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Wednesday, January 25, 2012

the sovereign and the sovereign consumer


In 1967, Robert Solow wrote a disparaging review of John Kenneth Galbraith’s New Industrial State, which was a bestseller that year, in the Public Interest, a fairly hot academic journal at the time. In the same issue, Galbraith replied. The quarrel spilled over into the next issue in 1968, with an ideological comrade of Galbraith’s, Robert Marris, pitching in, and Solow finally counter-attacking his two adversaries.

The original review raised the doubt that Galbraith was using a scientific method, instead of an ad hoc method of magisterial observation. Solow felt that Galbraith’s themes were often invalidated by modern economic theory. And, in particular, he did not think that Galbraith could be right about one of the theses that had by that time become associated with his name: that corporate demand management, that is, marketing, shaped both production and the market.

At one point, Solow, in responding to a supporter of the Galbraith view, Marris, wrote: “What I said was: … But I should think a case could be made that much advertising serves only to cancel other advertising, and is therefore merely wasteful.” I should think it obvious that this almost has to be true – i.e., that much advertising merely cancels other advertising – for otherwise there would be nothing to stop both the cigarette industry and the detergent industry from expanding their sales to their hearts’ desire and to the limits of consumers’ capacity to carry debt.”

This was written in 1968, when the consumer’s ability to carry debt was not itself a great matter of advertising. It proved to be so in the 2000s, and as we have seen, mortgages and credit card debts did expand to the hearts’ content of banks and financial service companies – until the limit of the consumers’ ability to pay debts was reached. The ghost of Galbraith is entitled to smile about Solow’s naïve idea that debt itself can’t be commodified, advertised and amplified.  But more here is on display than  Solow’s limited imagination. There is, in Solow’s statements, a classic economist’s blindness to the relationship between goods, and indeed, people – to the novelist’s truth that people live in other people’s lives.

Thus, when Solow writes: “It must be harder to influence the consumer’s choice between purchases of cigarettes and purchases of beer, and much harder still to influence his distribution of expenditures among such broad categories as food, clothing, automobiles, housing…”, he falls into a rather puzzling trap in which the purchase of beer and cigarettes is a one time purchase with no effects on one’s lifestyle. His dissociation of goods and people make it impossible to see the connection of a good like cigarettes and a broad category like housing – a connection that came into view very clearly for the 300,000 some people who died of lung cancer in 1967. Indeed, 1967 marked the high water mark of the increase in cigarette smoking. The next year, the government and private organisations began to feature a massive anti-smoking marketing campaign. And the incidence of smoking started to fall.

Solow’s notion that advertising countered advertising is, indeed, an observation about the content of some advertising – the comparative subgenre. However, it was evident even to Solow that this couldn’t account for all advertising. Nor was he happy with the idea that advertising was simply waste, for if that were the case, the government could happily ban advertising without economic damage –and this was not something Solow’s economic ideology would allow. At the University of Chicago, a school developed that contended that advertising did, indeed, have an economic benefit, by giving consumers – whose preferences were made through the same act of freewill by which sinners in an evangelical church accept Christ as their Lord and Saviour – with information that will help them find their preferred goods and services. Since advertising doesn’t look like it is in the business of providing this kind of information, the Chicago school was reduced to saying that advertising signaled bundles of qualities – such as comfort – even if the information it gave looked more like the rhetoric of persuasion.

Why were economists so eager to dispatch Galbraith’s idea? Or I should, perhaps, say the idea of the marketers themselves – there have been many sociological studies of, say, the internal paper generated by advertisers of tobacco, and it is nothing like the Chicago Economics ideas about what advertising does. There is some support for Solow’s other notion, which is that mostly, advertising produces brand switching, but not a demand for the particular good. Yet it is unclear what this means – especially as a good like cigarettes was indeed used by more and more consumers in the years from the turn of the century up long past the medical evidence that it caused cancer. Is switching a brand ontologically different from switching to a good? And what is really being switched? What goods are really in competition?

Galbraith, in his reply to Solow, pointed out that the reason Solow attempts to dismiss him out of hand is that Solow is protecting a certain ideology, one that is shared among mainstream economists:

“The issue concerns the future of economics in general and of the highly pretigious work with which Professor Solow is associated in particular. That work is within a highly specific frame…
            What is the frame? It is that the best society is the one that best serves the economic needs of the individual. Wants are original with the individual; the more of these that are supplied, the greater the general good. Generally speaking the wants to be supplied are effectively translated by th market to firms maximizing profits therein. If firms maximize profits they respond to the market and ultimately to the sovereign choices of the consumer. Such is the fame and given its acceptance a myriad of scholarly activities can go on within it. Any number of blocks can be designed and fitted together in the knowledge that they are appropriate to – that they fit somewhere in – the larger structure. There can be differences of opinion as to what serves the larger structure. Mathematical theorists and model builders can squabble with thos who insist on empirical measurement. But this is a quarrel among friends.”

Galbraith is here describing the flow sheet of mainstream economics since Walras’s time, a narrative with one monological character – the sovereign consumer. I am going to go back and look at the oddity of this construct, which arose when economics made a subjectivist move at the end of the 19th century, in marked contrast to the direction of the other social sciences.  

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