A reappraisal of Galbraith’s challenge to Consumer Sovereignty: preferences, welfare and the non-neutrality thesis*^*

^*I warmly thank Michaël Assous, Marina Bianchi, Maxime Desmarais-tremblay and Geoffrey Hodgson for their advice on previous versions. I thank the referees for their very useful comments. The usual disclaimer applies.

Abstract

The aim of the paper is to provide an exegesis of Galbraith’s theory of consumption and the conception of preferences on which it is grounded, which has often been misunderstood. From the point of view of the history of economic thought, this paper sheds new light on the origins of Galbraith’s analysis of consumption. This reappraisal also leads us to show that the latter is bound to a challenge to the Consumer Sovereignty Principle. Consequently, Galbraith’s theory contradicts the logic underlying Welfare Economics. Thanks to this exegesis, I finally explain the rationale behind Galbraith’s endorsement of the thesis of non-neutrality on the problem of value judgments in economics, which is illustrated by his presidential address to the American Economic Association.

Keywords:

• Galbraith
• preferences
• welfare
• value judgments
• consumers sovereignty

JEL CLASSIFICATION::

• E21
• M37
• B25
• H53
• A13

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 WE is grounded on the neoclassical theorical apparatus explicitly rejected by Galbraith. My paper has the underlying aim to give an historical echo to contemporary debates on Behavioural Welfare Economics (BWE). See Infante, Lecouteux and Sudgen (2016) and Hédoin (2017).

2 On the issues raised by his presidency, see also the Richard T. Ely Lecture of Joan Robinson (1972) and Wrenn, Stanfield and Caroll (2008).

3 See Desmarais-Tremblay (2016, 2019), Penz (1987), Persky (1993) and Rothenberg (1962).

4 This principle defends that “what is produced, how it is produced and how it is distributed are to be determined by consumer preferences expressed through individual choices in a free market” (Penz 1987, 5). I use the distinction between CS and CSP to distinguish between the descriptive dimension and the normative one. Not all economists put the same meaning behind the normative dimension of the concept. By CSP, I refer to the general normative assumption that individual preferences should be used to evaluate social outcomes. This assumption could lead to diverse prescriptions, as for instance a rejection of government interference in the market process (Hayek 1935; Hildebrand 1951), or, on the contrary, a defence of some of its intervention for implementing the preferences expressed by consumers (Lerner 1934; Scitovsky 1962).

5 With American Capitalism [1952], the AS [1958] and the NIS [1967] composed a trilogy. See Galbraith (1974), Marglin (1999), Dunn (2002), DeLong and Parker (2005) and Waller (2008).

6 If he mainly develops an institutionalist analysis of the firm in the New Industrial State, both books fundamentally challenge traditional (micro)economic theories of the consumer. Galbraith’s views on this issue could be ranked as post-Keynesian (Lavoie 2004; Munier and Wang 2005; Dunn and Pressman 2005, 2007). I think that they are above all rooted in original institutional economics (James Galbraith 1984; Rutherford 2011; Hodgson 2000, 2001; Stanfield and Wrenn 2005).

7 This list respectively refers to the following papers: Zinkin (1967), Demsetz (1974a, 1974b), Hayek(1961), Solow (1967), Meade (1968), Campbell (1998), Zinam (1974), Gordon (1968), Gintis (1972), Grether (1968) and Rothbard (1976). For a sum-up of the main criticisms on the matter, see Dutt (2008, p. 528). All criticisms are not of equal value. I refer to some specifically in the paper. For papers more in agreement with Galbraith’s theory, see Scitovsky (1962), Berle (1967), Marris (1968), Stanfield (1983) and Heilbroner (1989). For empirical studies corroborating Galbraith’s analysis of consumption and advertising, see Lamdin (2008).

