The Non Sequitur of the "Dependence Effect"

Author(s): F. A. Hayek
Reviewed work(s):
Source: Southern Economic Journal, Vol. 27, No. 4 (Apr., 1961), pp. 346-348
Published by: Southern Economic Association
Stable URL: http://www.jstor.org/stable/1055533 .
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 COMMUNICATIONS
THE NON SEQUITUR OF THE "DEPENDENCE EFFECT"
For well over a hundredyears the critics of All the rest we learn to desire because we see
the free enterprisesystem have resortedto the others enjoying various things. To say that a
argumentthat if productionwere only organized desire is not important becauseit is not innate
rationally,there would be no economicproblem. is to say that the whole culturalachievementof
Rather than face the problem which scarcity man is not important.
creates, socialist reformershave tended to deny This culturaloriginof practicallyall the needs
that scarcity existed. Ever since the Saint- of civilized life must of course not be confused
Simonianstheir contention has been that the with the fact that there are some desireswhich
problemof productionhas been solved and only aim, not as a satisfactionderived directly from
the problem of distribution remains. However the use of an object, but only from the status
absurd this contentionmust appear to us with which its consumptionis expected to confer. In
respect to the time when it was first advanced, a passagewhich ProfessorGalbraithquotes (p.
it still has some persuasivepowerwhen repeated 118), Lord Keynes seems to treat the latter sort
with referenceto the present. of Veblenesqueconspicuousconsumptionas the
The latest form of this old contention is ex- only alternative "to those needs which are ab-
poundedin The AffluentSociety by ProfessorJ. solute in the sense that we feel them whatever
K. Galbraith.He attempts to demonstratethat the situation of our fellow human beings may
in our affluent society the important private be." If the latter phrase is interpreted to ex-
needs are already satisfiedand the urgent need clude all the needs for goods which are felt
is thereforeno longer a furtherexpansionof the only becausethese goods are known to be pro-
output of commoditiesbut an increaseof those duced, these two Keynesian classes describeof
serviceswhichare supplied (and presumablycan course only extreme types of wants, but disre-
be supplied only) by government.Though this gard the overwhelmingmajority of goods on
book has been extensively discussed since its which civilizedlife rests. Very few needs indeed
publication in 1958, its central thesis still re- are "absolute"in the sense that they are inde-
quiressomefurtherexamination. pendentof social environmentor of the example
I believe the author would agree that his ar- of others, and that their satisfaction is an in-
gumentturns upon the "DependenceEffect"ex- dispensableconditionfor the preservationof the
plained in Chapter XI of the book. The argu- individual or of the species. Most needs which
ment of this chapter starts from the assertion make us act are needs for things which only
that a great part of the wants which are still civilizationteaches us to exist at all, and these
unsatisfied in modern society are not wants things are wanted by us because they produce
which would be experiencedspontaneouslyby feelingsor emotionswhichwe wouldnot know if
the individualif left to himself, but are wants it were not for our culturalinheritance.Are not
which are createdby the processby which they in this sense probably all our esthetic feelings
are satisfied. It is then representedas self-evi- "acquiredtastes"?
dent that for this reason such wants cannot be How complete a non sequitur Professor Gal-
urgent or important.This crucialconclusionap- braith'sconclusionrepresentsis seenmost clearly
pearsto be a completenon sequiturand it would if we apply the argumentto any product of the
seem that with it the whole argument of the arts, be it music, painting, or literature.If the
book collapses. fact that peoplewouldnot feel the need for some-
The first part of the argument is of course thing if it were not produced did prove that
perfectly true: we would not desire any of the such productsare of small value, all those high-
amenities of civilization-or even of the most est products of human endeavor would be of
primitiveculture-if we did not live in a society small value. Professor Galbraith's argument
in which others providethem. The innate wants could be easily employed, without and change
are probablyconfinedto food, shelter, and sex. of the essentialterms,to demonstratethe worth-
346
 COMMUNICATIONS 347

