I am often asked why John Kenneth Galbraith, who died recently at the age of 97, was never awarded a Bank of Sweden prize in honour of Alfred Nobel. The short answer might be that although he was probably the world’s best-known economist, writing with grace, flair, wit and insight, these are not attributes always greatly valued by his profession.     

For the prize is not given for such skills. Instead it is awarded for a narrow mathematical result that may progress the profession a little, but certainly does not challenge the conventional wisdom (a phrase Galbraith introduced). Innovators, who subvert the way we think, hardly get acknowledged.

So many of Galbraith’s ideas have been adopted today, yet we do not realise they had to be invented by someone. We worry about public squalor and private affluence every time we sit in a bad traffic jam. He raised the importance of “countervailing power” to offset monopoly. Generations before the view became popular, Galbraith drew attention to the inadequacies of GDP as a measure of a nation’s welfare.

Galbraith came from a different – not so popular today – approach to economics. “Institutional economics” dominated up to the 1950s, but got superseded by the more mathematical neoclassical economics beloved by those who award the Nobel Prize. Institutional economics’ trademarks are “empirical research, suspicion towards deductive theory, emphasis on the changing nature of economic institutions, habits, and norms, special attention to the divergence of market values (prices) from social values, and the belief in the reality of informed concerted action to improve human welfare”.

The (largely valid) implication of this definition is that neoclassical economics is less empirical and more deductive, assuming that institutions, habits and norms are irrelevant. (Often the implicit assumption derives from the norms of an idealised white middle-class US male.) It thinks market prices normally match social prices, and although collective actions rarely improve human welfare, individual ones usually do.

Galbraith was one of our great institutional economists. His New Industrial State, perhaps his most important book (although there are many of the 40 I cherish), argues that neither the market nor shareholders have control over the largest corporations. It is the management who determine how they run. This is an anathema to neo-liberals, who roundly abused Galbraith with deductive models to show he was wrong. Unfortunately, their deductions did not predict the Enron fiasco, where the management criminally rigged the accounts of one of America’s largest energy firms in their own self-interest, just as Galbraith predicted.

But even he said, “I hadn’t expected to see this problem on anything like the magnitude – the separation of ownership from management, the monopolisation of control by irresponsible personal money-makers. … Those of us who’ve concerned themselves with this matter cannot take satisfaction for discovering that we were at least partly right. That’s too much like seeing a Colorado forest fire and knowing there was inadequate protection.”

No, they never awarded Galbraith a Nobel Prize. But there are many great economists of the past who would not have received it, either. He joins that pantheon.