8 Hodgson takes Duesenberry (1949) as an illustration of this middle ground (2003, 619). Galbraith followed in Duesenberry’s footsteps and paid an explicit tribute to him (Galbraith 1998, 126–127, 1970, 471). On this connexion see Ackerman (1997, 653), Dutt (2008, 533), Edwards (2014, 700) and Douglas (2016, 618). I think that Professor Hodgson might underestimate the proximities between Galbraith’s analysis and the kind of institutionalist analysis of persuasion he calls for (2003). The chief reason for this might be that Galbraith, who wrote the AS and the NIS for a large audience, did not deepen the epistemological dimension of this issue, whereas Professor Hodgson does (2003).

9 On the contrary, it is interesting to note that BWE, to be consistent with the CSP, requires that preferences be laundered and purified (Infante, Lecouteux and Sudgen 2016).

10 See (Chamberlin 1950, 88). However, Kahn, when making it, explicitly refers to E.A.G. Robinson ([1931] 1947).

11 On Kahn’s analysis of market imperfection, see Marcuzzo (1994).

12 See for instance (Kaldor 1935, 38–45).

13 The question here is “no justification” by the individual himself or from the view point of the scientist? Moreover, from this definition, Kahn, like Austin Robinson (1948, 172–173) and James Meade (1937), imagines a test on preference: the forcible transfer to the consumer from one firm “with which he is accustomed” “to another” (1935, 25). The imperfection is considered irrational “to the extent that the consumer suffers no loss of satisfaction as a consequence of such diversion” (1935, 25).

14 Galbraith has tried to sum up Kahn’s conclusion as follows : “Subject to some special qualifications, the greater the imperfection of competition in an industry the greater the possibility of equalising the marginal social net product of the factor by shifting factors into it” (1938, 337).

15 See also Galbraith (1936).

16 See Chamberlin (1950), (1951, 354), (1965, 286–287), Little (1950) and Hunter (1955, 543–551), who wrote that “Kahn’s plan misconceives the reality of product differentiation”.

17 This is a classic philosophical issue at least since the Enlightenment.

18 Dobb (1933) puts forward this point in his debate with Lerner (1934).

19 This problem does not contradict per se the CSP, since one can assume that ex post preferences are to be considered as the right criterion to evaluate welfare before and after the transfer.

20 On this taste for dissent, see Scitovsky (1992), Veblen ([1898] 1973), Kaldor (1950) and Leibenstein’s (1950). It has entered economics through the idea of the “snob effect”: “By the snob effect we refer to the extent to which the demand for consumers’ good is decreased owing to the fact that others are also consuming the same commodity” (Leibenstein 1950, 189). In the same page, Leibenstein refers to “irrational demand” as a “catchall category”.

21 This point is one core difference between WE and BWE, since the latter is considering some context-dependency in terms of cognitive biases.

22 For a presentation of pioneer debates concerning consumers’ interdependence, see Bianchi and Sanfilippo (2015).

23 Some economists obviously consider in their analysis that tastes evolve but they take this evolution as given rather than a social production.

24 Dealing with the current challenge that behavioural economics and paternalism posed for normative economics, Hédoin has recently recalled that endorsing the view that preferences are endogenous threatens the notion of consumer sovereignty (Hédoin 2017). The issue is still a burning one.

25 (Munier and Wang 2005, 71).

26 Chamberlin (1950), referring to Galbraith (1938), has also attacked the distinction between rational and irrational preferences. He explains that “stress on irrational preferences makes an easy transition to the labelling of those established by advertising as irrational, and to the conventional sweeping condemnation of advertising as a “competitive waste”” (1950, p. 89). See also Chamberlin (1965 [1933], 119–120, 303).

27 See for instance Friedman (1977, 14–15) or Hayek (1961).

28 See Katona (1960) and Edwards’ contextualization (2014).

29 The idea that the book is optimistic is however highly challengeable too.

30 The word “want” would have been better than “need” here. On this point, see Campbell (1998) and further developments. Besides, one can note that Schor (2007) clearly distinguishes Veblen’s and Duesenberry’s criticisms on the one hand and Galbraith’s on the other. But her paper neglects the importance of emulation in Galbraith’s work. The reader can however find interesting insight about the context of Galbraith’s and other intellectuals' writings which challenge conventional theory of preferences.

