Question

Explain what Galbraith means by the "dependence effect" in advertising, and why he thinks it poses a problem for a market-based economy. Provide and explain a criticism of his view.

Answer 1

THE DEPENDENCE EFFECT

Galbraith Examines Two Assumptions (premises) of the Economic Theory of Consumer Demand

•1. Urgency of consumer wants does not diminish as some wants are satisfied.

When all physical needs are met, psychological desires assert themselves just as strongly.

•Example: When a person gets shelter food, and clothing, he/she will want a TV and new technology just as urgently as he/she wanted the “essentials.”

•2. Wants originate in the consumer herself.

They are a given in economics.

1. The first premise is doubtful but cannot be disproved

Common sense suggests that all needs are not in fact equally urgent, and that unimportant wants will not be felt as strongly as essential ones. But this cannot be proven because it is impossible to measure, so the economists stick with the idea.

2. The second premise is, however, wrong, casting doubt on the whole theory.

“There is a flaw in the case. If the individual’s wants are to be urgent they must be original with himself. They cannot be urgent if they must be contrived for him. And above all they must not be contrived by the process of production by which they are satisfied. For this means that the whole case for the urgency of production, based on the urgency of wants, falls to the ground. One cannot defend production as satisfying wants if that production creates the wants.”

Galbraith’s Central Point-

''As society becomes increasingly affluent, wants are increasingly created by the process by which they are satisfied… Increases in consumption, the counterpart of increases in production, act by suggestion or emulation to create wants. Or producers may proceed actively to create wants through advertising and salesmanship. Wants thus come to depend on output. In technical terms, it can no longer be assumed that welfare is greater at an all-around higher level of production than at a lower one. It may be the same. The higher level of production has, merely, a higher level of want creation necessitating a higher level of want satisfaction. There will be frequent occasion to refer to the way wants depend on the process by which they are satisfied. It will be convenient to call it the Dependence Effect.”

“The Non Sequitur of the Dependence Effect” by Friedrich Von Hayek

Hayek criticizes Galbraith

“The argument of [The Dependence Effect] starts with 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…collapses.”

Galbraith assumes that wants rooted in emulation or suggestion are not important. But this would mean that all of civilization and culture is unimportant, because every need beyond shelter, food, and sex is the product of emulation of others.

Art and literature must be considered worthless on Galbraith’s premises: “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.”

Hayek believes we should reject Galbraith’s argument for socialism because Galbraith cannot show that the theory of consumer wants is wrong, not being able to draw any clear and meaningful line between real and artificial wants.

SO LET'S UNDERSTAND THE SUMMARY OF '' THE DEPENDENCE EFFECT'' BY GALBRIATH

The Dependence Effect addresses how societies real “needs” can be understood fairly well. Although, attempting to interrupt the bizarre, ever changing reactions of the human mind including the wants and desires created by advertising and salesman is a much more difficult thing. It is a safer bet to stay close to the productions of needs. Yet, the existence of “dependence”on material things to assist in fulfilling human desires will help keep the demand high for the things in life that aren’t necessary.