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A Post Keynesian Approach to Consumer Choice Author(S): Marc Lavoie Reviewed Work(S): Source: Journal of Post Keynesian Economics, Vol

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A Post Keynesian Approach to Consumer Choice Author(S): Marc Lavoie Reviewed Work(S): Source: Journal of Post Keynesian Economics, Vol A Post Keynesian Approach to Consumer Choice Author(s): Marc Lavoie Reviewed work(s): Source: Journal of Post Keynesian Economics, Vol. 16, No. 4 (Summer, 1994), pp. 539-562 Published by: M.E. Sharpe, Inc. Stable URL: http://www.jstor.org/stable/4538409 . Accessed: 21/06/2012 18:26 Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact [email protected]. M.E. Sharpe, Inc. is collaborating with JSTOR to digitize, preserve and extend access to Journal of Post Keynesian Economics. http://www.jstor.org MARC LAVOIE A Post Keynesian approach to consumer choice Therehave been few effortsmade by Post Keynesiansto explainhow consumersmake choices. Granted,there are severalstudies on the choices entrepreneurshave to make when theirfirms face uncertain prospects,A la Shackle.Also, neo-Ricardiansare known for their analysisof the choiceof techniquein production.But, except for a few authors,such as Earl (1983, 1986),Baxter (1988), and Drakopoulos (1990,1992a, 1992b), Post Keynesians have been relatively silent about themicroeconomics of householdchoice.' As pointedout byEarl (1983, p. 2), thereis no chapteron consumerbehavior in theessays of thePost Keynesianstudy guide edited by Eichner(1979). Does thatmean that PostKeynesians, or all nonorthodoxeconomists for that matter, accept the neoclassicalway of detenniningthe compositionof consumption output?Would Post Keynesiansendorse the axiomaticneoclassical presentationof consumer'schoice? The answerto both questionsis no. Althoughthere have been few contributions,even few comments,about consumer behavior by Post Keynesianauthors, there is a certaindegree of coherenceamong the few contributions.There are several pieces of workthat fit, like a puzzle,the major conceptionsadvanced in other fields of economicsby Post Keynesianauthors. The objectof this articleis to outlinethe views aroundwhich Post Keynesians agree, or around which they could agree. Threewanings are in order.First, my Post Keynesianapproach to consumerchoice does not arisesolely from contributions of well-iden- tifiedPost Keynesian authors. It hasmuch in commonwith the work of someInstitutionalists, Schumpeterian evolutionists, social economists, behavioralists,marketing specialists, famous but hard-to-labelnonor- thodoxeconomists, and even some dissidentmainstreamers. Second, The authoris Professorof Economics at the Universityof Ottawa.He is gratefulfor the comments received from the referee. 1 There is also a chapteron consumerbehavior in Eichner(1987, ch. 9) and Lavoie (1992b, ch. 2), the main themes of which are taken afreshhere. Journal of Post KeynesianEconomics / Summer 1994, Vol. 16, No. 4 539 540 JOURNALOF POST KEYNESIANECONOMICS the principlesput forthto reflect a possible Post Keynesian approachto consumerchoice reflect my own views of tfie matter.Otlers interested in the field might find a differentset of principles.Finally, no axiomatic or formal model of choice behavior will be offered to the reader.The concepts ratherthan the mathematicswill be discussed. 1. Common pursuits The neoclassical theory of consumer choice has been the target of criticism from its very inception;an example is Veblen's (1899) scath- ing assessment of the hedonistic and utilitarianneoclassical portraitof homo oeconomicus. Althoughthe focus of the crtique has now changed, some of the criticismsthat were leveled againstmarginal utility theory, or revealed preferencestheory even before its inception, are still rele- vant. Here are some extracts of such a critique, made by a Veblenian economist in 1910: Marginal-utilitytheory has usually been formulated in hedonisticterms ... .Hedonismis hopelesslydiscredited by modernpsychology .... Deliberation,reasoned choice plays but a minorpart in theaffairs of men. Habit,not calculation,governs the greaterpart of all ouracts ... .The habitsof thoughtwhich count for most in shapingchoice are not theresult of prevision,but are of the natureof conventionsuncritically accepted by virtueof membershipin a particulargroup... .Calculationis difficult work.It is mucheasier to acton a suggestionthan to weightalternatives Adherentsof themarginal-utility school . denythat the marginal-util- ity doctrinesstand or fallwith hedonism ... .