lessness of literature or any other form of art. aggeration to say that contemporaryman, in
Surely an individual'swant for literatureis not all fieldswherehe has not yet formedfirmhabits,
originalwith himself in the sense that he would tends to find out what he wants by looking at
experience it if literature were not produced. what his neighboursdo and at various displays
Does this then mean that the productionof lit- of goods (physical or in cataloguesor advertise-
eraturecannot be defendedas satisfying a want ments) and then choosingwhat he likes best.
becauseit is only the productionwhich provokes In this sense the tastes of man, as is also true
the demand? In this, as in the case of all cul- of his opinionsand beliefs and indeed much of
tural needs, it is unquestionably,in Professor his personality,are shapedin a great measureby
Galbraith'swords,"the processof satisfyingthe his cultural environment.But though in some
wants that createsthe wants."There have never contexts it would perhaps be legitimate to ex-
been "independentlydetermineddesiresfor" lit- press this by a phrase like "productioncreates
eraturebefore literaturehas been producedand the wants,"the circumstancesmentionedwould
books certainly do not serve the "simplemode clearlynot justify the contentionthat particular
of enjoyment which requiresno previous con- producerscan deliberatelydeterminethe wants
ditioningof the consumer"(p. 217). Clearlymy of particularconsumers.The efforts of all pro-
taste for the novels of Jane Austin or Anthony ducers will certainly be directed towards that
Trollopeor C. P. Snow is not "originalwith my- end; but how far any individual producerwill
self." But is it not rather absurd to conclude succeed will depend not only on what he does
from this that it is less importantthan, say, the but also on what the others do and on a great
need for education? Public education indeed many other influencesoperatingupon the con-
seems to regardit as one of its tasks to instill a sumer. The joint but uncoordinatedefforts of
taste for literature in the young and even em- the producersmerely create one element of the
ploys producersof literature for that purpose. environmentby which the wants of the con-
Is this want creationby the producerreprehen- sumersare shaped.It is becauseeach individual
sible? Or does the fact that some of the pupils producerthinks that the consumerscan be per-
may possess a taste for poetry only because of suaded to like his products that he endeavours
the efforts of their teachersprove that since "it to influencethem. But though this effort is part
does not arisein spontaneousconsumerneed and of the influenceswhich shape consumers'tastes,
the demand would not exist were it not con- no producercan in any real sense "determine"
trived, its utility or urgency, ex contrivance,is them. This, however,is clearly implied in such
zero?" statements as that wants are "both passively
The appearancethat the conclusions follow and deliberately the fruits of the process by
from the admitted facts is made possible by an which they are satisfied" (p. 124). If the pro-
obscurity of the wordingof the argumentwith ducer could in fact deliberatelydeterminewhat
respect to which it is difficultto know whether the consumerswill want, Professor Galbraith's
the author is himself the victim of a confusion conclusions would have some validity. But
or whetherhe skilfully uses ambiguousterms to though this is skilfully suggested,it is nowhere
make the conclusionappear plausible.The ob- made credible,and could hardly be made credi-
scurity concernsthe implied assertion that the ble because it is not true. Though the range of
wants of the consumersare determinedby the choice open to the consumersis the joint result
producers. Professor Galbraith avoids in this of, among other things, the efforts of all pro-
connectionany terms as crude and definite as ducers who vie with each other in making their
"determine."The expressionshe employs, such respectiveproductsappearmore attractive than
as that wants are "dependenton" or the "fruits those of their competitors,every particularcon-
of" production,or that "productioncreates the sumer still has the choice between all those dif-
wants" do, of course,suggest determinationbut ferent offers.
avoid saying so in plain terms. After what has A fuller examination of this process would,
alreadybeen said it is of courseobviousthat the of course,have to considerhow, after the efforts
knowledgeof what is being producedis one of of some producershave actually swayed some
the many factors on which it depends what consumers,it becomesthe exampleof the various
people will want. It would scarcely be an ex- consumersthus persuadedwhich will influence
348 COMMUNICATIONS

