The Emergence of the Sovereign Consumer in Post-war Economics

Olsen, Niklas

doi:10.1007/978-3-319-89584-0_5

The Emergence of the Sovereign Consumer in Post-war Economics

Niklas Olsen⁴

Chapter
First Online: 26 August 2018

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Part of the book series: Consumption and Public Life ((CUCO))

Abstract

This chapter explores the role and status of the figure of the sovereign consumer in the post-war mainstream discipline of economics from 1945 to 1970. The chapter argues that a figure similar to the neoliberal sovereign consumer was elevated as the key actor in economics during this period. This figure formed part of a new mode of economic analyses that positioned consumer sovereignty as the ultimate social value, reworked the understanding of political democracy by interpreting it through market metaphors, and questioned the role of the state as a collective decision-maker and social planner. As such, so the chapter argues, mainstream economics laid the groundwork for the spread and broader acceptance of neoliberal ideology from the 1960s onwards.

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Notes

1.
An exception in the literature on the making of the consumer as a societal category is the brief perspective on post-war economics textbooks in Noel Thompson, Social Opulence and Private Restraint: The Consumer in British Socialist Thought since 1800 (Oxford: Oxford University Press, 2015), 112–113.
2.
Phillip Mirowski and D. Wade Hands, eds., “Agreement on Demand: Consumer Theory in the Twentieth Century Price Theory,” History of Political Economy 38, suppl. 1 (2006); Steven G. Medema, “Chicago Price Theory and Chicago Law and Economics: A Tale of Two Transitions,” in Building Chicago Economics: New Perspectives on the History of America’s Most Powerful Economics Program, eds., Robert Van Horn, Phillip Mirowski , and Thomas A. Stapleford (Cambridge: Cambridge University Press, 2011, 151–179); Steven G. Medema, “Defying Economics: The Long Road to Acceptance of the Robbins Definition,” Economica 76, 1 (2009): 805–820.
3.
For one example of how economists created new notions of individual rationality after 1945, see Nicola Giocoli, Modeling Rational Agents: From Interwar Economics to Early Modern Game Theory (Cheltenham: Edward Elgar Publishing, 2003). Although it focuses mainly on the period from 1960s onwards, Daniel T. Rodgers, The Age of Fracture (Cambridge, MA: Harvard University Press, 2011), 40–76, offers a trenchant analysis of the coinage of new notions of rational economic agents in post-war economics. For how the period also gave birth to ideas of human behaviour that stressed the bounded rationality and malleable nature of individuals as formulated, for example, by Herbert Simons and John Kenneth Galbraith, see Hunter Crowther-Heyck, Herbert A. Simon: The Bounds of Reason in Modern America (Baltimore: The John Hopkins University Press, 2005); David A. Reisman, Galbraith and Market Capitalism (New York: New York University Press, 1980).
4.
Hunter Heyck, “Producing Reason,” Cold War Social Science: Knowledge Production, Liberal Democracy, and Human Nature, eds., Mark Solovey and Hamilton Cravens (New York: Palgrave Macmillan 2012), 99–116; Sonja M. Amadae, Rationalizing Capitalist Democracy: The Cold War Origins of Rational Choice Liberalism (Chicago: The University of Chicago Press, 2003); Sonja M. Amadae, Prisoners of Reasons and Neoliberal Political Economy (Cambridge: Cambridge University Press, 2015).
5.
Avner Offer, “British Manual Workers: From Producers to Consumers, c. 1950–2000,” Discussion Papers in Economic and Social History. University of Oxford 74 (2008), 12. Offer does not specifically talk about the sovereign consumer but describes the construction of a figure that largely corresponds to the one investigated in this book.
6.
