Transcript Galbraith vs von Hayek Galbraith`s response: “ The

• Hayek, Friedrich August von (18991992), Austrian-born economist and
Nobel laureate.
• An economic traditionalist, von Hayek
won a wide reputation with “The Road
to Serfdom” (1944), in which he argued
that Governments should not intervene
in the control of inflation or other
economic matters.
• In 1974, he received the Nobel Prize in
economic science for their “pioneering
work in the theory of money and
economic fluctuations and for their
pioneering analysis of the
interdependence of economic, social,
and institutional phenomena”.
Galbraith Vs. von Hayek
• Q-1. Whether advertiser should inform
consumer to enable them to satisfy
existing wants?
• Q-2. Whether advertiser should
persuade and thereby create
new/artificial wants?
Galbraith vs von Hayek
• Galbraith’s response: “ The Affluent
Society” (1958), in which he asserted
that the United States had reached a
stage in its economic development that
should enable it to direct its resources
less to the production of consumer
goods and more toward providing
better public services.
Galbraith Vs. von Hayek
• Impoverished Society:
– A high importance should be attached to the
production of basic goods.
• Demands: Basic necessities of life such as
food, clothing and shelter.
• Production to meet existing demands.
• No need for promotion of such basic
products.
• Hence no need of persuasion.
• Purpose of ad is just to inform.
Galbraith Vs. von Hayek
• Affluent Society:
– No urgency of wants and hence no
urgency of production.
• Manufacturing industry can only
market more by creating new high-level
desires.
• Creating new breed of consumers.
• Desires are not ‘innate’ like desires of
basic necessities.
Galbraith Vs. von Hayek
•
We learn to desire them as a result of
two causes:
a. Society’s pressure “ keep up with
others”.
b. Influence of modern advertising and
marketing.
•
Advertising reinforce social
pressures.
• Advertising has to create new
demands, giving rise to artificial wants.
• It is not that supply (production) rises
to meet demand, rather producers
leads consumer to demand more.
(Dependency Effect)
Galbraith Vs. von Hayek
• Artificial wants carry no utility.
• No intrinsic benefits to society.
• Artificially created demands have lopsided emphasis, leaving provision of
public services such as health,
education and welfare lagging behind.
• Advertising directs resources away
from the area of possible benefits to
areas of no intrinsic benefits.
Hayek’s Criticism of Galbraith
• Civilized society demands that rather
more than just spontaneously arising
wants are satisfied.
• Aesthetic feelings are “Acquired
Tastes” rather than innate or basic
desires.
• Objection to dependency thesis
(advertising makes consumption
dependent on production).
Hayek’s Criticism of Galbraith
•
Meaning of ‘dependent on’.
a. ‘Arising from’ or ‘result of' (acceptable).
b. ‘At the mercy of’ or ‘deliberately
determined by’ meaning that producers
has pre-selected what consumer must
buy. (Not acceptable)
Hayek’s Criticism of Galbraith
• Consumers have choice whereas
according to dependency thesis they
are deprived of the choice.
• Hayek is defender of free markets to
see the minimum intrusion on
individual freedom.
• Advertising enhances individual
choices, it follows that restriction on
advertising would be an intrusion on
that individual freedom.
Advertising and Self-Regulation
• There are at least certain minimal
standards which advertisers can be
expected to observe.
• Voluntary / self-regulated codes of
practice.
• Formation of Consumers’ Association
(1950).
• No more independent journal.
• Publication of the journal “Which”
famed for its detailed testing of
consumer products and for its
recommended ‘best buys’.
Advertising and Self-Regulation
• Advertising Standard Authority (ASA)
which produced British Code of
Advertising Practice (BCPA) in 1960.
• Independent Broadcasting Authority
(IBA) Code of Advertising Standards
and Practice (1981).
• Independent Television Commission
(ITC) (1991).