John Kenneth Galbraith was a member of Harvard University's economics department as well as ambassador to India for JFK and a outspoken socialist. His debates with his close friend, the late William F. Buckley, Jr., were famous — and he lost all of them!
In his book "The Affluent Society," he included a chapter, "The Dependence Effect," on advertising that has been reprinted all over the place, especially in business ethics collections. He argued that corporations create desires in us for their wares and services, and we become hooked to them and thus corporations keep getting prosperous on and on. The even more famous Nobel Laureate economist F.A. Hayek wrote a rebuttal to Galbraith's piece, "The non-sequitur of 'The Dependence Effect.' " He argued that Galbraith misunderstood desires, thinking them to be decisive in leading to human action. Hayek pointed out that desires can be governed, controlled, ordered, suppressed even. The two essays are featured in a great many books on business ethics and nearly all discussions of advertising.
I believe Hayek was right all along, but if one needs proof, I believe our current economic mess provides it in spades. Consider how readily people, bent on tightening their belts, manage to resist ads everywhere. It is so bad that the government is making desperate efforts to bolster consumption, trying to generate, artificially, demands for goods and services that advertisements don't succeed in getting sold. Now, if corporations had all that power by way of advertising, that Galbraith had ascribed to them, how is it that they aren't bringing in customers? How is it that customers all over the country and elsewhere are these days refusing to spend their resources in the market? Advertising may have moved from newspapers to the Internet, but there is plenty of it around, yet customers are not budging.
The likely truth of the matter is that the majority of people are quite capable of ordering their desires, of saying "no" to this ad or that, while "yes" to some others. And they do this mostly with an understanding of their economic situation, so that just now most of them, seeing that money is hard to come by, tend to be reticent, hesitant about spending. (Whether the efforts by governments, following certain parts of John Maynard Keynes' economic theory, to beef up demand works is an interesting and very much open question; books abound disputing the idea as well as supporting it, by reference, especially, to historical epochs such as the Great Depression and the ensuing New Deal.)
This also suggests something important about human choice. When people are said to have free will, it is often mistaken to imply that they act helter-skelter, without anyone able to predict anything they will or won't do. But that's not free will but randomness. Free will means one can set oneself on various courses of action, some short range and some quite long — just think of the commitment made when a the bride and groom utter "I do." Surely we can make some predictions as a result of that yet admit that they were free to choose whether to marry.
One reason the Obama administration's stimulus policy may not work out so well is that people aren't forced to respond to stimuli — they can turn away, refuting the underlying assumptions of what it takes to get them out there to buy stuff! Governments tend to wish we were malleable, but we aren't, really. This is just one of many reasons governments ought not to be counted on to direct an economic system.
The people of that system might not want to comply with "The Plan" they hatch there in Washington. They may well have other ideas in mind. In a genuine free market — not the shabby facsimile we have had in place for decades on end — the interacting individuals would figure out what is best for them and follow their judgments thus informed. And that would, like Adam Smith suggested, lead to the optimum overall economic benefit of all!
About the writer
Tibor Machan holds the R.C. Hoiles Chair in Business Ethics & Free Enterprise at Chapman University's Argyros School of B&E and is a research fellow at the Pacific Research Institute and Hoover Institution (Stanford). He advises Freedom Communications, parent company of this newspaper. His most recent book is "The Morality of Business, A Profession for Human Wealth-Care" (Springer, 2007). E-mail him at TMachan@link.freedom.com.