CONSUMER PREFERENCES IN AMERICAN CAPITALISTIC SOCIETY A Dissertation Presented to the Faculty of the Department of Economics University of Southern California In Partial Fulfillment of the Requirements for the Degree Doctor of Philosophy Department of'Economics by Paul V. Sheehan December 194-1 UMI Number: DP23226 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. UMI' Dissertation Publishing UMI DP23226 Published by ProQuest LLC (2014). Copyright in the Dissertation held by the Author. Microform Edition © ProQuest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code ProQuest LLC. 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106-1346 ¥ Sc. h~% T h is d is s e rta tio n , w r it t e n by ............... PAUL..V.....SM3HAN............. u n d e r the g u id a n c e o f h i s . . F a c u lt y C o m m it te e on S tu d ie s, a n d a p p r o v e d by a l l its m em b ers, has been p re se n te d to a n d a ccep ted by the C o u n c i l on G ra d u a te S t u d y a n d R esearch, in p a r t i a l f u l f i l l m e n t o f re q u ire m e n ts f o r the degree o f D O C T O R ^O F ~ P H Z L OSO P H Y Secretary D a te De_c ember. C om m ittee on Studies C hairm an S3 TABLE OP CONTENTS CHAPTER. .'I. . .PAGE INTRODUCTION.......... . . . . . . . . . . . . * 1 The problem 3 The procedure • 7 Who Is the consumer?. ........... 8 Other definitions . . . . . . . . . . . . . 12 Basic ass^^mptions . . . . . . . . . . . . . . 16 II. CLASSIFICATION OP PRODUCTS ACCORDING TO MEANINGS. . .............. 18 What Is choice? • • • • • • • . . . . * . . 19 What, is a product?* . 21 Necessities, comforts, decencies, and luxuries . . . . . . . . . . . . . . Goods classified according to resistance. Modes of living 24 . 27 .......... 36 Effect of income on mode .of living. . . . . 40 Influence of education and environment. . • 47 C o n c l u s i o n s ................................ 52 III, CONSUMER DEMAND.AS AFFECTED BY RESISTANCE. .- 54 Indifference curve analysis . . . . . . . . 56 Consumer preferences in the short run . . . 59 Consumer preferences in the. long run. . . . 61 Principle of diminishing utility. . . . . . 63 CHAPTER PAGE Substitutability and complementariness of products. .............. 66 Elasticity of demand. ................... 71 ■Conclusions . ......... . . . . . . . . . . 77 IV. THE RESISTANCE FACTOR IN PRODUCT' ;DIFFERENTIATION. . ................... 79 Product differentiation ................... 80 General and specific competition. . . . . . 83 Competition in the short run. • • » . . . . 85 Competition in the long run. . . . . . . . 89 Sales policies of sellers . -............... Conclusions V. CONSTJMER TIME 91 . PREFERENCE. . . . . . . . . . . The propensity to save. 97 .......... 105 .......... C o n c l u s i o n s ................................ VI. CONSUMER PLACE PREFERENCE . .. 95 ............. The factor of durability. Consumer credit 93 108 Ill ........... 114 Convenience, shopping andspecialty goods . 116 Relation of price and inconvenience . 119 Non-resistance attitudes towards' inconvenience. C o n c l u s i o n s .......... ..................... 122 124 Iv CHAPTER VII. ■PAGE ............. 125 . . . . . . . . . . . 127 CGNSUMER BUYING MOTIVATION. Primary motivation. The psychological theory of adjustment. • 132, Social influences • 135 Will................... Habit . . ........... 139 ................... 142 Consciousness of motives. . . . . . . . . 145 Conclusions 148 ........................ VIII. .DEMAND STIMULATION.............. . . . . . . 150 The subjective approach . . . . . . . . . 151 The objective approach.............. 155 Quantitative emphasis . . . . . . . . . . 156 Criticism of sales theories ............. 157 Ethical significance. 160 . . . . . . . . . . The resistance factor in demand stimulation. . . . . . . . . . . . . . 165 Quality and price . . . . . . . . . . . . 170 Complementary goods . . . . . . . . . . . 171 Resistance to selling methods ........... 173 Enhancing the meanings of g o o d s ... 174 Classification of appeals according to media. . . . . . . . Conclusions . . . . ........ . . . . 176 . . . . . 179 IX. GENERAL CONCLUSIONS ’................... X. BIBLIOGRAPHY. ........................ 181 193-203 CHAPTER I INTRODUCTION The subject of consumption has been treated from many angles by a host of writers. Many of them have merely tried to explain how the consumer acts, others have set up standards to show how he should act,•and yet others have attempted to explain how he can be influenced to act. Those whose work may be considered as standard in the first category are Nystrom,1 Waite,^ and Wyand,3 though these three are only a few of the many who have dealt with the subject. Hazel Kyrk might be considered a fair represen tative of those who have set up standards to show the consumer how he should act.^ Varied and numerous are the points of view expressed by those who may be considered as belonging in the third classification. Kitson,3 1 Paul H. Nystrom, Economic Principles of Consumption (New York* The Ronald Press Company^ cl929)• ^ Warren C. Waite, McGraw-Hill Book Company, Cassady, The Consumer and McGraw-Hill Book Company, York: Economics of Consumption (New York 1926). See also Waite and Ralph the Economic Order (New York: 193917 • 3 Charles S. Wyand, The Economics of Consumption (New The Macmillan Company, 1937). 4 A Theory of Consumption (Boston: Houghton Mifflin Company, 1923) .and Economic Problems of the Family (New.York Harper & Brothers, 1633)'. 