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. F ...

and

employment Employment is a relationship between two party (law), parties Regulation, regulating the provision of paid Labour (human activity), labour services. Usually based on a employment contract, contract, one party, the employer, which might be a cor ...

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 behaviour is the study of individuals, groups, or organisations and all activities associated with the purchase, use and disposal of goods and services. It encompasses how the consumer's emotions, attitudes, and preferences affe ...

. 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 educated ...

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 with whom they came into contact. That 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 relative level of social value a person is considered to possess. Such social value includes respect, honour, honor, assumed competence, and deference. On one hand, social scientists view status as a "reward" for group members ...

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 The relative income hypothesis was developed by James Duesenberry in 1949. It consists of two separate consumption hypothesis. The first hypothesis states that an individual's attitude to consumption is dictated more by their income in relation ...

. By that 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 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 ...

Permanent income hypothesis The permanent income hypothesis (PIH) is a model in the field of economics to explain the consumption function, formation of consumption patterns. It suggests consumption patterns are formed from future expectations and consumption smoothing. The ...

. 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 The University of Michigan (U-M, U of M, or Michigan) is a public university, public research university in Ann Arbor, Michigan, United States. Founded in 1817, it is the oldest institution of higher education in the state. The University of Mi ...

, where he earned his

Bachelor of Arts A Bachelor of Arts (abbreviated B.A., BA, A.B. or AB; from the Latin ', ', or ') is the holder of a bachelor's degree awarded for an undergraduate program in the liberal arts, or, in some cases, other disciplines. A Bachelor of Arts deg ...

in 1939, his

Master of Arts A Master of Arts ( or ''Artium Magister''; abbreviated MA or AM) 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. Those admitted to the degree have ...

in 1941, and his

Doctor of Philosophy A Doctor of Philosophy (PhD, DPhil; or ) is a terminal degree that usually denotes the highest level of academic achievement in a given discipline and is awarded following a course of Postgraduate education, graduate study and original resear ...

in 1948. He served as professor of economics at

Harvard University Harvard University is a Private university, private Ivy League research university in Cambridge, Massachusetts, United States. Founded in 1636 and named for its first benefactor, the History of the Puritans in North America, Puritan clergyma ...

from 1955 to 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 from 1966 to 1968.

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