The Concept of the Conventional Wisdom

The Affluent Society

John Kenneth Galbraith

1958 Excerpts

The Concept of the Conventional Wisdom

The Myth of Consumer Sovereignty

The Case for Social Balance

The

Concept ofthe Conventional Wisdom

[

from The Affluent Society]

Thisarticleoriginallyappearedin TheAffluentSociety, bymanyconsideredmymostinfluentialbook,andcertainlytheonewiththewidest audience.Itwaspublishedin1958intheUnitedStatesandthereafter inalargenumberofothercountries.Formanymonthsitwashighon the American bestseller list.

Therewereoccasionalmishapsinitsreception.Inthespringof1958, justafterpublication,CatherineGalbraithandIsetoutonalong journeytoLatinAmerica;thistookusdownthewestcoasttoEcuador, PeruandChile,acrosstoArgentinaandbackupalongtheeast.When wereachedMontevideo,whereIwasgivingamajorlecture,wordhad comeoftheintensediscussionofmyworkbackhome.SincetheMontevideopaperwastoputmyphotographonthefrontpage,theeditors hadtelephonedtogetsomedetailsonmynewdistinction,butunfortunatelytwowordswithasimilarsoundgotconfused:Iwasbillednotas aleadingeconomistbutasaleadingAmericanCommunist.Forbetter or for worse,my lecture was well attended.

Inthefollowingweeks,months,evenyears,thebookreceivedmuch attentionintheUnitedStatesandvariouslyaroundtheworld.This earlychapterwasdesignedtosetthegroundworkforachallengetothe acceptedbelief.Economicsandsocialthoughtgenerallycouldpursue thetruth,buttherewasnoquestionthatthelattercouldbeheavilyinfluencedbywhatitwasconvenientorsimplytraditionaltobelieve.It

wasmypurposeor,inanycase,myhopetobringdiscussion,academic discussioninparticular,closertothereality.Theresistancecamefrom whatIcalledtheConventionalWisdom.Tomysurpriseand,noone shoulddoubt,mypleasure,thetermenteredthelanguage.Ithasacquiredanegative,slightlyinsultingconnotationandissometimesused bypeoplewithviewsdeeplyadversetominewhoareunawareofitsorigin.Few matters give me more satisfaction.

WhatfollowsismycharacterizationoftheConventionalWisdom.I shouldaddthattheselectionofthatnameowesmorethanalittleto Harvard colleagues on whom I tried out several possibilities.

Thefirstrequirement foranunderstandingofcontemporaryeconomicandsociallifeisaclearviewoftherelation betweeneventsandtheideaswhichinterpretthem,foreach ofthelatterhasanexistenceofitsownand,muchasitmayseema contradictioninterms,eachiscapableforaconsiderableperiodof pursuing an independent course.

Thereasonisnotdifficulttodiscover.Economic,likeothersocial, lifedoesnotconformtoasimpleandcoherentpattern.Onthecontrary,itoftenseemsincoherent,inchoateandintellectuallyfrustrating.Butonemusthaveanexplanationorinterpretationofeconomicbehavior.Neitherman’scuriositynorhisinherentegoallows himtoremaincontentedlyoblivioustoanythingthatissocloseto his life.

Becauseeconomicandsocialphenomenaaresoforbidding,orat leastsoseem,andbecausetheyyieldfewhardtestsofwhatexists andwhatdoesnot,theyaffordtotheindividualaluxurynotgiven byphysicalphenomena.Withinaconsiderablerange,heispermittedtobelievewhathepleases.Hemayholdwhateverviewofthis world he finds most agreeable or otherwise to his taste.

Asaconsequence,intheinterpretationofallsociallife,thereisa persistentandnever-endingcompetitionbetweenwhatisrightand

whatismerelyacceptable.Inthiscompetition,whileastrategicadvantagelieswithwhatexists,alltacticaladvantageiswiththeacceptable.Audiencesofallkindsmostapplaudwhattheylikebest. Andinsocialcomment,thetestofaudienceapproval,farmorethan thetestoftruth,comestoinfluencecomment.Thespeakerorwriter whoaddresseshisaudiencewiththeproclaimedintentoftellingthe hard,shockingfactsinvariablygoesontoexpoundwhattheaudience most wants to hear.

Justastruthultimatelyservestocreateaconsensus,sointhe shortrundoesacceptability.Ideascometobeorganizedaround whatthecommunityasawholeorparticularaudiencesfindacceptable.Andasthelaboratoryworkerdevoteshimselftodiscovering scientificverities,sotheghostwriterandthepublicrelationsman concernthemselveswithidentifyingtheacceptable.Iftheirclients arerewardedwithapplause,theseartisansaredeemedqualifiedin theircraft.Ifnot,theyhavefailed.Bysamplingaudiencereactionin advance,orbypretestingspeeches,articlesandothercommunications,the risk offailure can now be greatly minimized.

Numerousfactorscontributetotheacceptabilityofideas.Toa verylargeextent,ofcourse,weassociatetruthwithconvenience— withwhatmostcloselyaccordswithself-interestandpersonalwellbeingorpromisesbesttoavoidawkwardeffortorunwelcomedislocationoflife.Wealsofindhighlyacceptablewhatcontributes mosttoself-esteem.SpeakersbeforetheUnitedStatesChamberof Commercerarelydenigratethebusinessmanasaneconomicforce. ThosewhoappearbeforetheAFL-CIOarepronetoidentifysocial progresswithastrongtradeunionmovement.Butperhapsmost importantofall,peoplemostapproveofwhattheybestunderstand. Asjustnoted,economicandsocialbehaviorarecomplex,andto comprehendtheircharacterismentallytiring.Thereforeweadhere, asthoughtoaraft,tothoseideaswhichrepresentourunderstanding.Thisisaprimemanifestationofvestedinterest.Foravestedinterestinunderstandingismorepreciouslyguardedthananyother treasure.Itiswhymenreact,notinfrequentlywithsomethingakin toreligiouspassion,tothedefenseofwhattheyhavesolaboriously

learned.Familiaritymaybreedcontemptinsomeareasofhuman behavior,butinthefieldofsocialideasitisthetouchstoneofacceptability.

Becausefamiliarityissuchanimportanttestofacceptability,the acceptableideashavegreatstability.Theyarehighlypredictable.It willbeconvenienttohaveanamefortheideaswhichareesteemed atanytimefortheiracceptability,anditshouldbeatermthatemphasizesthispredictability.Ishallrefertotheseideashenceforthas the Conventional Wisdom.

Theconventionalwisdomisnotthepropertyofanypoliticalgroup. Onagreatmanymodernsocialissues,asweshallseeinthecourse ofthisessay,theconsensusisexceedinglybroad.Nothingmuchdividesthosewhoareliberalsbycommonpoliticaldesignationfrom thosewhoareconservatives.Thetestofwhatisacceptableismuch thesameforboth.Onsomequestions,however,ideasmustbeaccommodatedtothepoliticalpreferencesoftheparticularaudience. Thetendencytomakethisadjustment,eitherdeliberatelyormore oftenunconsciously,isnotgreatlydifferentfordifferentpolitical groups.Theconservativeisledbydisposition,notunmixedwith pecuniaryself-interest,toadheretothefamiliarandtheestablished. Theseunderliehistestofacceptability.Buttheliberalbringsmoral fervorandpassion,evenasenseofrighteousness,totheideaswith which he ismostfamiliar.Whiletheideashecherishesaredifferent fromthoseoftheconservative,hewillbenolessemphaticinmakingfamiliarityatestofacceptability.Deviationintheformoforiginalityiscondemnedasfaithlessnessorbacksliding.A“good”liberal ora“triedandtrue”liberalora“trueblue”liberalisonewhoisadequatelypredictable.Thismeansthatheforswearsanyseriousstrivingtowardoriginality.InboththeUnitedStatesandBritain,inrecenttimes,AmericanliberalsandtheirBritishcounterpartsonthe lefthaveproclaimedthemselvesinsearchofnewideas.Toproclaim theneedfornewideashasserved,insomemeasure,asasubstitute

forthem.Thepoliticianwhounwiselytakesthisproclaimedneed seriouslyandurgessomethingnewwilloftenfindhimselfinserious trouble.

Wemay,asnecessary,speakoftheconventionalwisdomofconservatives or the conventional wisdom ofliberals.

Theconventionalwisdomisalsoarticulatedonalllevelsofsophistication.Atthehighestlevelsofsocialsciencescholarship,some noveltyofformulationorstatementisnotresisted.Onthecontrary, considerablestoreissetbythedeviceofputtinganoldtruthina newform,andminorheresiesaremuchcherished.Theveryvigor ofminordebatemakesitpossibletoexcludeasirrelevant,andwithoutseemingtobeunscientificorparochial,anychallengetothe frameworkitself.Moreover,withtimeandaidedbythedebate,the acceptedideasbecomeincreasinglyelaborate.Theyhavealarge literature,evenamystique.Thedefendersareabletosaythatthe challengersoftheconventionalwisdomhavenotmasteredtheirintricacies.Indeed,theseideascanbeappreciatedonlybyastable,orthodoxandpatientman—inbrief,bysomeonewhocloselyresemblesthemanofconventionalwisdom.Theconventionalwisdom havingbeenmademoreorlessidenticalwithsoundscholarship,its positionisvirtuallyimpregnable.Theskepticisdisqualifiedbyhis verytendencytogobrashlyfromtheoldtothenew.Werehea sound scholar,he would remain with the conventional wisdom. Atthesametime,inthehigherlevelsoftheconventionalwisdom,originalityremainshighlyacceptableintheabstract.Here againtheconventionalwisdommakesvigorousadvocacyoforiginality a substitute for originality itself. iii

Asnoted,thehallmarkoftheconventionalwisdomisacceptability. Ithastheapprovalofthosetowhomitisaddressed.Therearemany reasonswhypeopleliketoheararticulatedthatwhichtheyapprove. Itservestheego:theindividualhasthesatisfactionofknowingthat otherandmorefamouspeoplesharehisconclusions.Tohearwhat hebelievesisalsoasourceofreassurance.Theindividualknows

thatheissupportedinhisthoughts—thathehasnotbeenleft behindandalone.Further,tohearwhatoneapprovesservesthe evangelizinginstinct.Itmeansthatothersarealsohearingandare thereby in the process ofbeing persuaded.