3 Harry D. Kitson, The Mind of the Buyer (New York: The Macmillan Company, 1921)• -- 2 Scott,® and Strong*'* deserve special recognition because they were pioneers in the third field. It is interesting to note, by a comparison of publi cation records, quantitatively speaking, the increased attention given to methods of influencing demand. The Library of Congress listed a single volume on the subject of salesmanship for the year 1869. another was recorded.® Between 1870 and 1880 . Between 1920 and 1930, however, 294 books were registered.® This does not take periodical literature into account. The more strenuous efforts devoted to demand stimu lation In the last few decades have not been without reaction. The repercussion has taken form in the mass of literature^published in indictment of m o d e m methods of influencing demand.-*-® Kallet and S c h l l n k H and Stuart ® Walter Dill Scott, The Psychology of Advertising (Boston: Small, Maynard & Compahy, c1902; and Influencing Men in Business, Third Edition, (New York: The Ronald Press Company, cl928). 7 Edward K. Strong, .Jr., The Psychology of Selling and Advertising (New'York: McGraw-Hill Book Company, 1925) and Psychological Aspects of Business (New York: McGrawHill Book C ompany, 1938'). . ® The Psychology of Selling and Advertising, p. 8, Fn. 7. 9 H. K. Nixon, Principles of Selling (New York: McGraw-Hill Book Company, 1931), p. 14. 1® Cf. -Ruth O ’Brien, "An Argument for Consumer Goods Standards.-"”- Printers’ Ink Weekly, CLXVIII:13 (Sept. 27, 1934), pp. 63-65. Arthur Kallet and F. J. Schlink, 100,000,000 Guinea _ Pigs (New York: The Vanguard Press, 1933). Chasel^ are leaders In an acrimonious denunciation of what they have taken to he practices of mulcting the public. These men have advocated the setting up of consumer goods standards to replace brands and trade names. I. THE PROBLEM When economists assume the existence of pure com petition, they postulate conditions under which individual producers profit by their abilities to satisfy human de3lr.es, which, presumably, they are tanable to influence. 13 Assuming a large number of sellers and homogeneity of products, even a very large advertising expenditure by one firm would have at best a small, virtually negligible effect on total demand. Demand Is taken to be in existence and the costs of the entrepreneur are incurred to meet it but not to alter It. ■ Changes In demand are consequently met but not consciously Influenced by producers. As a result of their long preoccupation with pure competition, economists have generally left the subject of demand stimulation to students I*16 Tragedy of Waste (Hew York: Company, 1926)* The Macmillan ( 13 Cf. Edward Chamberlin, The Theory of Monopolistic Competition, Third Edition, Harvard Economic Studies, No. 38 (Cambridge: Harvard University Press, 1939), pp. 117-129. Also A. R. B u m s , The Decline of Competition (New York: McGraw-Hill Book Company, 1936T7 PP» 372-417, and C. A. Stocking, ’’Modern Advertising and Economic Theory,” The American Economic.Review, X X I :1 (March, 1931) 43-55. and practitioners In the field of business. Though sales manship and advertising have been introduced into college of business curricula, many teachers have insulated them selves' against economic principles and confined their explorations to the field of motivation or to pressure techniques. More recent theory has taken cognizance of the element of monopoly created by product differentiation and has recognized the significance not only of price and nature of product, but also of selling outlays.3-4 With the recognition of the importance of nonprice competition, economists are beginning to- provide a place in economic theory for the subject of demand stimulation, but a gap still separates the two. It is the purpose of this study to bridge this gap. In doing this we shall consider the first and the third sxibjects mentioned on page one of this section: namely, an investigation of how the consumer acts and an analysis of how he can be influenced to act. logically a prerequisite to the latter. The former is We shall do this by setting up a basis for the determination of consumer behavior according to the factor of resistance, an ever 14 Edward Chamberlin, op. cit., p. 117 and Horace G. White, Jr., "A Review of Monopolistic and Imperfect Com petition Theories," The American Economic Review. XXVI:4 (Dec., 1936) 644. present element of deliberation and judgment in choice. Our thesis is that attitudes of insistence and resistance are developed by consumers, and that these give us our best basis for 'understanding buyer selection. The need in under-, taking such a task is not that of exploring new land so much as it is that of harrowing ground already tilled. Selection, evaluation, restatement, and synthesis are probably more prevalent here than originality. The science of economics has been predicated upon one very important premise, the assumption that human wants in the aggregate exceed human capacity to satisfy those wants. If there are more wants than there can be gratifications, some wants must remain unsatisfied and, since this is true, there must be some selection of the particular satisfactions to be enjoyed. This selection is known as choice. In a primitive society, man would devote his endeavors to par ticular tasks in order to attain certain gratifications. He could spend more or less time hunting and fishing, more or less time improving the hut in which he lived, or more or less time making clothes and decorations for his body, but the more time he devoted to any one of these, the less time he would have to give to the others. The total of wants satisfied would depend partly upon the opportunities offered by the locality in which the man lived and partly