Wednesday, June 13, 2012

The Non Sequitur of the "Dependence Effect" Friedrick A. Hayek

For   well   over  a  hundred   years   the   critics   of   the   free   enterprise   system  have   resorted   to  the argument  that  if  production  were  only  organized  rationally,  there  wou ld  be  no  economic problem. Rather than face the problem, which scarcity creates; socialist reformers have tended to deny   that  scarcity  existed.  Ever  since  the Saint-Simonians their contention has been that the problem of production has been solved and only the problem of distribution remains. However absurd this contention must appear to us with respect to the time when it was first advanced. it still has some persuasive power when repeated with reference to the present.

The   latest   form  of  this  old  contention  is  expounded  in  The Affluent Society  by Professor J.  K. Galbraith. He attempts to demonstrate that in our affluent society the important private needs are already satisfied and the urgent need is therefore no longer a further expansion of the output of commodities  but   an  increase  of   those  services , which  are  supplied  (and  presumably  can  be supplied  only)  by  government.  Though  this  book  has  been  extensively  discussed  since  its publication in 1958, its central thesis still requires some further examination.

I  believe  the  author  would  agree  that  his  argument  turns  upon  the  "Dependence  Effect" explained in (the article which precedes this one). The argument starts from the assertion that a great part of the wants, which are still unsatisfied in modern society are not wants which would be experienced spontaneously by the individual if left to himself but are wants which are created by   the  process  by which  they  are  satisfied.   It  is  then  represented  as  self- evident   that  for  this reason  such  wants  cannot  be  urgent  or  important.  This  crucial  conclusion  appears  to  be  a complete non sequitur and it would seem that with it the whole argument of the book collapses.

The first part  of  the argument  is of  course perfectly  true :   we   would  not  desire  any  of  the amenities of civilization-or even of the most primitive  culture - if we did not live in a society in which others provide them. The innate wants are probably confined to food shelter, and sex. All the rest  we learn to desire because we see others enjoying various things. To say that a desire is not important because it is not innate is to say that the whole cultural achievement of man is not important.

The cultural origin of practically all the needs of civilized life must of  course  not  be  confused with the fact that there are some desires which  aim, not at a satisfaction derived directly from the use   of   an   object ,   but   only   from  the   status   which   its   consumption  is   expected   to   confer .   In   a passage,  which  Professor  Galbraith  quotes,  Lord  Keynes  seems  to  treat  the  latter  sort  of Veblenesque conspicuous consumption as the only alternative “to those needs which are absolute in the sense that we feel them whatever the situation of our fellow human beings may be." If the latter phrase is interpreted to exclude all the needs for goods which are felt only because these goods are known to be produced, these two Keynesian classes describe of course only extreme types of wants, but disregard the overwhelming majority of goods on which civilized life rests.

Very  few  needs  indeed  are  "absolute"  in  the  sense  that  they  are  independent  of  social environment or of the example of others, and that their satisfaction is an indispensable condition for the preservation of the individual or of the species. Most needs which make us act are needs for   thing s  which onl y   civilization  teaches   us   exist   at   all,   and  these  things  are  wanted  by  us because   they   produce   feelings   or   emotions   which   we   would   not   know   if   it   were   not   for   our cultural inheritance. Are not in this sense probably all our esthetic feelings "acquired tastes"?

How complete a non sequitur Professor Galbraith's conclusion represents is seen most clearly if we apply the argument to any product of the arts, be it music, painting, or literature. If the fact that people would not feel the need for something if it were not produced did prove that such products   are  of   small   value ,   all   those  highest  products  of  human  endeavor  would be  of  small value. Professor Galbraith's  argument  cou ld  be  easily  employed,  without  any  change  of  the essential terms, to demonstrate the worthlessness of literature or any other form of art. Surely an individual's want for literature is not original with himself in the sense that he would experience it if literature were not produced. Does this then mean that the  production  of  literature  cannot be defended as satisfying a want because it is only the production, which provokes the demand? In this, as in the case of all cultural needs, it is unquestionably, in Professor Galbraith's words, "the process of satisfying the wants that creates the wants."

There  have  never  been  " independently  determined desires   for   " literature  before  literature  has been produced and books certainly do not serve the "simple mode of enjoyment which requires no previous   conditioning  of   the   consumer . "  Clearly  my   taste   for   the  novels  of   Jane  Austen or Anthony Trollope or C. P. Snow is not "original with myself." But is it not rather absurd to conclude from this that it is less important than, say, the need for education? Public education indeed seems to regard it as one of its tasks 'to instill a. taste for literature in the young and even employs producers of literature for that purpose. Is this want creation by the producer reprehensible? Or does the fact that some of the pupils may possess a taste for poetry only because of the efforts of their teachers prove that since "it does not arise in spontaneous consumer need and the demand would not exist were it not contrived, its utility or urgency, ex contrivance, is zero"?