the remainingconsumers.This can be mentioned ProfessorGalbraith'sattempt to give an ap-

here only to emphasizethat even if each con- parent scientific proof for the contention that
sumerwere exposedto pressureof only one pro- the need for the productionof more commodi-
ducer,the harmfuleffectswhichare apprehended ties has greatly decreasedseems to me to have
fromthis wouldsoon be offset by the muchmore brokendown completely.With it goes the claim
powerfulexample of his fellows. It is of course to have produceda valid argumentwhich justi-
fashionableto treat this influenceof the example fies the use of coercionto make people employ
of others (or, what comes to the same things, their income for those purposesof which he ap-
the learningfromthe experiencemadeby others) proves.It is not to be deniedthat there is some
as if it amountedall to an attempt of keeping originality in this latest version of the old so-
up with the Joneses and for that reasonwas to cialist argument.For over a hundredyears we
be regardedas detrimental.It seems to me that have been exhortedto embracesocialismbecause
not only the importanceof this factor is usually it would give us more goods. Since it has so
greatly exaggeratedbut also that it is not really lamentably failed to achieve this where it has
relevant to Professor Galbraith'smain thesis. been tried, we are now urgedto adopt it because
But it might be worthwhilebriefly to ask what, more goodsafter all are not important.The aim
assuming that some expenditurewere actually is still progressivelyto increasethe share of the
determinedsolely by a desireof keepingup with resourceswhose use is determinedby political
the Joneses, that would really prove? At least authority and the coercion of any dissenting
in Europe we used to be familiarwith a type of minority. It is not surprising,therefore, that
persons who often denied themselves even Professor Galbraith'sthesis has been most en-
enoughfood in orderto maintainan appearance thusiasticallyreceivedby the intellectualsof the
of respectabilityor gentility in dress and style British Labour Party where his influence bids
of life. We may regardthis as a misguidedeffort, fair to displacethat of the late Lord Keynes. It
but surely it would not prove that the income is more curious that in this country it is not
of such personswas larger than they knew how
to use wisely. That the appearanceof success, recognizedas an outrightsocialistargumentand
often seems to appeal to people on the opposite
or wealth, may to some people seem more im-
end of the political spectrum.But this is prob-
portant than many other needs, does in no way
prove that the needs they sacrifice to the ably only another instance of the familiar fact
former are unimportant.In the same way, even that on these matters the extremes frequently
though people are often persuaded to spend meet.
F. A. HAYEK
unwisely, this surely is no evidence that they
do not still have importantunsatisfiedneeds. The University of Chicago

ARE WAGE DIFFERENTIALS RESILIENT? AN EMPIRICAL TEST*

I. INTRODUCTION balancea great one in others; and partly from
Adam Smith was the first economist to set
the policy of Europe, which nowhere leaves
at liberty."'
forth clearlythe factorsmakingfor differencesin things perfectof this
this
The purpose paper will be limited in
wage rates. He observed that ".... difference
to a test of the resiliencyof wage differ-
scope
arises partly from certain circumstancesin the entials when
they are subjected to an autono-
employmentsthemselves,which,either really, or mous shock in the form of a governmentfiat
at least in the imaginationsof men, make up for to the lower end of the wage scale. Sec-
a small pecuniary gain in some, and counter- applied
tion II examineswage differentialsas they are
* I am indebtedto W. C. Cash,M. R. Colberg, discussedin traditionaleconomictheory. Section
R. A. Bradley,L. L. Lasman,S. K. Katti and to III tests empiricallythe resiliencyof wage dif-
the editors of Southern Economic Journal for help- ferentials,and presentsthe conclusions.
ful commentsand suggestionsand to the Comput-
ing Center,FloridaState University,for many of SAdam Smith, The Wealth of Nations (New
the statisticalcomputations. York: Random House, 1937), p. 99.