upon the expenditure of effort which he was both able and willing to make. 6 In a more civilized society, man participates in the kind of production in which he is most efficient and, through m o d e m mechanisms of exchange, he secures the pro duction of others. is made is money. The medium through which the exchange If .the man of today wants a commodity of any kind he does not ordinarily set out to make it himself but usually goes to someone who already possesses such an object and offers to purchase it with money. Every exchange transaction involves a seller, an object, and a buyer. The terms "seller" and "buyer" refer to the actions of persons based on subjective choice. The "object," being the pawn in the game, is of importance only in so far as it has certain meanings to the seller and to the buyer. Since this study is confined to an analysis of con sumer preferences, the seller-object-buyer relationship will be approached from the point of view of the consumer. The problem is that of establishing some basis for determining consumer preferences by a consideration of certain general characteristics of human nature in its relationship to • environment. It will be assumed that sellers, objects, and buyers do exist and that these objects, which we shall refer to as products, commodities, or goods, have certain capaci ties or powers to satisfy human desires. They are popularly said to have "utility" because there are persons whose desires they may satisfy. It must be recognized that these capacities or powers are the result of a relationship with a subject, for a commodity has no intrinsic value.of itself other -than in so far as it has meanings to a human being. Articles lying at the bottom of the sea have no value if they cannot be reclaimed by men, and, if all the people on an island were to die of a contagious disease, the goods they left would have no utility unless they could be acquired by other people. It Is the relative Importance of commodities to human beings that will be considered in this study. II. .THE PROCEDURE In the chapters that follow, we shall consider goods In their relationships with human beings according to con sumer attitudes of resistance or non-resistance. The importance of habits, as human cultivations resulting from both individual experiences and environmental influences, will be analyzed. Though we cannot observe the subjective resistance of the consumer at work, we can take account of the influence of this internal factor in his inertia to change, his hesitance to spend money, his disdain for inconvenience, and his opposition to sales pressure. It would be Impossible to treat the many and minute differences among individual consumers; hence we must limit our observations to groups. It must be remembered that, in referring to individuals, we are always thinking of those only who are representative or characteristio of groups. Demand will be analyzed under- both static and dynamic conditions; thus the time factor will be elevated to a place of prominence in our study. The resistance factor will be dealt with under different competitive conditions and will be considered in relation to marginal utility analysis, time preference, and place preference. After a general analysis of types of products in their relationship to human beings according to consumer attitudes of resistance or non resistance, some attention will be given to buyer motivation under present-day economic and social conditions. then be presented. An evaluation of sales theories will The older individualistic theory of "attention, interest, desire, action” will be compared to the later "situation-response" and ”want-solution” theories. Comparison of the objective methods of influencing demand with the more subjective theories will also be made. And, finally, a synthesis will be presented. III. WHO IS THE CONSUMER? Hot the least of the problems involved in a study of consumer preferences is a careful definition of the term "consumer.” Economists have-long set up a hypothetical person called the ’’economic man"; psychologist's have used a fictitious being that might be called a "psychological man"; salesmen have commonly referred to an assumed in dividual known as a "prospect"; and students of the economics of consumption have Inferred a person called a "consumer." Ordinarily, a ’consumer is defined as a human being who destroys or at least partly deteriorates goods. Nystrom points out, however, that in'a few cases the value of goods "consumed" does not shrink and that now and then it even increases.15 He had in mind certain kinds of art work. R. B. Perry’s definition of consumption as "use" and not "metamorphosis" or "annihilation" is much more helpful.-*-® But because we must distinguish between those who buy goods for use directly in the gratification of desires, such as those who purchase food to satisfy hunger, and those who buy foods for use indirectly in the satisfaction of a desire, such as purchasers of producers’ goods, it is better to de fine consumption as direct use of a commodity in the satisfaction of a desire. A consumer, then, is an ultimate or retail buyer or one who buys products for his own direct use. cit., pp. 34-35. "Economic Value and Moral Value," The Quarterly Journal of Economics. XXX;3, (May, 1916) 451-452. 