Insomemeasure,thearticulationoftheconventionalwisdomis areligiousrite.Itisanactofaffirmationlikereadingaloudfromthe Scripturesorgoingtochurch.Thebusinessexecutivelisteningtoa luncheonaddressontheimmutablevirtuesoffreeenterpriseisalreadypersuaded,andsoarehisfellowlisteners,andallaresecurein theirconvictions.Indeed,althoughadisplayofraptattentionisrequired,theexecutivemaynotfeelitnecessarytolisten.Buthedoes placatethegodsbyparticipatingintheritual.Havingbeenpresent, maintainedattentionandhavingapplauded,hecandepartfeeling thattheeconomicsystemisalittlemoresecure.Scholarsgatherin scholarlyassemblagestohearinelegantstatementwhatallhave heardbefore.Again,itisnotanegligiblerite,foritspurposeisnot to convey knowledge but to beatify learning and the learned.

Withsoextensiveademand,itfollowsthataverylargepartof oursocialcomment—andnearlyallthatiswellregarded—isdevotedatanytimetoarticulatingtheconventionalwisdom.Tosome extent,thishasbeenprofessionalized.Individuals,mostnotablythe greattelevisionandradiocommentators,makeaprofessionof knowingandsayingwitheleganceandunctionwhattheiraudience willfindmostacceptable.But,ingeneral,thearticulationofthe conventionalwisdomisaprerogativeofacademic,publicorbusinessposition.Thusanyindividual,onbeingelectedpresidentofa collegeoruniversity,automaticallywinstherighttoenunciatethe conventionalwisdom.Itisoneoftherewardsofhighacademic rank,althoughsuchrankitselfisarewardforexpoundingtheconventional wisdom at a properly sophisticated level.

Thehighpublicofficialisexpected,andindeedistosomeextent required,toexpoundtheconventionalwisdom.His,inmanyrespects,isthepurestcase.Beforeassumingoffice,heordinarilycommandslittleattention.Butontakinguphisposition,heisimmediatelyassumedtobegiftedwithdeepinsights.Hedoesnot,exceptin therarestinstances,writehisownspeechesorarticles,andtheseare

planned,draftedandscrupulouslyexaminedtoensuretheiracceptability.Theapplicationofanyothertest,e.g.,theireffectivenessasa simpledescriptionoftheeconomicorpoliticalreality,wouldberegarded as eccentric in the extreme.

Finally,theexpoundingoftheconventionalwisdomistheprerogativeofbusinesssuccess.Theheadofalmostanylargecorporation—GeneralMotors,GeneralElectric,IBM—isentitledtodoso. Andheisprivilegedtospeaknotonlyonbusinesspolicyandeconomicsbutalsoontheroleofgovernmentinthesociety,thefoundationsofforeignpolicyandthenatureofaliberaleducation.Inrecentyears,ithasbeenurgedthattoexpoundtheconventional wisdomisnotonlytheprivilegebutalsotheobligationofthebusinessman.“Iamconvincedthatbusinessmenmustwriteaswellas speak,inorderthatwemaybringtopeopleeverywheretheexciting andconfidentmessageofourfaithinthefreeenterprisewayof life...Whatachangewouldcomeinthisstruggleformen’sminds ifsuddenlytherecouldpouroutfromtheworldofAmericanbusiness a torrent ofintelligent,forward-looking thinking.”1

Theenemyoftheconventionalwisdomisnotideasbutthemarch ofevents.AsIhavenoted,theconventionalwisdomaccommodates itselfnottotheworldthatitismeanttointerpretbuttotheaudience’sviewoftheworld.Sincethelatterremainswiththecomfortableandthefamiliarwhiletheworldmoveson,theconventional wisdomisalwaysindangerofobsolescence.Thisisnotimmediately fatal.Thefatalblowtotheconventionalwisdomcomeswhenthe conventionalideasfailsignallytodealwithsomecontingencyto whichobsolescencehasmadethempalpablyinapplicable.This, soonerorlater,mustbethefateofideaswhichhavelosttheirrelationtotheworld.Atthisstage,theirrelevancewilloftenbedramatizedbysomeindividual.Tohimwillaccruethecreditforoverthrowingtheconventionalwisdomandforinstallingthenewideas. Infact,hewillhaveonlycrystallizedinwordswhattheeventshave madeclear,althoughthisfunctionisnotaminorone.Meanwhile,

liketheOldGuard,theconventionalwisdomdiesbutdoesnotsurrender.Societywithintransigentcrueltymaytransferitsexponents fromthecategoryofwisemantothatofoldfogyorevenstuffed shirt.

Thissequencecanbeillustratedfromscoresofexamples,ancient andmodern.Fordecadespriorto1776,menhadbeencatchingthe visionoftheliberalstate.TradersandmerchantsinEngland,inthe adjacentLowCountriesandintheAmericancolonieshadalready learnedthattheywereservedbestbyaminimumofgovernment restrictionratherthan,asintheconventionalwisdom,byamaximumofgovernmentguidanceandprotection.Ithadbecomeplain, inturn,thatliberaltradeandcommerce,nottheaccumulation ofbullion,astheconventionalwisdomheld,wasthemodernsource ofnationalpower.Menofirresponsibleoriginalityhadmadethe point.Voltairehadobservedthat“itisonlybecausetheEnglishhave becomemerchantsandtradersthatLondonhassurpassedParisin extentandinthenumberofitscitizens;thattheEnglishcanplace 200warshipsontheseaandsubsidizeallies.”2 Theseviewswere finallycrystallizedbyAdamSmithintheyearofAmericanindependence. TheWealthofNations, however,continuedtobeviewed withdiscontentandalarmbythemenoftheolderwisdom.Inthe funeralelegyforAlexanderHamiltonin1804,JamesKentcomplimentedhisdeceasedfriendonhavingresistedthe“fuzzyphilosophy”ofSmith.Foranothergenerationormore,orinallwestern countries,therewouldbesolemnwarningsthatthenotionofaliberal society was a reckless idea.

Throughthenineteenthcentury,liberalisminitsclassicalmeaninghavingbecometheconventionalwisdom,thereweresolemn warningsoftheirreparabledamagethatwouldbedonebytheFactoryActs,tradeunions,socialinsuranceandothersociallegislation. Liberalismwasafabricwhichcouldnotberaveledwithoutbeing rent.Yetthedesireforprotectionandsecurityandsomemeasureof equalityinbargainingpowerwouldnotdown.Intheend,itbecame afactwithwhichtheconventionalwisdomcouldnotdeal.The Webbs,LloydGeorge,LaFollette,Roosevelt,Beveridgeandothers crystallizedtheacceptanceofthenewfact.Theresultiswhatwecall

thewelfarestate.Theconventionalwisdomnowholdsthatthese measuressoftenedandcivilizedcapitalismandmadeittenable. Therehaveneverceasedtobewarningsthatthebreakwithclassical liberalism was fatal.

Anotherinterestinginstanceoftheimpactofcircumstanceon theconventionalwisdomwasthatofthebalancedbudgetintimes ofdepression.Almostfromthebeginningoforganizedgovernment,thebalancedbudgetoritsequivalenthasbeenthe sinequa non ofsoundandsensiblemanagementofthepublicpurse.The spendthrifttendenciesofprincesandrepublicsalikewerecurbedby therulethattheymustunfailinglytakeinasmuchmoneyasthey paidout.Theconsequencesofviolatingthisrulehadalwaysbeen unhappyinthelongrunandnotinfrequentlyintheshort.Ancientlyitwasthepracticeofprincestocoverthedeficitbyclipping ordebasingthecoinsandspendingthemetalsosaved.Theresult invariablywastoraisepricesandlowernationalself-esteem.In moderntimes,theissuanceofpapermoneyorgovernmentborrowingfromthebankshadledtothesameresults.Inconsequence,the conventionalwisdomhademphasizedstronglytheimportanceof an annually balanced budget.

Butmeanwhiletheunderlyingrealityhadgraduallychanged.The rulerequiringabalancedbudgetwasdesignedforgovernmentsthat wereinherentlyorrecurrentlyirresponsibleonfiscalmatters.Until thelastcentury,therehadbeennoother.ThenintheUnitedStates, EnglandandtheBritishCommonwealthandEurope,governments begantocalculatethefiscalconsequencesoftheiractions.Safetyno longer depended on confining them within arbitrary rules.

