Bad Old Boy of the Dismal Science : ECONOMICS IN PERSPECTIVE : A Critical History <i> by John Kenneth Galbraith (Houghton Mifflin: $19.95; 304 pp.) </i>

On the third page of his remarkable new book, John Kenneth Galbraith notes that the modern discipline of economics is about two centuries old. “Slightly to my surprise,” writes Galbraith, “I realized that I have been professionally present and have known most of the participants for a full one-quarter of that time.” With uncharacteristic modesty Galbraith does not add that for many of those years he has been widely regarded as the most original and important living economist. He is certainly the best writer in the profession.

This new book, “Economics in Perspective: A Critical History,” will raise Galbraith’s reputation among those who already know him and will introduce him to a new generation. More than a quick one-volume review of economic thought, “Economics in Perspective” is a sweeping, often brilliant and always accessible summary of the insights Galbraith has developed through half a century in government and teaching.

For Galbraith, economics is first and foremost a historical science. As he writes, “Economic ideas are always and intimately a product of their own time and place; they cannot be seen apart from the world they interpret.” There are no permanent laws of economics written in the sky; what is true today may have been false yesterday and will almost certainly be wrong tomorrow--or perhaps the day after.

This idea shocks many in the profession; so does Galbraith’s belief that there are no important economic ideas that cannot be expressed in clear English. In a paragraph that will not endear him to his peers, he chastises the profession for too much writing that is “aggressively dull” and labels the academic preference for impenetrable prose as “the fortress behind which the minimally coherent regularly find refuge.”

This septuagenarian is still an enfant terrible , the bad boy of academic economics. He asserts that our economic system could not survive if an economist should actually achieve an accurate knowledge of its workings. Such knowledge would allow its owner to make such accurate forecasts about wages, prices and interest rates that he would make enormous financial killings and soon own everything in sight. And, adds the bad boy, “The modern economic system does, in fact, survive not because of the excellence of the work of those who forecast its future but because of their supremely reliable commitment to error.”

Galbraith’s years as ambassador to India must have been difficult; he cannot see a sacred cow without thinking of barbecue sauce. The Federal Reserve, Milton Friedman and the Republican Party furnish frequent if obvious targets for his wit, but he does not spare the Democratic cows in the herd. The Sherman Antitrust Act, the New Deal, farmers and contemporary protectionists all come in for a share of abuse.

The frequency of the asides can sometimes grow wearying; they sometimes interrupt rather than enhance the flow of argument. But this is a very minor flaw in a very good book. Galbraith’s treatment of the history of economic thought is so illuminating and so clear that both the beginner and the professional will find sustenance here.

“Economics in Perspective” does not attempt the impossible: to provide a comprehensive guide to the thought of the major figures in economic history in one volume. Galbraith does not try to give full, systematic accounts of the ideas of people like Adam Smith, David Ricardo, Karl Marx and John Maynard Keynes. Instead he looks for the critical element of the contributions made by these and the lesser likes he examines. Believing as he does that economics changes as its subject matter--the economy--develops, Galbraith cares most deeply about the creative responses of successive economists to their changing environment.

The result is the clearest statement yet of Galbraith’s own theory of economic development, an approach whose subtlety and originality has yet to be fully appreciated by politicians and economists. For Galbraith, the primary actors in the economic drama of our times are neither the nation states nor the mercantilists, the entrepreneurs of Adam Smith, nor the struggling classes of Karl Marx. He argues here, as he has done since the 1960s, that the vast productive entities required by the scale of enterprise in our times have created fundamentally new economic conditions. These entities--private corporations in the Western world, state-owned enterprises in the East--have their own needs and laws of development.

Galbraith argues that classical microeconomics is no longer appropriate to describe the activities of these corporations. Managers seek to maximize their personal incomes and satisfaction, rather than profits for anonymous stockholders. Unions and managers have common interests in maintaining a predictable, stable oligopoly that allows for high wages and easy living for all concerned.

In a sense, Galbraith believes that management science is the heir to classical microeconomics. He is ready to scrap the theories and graphs that show how firms maximize revenue and minimize costs in the nonexistent world of perfect competition. Instead, he proposes that we turn our attention to how corporations actually make decisions and become more productive in the real world.

The economics of the future, Galbraith argues, will come from the countries and the corporations that succeed in mastering the microeconomics of management and in relating them to the macroeconomics of national policy. Just as Britain’s success in the 18th and 19th centuries, and America’s success in the 20th, gave economists from those countries great self-confidence and prestige, Japanese economists will soon stand at the pinnacle of the profession.

If so, Galbraith’s reputation is secure. He is, if anything, more widely read and appreciated in Japan than in the United States. Galbraith’s irreverent wit and lucid style lead many to underestimate his importance in the history of economic thought. Like Adam Smith, clearly the economist for whom Galbraith feels the greatest admiration and personal affinity, Galbraith has spent a career attacking the entrenched errors of conventional wisdom (his phrase). One hopes that the United States of today will listen to him as attentively as Britain did to Smith; the Japanese are listening, even if we are not.