10 The term 11consumer" or "ultimate buyer" often con notes a collective significance. When a person says that the-American buyer bought fewer -durable goods during the years 1929-1933 than he did in the years directly preceding, he does not necessarily mean that any one individual bought fewer durable commodities, but that American buyers as a whole decreased their purchases. A few might have increased them but buyers, collectively speaking, did not. The use of ■singular number does not imply an average buyer so much as it does a characteristic one— one whose actions in certain respects conform to those of a group. The more inclusive the term the more general the implications. Yet even the general expression, the American buyer, must connote certain meanings to those who hear the word used. To apply more specific meanings, "buyer" may be broken down into more limited classifications; we use such phrases as "the American housewife," "the American business man," "the American laborer," etc. Consumers may best be classified according to age, sex, family, habits, customs, standard of living, geographic area, occupation, purchasing power, and education, though much more general classifi cations may be used. p. 8. It is realized that these may overlap, 11 and that a group could be defined according to several of these classifications. Although the consumer is spoken of as an individual throughout these pages the implication is that he is a characteristic person who conforms in certain respects to a group. In our analysis of motivation, for instance, we are searching for what is common or uniform and not for the un usual i n .the reaction of the American buyer to certain stimuli. Since it has long been recognized that there is some behavior common to most human beings in any society, it is possible to use the term "consumer'1 in a very broad sense to signify the buyers of a country as a whole. This usage will be made in dealing with consumer motivation, but usually the term will be used in reference to a much smaller group. The consumer, then, may be said to be an ultimate or retail buyer, characteristic of a large or small group, who as a result of motivation and purchasing power, displays certain preferences in his purchases of goods or services. The preferences we shall study are those common to many persons who live ■under similar economic and social con ditions. Preferences which are peculiar to separate individuals present problems in personal differences which are'beyond the scope of a work as limited as this. 12 IV. OTHER DEFINITIONS Other words besides that of "constonier11 which need definition are "habit," "custom," "fashion," "mores," and "Institution." Expressions not included in this classifi cation will be defined as they are used. A habit, which is a conditioned reflex, is, simply speaking, a learned method of responding to a particular stimulus.^® Dickinson speaks of it as "a matter of per forming a certain chain of acts in serial fashion." Import ant principles governing the process are contiguity, frequency, recency, and similarity. One constituent reflex "serves as stimulus to the next one, and so on to the end of the series."!® An interesting economic consideration of the term is that of considering a habit as a "rational defense" for the consumer, who would rather rely on past judgment than sacrifice leisure in the painful task of making decisions.2®' Though habit does relieve the consumer of making endless decisions, we shall consider it a learned method of responding to particular stimuli as a result of experience rather than a course of action determined by 18 Cf. L. F. Shaffer, The Psychology of Adjustment (Boston; Houghton Mifflin Gompany, cl936 j, pp. 106-107. !® Z.- C. Dickinson, Economic Motives, Harvard Economic Studies, No. 24 (Cambridge; The Harvard University Press, 1922), p. 145. Cf. Henry Smith, "A Note on Time Elasticity of Demand," Economica, IV(New Series);15 (August, 1937) 315. 13 rationalization upon the utility to be derived, from leisure. It is true that the individual often takes stock of his habits and evaluates them with consequent resolutions to break some that have been developed and to acquire others. The complex of habits may even be spoken of as the character of the individual, for in their totality these tendencies of response account for much of the behavior of the human being. Yet many habits result from action that was originally no more than experimentation and hence cannot be spoken of as springing from rationalization. Most habits are prompted partly or wholly by environmental conditions. The principal difference between a habit and.an in stinct is that a habit is an acquired tendency to act or think in a certain way as a result of a particular stimulus, whereas an instinct is a natural or innate tendency to act in a certain way as the result of a particular stimulus. The phrase "a custom," like the phrases "a conven tion," "a prestige," or "a fashion," is a term used to indicate the power which the group exerts over the individual member.^ Habits which are common to many members of a group are likely to be accepted and imitated by others. Imitation, education, or inculcation may be responsible for the passing of some customs from one generation to another. 21 Cf. z. C. Dickinson, 0 £. cit.'. p. 216. 