Ataboutthesametime,thereappearedthephenomenonof thetrulydevastatingdepression.Insuchadepression,men,plant andmaterialswereunemployedenmasse;theextrademandfrom theextraspendinginducedbyadeficit—thecounterpartoftheextrametalmadeavailablefromtheclippedcoinage—didnotraise pricesuniquely.Rather,itmostlyreturnedidlemenandplantto work.Theeffect,asitwere,washorizontallyonproductionrather thanverticallyonprices.Andsuchpriceincreasesasdidoccurwere

farfrombeinganunmitigatedmisfortune;onthecontrary,theyretrieved a previous,painful decline.

Theconventionalwisdomcontinuedtoemphasizethebalanced budget.Audiencescontinuedtorespondtothewarningsofthedisasterwhichwouldbefallwerethisrulenotrespected.TheshatteringcircumstancewastheGreatDepression.ThisledintheUnited Statestoaseverereductionintherevenuesofthefederalgovernment;italsobroughtpressureforavarietyofreliefandwelfareexpenditures.Abalancedbudgetmeantincreasingtaxratesandreducingpublicexpenditure.Viewedinretrospect,itwouldbehard toimagineabetterdesignforreducingboththeprivateandthe publicdemandforgoods,aggravatingdeflation,increasingunemploymentandaddingtothegeneralsuffering.Intheconventional wisdom,nonetheless,thebalancedbudgetremainedofparamount importance.PresidentHooverintheearlythirtiescalleditan“absolutenecessity,”“themostessentialfactortoeconomicrecovery,”“the imperativeandimmediatestep,”“indispensable,”“thefirstnecessity oftheNation,”and“thefoundationofallpublicandprivatefinancialstability.”3 Economistsandprofessionalobserversofpublicaffairsagreedalmostwithoutexception.Almosteveryonecalledupon foradviceintheearlyyearsofthedepressionwasimpelledbythe conventionalwisdomtoofferproposalsdesignedtomakethings worse.Theconsensusembracedbothliberalsandconservatives. FranklinD.Rooseveltwaselectedin1932withastrongcommitment toreducedexpendituresandabalancedbudget.InhisspeechacceptingtheDemocraticnominationhesaid,“Revenuemustcover expendituresbyonemeansoranother.Anygovernment,likeany family,canforayearspendalittlemorethanitearns.ButyouandI knowthatacontinuationofthathabitmeansthepoorhouse.”One oftheearlyactsofhisadministrationwasaneconomydrivewhich includedahorizontalslashinpublicpay.Mr.LewisW.Douglas, throughadistinguishedlifeanotableexemplaroftheconventional wisdom,madethequestforabalancedbudgetintoapersonalcrusade and ultimately broke with the administration on the issue. Infact,circumstanceshadalreadytriumphedovertheconven-

tionalwisdom.BythesecondyearoftheHooveradministration, thebudgetwasirretrievablyoutofbalance.Inthefiscalyearending in1932,receiptsweremuchlessthanhalfofspending.Thebudget wasneverbalancedduringthedepression.Butnotuntil1936did boththenecessitiesandadvantagesofthiscoursebegintotriumph inthefieldofideas.Inthatyear,JohnMaynardKeyneslaunchedhis formalassaultin TheGeneralTheoryofEmploymentInterestand Money. Thereafter,theconventionalinsistenceonthebalancedbudgetunderallcircumstancesandatalllevelsofeconomicactivitywas inretreat,andKeyneswasonhiswaytobeingthenewfountainhead ofconventionalwisdom.BytheverylatesixtiesaRepublicanPresidentwouldproclaimhimselfaKeynesian.Itwouldbeanarticleof conventionalfaiththattheKeynesianremedies,whenputinreverse, wouldbeacureforinflation,afaiththatcircumstanceswouldsoon undermine.

Iwillfindfrequentoccasiontoadverttotheconventionalwisdom —tothestructureofideasthatisbasedonacceptability—andto thosewhoarticulateit.Thesereferencesmustnotbethoughtto haveawhollyinvidiousconnotation.(Thewarningisnecessarybecause,asnoted,wesetgreatostensiblestorebyintellectualinnovation,thoughinfactweresistit.Hence,thoughwevaluetherigorous adherencetoconventionalideas,weneveracclaimit.)Fewmenare unusefulandthemanofconventionalwisdomisnot.Everysociety mustbeprotectedfromatoofacileflowofthought.Inthefieldof socialcomment,agreatstreamofintellectualnovelties,ifallwere takenseriously,wouldbedisastrous.Menwouldbeswayedtothis actionorthat;economicandpoliticallifewouldbeerraticand rudderless.IntheCommunistcountries,stabilityofideasandsocial purposeisachievedbyformaladherencetoanofficiallyproclaimed doctrine.Deviationisstigmatizedas“incorrect.”Inoursociety,a similarstabilityisenforcedfarmoreinformallybytheconventional wisdom.Ideasneedtobetestedbytheirabilityincombinationwith

eventstoovercomeinertiaandresistance.Thisinertiaandresistance the conventional wisdom provides.

Norisittobesupposedthatthemanofconventionalwisdomis anobjectofpity.Apartfromhissociallyusefulrole,hehascometo goodtermswithlife.Hecanthinkofhimselfwithjusticeassocially elect,forsociety,infact,accordshimtheapplausewhichhisideas aresoarrangedastoevoke.Secureinthisapplause,heiswellarmed againsttheannoyanceofdissent.Hisbargainistoexchangeastrong andevenloftypositioninthepresentforaweakoneinthefuture. Inthepresent,heisquestionedwithrespect,ifnotatgreatlength, bycongressionalcommittees;hewalksneartheheadoftheacademicprocessions;heappearsonsymposia;heisarespectedfigure attheCouncilonForeignRelations;heishailedattestimonialbanquets.Hedoesriskbeingdevastatedbyfuturehostileevents,butby thenhemaybedead.Onlyposterityisunkindtothemanofconventionalwisdom,andallposteritydoesisburyhiminablanketof neglect.However,somewhat more serious issues are at stake.

Nosocietyseemsevertohavesuccumbedtoboredom.Manhasdevelopedanobviouscapacityforsurvivingthepompousreiteration ofthecommonplace.Theconventionalwisdomprotectsthecommunityinsocialthoughtandaction,buttherearealsogravedrawbacksandevendangersinasystemofthoughtwhich,byitsvery natureanddesign,avoidsaccommodationtocircumstancesuntil changeisdramaticallyforceduponit.Inlargeareasofeconomicaffairs,themarchofevents—aboveall,theincreaseinourwealthand popularwell-being—hasagainlefttheconventionalwisdomsadly obsolete.Itmayhavebecomeinimicaltoourhappiness.Ithascome tohaveabearingonthelargerquestionsofcivilizedsurvival.So whileitwouldbemuchmorepleasant(andalsovastlymoreprofitable)toarticulatetheconventionalwisdom,Iamhereinvolvedin thenormallyunfruitfuleffortofanattackuponit.Iamnotwholly barrenofhope,forcircumstanceshavebeendealingtheconven-

tionalwisdomanewseriesofheavyblows.Itisonlyaftersuch damagehasbeendone,aswehaveseen,thatideashavetheiropportunity.

Keynes,inhismostfamousobservation,notedthatweareruled byideasandbyverylittleelse.Intheimmediatesense,thisistrue. Andhewasrightinattributingimportancetoideasasopposedto thesimpleinfluenceofpecuniaryvestedinterest.Buttheruleof ideasisonlypowerfulinaworldthatdoesnotchange.Ideasareinherentlyconservative.Theyyieldnottotheattackofotherideas but,asImaynoteoncemore,tothemassiveonslaughtofcircumstance with which they cannot contend.

notes

1.ClarenceB.Randall, ACreedforFreeEnterprise (Boston:Atlantic–Little,Brown,1952),pp. 3,5.

2.“TenthPhilosophicalLetter.”QuotedbyHenrySée, ModernCapitalism (New York:Adelphi,1928),p. 87.

3.ArthurM.Schlesinger,Jr., TheCrisisoftheOldOrder (Boston: Houghton Mifflin,1956),p. 232.

The Myth ofConsumer Sovereignty

[ from The Affluent Society]

Myargumentinthischapterof TheAffluentSociety wasoneofthe morecontroversialexercisesofmylife,foritchallengedconsumersovereignty,amajorprofessionaltruthofeconomics.Nothinghadbeen moreimportantinacceptedeconomicbeliefthanthenotionthateconomiclifeisultimatelyguidedbythesovereignconsumer.Itisconsumerchoicethatgovernswhatisproduced,thatandchangingtechnology;andinsomemeasuretechnologicalchangeitselfoccursin responsetoconsumerneedandinservicetoconsumersatisfaction.I argueherethatadeterminingfactorinproduction—perhapsthedeterminingfactor—is,infact,notconsumerchoicebut,insubstantial measure,producermanipulationofconsumerresponse.Salesmanship, designandinnovationareallutilizedtoattractandcapturetheconsumer.

Inorthodoxeconomiccirclesmythesisattractedanearlyuniversal objection.ItwasenthusiasticallypointedoutthattheFordMotor CompanyhadatgreatexpensedevelopedtheEdsel,whichthendidn’t sell.IwascalledtoadiscussioninNewYorkCityattendedoverwhelminglybyadvertisingmenwhoweregiventounanimousdenunciation ofmyviews.Intheend,however,circumstance,fact,hadtheireffect: theestablishedbeliefwasundermined;perhapsitcouldevenbesaid thatconsumersovereigntywassetasideasadominantfactorinthe economicsystem.Frommyreadingoftheliterature,includingthetextbooks,itnolongerenjoysitsoldroleasthecenteroftruthinshaping the economy.

