­not do for themselves.

Mention a problem—any prob­lem from auto accidents to agri­cultural prices to dirty air—and a great many Americans will jump to the conclusion that the Federal government could immediately fix up the situation if only it wanted to. Arguments that government shouldn’t and can’t do everything are interpreted as a serving of political horseradish or as a sign of indifference to human suffering.

The fact is that government shouldn’t try to do everything. It’s a matter of record in countries from Hitler’s Germany to Mao’s China that centrally directed eco­nomic systems crush human liber­ties, political and artistic as well as economic. It’s also on the record that overly ambitious programs of the U. S. government lead to the loss of our traditional freedoms. Moreover, many government pro­grams, such as public housing, have worked out in precisely the opposite way intended.

Much of what is needed in the United States today is a reorder­ing of national priorities. Govern­ment has plenty to do, especially in the way of preserving the peace, with liberty and justice for all. But it can’t do everything at once. Clearly we should take a fresh-eyed look at some of our older projects, particularly our subsi­dies to various political pressure groups which run into billions of dollars annually. We should also, whenever a new problem is dis­covered or invented, give serious thought as to whether private businesses and individuals might be able to cope with the trouble without running to Washington. And if it is a problem that can’t be solved voluntarily, does that log­ically and automatically render it soluble by force?

·   Everyone has to pay his bills sometime or other—even the Federal government.

The New Economics, which is based on the assumption that adroit manipulation of Federal spending and taxing can banish both recessions and general price rises, has been over promoted. American supporters of the New Economics apparently encountered so much resistance in first selling the notion that Federal deficits might sometimes prove beneficial that they went overboard in their public pronouncements. As a re­sult, many government officials and even many businessmen suffer from the delusion that deficits don’t matter.

But deficits do matter. And just a quick look at some of our most pressing economic problems will provide any fair-minded observer with persuasive evidence. Both our mounting inflation and our deepen­ing difficulties in world money markets have stemmed in large measure from the cavalier accept­ance of Federal deficits.

The Federal government, no less than the most humble private citi­zen, must handle its financial af­fairs with reasonable prudence—or else suffer the uncomfortable consequences. Far from being out­moded, this bit of conventional wisdom is more up-to-date than Marshall McLuhan.

Why, in the face of so much evidence, is the conventional wis­dom held in such low repute? The easy answer is simply that our times are out of joint. Alienation and despair are the catchwords of the day. And despite our extra­ordinary progress over the past several decades—including the marked increase of investment and production and the sharp reduc­tion of poverty—every other per­son you meet seems convinced we’re heading straight for eco­nomic perdition.

Maybe it’s because life is mov­ing entirely too fast. Instant food, instant money, and almost instant travel from New York to Los Angeles—all these are perfectly delightful. But perhaps they’ve also given us an impossible-to-sat­isfy appetite for instant utopia—a never-never land where hard work, personal disappointments, and all income differentials are not only abolished but abolished right now.

Well, we’ll probably never reach utopia. What we can do is move toward a generally healthier, wealthier, and wiser society by making the right choices, some of them very hard choices. Much of what we need to help guide us along the way is less intellectual novelty for novelty’s sake and more respect for the conventional wisdom.