14 Keller offers an interesting explanation of customs by stating that they can be classified in a broad way ac cording to the "large and comprehensive interests of life." By constant attempts to satisfy hunger-interests, loveinterests, and vanity-interests and to allay fear-interests, men have unconsciously built customs around these interests. In extracting a living out of the physical environment, . to meet hunger, they fell into common ways of adjust ment to nature, so- that whole peoples are describable on the basis of the methods by which they meet their' hunger-interests; hunters, herders, tillers. These ways are the germ of all economic institutions, for trade, transportation, and the mechanism of exchange are really no more than instruments for handling the products of the extractive industries...22 Summarizing an analysis previously made by Sumner,23 Keller distinguishes mores from folkways by tabbing the latter as "popular usages and traditions," such as the tipping of the hat to women. Mores are more definitely fixed because they are "regarded as positively essential to the welfare of society." Honesty is an example.2^ Prom "clusters" of customs that arise to satisfy human interests society has "carved, like statues from rough blocks of stone," all its institutions.2^ crescive or enacted. These may be Grescive institutions start with 22 a. G-. Keller, M a n 1s Rough Road (New York: Frederick A. Stokes Company, 19327," P« 27. 25 W. GY Sumner, Folkways (Boston: 1907). 24 Qp, cit., p. 28. 25 Loc. cit. Ginn and Company, 15 folkways, become customs, "take shape" in mores, become fixed by rules— and the struct\;ire is complete. marriage, and religion are primary forms. Property, Enacted insti tutions are "products of rational invention and intention." Current usages are considered in the light of experience and systematization and regulation are provided. Banks are an example.26 Summarizing the distinctions between habit, custom, fashion, mores, and institution, we think of a habit as an individual tendency resulting partly from repetition in thought or action. Whereas the term "habit" applies to the individual, the term "custom" applies to the group. A cus tom is a tendency for a group to act in a particular manner. A fashion is a kind of custom, resulting from the tendency of a group to imitate certain members. It is many times a style or mode forced upon the group by com mercial interests. Often of short duration, fashion is exemplified in current styles of dress. Mores have an ethical implication and are usually the result of a belief that has become virtually an unwritten law. Institutions are procedures that have become crystallized and structuralized over generations and centuries. Habits, customs, fashions, mores, and institutions 26 W. G. Sumner, o jd . cit., pp. 55-54. 16 are often said to limit the choice of action of the consumer, hut such-a statement needs'qualification. The subject will be dealt with in the following chapter. V. BASIC ASSUMPTIONS Certain basic assumptions are necessary in carrying to its conclusion a study of this kind. As has already been implied, sellers, products, and consumers will be assumed to exist. Then, as the title implies, this study will be limited to American capitalistic society. Private property, individual initiative and enterprise* and opportunity for profits are thus implied. Relative freedom from governmental price-fixing and governmental interference with consumer selection of products is also assumed, although these may exist in limited degree. Consumer preferences would exist under conditions of wide-scale price-fixing but, to a certain extent, both choice and methods of influencing demand would be affected. exists, This study assumes that some price competition it also supposes relative freedom of the buyer i n - his selection of product, though it is recognized that external or' social influences often limit the choice of the consumer. Methods of influencing demand such as are in operation in the United States will be taken for granted* therefore conditions of monopolistic competition will be assumed. Product differentiation will, as a result, be considered condition of fact. CHAPTER'II CLASSIFICATION .OF PRODUCTS ACCORDING- TO MEANINGS Although no distinction is commonly made between a want and a desire, it is wise to distinguish between the two terms in the pages that follow. Haney’s discriminating definitions of these words are helpful. A want he defines as a "sustained tendency of the subject toward the object," which has served as an exterior stimulus. He says; The individual, without being conscious of motive, or knowing the means of satisfying It, tends to a ct in a non-purposive way with reference to the stimulus that comes from the object. He may come to "feel" a sort of vague general appreciation of the object, which may be described as an Imputation of utility.1 A desire, on the other hand, "is_ a tendency in which the difference between subject and object is consciously recognized by the subject, whose reaction to the object is affected by a consciousness of dependency upon it which is not present in a mere want. The action tendency resulting from desire implies a greater degree of consciousness of purpose and consequently a will to attain, satisfaction. 1 Lewis H. Haney, Value and Distribution (He?/ York; D. Appleton-Century Company, cl939), p. 164. 2 Ibid.. p. 170. 