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. Fo ...

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 o ...

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 Consumer behavior is the study of individuals, groups, or organizations and all the activities associated with the purchase, use and disposal of goods and services. Consumer behaviour consists of how the consumer's emotions, attitudes, and p ...

. 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. St ...

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 economi ...

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, 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 ...

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 develope ...

. 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 yea ...

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 degree at the highest academic level awarded following a course of study. PhDs are awarded for programs across the whole breadth of academic fields. Because it is ...

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 highe ...

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 rese ...

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