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Optimum Consumption Patterns in High-Income Nations*

Published online by Cambridge University Press:  07 November 2014

W. Paul Strassmann
W. Paul Strassmann*
Affiliation:
Michigan State University
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Extract

A transformation in the pattern of consumer expenditures has occurred in the nations that have reached high income levels during the past century. Smaller fractions of national income are spent on food, clothing, and shelter; larger fractions on recreation, medical care, education, and luxury goods. Cross-sectional studies of family budgets have been fairly reliable indicators of this trend. As early as 1857 Ernst Engel had pronounced his famous law about food expenditures on the basis of Edouard Ducpetiaux's Belgian budget studies. Similar assertions by others about clothing, fuel, and shelter followed; and in 1919 William Ogburn published his statistics of Washington, D.C., family budgets, indicating, in effect, that income elasticities of demand were highest for amusement and education. As the pattern slowly emerged, economists were not much disturbed. Why should consumers not be left alone in choosing between carrots and bedrooms? Interference with choices among luxury goods and services seemed even less warranted. Advertising posed no problem beyond encouragement of elementary veracity.

In the past decade, however, this unconcern has faded. Several economists have joined sociologists, moralists, and general philosophers in questioning trends in consumer expenditures. Their concern is less with morals and social repercussions than with optimum consumption patterns in terms of economic value and resource allocation. Advertising in particular is no longer reproached merely for a bent towards mendacity. It is seen as more insidious, as manipulating consumers' choices by kindling subconscious anxieties. It puts consumers in a squirrel cage in which production and the want-satisfying process create wants that would otherwise not exist.

Type
Articles
Information
Canadian Journal of Economics and Political Science/Revue canadienne de economiques et science politique , Volume 28 , Issue 3 , August 1962 , pp. 364 - 372
Copyright
Copyright © Canadian Political Science Association 1962

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Footnotes

*

Helpful comments by Professors Thomas Mayer, Max G. Mueller, and Boris Pesek of Michigan State University, by Professor Frank C. Child of Stanford University, and by Dr. A. G. Frank are gratefully acknowledged.

References

1 Ernst Engel, “Die Productions-und Consumtionsverhältnisse des Königreichs Sachsen,” reprinted as appendix in idem, Die Lebenskosten belgischer Arbeiterfamilien (Dresden, 1895); Ducpetiaux, Edouard, Budgets économiques des classes ouvrières en Belgique (Brussels, 1855)Google Scholar; Ogburn, William, “Analysis of the Standard of Living in the District of Columbia in 1916,” Publications of the American Statistical Association, XVI (1918–1919).Google Scholar Others are cited in Stigler, George J., “The Early History of Empirical Studies of Consumer Behavior,” Journal of Political Economy, 04, 1954, 95–113.CrossRefGoogle Scholar

2 Galbraith, John Kenneth, The Affluent Society (Boston, 1958), 153.Google Scholar See also Johnson, Harry G., “The Political Economy of Opulence,” this Journal, 11, 1960, 552–64Google Scholar, and “The Consumer and Madison Avenue,” Current Economic Comment, 08, 1960, 3–10.Google Scholar

In his formal analysis of “aspiration-level shifts” that maintain “aspiration-income gaps,” Richard S. Weckstein has even concluded that rising income and rising welfare, far from being the same thing, “are in fact alternatives for one another.” “Welfare Criteria and Changing Tastes,” American Economic Review, 03, 1962, 144.Google Scholar

3 Pigou, A. C., The Economics of Welfare (London, 4th ed., 1932), 11–12, 134, 183–95Google Scholar; Marshall, Alfred, Principles of Economics (London, 8th ed., 1920), 87–8Google Scholar; Smith, Adam, The Theory of Moral Sentiments (1759), part VI, sec. 1.CrossRefGoogle Scholar

4 Jeremy Bentham, manuscript dated around 1782, quoted at length by Halévy, Elie, La Formation du radicalisme philosophique, I, La jeunesse de Bentham (Paris, Ancienne Librairie Baillière, 1901), Appendix II, p. 414.Google Scholar See also The Works of Jeremy Bentham, Bowring, John ed. (Edinburgh: Win. Tait, 1843), III, 286–7Google Scholar; IV, 540–3; V, 313; VII, 568–9.