19 I. WHAT IS CHOICE? Choice is "the determination of the relative impor tance of two or more objects to one s u b j e c t . "3 Implying, as the term does, selection and alternative action, choice is often circumscribed by external forces, some of which are custom, fashion, mores, and institutions. Usually these forces do no more than set up boundaries within which the consumer is given some range of selection. True, a man in civilized society must wear clothing or go to jail. True, also, he must pay some attention to styles or bear the scoffs of other men. Nevertheless, he is given a range of selection in kind, qxiality, -and quantity of wearing apparel he buys. Customs do not prove the nonexistence of choice. They narrow it and often set up boundaries beyond which, the selection of the consumer is not likely to go. There is admittedly a high degree of correlation between custom and purchase. This means only that custom.is one of the factors present: with."many purchases. Other factors are also present. Therefore it is accurate to say that custom as an external influence may, along with subjective factors, be of causal importance in the choices of consumers. For example, a man may, because he feels that it is expected of him to 5 Ibid.. P* 171 20 appear on certain occasions in formal attire, purchase a full-dress suit regardless of misgivings concerning the personal pleasure he will derive from wearing it. Custom is a factor in the purchase, but so is a peculiar intermingling of the motives of self-gain and fear. Surely the seller should examine customs when trying to predict consumer actions, but he should not stop here. Customs vary with social groups and with localities.4 Tastes vary in so far as food, clothing, furniture, archi tecture, etc., are concerned. Nystrom sa3rs: There are widespread, national customs as well as local customs. Styles of dress, special foods and tjp es of domestic architecture are peculia.r to many countries and communities, hew England pie, southern corn bread, Mexican tortillas, Irish bacon, Scotch porridge-, German sauerkraut, and Chinese rice are distinctive foods, fixed in consumption by long custom.® The distinction between the influence of custom and that of habit on selection should be clear. Custom is an external influence; habit is not, though It may be influenced by external factors, such as customs.® confusing to say that habit limits choice. It Is Since habit is an acquired tendency to react to a certain stimulus In a particular way, it is better to say that present choice Is 4 Charles S. Wyand, op. clt., p. 202. .® Paul H. Nystrom, 6 Supra. p. 13. o jd . cit., pp. 61-62. 21 often based upon past choice. guides present action. In other words, past judgment Since learning is based upon experience, all of man's present actions are based partly upon previous ones. II. WHAT'IS A PRODUCT? A product may be simply defined as an object that has the capacity for satisfying a human desire. Care must be taken, however, that this definition does not lead to the Idea that utility is intrinsic In a commodity, for this quality is the result of a relationship between objects and a human being who has desires that they may satisfy.^ Nearly all consumption involves choice or selection in purchase, which means that utility Is relative. In the words of Haney, ’’most Individuals, In their producing and consuming activities, voluntarily choose among a range of alternatives which Is limited only by their own capacities and knowledges, and by their material environment."® In a system of positive economics, all products are looked upon *7 in this study, we shall use the definition of utility suggested by L. H. Haney, o j d . cit.. p. 15. Haney speaks of utility as "a mere potential relation between an individual and objects in his environment-~one which may develop into an.'urge' or ’drive' in the individxial toward the object." A good, then, is a means through which a human can obtain the satisfaction of a desire. ® L. H. Haney, o£. cit., p. 130. - 22 by buyers according to prospects of substitution, using this term broadly.0 In a- system of normative economics, utility tends to become an absolute quality, for. the aspect of individual self-interest is sacrificed for that of social welfare, and the opportunity for freedom of individual choice is lessened if not eliminated. The. question arises, who should make the choice under a system of normative economics? ' If we assume that there are consumer preferences, we thereby acknowledge that there is some choice. Since our assumption is that in most groups individuals have more desires than they can satisfy, the selection of one good must be made at the sacrifice of another. Since the concept of leisure, eo ipso, as a means of satisfying a human desire conforms to our definition of a good,10 we may say that it competes with other products which are used in gratifying d e s i r e s . H One may prefer leisure to other goods, or one may sacrifice it for other commodities. Since utility would not exist without human desire, it is- to the latter that we must turn in any attempt to 0 Of. R. B. Perry, op. cit., pp. 454-455. 10 Supra, Fn. 7, p. 21. 11 Gf. P. h. Rosenstein-Rodan, "The ROle of Time in Economic Theory," Economica, I(New Series):1 (Feb., 1934) 86 . 23 analyze goods. What are the desires of men? classification must begin with the trichotomy: psychological, and social desires. Any very broad -physical, In the first category are those for bodily gratification, in the second for mental or spiritual satisfaction, and in the third for prestige and recognition by one’s fellows. Physical and psychological desires usually result from two important factors, experience and association*-*-^. It is through experience that desires multiply and intensify. Persons 'living in comparative isolation are likely to have relatively few of them. Speaking comparatively, those with broadened experience- are likely to have many of them. Experience results in association. We learn to associate the satisfaction of desires with the means which we have used to gratify them In the past. Until our experience.is broadened, we sometimes use older but less efficient means Instead of available but untried newer and more efficient means of satisfaction, much depending upon the extent of our knowledge.Is 12 Some psychological or spiritual desires are the consequence of innate capacities, but experience is even then an important factor in the development of a desire. See distinction-between want and desire on p. 14. 