Since Chap. 3 included a discussion of rational choice, focus in this chapter will primarily be on social choice and public choice. Research for this chapter has also included the analysis of economics dictionaries and of two sessions about the consumer that took place at the annual meetings at the American Economic Association: the session in 1951 on “The Role and the Interests of the Consumer” and the session in 1961 on “Reappraisal of the Doctrine of Consumer Sovereignty”. The papers and comments given at the sessions are published in The American Economic Review 41, 2 (1951), and 52, 2 (1962), respectively. Since it would prolong an already lengthy chapter without adding significantly to the basic arguments presented below, the analysis of this material has been omitted.
7.
Kuhn is cited from Arjo Klamer, “The Textbook Presentation of Economic Discourse,” in Economics as Discourse: An Analysis of the Language of Economists, ed., Warren J. Samuels (Boston: Kluwer Academic, 1990), 131, which offers a number of other lucid observations about textbooks as a genre. See also the observations in P. W. Zuidhof, Imagining Markets: the Discursive Politics of Neoliberalism (PhD dissertation, Erasmus Universiteit, 2012), 64–117. While these two studies and Rodgers , The Age of Fracture, 40–47, provide excellent perspectives on changes in economics textbooks in the post-war period, they do not touch upon the role and status of the figure of the sovereign consumer in these textbooks.
8.
This is arguably also the premise of Cherrier and Fleury’s excellent study of the changing ways of approaching collective decision mechanisms in post-war economics. Beatrice Cherrier and Jean-Baptiste Fleury, “Economists’ interest in collective decision after World War II: A history,” Public Choice 172, 1–2 (2017): 23–44.
9.
Frederic Benham, Economics: A General Textbook for Students (London: Sir Isaac Pitman, 1938).
10.
Benham, Economics, 14.
11.
Benham, Economics, 161.
12.
Benham, Economics, 11.
13.
Benham, Economics, 158–161.
14.
Benham, Economics, 159.
15.
Benham, Economics, 160.
16.
L. M. Fraser , “The Doctrine of Consumers’ Sovereignty,” Economic Journal 99, 195 (1939), 548.
17.
Jacob Viner, “W. H. Hutt, Economists and the Public: A Study of Competition and Opinion,” Journal of Political Economy 46, 4 (1938), 575.
18.
Peter Gurney, The Making of Consumer Culture in Modern Britain (London: Bloomsbury Publishing, 2017), 155.
19.
Mary Jean Bowman and George Leland Bach, Economic Analysis and Public Policy (New York: Prentice Hall Inc., 1942). Bowman received her PhD in economics from Harvard University in 1938 before she became assistant professor at Iowa State University; Bach received his PhD in economics from the University of Chicago in 1940 and briefly worked as an assistant professor at Iowa State University before moving on to a new job as special assistant at the Federal Reserve in Washington.
20.
Bowman and Bach, Economic Analysis and Public Policy, 717.
21.
Bowman and Bach, Economic Analysis and Public Policy, 717.
22.
Bowman and Bach, Economic Analysis and Public Policy, 717.
23.
Bowman and Bach, Economic Analysis and Public Policy, 717.
24.
Bowman and Bach, Economic Analysis and Public Policy, 718.
25.
Paul Samuelson, Economics: An Introductory Analysis (New York: McGraw-Hill, 1948).
26.
Roger E. Backhouse, Founder of Modern Economics: Paul A. Samuelson, Volume I: Becoming Paul Samuelson, 1915–1948 (Oxford: Oxford University Press), 532–596; Yann Giraud, “Negotiating the ‘Middle-of-the-Road’ Position: Paul Samuelson, MIT, and the Politics of Textbook Writing, 1945–55,” History of Political Economy 46, 5 (2014): 134–152; Yann Giraud, “The Changing Place of Visual Representation in Economics: Paul Samuelson Between Principle and Strategy, 1941–1955,” Journal of the History of Economic Thought 32, 2 (2010): 175–197. Lucid observations are also found in Rodgers, Age of Fracture, 40–78.
27.
Samuelson, Economics, 38.
28.
Samuelson, Economics, 35.
29.
Samuelson, Economics, 35.
30.
Samuelson, Economics, 35.
31.
Samuelson, Economics, 36.
32.
Samuelson, Economics, 38.
33.
Samuelson, Economics, 39.
34.
Samuelson, Economics, 41.
35.
Samuelson, Economics, 41.
36.
Samuelson, Economics, 412.
37.
Samuelson, Economics, 447–479.
38.
Thompson, Social Opulence, 112.
39.
Samuelson, Economics, 206.
40.
Samuelson, Economics, 207–207.
41.
Kenneth Boulding, Economic Analysis (New York: Harper and Brothers Publishers, 1941).
42.
