Galbraith painted a picture of how the situation appeared:
The market is superseded by vertical integration. The planning unit takes over the source of supply or the outlet; a transaction that is subject to bargaining over prices and amounts is thus replaced with a transfer within the planning unit . . . As viewed by the firm, elimination of a market converts an external negotiation and hence a partially or wholly uncontrollable decision to a matter for purely internal decision. Nothing, we shall see, better explains modern industrial policy-capital supply is the extreme case-than the desire to make highly strategic cost factors subject to wholly internal decisions. Markets can also be controlled. This consists in reducing or eliminating the independence of action of those to whom the planning unit sells or from whom it buys . . . At the same time the outward form of the market, including the process of buying and selling, remains formally intact.31
At a time when "the largest 200 manufacturing enterprises had two thirds of all assets used in manufacturing and more than three fifths of all sales, employment and net income" ,32 this represented a huge section of the US economy in which most economic operations were not subject to the immediate vagaries of the market. There was competition between the giants, but it was to a large extent undertaken by means diferent to the old competition to sell goods more cheaply than one another. The giant firms learnt that they could ward off potential competitors by resorting to non-productive methods-the use of their wealth to get a tight grip over distribution outlets; the use of advertising to hype up their own products, regardless of their intrinsic merits; the systematic cultivation of well greased contacts with buyers from governmental bodies.
Galbraith thought this represented a fundamental change in the nature of capitalism itself. And Marxists who defined capitalism simply in terms of the "free market" competition between rival private capitalists could easily come to the same conclusion, since the huge area of production internal to the great corporations was not directly subject to the law of value. Extreme variations in the degree of "x-efficiency"-the internal efficiency of companies-showed how far many differed from the capitalist ideal. And capital did not automatically move under the impact of market forces out of sectors with big fixed investments, a high organic composition of capital and a low rate of profit, as a simplistic reading of Capital might suggest. Whether it did so or not depended on the decisions of managers who might decide to sacrifice short-term profitability for long-term growth within markets over which they already had a stranglehold. If the law of value continued to operate it was in the long term, since eventually corporations would not be able to grow and to keep rivals and newcomers to the industry at bay unless they continued to get enough surplus value to make massive new investments. But often they would only discover whether they had done so once the long boom itself came to an abrupt end.
The Long Boom
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