13 Cf. Henry Smith, op. cit.. p. 316. 24 Social desires arise from m a n ’s gregarious qualities, his fear of isolation. Many of them are rooted in folkways, customs, fashions, and mores. Most men are followers, imitators, rather than leaders. They are content to do as a few leaders or the masses do rather than to set up in dependent standards of their own. 3-4 Thus folkways, customs, fashions, and mores arise and prescribe certain rules of conduct. Boundaries are set beyond which m a n ’s choice is not allowed to go without loss of social reputation or prestige. It would be very difficult to make any exacting dis tinction among desires on the basis of physiology, psychology, or sociology, for usually the three are inter dependent. Any fashion good may illustrate the interaction of all three— protection from the elements, personal pride, and social distinction. III. NECESSITIES, COMPORTS,' .DECENCIES, AND LUXURIES Economists frequently classify goods as "necessities" and "luxuries," sometimes adding the categories, "comforts" and " d e c e n c i e s . -"3-5 3.4 cf. a Adam Smith, one of the first to use 3uch . G. Keller, op. cit. . pp. 39-40. 15 Gf. T. N. Carver, Principles of National Economy (Boston; Ginn and Company, cl921), pp. 584-597. 25 a classification, included decencies as "necessaries. The difficulty In such, a disposition rests in the ambiguity of terms. The word "necessity" obviously implies something essential to the gratification of a want that -must be satisfied. But, in the words of Marshall, "When we say that a want must be satisfied, what are the consequences which we have in view if it is not satisfied?" Are these con sequences death, loss of efficiency, or discontentment? Marshall, himself, considers a "necessary" as a good which adds to the productive efficiency of a p e r s o n . ^ Carver defines "necessaries" as "goods which are required for the maintenance of physical health and strength, not only of the mature man but also of his family and even of his young children." He confesses the diffi culty of defining comforts, which are "not absolutely necessary for the maintenance of health, and strength," but which "can hardly be dispensed with in any society where life is really worth living." Decencies are "those articles of .consumption which the habits or customs of o n e ’s neigh borhood or one's class prescribe and without which the individual or the family would feel that it could scarcely Adam Smith, The Wealth of Nations (London* G. Bell and Sons, 1921), Vol. 2, pp. 402-403. I*7 Alfred Marshall, Principles of Economics. Eighth -Edition (London: Macmillan and Company, 193077 PP» 67-70. 26 maintain its position of -respectability." Luxuries are "articles of consumption which, are not demanded either by the physical health and strength of the people or by the rules of society, but are wholly matters, of individual indulgence ."18 Carver believes with Marshall that from the point of view of the employer or the lawmaker, "all those things which the customs of the time and country give to the laborer must be considered as necessaries," for a decrease in wages paid would not always mean an abatement in the use of luxuries but "would be quite as likely to cut down his consumption of physical necessaries as of those things which, from an absolute point of view, could be called decencies or luxuries.n1^ There is a tendency in popular usage to include conventional goods--those for which habits of usage have been acquired.— in the classification of necessities. Though these goods of themselves are essential neither to physical well-being nor to efficiency, they are often bought at the sacrifice of commodities considered as such. That a classification of goods according to. necessities, comforts, decencies, and luxuries is likely to hoc, cit. ££* £!£•» P* 587. 27 cause confusion is easily seen. Pew commodities are pur— -, chased without opportunity of choice and hence the idea of absolute utility is discarded for one of relative utility. Consequently, thei usage of such a term as "necessities” is ambiguous. An expensive automobile provides comfort but is usually considered a luxury by those with small incomes. Shoes are a necessity in winter, but a comfort and, in most parts of the country, a decency at all times. Juicy steaks provide energy, physical well-being, and efficiency, and yet they are luxuries to many people. For our purposes the classification -under discussion is unsatisfactory. We shall use instead of it one based-on the resistance attitudes of individuals. IV. GOODS CLASSIFIED ACCORDING T O ’RESISTANCE Since we are going on the assumption that all the desires a consumer experiences cannot be satisfied under ordinary circumstances, we must, generally speaking, dis tinguish between those that are and those that- are not gratified. The very fact that some desires are not satis fied is proof of obstacles or hindrances. A better under standing of these obstacles or hindrances, which will henceforth be referred to as resistance, means a better comprehension of desire. As any desire is intensified, the will of the 28 consumer to overcome the resistance to it is equally streng thened. The will to overcome resistance may be measured by the readiness of the consumer to make sacrifices to earn money and by the lack of hesitancy with which he parts with his' dollars to obtain particular commodities. There must be more than a willingness to sacrifice leisure to earn money, however, for the individual must not only have the capacity but in most cases he must also withstand a certain amount of irksomeness. Clearly, irksomeness, which is a negative factor, is something more than the mere sacrifice of a positive factor, leisure.