Boulding, Economic Analysis, 636.
43.
Boulding, Economic Analysis, 648–653.
44.
Boulding, Economic Analysis, 568.
45.
Boulding, Economic Analysis, 620.
46.
Kenneth Boulding, Economic Analysis, revised edition (London: Hamish Hamilton, 1948).
47.
Boulding, Economic Analysis, revised edition, 260.
48.
Alec Cairncross, Introduction to Economics, second edition (London: Butterworth & CO., 1951), v.
49.
Cairncross, Introduction to Economics, second edition, 571.
50.
Cairncross, Introduction to Economics, second edition, 572.
51.
Cairncross, Introduction to Economics, second edition, 8.
52.
Cairncross, Introduction to Economics, second edition, 572.
53.
Cairncross, Introduction to Economics, second edition, 9.
54.
Cairncross, Introduction to Economics, second edition, 287.
55.
Richard G. Lipsey, An Introduction to Positive Economics (London: Weidenfeld and Nicolson, 1963).
56.
Lipsey, An Introduction to Positive Economics, 53.
57.
Lipsey, An Introduction to Positive Economics, 54.
58.
Lipsey, An Introduction to Positive Economics, 148–149.
59.
Lipsey, An Introduction to Positive Economics, 256.
60.
Clark Lee Allen, James M. Buchanan, and Marshall R. Colberg, Prices, Income, and Public Policy (New York: McGraw-Hill, 1954).
61.
For Buchanan’s life and work, see Richard E. Wagner, James M. Buchanan and Liberal Political Economy: A Rational Reconstruction (London: Lexington Book, 2017); David A. Reisman, James Buchanan (Basingstoke: Palgrave, 2015); Amadae, Rationalizing Capitalist Democracy, 133–155; and recent articles by Alain Marciano and Peter J. Boettke, such as Alain Marciano and Peter J. Boettke, “The Past, Present and Future of Virginia Political Economy,” Public Choice 163, 1–2 (2015): 53–65.
62.
Allen, Buchanan, and Colberg, Prices, Income, and Public Policy, 7.
63.
Allen, Buchanan, and Colberg, Prices, Income, and Public Policy, 61–83, 127–137, 298–311.
64.
Allen, Buchanan, and Colberg, Prices, Income, and Public Policy, 281.
65.
Armen A. Alchian and William R. Allen, University Economics (Belmont, CA: Wadsworth Publishing Company, Inc., 1964).
66.
Alchian presented papers at the Society’s meetings in in 1959, 1965 and 1976. See “Mont Pèlerin Society (1947–…): Inventory of the General Meeting Files (1947–1998),” Liberaal Archief, accessed 1 January 2018, http://www.liberaalarchief.be/MPS2005.pdf. See also the comments on the paper “Some Economists of Property Rights” that Alchian presented at the 1965 meeting in Dieter Plehwe, “The Origins of the Neoliberal Economic Development Discourse,” in The Road from Mont Pelerin: The Making of the Neoliberal Thought Collective, eds., Phillip Mirowski and Dieter Plehwe (Cambridge, MA: Harvard University Press 2009), 392. William R. Allen obtained his PhD from Duke University in 1953 and joined the UCLA faculty in 1952, where he remained for the rest of his career.
67.
Alchian and Allen, University Economics, 5.
68.
Alchian and Allen, University Economics, 58.
69.
Alchian and Allen, University Economics, 378.
70.
Alchian and Allen, University Economics, 379.
71.
Alchian and Allen, University Economics, 592, note 1.
72.
Campbell R. McConnel, Economics: Principles, Problems and Policies (New York: McGraw-Hill, 1960). See the entire 15 references to Galbraith in the index (748).
73.
McConnel, Economics: Principles, Problems and Policies, 500 and 695.
74.
Kenneth Boulding, Economics (fifth edition): Volume I: Microeconomics (New York: Harper Row, 1966), 647.
75.
Paul Samuelson, Economics: An Introductory Analysis, sixth edition (New York: McGraw Hill, 1964), 620–623, 630, 629, note 2.
76.
See Christian List, “Social Choice Theory,” Stanford Encyclopaedia of Philosophy, accessed 1 November 2017, https://plato.stanford.edu/entries/social-choice/
77.
Kenneth Arrow, Social Choice and Individual Values (New York: John Wiley, 1951).
78.
Arrow was awarded the prize in 1972. He shared it with economist John Hicks. Biographical information about Arrow – and excellent accounts of Social Choice and Individual Values – can be found in Philip Mirowski, Machine Dreams Economics Becomes a Cyborg Science (Cambridge: Cambridge University Press, 2002), 153–308, and Amadae, Rationalizing Capitalist Democracy, 83–103. See also the authoritative account in Roger E. Backhouse, A History of Modern Economic Analysis (Oxford: Blackwell, 1985), 307–311.