The   appearance   that   the   conclusions   follow  from  the   admitted  facts   is   made  possible  by  an obscurity of the wording of the argument with respect to which it is difficult to know whether the author is himself the victim of a confusion or whether he skillfully uses ambiguous terms to make   the   conclusion  appear  plausible .  The  obscurity   concerns   the   implied  assertion  that  the wants  of  consumers  are  determined  by  the  producers.  Professor  Galbraith  avoids  in  this connection any terms as crude and definite as "determine:" The expressions he employs, such as that  wants   are   "dependent  on"  or   the   " fruits  of "  produ c t ion,  or   that  "production  creates  the wants" do, of course, suggest determination but avoid saying so in plain terms. After what has already been said it is of course obvious that the knowledge of what is being produced is one of the many factors on which depends what people will want. It would scarcely be an exaggeration to say that contemporary man, in all fields where he has not yet formed firm habits, tends to find out what he wants by looking at what his neighbors do and at various displays of goods (physical or in catalogues or advertisements) and then choosing what he likes best.

In this sense the tastes of man, as is also true of his opinions and beliefs and indeed much of his personality ,   are   shaped  in  a   great  measure  by  his   cultural   environment.  But  though  in  some contexts it would perhaps be legitimate to express this by a phrase like "production creates the wants, "   the   circumstances  mentioned would  clearly   not  justify  the  contention  that  particular producers   can deliberately  determine  the  wants  of  particular  consumers.  The  efforts  of  all producers will certainly be directed towards that end; but how far any individual producer will succeed will  depend not  only  on what  he  does  but   also on what   the  others  do  and on  a  great many other influences operating upon the consumer.

The  joint  but  uncoordinated  efforts  of  the  producers  merely  create  one  element  of  the environment   by   which   the   wants   of   the   consumers   are   shaped.   It  is   because   each  individual producer thinks that the consumers can be persuaded to like his products that he endeavors to influence them. But though this effort is part of the influences, which shape consumers' tastes, no producer   can  in  any   real   sense   "determine "  them.  This ,  however,   is  clearly  implied  in  such statements as that wants are "both passively and deliberately the fruits of the process by which they are satisfied." If the producer could in fact deliberately determine what the consumers will want ,

Professor  Galbraith's   conclusions  would have   some   validity .  But   though  this   is   skillfully suggested, it is nowhere made credible, and could hardly be made credible because it is not true. Though the range of choice open to the consumers is the joint result of, among other things, the efforts of all producers who vie with each other in making their respective products appear more attractive than those of their competitors, every particular consumer still has the choice between all those different offers.

A fuller examination of this process would, of course, have to consider how, after the efforts  of some  producers  have   actually   swayed  some   consumers ,   it  becomes   the   example  of   the   various consumers  thus  persuaded  which  will   influence  the  remaining  consumers.  This  can  be mentioned here only to emphasize that even if each consumer were exposed to pressure of only one producer, the harmful effects which are apprehended from this would soon be offset by the much more powerful example of his fellows. It 'is of course fashionable to treat this influence of the example of others (or, what comes to the same thing, the learning from the experience  made by others) as if it all amounted to an attempt at keeping up with the Joneses and for that reason was to be regarded as detrimental. It seems to me not only that the importance of this factor is usually greatly exaggerated but also that it is not really relevant to Professor Galbraith's main thesis. But   it  might  be  worthwhile  briefly to ask  what,   assuming  that  some  expenditure  were  actually determined solely by a desire of keeping up with the Joneses, that would really prove?

At  least   in Europe  we  used  to be  familiar  with  a  type  of  persons  who often denied  themselves even enough food in order to maintain an appearance of respectability or gentility in dress and style  of  life .  We  may  regard   this  as  a  misguided   effort   but   surely it would  not   prove   that   the income  of  such persons was  larger  than they knew how to  use  wisely .  That  the   appearance  of success or wealth, may to some people seem more important than many other needs, does in no way  prove  that  the  needs  they  sacrifice  to  the  former  are  unimportant .   In the same way ,  even though people are often persuaded to spend unwisely, this surely is no evidence that they do not still have important unsatisfied needs.

Professor Galbraith's attempt to give an apparent scientific proof for the contention that the need for   the   production   of  more   commodities   has   greatly   decreased   seems   to  me   to   have   broken down completely. With it goes the claim to have produced a valid argument, which justifies the use of coercion to make people employ their income for those purposes of which he approves. It is not to be denied that there is some originality in  this  latest  version  of  the  old  socialist argument.  For  over   a  hundred  years  we  have  been  exhorted  to  embrace   socialism because   it would  give   us  more   goods .   Since   it  has   so  lamentably   failed  to  achieve   this  where   it  has  been tried, we are now urged to adopt it because more goods after all are not important. The aim is still progressively  to  increase  the  share  of  the  resources  whose  use  is  determined  by  political authority  and  the  coercion  of  any  dissenting  minority.  It  is not surprising,  therefore,  that Professor  Galbraith's   thesis has  been most   enthusiastically  received by   the   intellectuals  of  the British Labour Party where his influence bids fair to displace that of the late Lord Keynes. It is more curious that in this country it is not recognized as an outright socialist argument and often seems   to  appeal   to people  on  the opposite  end of  the  political   spectrum.  But   this   is  probably only another instance of the familiar fact that on these matters the extremes frequently meet.

Leonard and Fritz on Lu

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