[They] assertthat econom- ics is concemedonly withthe fact of choicebetween goods or between alternativeactivities, and not withthe basis of choice.... If the marginalutility theory be interpretedhedonistically it is psycho- logicallyinvalid. If the theorybe deprivedof its hedonisticcontent it is reducedto theunobjectionable statements: that men will notbuy a thing unless they want it; thata commoditycannot be sold for more than somebodyis willingto payfor it. [Downey,1987, pp. 48, 49, 51, 53] Downey argues that marginalutility theory is based upon a deficient view of human conduct. He rejects neoclassical rationalitybecause it ignoreshabits and the difficulties of comparingchoices. He emphasizes the role of social conventions. He recognizes that mainstreamchoice 2 Ths anti-utilitarismsort of critiqueis still alive. See, for instance, the work of Caille (1988) and the paperspublished in the Revue du MAUSS. POST KEYNESIANAPPROACH TO CONSUMERCHOICE 541 theorydoes not requirethe conceptof utilityor hedonism-that is, some unique measure of pain and satisfaction; but then he suggests that, deprivedof it, the neoclassical theory of choice, or whathas come to be known as revealedpreference theory, is almost a tautology. The Post Keynesiantheory of householdchoice builds upon several of Downey's intuitions: habits and social conventions, a more proper psychological foundation,and a view of rationalitythat is better con- formed to our limited computationalabilities. The readermight think that he or she is being misled: that there is no more a Post Keynesian theoryof consumerchoice thanthere is a neo-Walrasiantheory of class income distribution.Perhaps one can talk of a behavioralistor a human- istic consumer theory, but not of a Post Keynesian consumer theory since Post Keynesians have made no concertedeffort to define such a theory.To this unbelieving reader,who has not read a recentattempt to demonstratethat behind Keynes's economic thoughtlies a nonorthodox consumertheory (Drakopoulos,1992b), the following quotes from five well-known Post Keynesian and neo-Ricardianauthors are offered: Thereis a kindof competitionin consumption,induced by thedesire to impressthe Joneses, which makes each family strive to keepup at least an appearanceof beingas well off as thosethat they mix with,so that outlayby one inducesoutlay by others... .Generally speaking,wants standin a hierarchy(though with considerableoverlaps at each level) andan incrementin a family'sreal income is not devotedto buyinga little moreof everythingat the same level but to steppingdown the hierarchy.[Robinson, 1956, pp. 251, 354]. Althoughpossibilities of substitutionamong commodities are of course relevantat any given level of real income,there exists a hierarchyof needs.More precisely, there exists a verydefimite order of priorityin consumers'wants, and therefore among groups of goodsand services, whichmanifests itself as realincomes increase. [Pasinetti, 1981, p. 73]. Thereare hierarchies of needsfrom basic needs up to higherneeds such as the needfor self-fulfilment.The needsare taken as givenin a given environment.There are segments in thepopulation which correspond to income classes.... To differentsegments there correspond different patternsof consumptionto satisfythe hierarchiesof needs. [Schefold, 1985,p. 116] The consumptionof each class will be guidedby a conceptionof its appropriatelifestyle, given its place in thesocial pyramid.... Emulation effectsnormally follow the socialhierarchy; the consumptionstyles of 542 JOURNALOF POST KEYNESLANECONOMICS therich and famous set standardsto whichthe rest aspire (or, sometimes, againstwhich they react). When prices can be reduced or money incomes raisedsufficiently, elements of moreprosperous lifestyles will be incor- poratedinto those of lowerlevels. [Nell, 1992,pp. 393, 3961. Post-Keynesiansgenerally assume that, in aneconomy that is expanding overtime, it is theincome effect that will predominateover the relative price,or substitution,effects.... Substitutioncan take place only within fairlynarrow subcategories. Consumer preferences are, in this sense, lexicographicailyordered.... A household'sconsumption pattem, at anygiven point in time,thus reflects the lifestyleof thehouseholds that constituteits socialreference group. [Eichner, 1986, pp. 159-160] In these quotes the notion of hierarchy appears: each household defines a patternof needs that have to be fulfilled in a priorityorder. This patternmay be influenced by the consumption structureof the households that are of equal or higher standingin the socioeconomic ladder.There is a class structureor at least a socioeconomic structureto the composition of consumption.The consumptionof an individualis not independentof his or her environment.Finally, some emphasizethe importanceof income effects over substitutioneffects. The latterwould only be relevantwithin goods fulfilling the same need. Nonorthodox
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