31 For recent comments, see Dunn and Anderson (2006), Dutt (2008), Lamdin (2008), Douglas (2016).

32 Little’s contributions are rooted in Welfare Economics and related to the debates over the Social Welfare Function between Arrow and Samuelson (Little 1950). On these debates and his role, see Igersheim (2017).

33 One can now understand why Galbraith was depicted as “a marginalist” by Boddewyn (1961, 16).

34 “Yesterday the man with a minimal but increasing real income was reaping the satisfaction which came from a decent diet and a roof that no longer leaked water on his face. Today, after a large increase in his income, he has extended his consumption to include cable television and eccentric loafers. But to say that his satisfaction from these latter amenities and recreations is less than from the additional calories and the freedom from rain is wholly improper. Things have changed, he is a different man; there is no real standard for comparison” (Galbraith 1998, 121). Galbraith is ironic here. He thinks that his notion of differential urgency “allows” comparison.

35 On Keynes, see Drakopoulos (1992).

36 This distinction highlights that some needs, the relative ones, are not independent of social status (i) and other individuals’ behaviour (iv). Keynes adds that only “needs of the second class” can be “insatiable” (2013, 326).

37 As soon as American Capitalism, Galbraith points out that there are different degrees of urgency between needs, and especially that there are “urgent public needs” ([1952] 1980, 95–97). Penz has also expounded that for Galbraith, preferences are neither ‘innate” nor “autonomous” and that “the social patterning of preference” is constantly affected by social values (1987, 89). See also (Galbraith 1970, 472).

38 Galbraith’s lack of precision in his words also explains some criticisms. See for instance the indifferent use of terms such as “need” and “want”. He may also have used, to hammer his point home, terms suggesting that advertising “activated” lesser urgent desires or that advertisers have the power to choose the wants they want to be seen satisfied. Moreover, he does not distinguish wants from the means to satisfy them. If Galbraith’s argument implies “that the new want is ‘created’ in the sense of its being artificial, then this is normally not true. The new want is nearly always an old want but satisfied in a new way” (Zinkin 1967, 5).

39 The idea of hierarchy of needs is a post-Keynesian characteristic (Drakopoulos 1992; Lavoie 2004). Before Galbraith, Roy has developed a theory relying on such a hierarchy of needs (1943).

40 See Douglas (2016). If the interpretation of “contrived wants” as misinformation about preferences “allows Galbraith’s theory to be reconciled with ordinal utility theory” and consequently WE, it is not satisfactory from the point of view of the historian of economic thought trying to understand Galbraith’s theoretical project. Douglas also refers to the word “true preferences”. This expression reminds us of Kahn’s “real preferences” rather than Galbraith’s thought.

41 For a study of the emergence of ordinal utility, see Lenfant (2012).

42 One can note that Galbraith’s conventionalist approach makes Hayek’s criticism less relevant. In fact, Hayek (1961) states that Galbraith suggests that only wants which originate in the individual are real. This is absurd since Galbraith precisely argues that wants are always a by-product of social life. The distinction is not between inner wants and external ones. The core of the question is about the conventionalist idea of degree of urgency.

43 Because Galbraith’s interpretation of the “original marginalism principle”.

44 It is funny to note that Boddewyn (1961) refers to Chamberlin (1950) to criticize Galbraith’s view on advertising, even though Chamberlin himself, in this same paper, refers to Galbraith’s rejection of the distinction between rational and irrational preferences. Furthermore, Chamberlin explicitly recognizes “the possibility of altering wants by advertising and selling appeal” (1965, 72).

45 Friedman considers that Galbraith endorses the utilitarianism of John Stuart Mill (1977, 31–32). This comparison is contested by Douglas (2016, 629). In fact, Galbraith does not consider Mill’s influence on his thought to be strong (Galbraith 2004, 142). For a more adhesive view to Mill, see Scitovsky’s line of defence (1962, 266). There is a difference in the meaning they give to the hierarchy of wants. Mill establishes this hierarchy on the criterion of the cultivated character of wants whereas Galbraith’s criterion is their urgency. Obviously, it does not prevent Galbraith, like Scitovsky, from expressing his concern about aesthetic and cultural activities in a consumerist society. Concerning Scitovsky, see Bianchi (2003) and Di Giovinazzo (2019).