Someauthorsregretcontroversy;onafewoccasionssohaveI.This was one ofthe instances where I much enjoyed it.

Thenotion thatwantsdonotbecomelessurgentthemore amplytheindividualissuppliedisbroadlyrepugnantto commonsense.Itissomethingtobebelievedonlybythose whowishtobelieve.Yettheconventionalwisdommustbetackled onitsownterrain.Intertemporalcomparisonsofanindividual’s stateofminddorestontechnicallyvulnerableground.Whocansay forsurethatthedeprivationwhichafflictshimwithhungerismore painfulthanthedeprivationwhichafflictshimwithenvyofhis neighbor’snewcar?Inthetimethathaspassedsincehewaspoor, hissoulmayhavebecomesubjecttoanewanddeepersearing.And whereasocietyisconcerned,comparisonsbetweenmarginalsatisfactionswhenitispoorandthosewhenitisaffluentwillinvolvenot onlythesameindividualatdifferenttimesbutdifferentindividuals atdifferenttimes.Thescholarwhowishestobelievethatwithincreasingaffluencethereisnoreductionintheurgencyofdesires andgoodsisnotwithoutpointsfordebate.Howeverplausiblethe caseagainsthim,itcannotbeproven.Inthedefenseoftheconventional economic wisdom,this amounts almost to invulnerability. However,thereisaflawinthecase.Iftheindividual’swantsareto beurgent,theymustbeoriginalwithhim.Theycannotbeurgentif theymustbecontrivedforhim.And,aboveall,theymustnotbe contrivedbytheprocessofproductionbywhichtheyaresatisfied. Forthismeansthatthewholecasefortheurgencyofproduction, basedontheurgencyofwants,fallstotheground.Onecannotdefendproductionassatisfyingwantsifthatproductioncreatesthe wants.

Wereitsothatamanonarisingeachmorningwasassailedbydemonswhichinstilledinhimapassionsometimesforsilkshirts, sometimesforkitchenware,sometimesforchamberpotsandsometimesfororangesquash,therewouldbeeveryreasontoapplaudthe

efforttofindthegoods,howeverodd,thatquenchedthisflame.But shoulditbethathispassionwastheresultofhisfirsthavingcultivatedthedemons,andshoulditalsobethathisefforttoallayit stirredthedemonstoevergreaterandgreatereffort,therewouldbe questionastohowrationalwashissolution.Unlessrestrainedby conventionalattitudes,hemightwonderifthesolutionlaywith more goods or fewer demons.

Soitisthatifproductioncreatesthewantsitseekstosatisfy,orif thewantsemerge paripassu withtheproduction,thentheurgency ofthewantscannolongerbeusedtodefendtheurgencyoftheproduction.Production only fills a void that it has itselfcreated.

Thepointissocentralthatitmustbepressed.Consumerwantscan havebizarre,frivolousorevenimmoralorigins,andanadmirable casecanstillbemadeforasocietythatseekstosatisfythem.Butthe casecannotstandifitistheprocessofsatisfyingwantsthatcreates thewants.Forthentheindividualwhourgestheimportanceofproductiontosatisfythesewantsispreciselyinthepositionoftheonlookerwhoapplaudstheeffortsofthesquirreltokeepabreastofthe wheel that is propelled by its own efforts.

Thatwantsare,infact,thefruitofproductionwillnowbedenied byfewseriousscholars.Andaconsiderablenumberofeconomists, thoughnotalwaysinfullknowledgeoftheimplications,haveconcededthepoint.LordKeynesonceobservedthatneedsof“thesecondclass,”i.e.,thosethataretheresultofeffortstokeepabreast oraheadofone’sfellowbeing,“mayindeedbeinsatiable;forthe higherthegenerallevel,thehigherstillarethey.”1 Andemulation hasalwaysplayedaconsiderableroleintheviewsofwantcreation ofothereconomists.Oneman’sconsumptionbecomeshisneighbor’swish.Thisalreadymeansthattheprocessbywhichwantsare satisfiedisalsotheprocessbywhichwantsarecreated.Themore wants that are satisfied,the more new ones are born. However,theargumenthasbeencarriedfarther.Aleadingmoderntheoristofconsumerbehavior,ProfessorJamesDuesenberry,

hasstatedexplicitlythat“oursisasocietyinwhichoneoftheprincipalsocialgoalsisahigherstandardofliving... [This]hasgreat significanceforthetheoryofconsumption...thedesiretogetsuperiorgoodstakesonalifeofitsown.Itprovidesadrivetohigher expenditurewhichmayevenbestrongerthanthatarisingoutofthe needswhicharesupposedtobesatisfiedbythatexpenditure.”2 The implicationsofthisviewareimpressive.Thenotionofindependentlyestablishedneednowsinksintothebackground.Becausethe societysetsgreatstorebyitsabilitytoproduceahighlivingstandard,itevaluatespeoplebytheproductstheypossess.Theurge toconsumeisfatheredbythevaluesystemwhichemphasizesthe abilityofthesocietytoproduce.Themorethatisproduced,the morethatmustbeownedinordertomaintaintheappropriate prestige.Thelatterisanimportantpoint,for,withoutgoingasfaras Duesenberryinreducinggoodstotheroleofsymbolsofprestigein theaffluentsociety,itisplainthathisargumentfullyimpliesthat theproductionofgoodscreatesthewantsthatthegoodsarepresumed to satisfy.3

Theevenmoredirectlinkbetweenproductionandwantsisprovidedbytheinstitutionsofmodernadvertisingandsalesmanship. Thesecannotbereconciledwiththenotionofindependentlydetermineddesires,fortheircentralfunctionistocreatedesires—to bringintobeingwantsthatpreviouslydidnotexist.4 Thisisaccomplishedbytheproducerofthegoodsorathisbehest.Abroadempiricalrelationshipexistsbetweenwhatisspentontheproduction ofconsumergoodsandwhatisspentinsynthesizingthedesiresfor thatproduction.Anewconsumerproductmustbeintroducedwith asuitableadvertisingcampaigntoarouseaninterestinit.Thepath foranexpansionofoutputmustbepavedbyasuitableexpansionin theadvertisingbudget.Outlaysforthemanufacturingofaproduct arenotmoreimportantinthestrategyofmodernbusinessenterprisethanoutlaysforthemanufacturingofdemandfortheproduct.Noneofthisisnovel.Allwouldberegardedaselementaryby

themostretardedstudentinthenation’smostprimitiveschoolof businessadministration.Thecostofthiswantformationisformidable.Asearlyas1987,totaladvertisingexpenditureintheUnited States—though,asnoted,notallofitmaybeassignedtothesynthesisofwants—amountedtoapproximatelyonehundredandten billiondollars.Theincreaseinpreviousyearswasbyanestimated sixbilliondollarsayear.Obviously,suchoutlaysmustbeintegrated withthetheoryofconsumerdemand.Theyaretoobigtobeignored.

Butsuchintegrationmeansrecognizingthatwantsaredependentonproduction.Itaccordstotheproducerthefunctionbothof makingthegoodsandofmakingthedesireforthem.Itrecognizes thatproduction,notonlypassivelythroughemulation,butactively throughadvertisingandrelatedactivities,createsthewantsitseeks to satisfy.

ThebusinessmanandthelayreaderwillbepuzzledovertheemphasiswhichIgivetoaseeminglyobviouspoint.Thepointisindeedobvious.Butitisonewhich,toasingulardegree,economists haveresisted.Theyhavesensed,asthelaymandoesnot,thedamage toestablishedideaswhichlurksintheserelationships.Asaresult, incredibly,theyhaveclosedtheireyes(andears)tothemostobtrusive ofall economic phenomena,namely,modern want creation.

Thisisnottosaythattheevidenceaffirmingthedependenceof wantsonadvertisinghasbeenentirelyignored.Itisonereasonwhy advertisinghassolongbeenregardedwithsuchuneasinessbyeconomists.Hereissomethingwhichcannotbeaccommodatedeasilyto existingtheory.Moreperviousscholarshavespeculatedontheurgencyofdesireswhicharesoobviouslythefruitofsuchexpensively contrivedcampaignsforpopularattention.Isanewbreakfastcereal ordetergentsomuchwantedifsomuchmustbespenttocompelin theconsumerthesenseofwant?Buttherehasbeenlittletendency togoontoexaminetheimplicationsofthisforthetheoryofconsumerdemandandevenlessfortheimportanceofproductionand productiveefficiency.Thesehaveremainedsacrosanct.Moreoften, theuneasinesshasbeenmanifestedinageneraldisapprovalofadvertisingandadvertisingmen,leadingtotheoccasionalsuggestion

thattheyshouldn’texist.Suchsuggestionshaveusuallybeenillreceived in the advertising business.

Andsothenotionofindependentlydeterminedwantsstillsurvives.Inthefaceofalltheforcesofmodernsalesmanship,itstill rules,almostundefiled,inthetextbooks.Anditstillremainsthe economist’smission—andonfewmattersisthepedagogysofirm —toseekthemeansforfillingthesewants.Thisbeingso,productionremainsofprimeurgency.Wehavehere,perhaps,theultimate triumphoftheconventionalwisdominitsresistancetotheevidenceoftheeyes.Toequalit,onemustimagineahumanitarian whowaslongagopersuadedofthegrievousshortageofhospitalfacilitiesinthetown.Hecontinuestoimportunethepassersbyfor moneyformorebedsandrefusestonoticethatthetowndoctoris deftlyknockingoverpedestrianswithhiscartokeepuptheoccupancy.