79.
Amadae, Rationalizing Capitalist Democracy, 83; Roger E. Backhouse, The Penguin History of Economics (London: Penguin, 2002), 281–282.
80.
Cited from Backhouse, A History of Modern Economic Analysis, 166, from which the above account is drawn.
81.
Backhouse, A History of Modern Economic Analysis, 169–170.
82.
For these developments and Arrow’s contribution to them, see Backhouse, A History of Modern Economic Analysis, 302–317.
83.
In rendering the five conditions for Arrow’s analysis and his impossibility theorem, I am echoing the authoritative account in Amadae , Rationalizing Capitalist Democracy, 103 and 104.
84.
Amadae, Rationalizing Capitalist Democracy, 2 and 106–109; Mirowski, Machine Dreams, 302–303.
85.
Arrow, Social Choice and Individual Values, 1.
86.
Arrow, Social Choice and Individual Values, 28.
87.
Arrow, Social Choice and Individual Values, 60.
88.
Philip Mirowski, “Sleights of the Invisible Hand: Economists’ Interventions in Political Theory,” Journal of the History of Economic Thought 27, 1 (2005), 95.
89.
Amadae, Rationalizing Capitalist Democracy, 128–129, 183–184.
90.
Daniel B. Klein, “Kenneth J. Arrow,” Econ Journal Watch 10, 3 (2013): 268–281.
91.
As also pointed out by Amadae, Rationalizing Capitalist Democracy, 128–129.
92.
Howard Brick, Transcending Capitalism: Visions of a New Society in Modern American Thought (Ithaca: Cornell University Press, 2006), 472–480.
93.
Arrow, Social Choice and Individual Values, 5–6. Howard Bowen, “The Interpretation of Voting in the Allocation of Economic Resources,” The Quarterly Journal of Economics 58, 1 (1943): 27–48; Frank H. Knight, “Economic Theory and Nationalism,” Frank H. Knight, The Ethics of Competition and Other Essays (London: George Allen & Unwin, 1936), 277–359; Duncan Black, “The Rational of Group Making,” Journal of Political Economy 56, 1 (1948): 23–34.
94.
See Amadae, Rationalizing Capitalist Democracy, 88–102, which the following account to large extent relies on.
95.
Maurice Dobb, “Economic Theory and the Problems of a Socialist Economy,” The Economic Journal 43, 172 (1933): 588–598.
96.
H. D. Dickinson, “The Economic Basis of Socialism,” The Political Quarterly 1, 4 (1930): 561–572.
97.
Nicholas Kaldor, “Review of Planwirtschaft und Verkehrswirtschaft by Carl Landauer,” The Economic Journal 42, 166 (1932): 276–281.
98.
Dobb, “Economic Theory,” 591.
99.
Dobb, “Economic Theory,” 591.
100.
A. P. Lerner, “Economic Theory and Socialist Economy,” The Review of Economic Studies 2, 1 (1934): 51–61.
101.
Lerner, “Economic Theory and Socialist Economy,” 54.
102.
Arrow, Social Choice and Individual Values, 81–89.
103.
Arrow, Social Choice and Individual Values, 8.
104.
Knight, “Economic Theory and Nationalism”.
105.
See the excellent comment on this dimension of Knight’s thought in Ross B. Emmett, Frank Knight and the Chicago School in American Economics (London: Routledge, 2013): 105–106 and Angus Burgin, “The Radical Conservatism of Frank Knight,” Modern Intellectual History 6, 3 (2009), 520.
106.
Backhouse, A History of Modern Economic Analysis, 302–317.
107.
Duncan Black, The Theory of Committees and Elections (Cambridge: Cambridge University Press, 1958); Anthony Downs, An Economic Theory of Democracy (New York: Harper & Row, 1957), James M. Buchanan and Gordon Tullock, The Calculus of Consent: Logical Foundations of Constitutional Democracy (Ann Arbor: The University of Michigan Press, 1962); Mancur Olsen, The Logic of Collective Action (Cambridge, MA: Harvard University Press, 1965).
108.
Charles K. Rowley and Friedrich Schneider, eds., The Encyclopedia of Public Choice (Dordrecht: Kluwer Academic Publishers, 2004).
109.
Alisdair Roberts, Four Crises of American Democracy: Representation, Mastery, Discipline, Anticipation (Oxford: Oxford University Press, 2017), 108. The two quotes within the quote cite texts authored by public choice scholars.
110.
James M. Buchanan, “Consumerism and Public Utility Regulation,” in Telecommunications, Regulation, and Public Choice, eds., Charles F. Phillips, Jr. (Lexington, VA: Washington and Lee University Press, 1975), 3.