46 It is on the relative urgency of wants that Galbraith makes a judgement. Different levels of urgency, which he first observes, take the statute of normative criterion. For instance, he thinks that the urgency of having a house is superior to that of having a second car.

47 On these distinction, see Gintis (1972, 267). For instance, Paine (1936) has expressed Kahn’s irrational preference in terms of misinformation, in terms of imperfect knowledge. See also Kahn (1936) and Paine’s (1936b) debate. Becker and Stigler’s view also relies on the idea that consumers have imperfect information (1977, 85).

48 Advertising, emulation (or imitation) and habits (or experience) are the three main “forms of social patterning” that are traditionally discussed in economic literature (Penz 1987, 92).

49 The opposite view is provided by the Public Choice School. These authors put forward the fact that politicians and lobbyists use means of advertising in order to persuade people that they need infrastructures. For a debate between this school and Musgrave, who shares some views with Galbraith, see Desmarais-Tremblay (2016).

50 Galbraith already considers that consumer choice could be limited in the conclusion of his 1938 paper, referring to Kaldor (1935, 50). This idea is also expressed in Schumpeter (1942). Capitalism, Socialism and Democracy has influenced Galbraith’s American trilogy.

51 It would be even more surprising that Galbraith should have defended such a view in terms of misinformation, knowing that he did not follow this path in his 1938 paper. In fact, Paine (1936), before Galbraith, made that criticism of Kahn’s paper considering that irrationality meant imperfect knowledge. Galbraith never mentioned that criticism. Moreover, this idea of imperfect information hinges on the fact that information could be perfect and that preferences are fixed. This is inconsistent with Galbraith’s view.

52 In a Galbraithian vein, Boulding explains that persuasion, hence persuasive advertising, is a “learning process” that modifies the “internal universe” of the individual (1989, 6–8). However, he goes on to speak of “nonrational phenoma” (13). The term rationality does not belong to the Veblenian tradition of institutional economics.

53 He recognized that the distinction between needs and wants is not accepted by some economists. See for example (Gordon [1967] 2007).

54 We cannot develop here. For discussion on the planning system, see Marris (1968), Solow (1967), Reisman (1980), James Galbraith (1984), Baudry and Chirat (2018).

55 And not “to eradicate” market uncertainty – as Galbraith’s thought is sometimes caricatured. Galbraith is aware that the conditioning power of advertising is limited (1983, 30). See also Kesting (2010, 183–185) and Dunn (2010).

56 Kaldor (1950, 4). Kaldor and Galbraith do not consider advertising to be only “manipulative and wasteful”. They both recognize the so-called “informative view” on advertising, which however is not sufficient to understand this practice. See Galbraith ([1952] 1980, 98–99) and Kaldor (1950, 1–2).

57 In their paper, Munier and Wang deal with consumption routines. They assert that “consumers keep a part of sovereignty” since they are “capable of resisting certain influences thanks to the stability of their consumption routines” (2005, 73–78) But the formation of this routine could be precisely due to the influences through advertising. In insisting on consumption routine and consumption as a learning process, their view complete rather than compete with or condemn Galbraith’s.

58 Since 1936, Galbraith has been explaining, in line with Chamberlin, that product differentiation has replaced price competition between oligopolies.

59 Advertising both “amplifies” and “alters” needs, to use Dunn and Anderson’s distinction (2006, 343). A high aggregate demand is a condition for the success of the management of the specific one (Galbraith 2007, 273). This distinction between effects on specific demand or aggregate demand was first used by Kaldor (1950). Galbraith never mentioned this article, but he would have agreed with a lot of assertions. He might have read it since he wrote a part of the AS in Kaldor’s house in Cambridge (UK) (Dunn 2002, 356).

60 See Kaldor (1950, 13).

61 Obviously, Galbraith thinks that advertising is wasteful from the point of view of his basic need approach. But it is not for the technostructure. On this point, he is close to Kaldor’s view (1950, 5–7). For a recent critical macroeconomic analysis of the effects of advertising, see Dutt (2008, 547).