Inunravelingthecomplex,weshouldalwaysbecarefulnotto overlooktheobvious.Thefactthatwantscanbesynthesizedbyadvertising,catalyzedbysalesmanshipandshapedbythediscreetmanipulationsofthepersuadersshowsthattheyarenotveryurgent.A manwhoishungryneedneverbetoldofhisneedforfood.Ifheis inspiredbyhisappetite,heisimmunetotheinfluenceoftheadvertisingagency.Thelatteriseffectiveonlywiththosewhoaresofar removedfromphysicalwantthattheydonotalreadyknowwhat they want.Only in this state are men open to persuasion.

Thegeneralconclusionofthesepagesisofsuchimportancethatit hadperhapsbestbeputwithsomeformality.Asasocietybecomes increasinglyaffluent,wantsareincreasinglycreatedbytheprocess bywhichtheyaresatisfied.Thismayoperatepassively.Increases inconsumption,thecounterpartofincreasesinproduction,act bysuggestionoremulationtocreatewants.Expectationriseswith attainment.Orproducersmayproceedactivelytocreatewants throughadvertisingandsalesmanship.Wantsthuscometodepend onoutput.Intechnicalterms,itcannolongerbeassumedthatwel-

fareisgreateratanall-roundhigherlevelofproductionthanata lowerone.Itmaybethesame.Thehigherlevelofproductionhas, merely,ahigherlevelofwantcreationnecessitatingahigherlevelof wantsatisfaction.Therewillbefrequentoccasiontorefertotheway wantsdependontheprocessbywhichtheyaresatisfied.Itwillbe convenient to call it the Dependence Effect.

Wemaynowcontemplatebrieflytheconclusionstowhichthis analysis has brought us.

Plainly,thetheoryofconsumerdemandisapeculiarlytreacherousfriendofthepresentgoalsofeconomics.Atfirstglance,itseems todefendthecontinuingurgencyofproductionandourpreoccupationwithitasagoal.Theeconomistdoesnotenterintothedubiousmoralargumentsabouttheimportanceorvirtueofthewants tobesatisfied.Hedoesn’tpretendtocomparementalstatesofthe sameordifferentpeopleatdifferenttimesandtosuggestthatoneis lessurgentthananother.Thedesireisthere.Thatforhimissufficient.Hesetsaboutinaworkmanlikewaytosatisfydesire,andaccordingly,hesetstheproperstorebytheproductionthatdoes.Like woman’s,his work is never done.

Butthisrationalization,handsomelythoughitseemstoserve, turnsdestructivelyonthosewhoadvanceitonceitisconcededthat wantsarethemselvesbothpassivelyanddeliberatelythefruitsofthe processbywhichtheyaresatisfied.Thentheproductionofgoods satisfiesthewantsthattheconsumptionofthesegoodscreatesor thattheproducersofgoodssynthesize.Productioninducesmore wantsandtheneedformoreproduction.Sofar,inamajortourde force,theimplicationshavebeenignored.Butthisobviouslyisa perilous solution.It cannot long survive discussion.

Amongthemanymodelsofthegoodsociety,noonehasurged thesquirrelwheel.Moreover,thewheelisnotonethatrevolveswith perfectsmoothness.Asidefromitsdubiousculturalcharm,there areseriousstructuralweaknesseswhichmayonedayembarrassus. Forthemoment,however,itissufficienttoreflectonthedifficult terrainwearetraversing.Notthegoodsbuttheemploymentprovidedbytheirproductionissomethingbywhichwesetmajorstore. Nowwefindourconcernforgoodsfurtherundermined.Itdoesnot

ariseinspontaneousconsumerneed.Rather,thedependenceeffect meansthatitgrowsoutoftheprocessofproductionitself.Ifproductionistoincrease,thewantsmustbeeffectivelycontrived.Inthe absenceofthecontrivance,theincreasewouldnotoccur.Thisisnot trueofallgoods,butthatitistrueofasubstantialpartissufficient. Itmeansthatsincethedemandforthispartwouldnotexistwereit notcontrived,itsutilityorurgency, ex contrivance,iszero.Ifweregardthisproductionasmarginal,wemaysaythatthemarginalutilityofpresentaggregateoutput, ex advertisingandsalesmanship,is zero.Clearlytheattitudesandvalueswhichmakeproductionthe centralachievementofoursocietyhavesomeexceptionallytwisted roots.

Perhapsthethingmostevidentofallishownewandvariedbecometheproblemswemustponderwhenwebreakthenexuswith theworkofRicardoandfacetheeconomicsofaffluenceofthe worldinwhichwelive.Itiseasytoseewhytheconventionalwisdomresistssostoutlysuchchange.Itisfar,farbetterandmuchsafer tohaveafirmanchorinnonsensethantoputoutonthetroubled seas ofthought.

notes

1.J.M.Keynes,“EconomicPossibilitiesforOurGrandchildren,” Essaysin Persuasion (London:Macmillan,1931),p. 365.

2.JamesS.Duesenberry, Income,SavingandtheTheoryofConsumerBehavior (Cambridge,Mass.:Harvard University Press,1949),p. 28.

3.Amorerecentanddefinitivestudyofconsumerdemandhasadded evenmoresupport.ProfessorsHouthakkerandTaylor,inastatistical studyofthedeterminantsofdemand,foundthatformostproducts priceandincome,theaccepteddeterminants,werelessimportantthan pastconsumptionoftheproduct.This“psychologicalstock,”asthey calledit,concedestheweaknessoftraditionaltheory;currentdemand cannotbeexplainedwithoutrecoursetopastconsumption.Suchdemandnurturestheneedforitsownincrease.H.S.Houthakkerand L.D.Taylor, ConsumerDemandintheUnitedStates, 2nded.,enlarged (Cambridge,Mass.:Harvard University Press,1970).

4.Advertisingisnotasimplephenomenon.Itisalsoimportantincompetitivestrategy,andwantcreationis,ordinarily,acomplementaryre-

sultofeffortstoshiftthedemandcurveoftheindividualfirmatthe expenseofothersor(lessimportantly,Ithink)tochangeitsshapeby increasingthedegreeofproductdifferentiation.Someofthefailureof economiststoidentifyadvertisingwithwantcreationmaybeattributedtotheundueattentionthatitsuseinpurelycompetitivestrategy hasattracted.Itshouldbenoted,however,thatthecompetitivemanipulationofconsumerdesireisonlypossible,atleastonanyappreciable scale,when such need is not strongly felt.

The Case for Social Balance

[ from The Affluent Society]

Whenthiswasfirstpublishedin TheAffluentSociety, Icalledit“The TheoryofSocialBalance”andthereafter,inslightlystrongerterms, “TheNatureofSocialBalance.”ThesubjectisonewithwhichIhave beencloselyassociatedovertheyears:thecontrastbetweenourwonderfulaffluenceinprivategoodsandthepoverty-riddencharacterof muchofourpubliceconomy.Ilatermadereferencetoonemore-thanadequateadditiontopublicexpenditure:thatfordefense.This,none shoulddoubt,isalsotheresultofthesuperiorpowerofprivateindustry,thegreatweaponsproducersinparticular.Theyhavejoinedwith thePentagontotakeoverthispartofthebudget,andwiththeacquiescenceorpositivesupportofboththemajorpoliticalparties.Theprivate economy here clearly dominates public expenditure.

Thischapterfollowsinallmajordetailitsfirstpresentation,andthe material,inturn,hashadaprominentpartinmyspeechandwriting eversince.Whensocialbalanceisextendedtoembracenuclearweaponry,Iregardtheproblemitposesasperhapsthemosturgentofour time.

Myargumenthasnotbeenwithouteffect.WhenIhadfinished writingthebook,Iwasingravedoubtaboutusingthedescriptionof thecaranditsoccupantsastheytraveloutthroughthestreetsofthe citytothesurroundingcountrysideandruralparkandseeindramaticformthedifferencebetweenthepublicandtheprivateestates.I thoughtthispassagemightmakemypointtoodramaticallyortooblatantly.Intheend,Iincludedit,anditwas,byawidemargin,themost

quotedpartofthechapterandperhaps,indeed,ofthewhole Affluent Society. Asanengagingconsequence,IwasappointedtoasmallgovernmentalcommissionontheproblemoftheroadsidesinVermont,a statewhereourfamilyhaslivedmanyofoursummers.Withlittledisagreement,thecommissionurgedthattheroadsbeprotected,including,amongotherthings,abolishingbillboardsoutsidethecities.The resulthasbeenasubstantialimprovementofthecountrysideanda considerableencouragementtotourism;peoplenowmotortoVermont toseetheunobstructedmeadows,forestsandmountains.Environmentalcontrolcanactuallybegoodforbusiness,somethingIdidnotoriginally suspect.

Itisnottillitisdiscoveredthathighindividualincomeswill notpurchasethemassofmankindimmunityfromcholera, typhus,andignorance,stilllesssecurethemthepositiveadvantagesofeducationalopportunityandeconomicsecurity, thatslowlyandreluctantly,amidpropheciesofmoraldegenerationandeconomicdisaster,societybeginstomakecollectiveprovisionforneedsnoordinaryindividual,evenifhe works overtime all his life,can provide himself.

