Academic journal article
By Mason, Roger
Journal of Economic Issues , Vol. 34, No. 3
Late nineteenth century economists gave little consideration to claims that consumer demand could often be determined by the social needs and aspirations of individuals, and this reluctance to discuss the social dimensions of consumption became a cause for concern for some. Simon Patten  and Thorstein Veblen  were early critics of a theory of consumption that did not seem able to accommodate social and psychological dimensions of consumer preference formation, and this dissent continued into the early years of the twentieth century [Veblen 1909; Downey 1910; Mitchell 1910; Clark 1918; Knight 1925a, 1925b]. For the most part, however, neoclassical interpretations of consumption and consumer demand continued to drive economic analysis.
After 1920, the persistent attempts by economists to secure recognition of the discipline as an exact science, capable of providing precise economic systems, models, and measurements, moved mainstream economics further away from issues relating to socially motivated consumption. In the 1930s and 1940s, attempts were made not to accommodate social aspects of consumption within theories of consumer demand, but to remove all traces of what was pejoratively referred to as "psychologizing" from consumer theory [Hicks and Allen 1934; Samuelson 1938]. By 1947, with the publication of Paul Samuelson's Foundations of Economic Analysis, the process was almost complete.
The arguments of those who continued to believe that the social significance of consumption was being systematically understated were still intuitively convincing. However, their case was usually rejected on the grounds that they had not been able to present an alternative theory of consumer behavior expressed in purely economic terms--a theory that could, where necessary, be supported by persuasive empirical evidence that social factors could and did play a considerable part in determining patterns of consumer demand. This long-standing criticism was effectively removed, however, with the publication in 1949 of James Dusesnberry's Income, Saving and the Theory of Consumer Behavior.
This paper describes in detail Duesenberry's contribution to the subsequent development of consumer theory and, in particular, his attempts to secure proper recognition for the social significance of consumption within economics. It especially establishes his influence on economic thought in the 1950s, when the debate over the respective merits of (Duesenberry's) relative income and (Milton Friedman's) permanent income theories of consumption was at its height. It also looks at the renewal of interest in Duesenberry's work that took place in the 1970s as an increasing number of economists began to revisit and revaluate his economic theories of consumer demand. It should be noted that I do not attempt a review of the Institutionalist treatment of consumption [for this, see Hamilton 1987].
Duesenberry's influence on economic thought over the past 50 years is often apparent even where no direct attribution is made to his work. This paper makes no claim to be a comprehensive review of all developments in economics since 1950 that bear, directly or indirectly, on the issues raised by Duesenberry. It does, however, serve to emphasize the often unacknowledged significance of his contribution to consumer theory over the latter half of the twentieth century.
A New Theory of Consumption
It is now some 50 years since the publication of Duesenberry's Income, Saving and the Theory of Consumer Behavior, a book not widely reviewed at the time of its appearance in 1949 but that, significantly, attracted the attention of some eminent economists of the day. Kenneth Arrow believed that it offered "one of the most significant contributions of the postwar period to our understanding of economic behavior" and that it was to be commended for attempting to link economic theory more directly with psychological motivations and with consumer learning processes [Arrow 1950]. …