62 See also Galbraith (1970, 474 n23).

63 Some critics do not see that Galbraith applies the revised sequence only to the planning system, even if he explicitly states: “outside the planning system the accepted sequence still rules”. This could be explained by the fact that he thinks the planning system rules the entire economic system. He has also shown an early interest in the place of marketing in the american economy (Black and Galbraith 1935). But he is perfectly aware of the functioning of the market system. He has himself made market studies concerning consumers’ practice on the honey market in California (Galbraith, Voorhies, and Todd 1933a, 1933b). On Galbraith’s dual view of the economy, see (1936), (1974), (1977).

64 On this point, see also James Galbraith (1984).

65 Concepts such as “inherited instincts” and “habits” used by Hodgson (2003) are not far from Galbraith’s use of the word belief. On this latter concept, see Galbraith (1970) and Samuels (1984).

66 The fact that corporations make market studies is not taken into account by Galbraith. This argument could weaken his interpretation of the revised sequence. But this is not really relevant in view of the hypothesis of endogeneous preferences.

67 On this distinction between freedom of choice and sovereignty, see also Persky (1993).

68 See for instance Canterbery (1984, 82) and Stanfield and Wrenn (2005, 37).

69 See especially chapter fourteenth of the NIS. The italics are ours.

70 See Penz (1987, 22). Before Galbraith, Joseph Schumpeter (1942) and John Maurice Clark (1957) also rejected this idea. Galbraith has reviewed both books.

71 Some economist endorsing the CSP as a normative criterion often recognize that it could be hard to achieve. See Hutt (1936, 1940), Hildebrand (1951), Arrow (1951), Lerner (1972).

72 Galbraith is less prone to exaggeration than the idea given by commentators. “It is not necessary to argue that the management of the consumer is complete, only that it makes consumer behaviour conform in broad contours to producer need and intent” (Galbraith 1970, 474).

73 “Institutional economists treat the origin of preferences as a central issue and conclude that cultural and social influences predominate” (Redmond 2000). He also shares many principles with the post-Keynesians (Lavoie 2004).

74 Galbraith’s vision could not be reduced to an analysis of market failures.

75 By the way, Galbraith’s repeated criticisms against the militaro-industrial complex is inconsistent with the idea that he has an inner preference for government expansion. In a letter, he explicitly argues that “it is not a question of big government or little government but of good government” (Holt 2017, 290).

76 “The economist does not enter into the dubious moral arguments about the importance or virtue of the wants to be satisfied. He doesn’t pretend to compare mental states of the same or different people at different times and to suggest that one is less urgent than another. The desire is there. That for him is sufficient.” (Galbraith 1998, 130)

77 See Hamilton’s manifesto (1919) or Rutherford (2011).

78 See Infante, Lecouteux and Sudgen (2016).

79 On qualitative liberalism, see (Mattson 2005).

80 In a letter from the 10th February 1959, Scitovsky wrote to Galbraith that he have “read, enjoyed and fully agreed with [the Affluent Society]”. When writing the Joyless Economy, Scitovsky sent him his manuscript. Galbraith, in his reply from the 11th April 1974, told Scitovsky that he is “on to a major book” (John Kenneth Galbraith Personal Paper, JFK Library, Boston, Serie 3, Boxes 55 and 164). On their relationship, see also Edwards (2014) and Di Giovinazzo (2019).

81 Galbraith’s conception of power has been discussed in Kesting (2010) and Chirat (2018).

82 Galbraith always insists on the necessity of an education emancipated from the dominant business preoccupation of modern civilization. Kesting explains that Polanyi has read the AS that way (1959). He “interprets the Affluent Society as undermining the idea that the concept of a good life can be reduced to utilitarian want satisfaction” and he “saw the radical emancipating notion of education as crucial for this argument” (Kesting 2010, 181). On Galbraith’s conception of freedom, see Waligorski (2006, 121–143).

83 See Waligorski’s book, quite rightly entitled The economist as a political theorist (2006).