James Stemble Duesenberry (July 18, 1918 – October 5, 2009) was an American
economist
An economist is a professional and practitioner in the social sciences, social science discipline of economics.
The individual may also study, develop, and apply theories and concepts from economics and write about economic policy. Within this ...
. He made a significant contribution to the Keynesian analysis of
income
Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be different across fields. For ...
and
employment
Employment is a relationship between two parties regulating the provision of paid labour services. Usually based on a contract, one party, the employer, which might be a corporation, a not-for-profit organization, a co-operative, or any othe ...
with his 1949 doctoral thesis ''Income, Saving and the Theory of Consumer Behavior''.
In ''Income, Saving and the Theory of Consumer Behavior'', Duesenberry questioned basic economic assumptions about
consumer behavior. He argued that consumer theory failed to take into account the importance of habit formation in establishing spending patterns. He also stressed the importance of
social environment
The social environment, social context, sociocultural context or milieu refers to the immediate physical and social setting in which people live or in which something happens or develops. It includes the culture that the individual was educate ...
in determining an individual's level of expenditures. He proposed a mechanism called the "demonstration effect" by which people would modify their consumption patterns, not because of changes in income or prices, but from witnessing the consumption expenditures of others that they came into contact with. This phenomenon, he argued, was driven by the interdependence of people's preferences and the need to maintain or increase one's
social status
Social status is the level of social value a person is considered to possess. More specifically, it refers to the relative level of respect, honour, assumed competence, and deference accorded to people, groups, and organizations in a society. Stat ...
and prestige.
The strong social component driving people's consumption was a key aspect in his formulation of a distinct theory of consumption called the
Relative income hypothesis. By this theory, an individual's consumption and savings rate is more dependent on their income relative to those in their community than on their absolute level of income.
Reception
While some contemporaries of Duesenberry saw his work as a large contribution to the field, it failed to gain significant traction.
Kenneth Arrow
Kenneth Joseph Arrow (23 August 1921 – 21 February 2017) was an American economist, mathematician, writer, and political theorist. He was the joint winner of the Nobel Memorial Prize in Economic Sciences with John Hicks in 1972.
In economics ...
believed that Duesenberry's work offered "one of the most significant contributions of the postwar period to our understanding of economic behavior".
[
Today, however, the work of Duesenberry is largely absent from standard economics textbooks. Yet some, such as ]Robert H. Frank
Robert Harris Frank (born January 2, 1945) is the Henrietta Johnson Louis Professor of Management and a professor of economics at the Samuel Curtis Johnson Graduate School of Management at Cornell University. He contributes to the "Economic View" ...
, argue that it outperforms the alternative theories that displaced it in the 1950s, such as Milton Friedman
Milton Friedman (; July 31, 1912 – November 16, 2006) was an American economist and statistician who received the 1976 Nobel Memorial Prize in Economic Sciences for his research on consumption analysis, monetary history and theory and the ...
's Permanent income hypothesis
The permanent income hypothesis (PIH) is a model in the field of economics to explain the formation of consumption patterns. It suggests consumption patterns are formed from future expectations and consumption smoothing. The theory was developed ...
. Frank claims that Duesenberry's theory can explain why the rich tend to save at higher rates than the poor. Even as national income increases, the higher visible consumption of the rich encourages increased spending across other income levels. Additionally, Duesenberry's recognition of the importance of habit formation aligns the observed short-run rigidity of consumption, as families attempt to maintain their previous standard of living even during recessions.
Background
Duesenberry attended the University of Michigan
, mottoeng = "Arts, Knowledge, Truth"
, former_names = Catholepistemiad, or University of Michigania (1817–1821)
, budget = $10.3 billion (2021)
, endowment = $17 billion (2021)As o ...
, where he earned his Bachelor of Arts
Bachelor of arts (BA or AB; from the Latin ', ', or ') is a bachelor's degree awarded for an undergraduate program in the arts, or, in some cases, other disciplines. A Bachelor of Arts degree course is generally completed in three or four years ...
in 1939, his Master of Arts
A Master of Arts ( la, Magister Artium or ''Artium Magister''; abbreviated MA, M.A., AM, or A.M.) is the holder of a master's degree awarded by universities in many countries. The degree is usually contrasted with that of Master of Science. Tho ...
in 1941, and his Doctor of Philosophy
A Doctor of Philosophy (PhD, Ph.D., or DPhil; Latin: or ') is the most common Academic degree, degree at the highest academic level awarded following a course of study. PhDs are awarded for programs across the whole breadth of academic fields ...
in 1948. He served as professor of economics at Harvard University
Harvard University is a private Ivy League research university in Cambridge, Massachusetts. Founded in 1636 as Harvard College and named for its first benefactor, the Puritan clergyman John Harvard, it is the oldest institution of higher le ...
from 1955–1989.
Duesenberry served on the Council of Economic Advisers
The Council of Economic Advisers (CEA) is a United States agency within the Executive Office of the President established in 1946, which advises the President of the United States on economic policy. The CEA provides much of the empirical resea ...
under President Lyndon Johnson
Lyndon Baines Johnson (; August 27, 1908January 22, 1973), often referred to by his initials LBJ, was an American politician who served as the 36th president of the United States from 1963 to 1969. He had previously served as the 37th vice ...
from 1966–68.
References
External links
Harvard University Department of Economics
{{DEFAULTSORT:Duesenberry, James
1918 births
2009 deaths
Economists from West Virginia
University of Michigan College of Literature, Science, and the Arts alumni
Harvard University faculty
Neo-Keynesian economists
Fellows of the Econometric Society
20th-century American economists
United States Council of Economic Advisers