Acentralproblem oftheproductivesocietyiswhatit produces.Thismanifestsitselfinanimplacabletendencyto provideanopulentsupplyofsomethingsandaniggardly yieldofothers.Thisdisparitycarriestothepointwhereitisacause ofsocialdiscomfortandsocialunhealth.Thelinewhichdividesthe areaofwealthfromtheareaofpovertyisroughlythatwhichdivides privatelyproducedandmarketedgoodsandservicesfrompublicly renderedservices.Ourwealthintheformerisnotonlyinstartling contrastwiththemeagernessofthelatter,butourwealthinprivatelyproducedgoodsis,toamarkeddegree,thecauseofcrisisin thesupplyofpublicservices.Forwehavefailedtoseetheimpor -

tance,indeedtheurgentneed,ofmaintainingabalancebetween the two.

Thisdisparitybetweenourprivateandpublicgoodsandservices (expendituresfordefenseandafewotherfavoreditemsapart)isno matterofsubjectivejudgment.Onthecontrary,itisthesourceof themostextensivecomment,whichonlystopsshortofthedirect contrastbeingmadehere.Inrecentyears,thenewspapersofany majorcity—thoseofNewYorkareanexcellentexample—have tolddailyoftheshortagesandshortcomingsintheelementarymunicipalandmetropolitanservices.Schoolsareoldandovercrowded. Thepoliceforceisinadequate.Theparksandplaygroundsareinsufficient.Streetsandemptylotsarefilthy,andthesanitationdepartmentisunderequippedandinneedofstaff.Accesstothecityby thosewhoworkthereisuncertainandpainfulandbecomingmore so.Internaltransportationisovercrowded,unhealthfulanddirty. Soistheair.Parkingonthestreetsshouldbeprohibited,butthereis nospaceelsewhere.Thesedeficienciesarenotinnewandnovelservicesbutinoldandestablishedones.Citieshavelongswepttheir streets,helpedtheirpeoplemovearound,educatedthem,keptorder andprovidedhorserailsforequipageswhichsoughttopause.That theirresidentsshouldhaveanontoxicsupplyofairsuggestsnorevolutionary dalliance with socialism.

Inmostofthelastmanyyears,thediscussionofthispublicpovertywasmatchedbythestoriesofever-increasingopulenceinprivatelyproducedgoods.TheGrossDomesticProductwasrising.So wereretailsales.Sowaspersonalincome.Laborproductivityalso advanced.Theautomobilesthatcouldnotbeparkedwerebeing producedatanexpandedrate.Thechildren,thoughsubjectinthe playgroundstotheaffectionateinterestofadultswithoddtastes anddisposedtoincreasinglyimaginativeformsofdelinquency, wereadmirablyequippedwithtelevisionsets.Thecareandrefreshmentofthemindwasprincipallyinthepublicdomain.Schools,in consequence,wereoftenseverelyovercrowdedandusuallyunderprovided,andthesamewasevenmoreoftentrueofthemental hospitals.

Thecontrastwasandremainsevidentnotalonetothosewho read.Thefamilywhichtakesitsmauveandcerise,air-conditioned, power-steeredandpower-brakedautomobileoutforatourpasses throughcitiesthatarebadlypaved,madehideousbylitter,blighted buildings,billboardsandpostsforwiresthatshouldlongsincehave beenputunderground.Theypassonintoacountrysidethathas beenrenderedlargelyinvisiblebycommercialart.(Thegoods whichthelatteradvertisehaveanabsolutepriorityinourvaluesystem.Suchaestheticconsiderationsasaviewofthecountrysideaccordinglycomesecond.Onsuchmatters,weareconsistent.)They picniconexquisitelypackagedfoodfromaportableiceboxbyapollutedstreamandgoontospendthenightataparkwhichisamenacetopublichealthandmorals.Justbeforedozingoffonanair mattress,beneathanylontent,amidthestenchofdecayingrefuse, theymayreflectvaguelyonthecuriousunevennessoftheirblessings.Is this,indeed,the American genius?

Intheproductionofgoodswithintheprivateeconomy,ithas longbeenrecognizedthatatolerablycloserelationshipmustbe maintainedbetweentheproductionofvariouskindsofproducts. Theoutputofsteelandoilandmachinetoolsisrelatedtotheproductionofautomobiles.Investmentintransportationmustkeep abreastoftheoutputofgoodstobetransported.Thesupplyof powermustbeabreastofthegrowthofindustriesrequiringit.The existenceoftheserelationships—coefficientstotheeconomist— hasmadepossibletheconstructionoftheinput-outputtablewhich showshowchangesintheproductioninoneindustrywillincrease ordiminishthedemandsonotherindustries.Tothistable,and moreespeciallytoitsingeniousauthor,ProfessorWassilyLeontief, theworldisindebtedforoneofitsmostimportantmoderninsights intoeconomicrelationships.Ifexpansioninonepartoftheeconomywerenotmatchedbytherequisiteexpansioninotherparts— weretheneedforbalancenotrespected—thenbottlenecksand

shortages,speculativehoardingofscarcesuppliesandsharplyincreasingcostswouldensue.Fortunatelyinpeacetimethemarket system,combinedwithconsiderableplanning,servestomaintain thisbalance,andthis,togetherwiththeexistenceofstocksand someflexibilityinthecoefficientsasaresultofsubstitution,ensures thatnoseriousdifficultieswillarise.Weareremindedoftheproblemonlybynoticinghowseriousitwasforthosecountrieswhich sought to solve it by a more inflexible planning.

Justastheremustbebalanceinwhatacommunityproduces,so theremustalsobebalanceinwhatthecommunityconsumes.An increaseintheuseofoneproductcreates,ineluctably,arequirementforothers.Ifwearetoconsumemoreautomobiles,wemust havemoregasoline.Theremustbemoreinsuranceaswellasmore spaceinwhichtooperatethem.Beyondacertainpoint,moreand betterfoodappearstomeanincreasedneedformedicalservices. Thisisthecertainresultofincreasedconsumptionoftobaccoand alcohol.Morevacationsrequiremorehotelsandmorefishingrods. And so forth.

However,therelationshipsweareherediscussingarenotconfinedtotheprivateeconomy.Theyoperatecomprehensivelyover thewholespanofprivateandpublicservices.Assurelyasanincreaseintheoutputofautomobilesputsnewdemandsonthesteel industryso,also,itplacesnewdemandsonpublicservices.Similarly,everyincreaseintheconsumptionofprivategoodswillnormallymeansomefacilitatingorprotectivestepbythestate.Inall casesiftheseservicesarenotforthcoming,theconsequenceswillbe insomedegreeill.Itwillbeconvenienttohaveatermwhichsuggestsasatisfactoryrelationshipbetweenthesupplyofprivatelyproducedgoodsandservicesandthoseofthestate,andwemaycallit Social Balance.

Theproblemofsocialbalanceisubiquitous,andfrequentlyitis obtrusive.Asnoted,anincreaseintheconsumptionofautomobiles requiresafacilitatingsupplyofstreets,highways,trafficcontroland parkingspace.Theprotectiveservicesofthepoliceandthehighway patrolsmustalsobeavailable,asmustthoseofthehospitals.Althoughtheneedforbalancehereisextraordinarilyclear,ouruseof

privatelyproducedvehicleshas,onoccasion,gotfaroutoflinewith thesupplyoftherelatedpublicservices.Theresulthasbeenhideous roadcongestion,ahumanmassacreofimpressiveproportionsand chronicurbancolitis.Asontheground,soalsointheair.Planesare delayedorcollideoverairportswithdisquietingconsequencesfor passengerswhenthepublicprovisionforairtrafficcontrolfailsto keep pace with the private use ofthe airways.

Buttheautoandtheairplane,versusthespacetousethem,are merelyanexceptionallyvisibleexampleofarequirementthatis pervasive.Themoregoodspeopleprocure,themorepackagesthey discardandthemoretrashthatmustbecarriedaway.Iftheappropriatesanitationservicesarenotprovided,thecounterpartofincreasingopulencewillbedeepeningfilth.Thegreaterthewealth, thethickerwillbethedirt.Thisindubitablydescribesatendencyof ourtime.Asmoregoodsareproducedandowned,thegreaterare theopportunitiesforfraudandthemorepropertythatmustbe protected.Iftheprovisionofpubliclawenforcementservicesdoes notkeeppace,thecounterpartofincreasedwell-beingwill,wemay be certain,be increased crime.

ThecityofLosAngelesinmoderntimeswasthenear-classic studyintheproblemofsocialbalance.Magnificentlyefficientfactoriesandoilrefineries,alavishsupplyofautomobiles,avastconsumptionofhandsomelypackagedproducts,coupledformany yearswiththeabsenceofamunicipaltrashcollectionservicewhich forcedtheuseofhomeincinerators,madetheairnearlyunbreathableforanappreciablepartofeachyear.Airpollutioncouldbecontrolledonlybyacomplexandhighlydevelopedsetofpublicservices—bybetterknowledgeofcausesstemmingfrommorepublic research,publicrequirementofpollutioncontroldevicesoncars,a municipaltrashcollectionserviceandpossiblytheassertionofthe priorityofcleanairovertheproductionofgoods.Thesewerelong in coming.The agony ofa city without usable air was the result. Theissueofsocialbalancecanbeidentifiedinmanyothercurrentproblems.Thusanaspectofincreasingprivateproductionis theappearanceofanextraordinarynumberofthingswhichlay claimtotheinterestoftheyoung.Motionpictures,television,auto-

mobilesandthevastopportunitieswhichgowiththemobilitythey provide,togetherwithsuchlessenchantingmerchandiseasnarcotics,comicbooksandpornographia,areallincludedinanadvancing GrossDomesticProduct.Thechildofalessopulentaswellasa technologicallymoreprimitiveagehadfarfewersuchdiversions. Theredschoolhouseisrememberedmainlybecauseithadaparamountpositioninthelivesofthosewhoattendeditthatnomodern school can hope to attain.