111.
James M. Buchanan, “Individual Choice in Voting and the Market,” Journal of Political Economy 62, 4, 334–343.
112.
James M. Buchanan, “Economists and the Gains from Trade,” Managerial and Decision Economics, special issue (1988): 5–12. Buchanan had been familiar with Hutt’s notion at least since the 1950s: in the piece, he stated that, encouraged by Friedrich Hayek, he read Hutt’s A Plan for Reconstruction (London: Paul Kegan, Trench, Trubner & Co., 1943) in 1963, at which point he was already familiar with Economists and the Public. Buchanan and Hutt were personally acquainted, when Buchanan invited Hutt to spend a year at University of Virginia in 1965. See the passages in the interview with Buchanan – “Hutt’s Role in Economics: An Interview with Professor James M. Buchanan,” Manhattan Report 3 (1983), reprinted in Hutt’s unpublished autobiography The Autobiography of an Economist (1984, Hoover Institution Archives, Box 70, Folder 6), 129–133.
113.
Anthony Downs, An Economic Theory of Democracy (New York: Harper & Brothers, 1957).
114.
Bernard Grofman, “Anthony Downs (1930-),” in Readings in Public Choice and Constitutional Political Economy, eds. Charles K. Rowley and Friedrich G. Schneider (New York: Springer, 2008), 91–95.
115.
Downs, An Economic Theory of Democracy, 3.
116.
Downs, An Economic Theory of Democracy, 5, 16, 45, 165.
117.
See particularly Downs, An Economic Theory of Democracy, 169, note 4.
118.
Downs, An Economic Theory of Democracy, 256. Downs specifically referred to Henry C. Simons, “Some Reflections on Syndicalism,” Henry C. Simons, Economic Policy for a Free Society (Chicago: University of Chicago Press, 1948), 121–159, in the sentence referring to the exploitation of consumers.
119.
Downs, An Economic Theory of Democracy, 297.
120.
R. Joseph Monsen received his PhD from the University of California in 1960 and became associate professor in the Department of Business, Government, and Society at the University of Washington in 1963. He remained at the University of Washington, serving as acting chair of the Department of Business, Government, and Society from 1965 to 1968 and chair from 1973–1981. The biographical info is taken from the entry “R. Joseph Monsen Papers, 1954–2003,” Archives West, accessed 4 January 2018, http://archiveswest.orbiscascade.org/ark:/80444/xv19163
121.
Anthony Downs and R. Joseph Monsen, “Public Goods and Private Status,” The Public Interest 23, (1971): 64–77.
122.
Downs and Monsen, “Public Goods and Private Status,” 64.
123.
Downs and Monsen, “Public Goods and Private Status,” 68.
124.
Downs and Monsen, “Public Goods and Private Status,” 68.
125.
Downs and Monsen, “Public Goods and Private Status,” 72–76.
126.
Cherrier and Fleury, “Economists’ interest in collective decision after World War II,” 26–27.
127.
Charles M. Tiebout, “A Pure Theory of Local Expenditures,” The Journal of Political Economy 64, 5 (1956), 416.
128.
Tiebout, “A Pure Theory of Local Expenditures,” 420.
129.
John D. Singleton, “Sorting Charles Tiebout,” History of Political Economy 47, suppl. 1 (2015): 199–226.
130.
Cited from the chapter draft “Blurring the Boundaries between Public and Private Administration” from Jensen’s dissertation project on Visions of Politics as Economics that he is currently finishing at Aarhus University. The chapter is on file with the author.
131.
Cherrier and Fleury, “Economists’ interest in collective decision after World War II.”
132.
Rodgers, Age of Fracture, 41–77.

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SAXO-Institute, University of Copenhagen, Copenhagen, Denmark
Niklas Olsen

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Olsen, N. (2019). The Emergence of the Sovereign Consumer in Post-war Economics. In: The Sovereign Consumer. Consumption and Public Life. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-89584-0_5

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DOI: https://doi.org/10.1007/978-3-319-89584-0_5
Published: 26 August 2018
Publisher Name: Palgrave Macmillan, Cham
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