5 Reder, Melvin W., Studies in the Theory of Welfare Economics (New York, 1947), 20.Google Scholar

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9 Vickrey, William, “Utility, Strategy, and Social Decision Rules,” Quarterly Journal of Economics, 11, 1960, 507–35.CrossRefGoogle Scholar

10 Keynes, John Maynard, “Economic Possibilities for Our Grandchildren,” Essays in Persuasion (London, 1931), 365.Google Scholar

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12 Perhaps a brief comment on the “Veblen effect” is in order. If an increase in price leads to an increase in demand, does not emulative consumption have a potentially favourable external economy effect? As rising prices and demand reinforce one another, would the value and snob appeal of diamonds bought in the past not increase in proportion? But such an effect could not apply indefinitely for any commodity with some elasticity of production. As soon as the commodity comes to be sufficiendy widely owned, emulative acts of consumption will once more cancel one another. Determining the precise point at which one effect outweighs the other is a matter of relative elasticities.

13 Mack, Ruth P., “The Economics of Consumption,” in Haley, Bernard F., ed., A Survey of Contemporary Economics (Homewood, Ill., 1952), II, 41.Google Scholar

14 Nelson, Phillip, “The Technological Theory of Value,” unpublished thesis, Columbia University, 1950, 57.Google Scholar

15 Riesman, David, et al., The Lonely Crowd (New York, 1953), 263–5.Google Scholar

16 Packard, Vance, The Hidden Persuaders (New York, paperback ed., 1958), 65–6, 152.Google Scholar

17 Knight, Frank, “The Ethics of Competition,” Quarterly Journal of Economics, 08, 1923, 593 Google Scholar, reprinted in The Ethics of Competition and Other Essays (New York and London, 1935).Google Scholar

18 There may be a few emulators whose addiction is not a matter of emotional compulsions. Like modern nation-states, they may be able to pursue irrational ends rationally. This case has been analysed by Harry G. Johnson: “So far as emulators are rational in their pursuit of invidious distinction, one would expect them to make a show of the possession of goods whose prices have only recently fallen to within their economic means; and so far as advertising agencies are rational in their pursuit of profits, one would expect them to seek their clients among producers who are able to satisfy potential wants cheaply and profitably. Hence one would expect that the forces of emulation and advertising would be concentrated on creating those wants whose cost of satisfaction is being most steadily and rapidly reduced by the progress of opulence itself–the process of want-creation may be rational even though the wants created may not themselves be rational.” “The Consumer and Madison Avenue,” 9.

19 Hoyt, Elizabeth, “The Impact of a Money Economy on Consumption Patterns,” Annals, 05, 1956, 14, 20.Google Scholar

20 Dewey, John, Democracy and Education (New York, 1916), 89–90.Google Scholar

21 Dewey, John, Reconstruction in Philosophy (New York, 2nd ed., 1948), 205–6.Google Scholar

22 In Harry G. Johnson's view, “the problem of whether the creation and satisfaction of wants by advertised production constitutes a genuine increase in welfare cannot be settled simply by distinguishing base material from elevated spiritual wants, and asserting the priority of the latter over the former. Rather the answer depends in both cases on whether there exist generally accepted standards for distinguishing better from worse taste, standards which can themselves be learned, and a social process by which standards are in fact learned and enforced.” “The Political Economy of Opulence,” 556.

23 Of course, subsidies are already provided by musicians and actors who “play” for less than they could earn in alternative occupations. Indeed, their willingness to sacrifice paychecks for “psychic income” to an extent not found in occupations corresponding to other hobbies (farming, cooking, transportation, etc.) may be due to the large awareness-yielding external economies of the arts rather than their status-conferring capacity.

24 Critique of Welfare Economics, 64.

25 Henderson, James M. and Quandt, Richard E., Microeconomic Theory: A Mathematical Approach (New York, 1958), 213.Google Scholar See also Samuelson, , Foundations, 222–30Google Scholar; and Duesenberry, James S., Income, Saving, and the Theory of Consumer Behavior (Cambridge, Mass., 1952), 99.Google Scholar