Inawell-runandwell-regulatedcommunity,withasoundschool system,goodrecreationalopportunitiesandagoodpoliceforce— inshort,acommunitywherepublicserviceshavekeptpacewith privateproduction—thediversionaryforcesoperatingonthemodernjuvenilemaydonogreatdamage.Televisionandtheviolent moresofHollywoodmustcontendwiththeintellectualdiscipline oftheschool.Thesocial,athletic,dramaticandlikeattractionsof theschoolalsoclaimtheattentionofthechild.These,togetherwith theotherrecreationalopportunitiesofthecommunity,minimize thetendencytodelinquency.Experimentswithviolenceandimmoralityarecheckedbyaneffectivelawenforcementsystembefore they become epidemic.

Inacommunitywherepublicserviceshavefailedtokeepabreast ofprivateconsumption,thingsareverydifferent.Here,inanatmosphereofprivateopulenceandpublicsqualor,theprivategoods havefullsway.Schoolsdonotcompetewithtelevisionandthemovies.Thedubiousheroesofthelatter,notMs.Jones,becometheidols oftheyoung.Violencereplacesthemoresedentaryrecreationfor whichthereareinadequatefacilitiesorprovision.Comicbooks,alcohol,drugsandswitchbladeknivesare,asnoted,partoftheincreasedflowofgoods,andthereisnothingtodisputetheirenjoyment.Thereisanamplesupplyofprivatewealthtobeappropriated andnotmuchtobefearedfromthepolice.Anausterecommunity isfreefromtemptation.Itcanalsobeaustereinitspublicservices. Not so a rich one.

Moreover,inasocietywhichsetslargestorebyproduction,and whichhashighlyeffectivemachineryforsynthesizingprivatewants,

therearestrongpressurestohaveasmanywageearnersinthefamilyaspossible.Asalways,allsocialbehaviorisofapiece.Ifbothparentsareengagedinprivateproduction,theburdenonthepublic servicesisfurtherincreased.Children,ineffect,becomethecharge ofthecommunityforanappreciablepartofthetime.Iftheservices ofthecommunitydonotkeeppace,thiswillbeanothersourceof disorder.

Residentialhousingalsoillustratestheproblemofthesocialbalance,althoughinasomewhatcomplexform.Fewwouldwishto contendthat,intheloweroreventhemiddleincomebrackets, Americansaremunificentlysuppliedwithhousing.Agreatmany familieswouldlikebetterlocatedormerelymorehouseroom,and noadvertisingisnecessarytopersuadethemoftheirwish.Andthe provisionofhousingisintheprivatedomain.Atfirstglanceatleast, thelinewedrawbetweenprivateandpublicseemsnottobepreventing a satisfactory allocation ofresources to housing.

Oncloserexamination,however,theproblemturnsouttobenot greatlydifferentfromthatofeducation.Itisimprobablethatthe housingindustryissignificantlymoreincompetentorinefficientin theUnitedStatesthaninthosecountries—Scandinavia,Hollandor (forthemostpart)England—whereslumshavebeenlargelyeliminatedandwhere minimum standardsofcleanlinessandcomfortare wellaboveourown.Astheexperienceofthesecountriesshows,and aswehavealsobeenlearning,thehousingindustryfunctionswell onlyincombinationwithalarge,complexandcostlyarrayofpublic services.Theseincludelandpurchaseandclearanceforredevelopment;goodneighborhoodandcityplanningandeffectiveandwellenforcedzoning;avarietyoffinancingandotheraidstothehousebuilderandowner;publiclysupportedresearchandarchitectural servicesforanindustrywhich,byitsnature,isequippedtodolittle onitsown;andaconsiderableamountofdirectorassistedpublic constructionandgoodmaintenanceforfamiliesinthelowestincomebrackets.Thequalityofthehousingdependsnotontheindustry,whichisgiven,butonwhatisinvestedinthesesupplements and supports.2

Thecaseforsocialbalancehas,sofar,beenputnegatively.Failureto keeppublicservicesinminimalrelationtoprivateproductionand useofgoodsisacauseofsocialdisorderorimpairseconomicperformance.Themattermaynowbeputaffirmatively.Byfailingto exploittheopportunitytoexpandpublicproduction,wearemissingopportunitiesforenjoymentwhichotherwisewemighthave. Presumablyacommunitycanbeaswellrewardedbybuyingbetter schoolsorbetterparksasbybuyingmoreexpensiveautomobiles. Byconcentratingonthelatterratherthantheformer,itisfailingto maximizeitssatisfactions.Aswithschoolsinthecommunity,so withpublicservicesoverthecountryatlarge.Itisscarcelysensible thatweshouldsatisfyourwantsinprivategoodswithreckless abundance,whileinthecaseofpublicgoods,ontheevidenceofthe eye,wepracticeextremeself-denial.Sofarfromsystematicallyexploitingtheopportunitiestoderiveuseandpleasurefromtheseservices,we do not supply what would keep us out oftrouble.

Theconventionalwisdomholdsthatthecommunity,largeor small,makesadecisionastohowmuchitwilldevotetoitspublic services.Thisdecisionisarrivedatbydemocraticprocess.Subject totheimperfectionsanduncertaintiesofdemocracy,peopledecide howmuchoftheirprivateincomeandgoodstheywillsurrenderin ordertohavepublicservicesofwhichtheyareingreaterneed.Thus thereisabalance,howeverrough,intheenjoymentstobehadfrom private goods and services and those rendered by public authority. Itwillbeobvious,however,thatthisviewdependsonthenotion ofindependentlydeterminedconsumerwants.Insuchaworld, onecouldwithsomereasondefendthedoctrinethattheconsumer, asavoter,makesanindependentchoicebetweenpublicandprivategoods.Butgiventhedependenceeffect—giventhatconsumer wantsarecreatedbytheprocessbywhichtheyaresatisfied—the consumermakesnosuchchoice.Heorsheissubjecttotheforcesof advertisingandemulationbywhichproductioncreatesitsowndemand.Advertisingoperatesexclusively,andemulationmainly,on behalfofprivatelyproducedgoodsandservices.3 Sincemanage-

mentofdemandandemulativeeffectsoperateonbehalfofprivate production,publicserviceswillhaveaninherenttendencytolagbehind.Automobiledemand,whichisexpensivelysynthesized,will inevitablyhaveamuchlargerclaimonincomethanparksorpublic healthorevenroads,wherenosuchinfluenceoperates.Theengines ofmasscommunication,intheirhigheststateofdevelopment,assailtheeyesandearsofthecommunityonbehalfofmorebeverages butnotofmoreschools.Evenintheconventionalwisdomitwill scarcelybecontendedthatthisleadstoanequalchoicebetween the two.

Thecompetitionisespeciallyunequalfornewproductsandservices.Everycornerofthepublicpsycheiscanvassedbysomeofthe nation’smosttalentedcitizenstoseeifthedesireforsomemerchantableproductcanbecultivated.Nosimilarprocessoperateson behalfofthenonmerchantableservicesofthestate.Indeed,while wetakethecultivationofnewprivatewantsforgranted,wewould bemeasurablyshockedtoseesuchcultivationappliedtopublicservices.Thescientistorengineeroradvertisingmanwhodevotes himselftodevelopinganewcarburetor,cleanserordepilatoryfor whichthepublicrecognizesnoneedandwillfeelnoneuntilanadvertisingcampaignarousesit,isoneofthevaluedmembersofour society.Apoliticianorapublicservantwhoseesneedforanew publicservicemaybecalledawastrel.Fewpublicoffensesaremore reprehensible.

Somuchfortheinfluencesthatoperateonthedecisionbetween publicandprivateproduction.Thecalmdecisionbetweenpublic andprivateconsumptionpicturedbytheconventionalwisdomis, infact,aremarkableexampleoftheerrorwhicharisesfromviewing socialbehavioroutofcontext.Theinherenttendencywillalwaysbe forpublicservicestofallbehindprivateproduction.Wehavehere the first ofthe causes ofsocial imbalance. iv

Socialbalanceisalsothevictimoftwofurtherfeaturesofoursociety—thetruceoninequalityandthetendencytoinflation.Since

thesearenowpartofourcontext,theireffectcomesquicklyinto view.

Withrareexceptionssuchasthepostalservice,publicservicesdo notcarryapricetickettobepaidforbytheindividualuser.Bytheir nature,theymust,ordinarily,beavailabletoall.Asaresult,when theyareimprovedornewservicesareinitiated,thereistheancient andtroublesomequestionofwhoistopay.This,inturn,provokes tolifethecollateralbutirrelevantdebateoverinequality.Aswiththe useoftaxationasaninstrumentoffiscalpolicy,thetruceoninequalityisbroken.Liberalsareobligedtoarguethattheservicesbe paidforbyprogressivetaxationwhichwillreduceinequality.Committedastheyaretotheurgencyofgoods(andalsotoasomewhat mechanicalviewofthewayinwhichthelevelofoutputcanbekept mostsecure),theymustopposesalesandexcisetaxes.Conservativesrallytothedefenseofinequality—althoughwithouteverquite committingthemselvesinsuchuncouthterms—andopposethe useofincometaxes.They,ineffect,opposetheexpenditurenoton themeritsoftheservicebutonthedemeritsofthetaxsystem.Since thedebateoverinequalitycannotberesolved,themoneyisfrequentlynotappropriatedandtheservicenotperformed.Itisacasualtyoftheeconomicgoalsofbothliberalsandconservatives,for bothofwhomthequestionsofsocialbalancearesubordinateto those ofproduction and,when it is evoked,ofinequality.

Inpractice,mattersarebetteraswellasworsethanthisdescriptionofthebasicforcessuggests.Giventhetaxstructure,therevenuesofalllevelsofgovernmentgrowwiththegrowthoftheeconomy.Servicescanbemaintainedandsometimesevenimprovedout ofthis automatic accretion.

However,thiseffectishighlyunequal.Therevenuesofthefederal government,becauseofitsheavyrelianceonprogressiveincome taxes,increasemorethanproportionatelywithprivateeconomic growth.Inaddition,althoughtheconventionalwisdomgreatlydeploresthefact,federalappropriationshaveonlyanindirectbearing ontaxation.Publicservicesareconsideredandvotedoninaccordancewiththeirseemingurgency.Initiationorimprovementofa

particularserviceisrarely,exceptforpurposesoforatory,setagainst thespecificeffectontaxes.Taxpolicy,inturn,isdecidedonthebasisofthelevelofeconomicactivity,theresultingrevenues,expediencyandotherconsiderations.Amongthese,thetotalofthethousandsofindividuallyconsideredappropriationsisbutonefactor.In thisprocess,theultimatetaxconsequenceofanyindividualappropriationis deminimus, andthetendencytoignoreitreflectsthe simplemathematicsofthesituation.ThusitispossiblefortheCongresstomakedecisionsaffectingthesocialbalancewithoutinvoking the question ofinequality.

Thingsaremadeworse,however,bythefactthatalargeproportionofthefederalrevenuesarepre-emptedbydefense.Theincrease indefensecostshasalsotendedtoabsorbalargeshareofthenormalincreaseintaxrevenues.Thepositionofthefederalgovernmentinimprovingthesocialbalancehasalsobeenweakenedsince WorldWarIIbythestrong,althoughreceding,convictionthatits taxesareatartificiallevelsandthatatacitcommitmentexiststoreduce taxes at the earliest opportunity.

Inthestatesandlocalities,theproblemofsocialbalanceismuch moresevere.Heretaxrevenues—thisisespeciallytrueofthegeneralpropertytax—increaselessthanproportionatelywithincreasedprivateproduction.Budgetingtooisfarmorecloselycircumscribedthaninthecaseofthefederalgovernment—onlythe monetaryauthorityenjoysthepleasantprivilegeofunderwritingits ownloans.Becauseofthis,increasedservicesforstatesandlocalitiesregularlyposethequestionofmorerevenuesandmoretaxes. Andhere,withgreatregularity,thequestionofsocialbalanceislost in the debate over equality and social equity.

Thuswecurrentlyfindbyfarthemostserioussocialimbalance intheservicesperformedbylocalgovernments.TheF.B.I.comes muchmoreeasilybyfundsthanthecitypoliceforce.TheDepartmentofAgriculturecanmoreeasilykeepitspestcontrolabreastof expandingagriculturaloutputthantheaveragecityhealthservice cankeepupwiththeneedsofanexpandingindustrialpopulation. Oneconsequenceisthatthefederalgovernmentremainsunder

constantandhighlydesirablepressuretouseitssuperiorrevenue positiontohelpredressthebalanceatthelowerlevelsofgovernment.

Finally,socialimbalanceisthenaturaloffspringofinflation.Inthe past,inflationhadtwomajoreffectsonpublicservices.Wagesinthe publicservicetendedtolagwellbehindthoseinprivateindustry. Therewasthusanincentivetodesertpublicforprivateemployment.Moreimportant,intheUnitedStatesthemosturgentproblemsofsocialbalanceinvolvetheservicesofstatesandlocalities and,mostofall,thoseofthelargercities.Increasingpopulation,increasingurbanizationandincreasingaffluenceallintensifythepublictasksofthemetropolis.Meanwhiletherevenuesoftheseunitsof government,incontrastwiththoseofthefederalgovernment,are relativelyinelastic.Inconsequenceoftheheavydependenceonthe propertytax,therevenuesoftheseunitsofgovernmentlagbehind whenpricesrise.Theproblemoffinancingservicesthusbecomes increasingly acute as and when inflation continues.

Inveryrecenttimesinthelargercities,strongerunionorganizationamongmunicipalemployeeshasarrestedandinsomecommunitiesreversedthetendencyforwagesofpublicworkerstolag.So thecompetitivepositionofthepublicservicesdoesnotautomaticallybecomeadversewithinflation.Buttheinelasticityoftherevenuesremains.Andwithhighlaborcosts,theconstraintsonservices —cuts,onoccasion,insteadofurgentexpansion—havebecome more severe. vi

AfeatureoftheyearsimmediatelyfollowingWorldWarIIwasaremarkableattackonthenotionofexpandingandimprovingpublic services.Duringthedepressionyears,suchserviceshadbeenelaboratedandimprovedpartlyinordertofillsomesmallpartofthevacuumleftbytheshrinkageofprivateproduction.Duringthewar

years,theroleofgovernmentwasvastlyexpanded.Afterthatcame thereaction.Muchofit,unquestionably,wasmotivatedbyadesire torehabilitatetheprestigeofprivateproductionandtherewithof producers.Nodoubtsomewhojoinedtheattackhoped,atleasttacitly,thatitmightbepossibletosidestepthetruceontaxationvis-àvisequalitybyhavinglesstaxationofallkinds.Foratime,thenotionthatourpublicserviceshadsomehowbecomeinflatedandexcessivewasallbutaxiomatic.Evenliberalpoliticiansdidnotseriouslyprotest.Theyfounditnecessarytoaverthattheywereinfavor ofrigid economy in public spending too.

Inthisdiscussion,acertainmystiquewasattributedtothesatisfactionofprivatelysuppliedwants.Acommunitydecisiontohave anewschoolmeansthattheindividualsurrendersthenecessary amount,willy-nilly,inhistaxes.Butifheisleftwiththatincome,he isafreeman.Hecandecidebetweenabettercaroratelevisionset. Thedifficultyisthatthisargumentleavesthecommunitywithno wayofpreferringtheschool.Allprivatewants,wheretheindividual canchoose,arethoughtinherentlysuperiortoallpublicdesires whichmustbepaidforbytaxationandwithaninevitablecomponent ofcompulsion.

Thecostofpublicserviceswasalsoheldtobeadesolatingburden onprivateproduction,althoughthiswasatatimewhenprivate productionwasburgeoning.Urgentwarningswereissuedofthe unfavorableeffectsoftaxationoninvestment—“Idon’tknowofa surerwayofkillingofftheincentivetoinvestthanbyimposing taxeswhichareregardedbypeopleaspunitive.”4 Thiswasatatime whentheinflationaryeffectofaveryhighlevelofprivateinvestmentwascausingconcern.Thesameindividualswhowerewarning abouttheinimicaleffectsoftaxeswerestronglyadvocatingamonetarypolicydesignedtoreduceinvestment.However,anunderstandingofoureconomicdiscourserequiresanappreciationofoneof itsbasicrules:menofhighpositionareallowed,byaspecialactof grace,toaccommodatetheirreasoningtotheanswertheyneed. Logic is only required in those oflesser rank. Finally,itwasarguedwithnolittlevigorthatexpandinggovernmentposedagravethreattoindividualliberties.“Wheredistinction

andrankisachievedalmostexclusivelybybecomingacivilservant ofthestate...itistoomuchtoexpect thatmanywilllongprefer freedom to security.”5

Withtime,thedisorderassociatedwithsocialimbalancehasbecomevisibleeveniftheneedforbalancebetweenprivateandpublic servicesisstillimperfectlyappreciated.Theonslaughtonthepublic serviceshasleftalastingimprint.Tosuggestthatwecanvassour publicwantstoseewherehappinesscanbeimprovedbymoreand betterserviceshasasharplyradicaltone.Evenpublicservicesthat preventdisorderneedtobedefended.Bycontrast,themanwhodevisesanostrumforanonexistentprivateneedandthensuccessfully promotes both remains one ofnature’s noblemen.

notes

1. Equality, 4th ed.,rev.(London:Allen & Unwin,1952),pp. 134–135.

2.In EconomicsandthePublicPurpose (Boston:HoughtonMifflin,1973), Ihaverelatedtheperformanceofpublicfunctionsmuchmoreclosely tothepowerofthepartoftheprivatesectorbeingserved.Thusthe comparativelyamplesupplyofhighways,themorethanamplesupply ofweaponsandthepoorsupplyofmunicipalservicesandpublic health care.

3.Emulationdoesoperatebetweencommunities.Anewschoolinone communitydoesexertpressureonotherstoremainabreast.However, ascomparedwiththepervasiveeffectsofemulationinextendingthe demandforprivatelyproducedconsumers’goods, therewillbeagreement,I think,that this intercommunity effect is probably small.

4.ArthurF.Burns,ChairmanofthePresident’sCouncilofEconomicAdvisers, U.S.News and World Report, May 6,1955.

5.F.A.vonHayek, TheRoadtoSerfdom (London:GeorgeRoutledge& Sons,1944),p. 98.