^® The tendency to deal with choice as a matter of selection only in the satisfaction of positive desires ignores the dual concept of motives. A clearer conception of choice as affected by subjective resistance is that of taking cognizance of both a conflict between positive desires and between opposing motives. Since restraint is , sometimes stronger than alternative positive desires, allow ance is made' in this study for negative motivation. The positing of an alternative desire in the case of the indi vidual who desires a product and who has the purchasing power with which to buy it, but who hesitates because of a feeling that his action would be extravagant, seems more 20 p. N. Rosenstein-Rodan, loc. cit.t gives three concepts of time expenditure: e.g., leisure, disutility, and irksomeness. 29 questionable than the recognition of a negative•motive. It is true that even though the individual does not intend to spend the money for any other immediate gratification, and that though he has no definite thought of anything concrete on which he wishes to spend the money in the future, he has a remote feeling of some eventual need, and hence he has an alternative positive-desire in mind. Yet the immediate restraint is often far stronger and more definite than the alternative positive desire; consequently we are being realistic in taking cognizance of negative motivation. Impediments to consumer action may be either sub jective or o b j e c t i v e . 21 Subjective resistance results from a conflict of either opposing or positive motives and leads to a lack of decision on the part of the consumer. In the case of opposing motives, a negative and a positive motive conflict and cause indecision. In the case of conflicting positive motives, more desires are present than can be gratified and indecision arises over which ones are to be satisfied. The first type of internal resistance is thus explained by Woodworth: Conflict between the enterprising tendency to ex plore, manipulate or somehow launch forth into the new, and the negative tendencies of fear, inertia, shyness, etc., is something that recurs again and again in human experience, as illustrated by making up your mind to get'. 21 Cf. R. S. Woodworth, Psychology (New York: Holt and Company, cl921), pp. 528-539. Henry 30 up In the morning, or to plunge Into the cold water, or to speak up and have your say in a general conversation. There is a hesitancy in such cases, due to a positive and a negative tendency. The conflict may be resolved in favor of the negative tendency by. simple prolongation of the hesitation till the occasion for action has passed, or it may be resolved in favor of the positive tendency v/hen this is strong enough for an Instant to enable the individual to commit himself to the enter prise, after which he usually stays committed. The positive motive must for an .instant be stronger than the negative, in order to get action .^2 Certain deductions may be made concerning these opposing motives. If we assume that an action is repeated at Intervals of time sufficiently great enough to prevent the application of the lav/ of diminishing utility, we can say that repetition'of that action, if It brings any degree of satisfaction, will form habit tendencies which are in clined to break down indecision by causing the consumer to base present selection on past choice of action. If we were to assume that the act brings dissatisfaction, we can say, conversely, that greater resistance will meet each repe tition. If the action were to bring neither satisfaction nor dissatisfaction, the resistance to each repetition would remain the same. As actions that bring satisfactions to consumers are repeated the resistance decreases until it becomes virtually negligible. for granted. Actions of this kind may be said to be taken Substituting the word commodities for the word 22 Ibid., pp. 529-530 31 actions, we may say that commodities of this kind, after resistance has been broken down, are ones to which the consumer has an attitude of non-i’esistance. The second type of subjective resistance is described as vacillation. Woodworth says; Vacillation is certainly a very unpleasant state of mind. We want action, or else we want peace, but vacillation gives us neither. In spite of its irksome ness, v/e seem sometimes almost powerless to end it, because as soon as we have about decided on the one alternative, what we shall miss by not choosing the other comes vividly to mind, and swings the pendulum Its way.^2> After a decision is reached, the siibject "rationalizes,” "justifies,” and ."fortifies” It. either forgotten or deferred. Rejected motives may be A negative decision once made is not likely to be changed because the resolve not to sat isfy certain desires immediately is likely to result in an Increased resistance to the gratification of them.^4 While decision is the response to subjective resistance, effort is the response to objective resistance. Frequently the latter type is physical, such as distance, though it -Is ordinarily combined with subjective resistance, f.or the will to act must precede the effort to overcome 23 hoc, cit. £4 Conflicting positive motives are dealt with more fully in Section VII of this chapter. environmental obstacles. Though Impediments to consumer purchase are classed as subjective and objective, it must be recognized that the two are closely linked. A man may desire a. new home but feel that it would be extravagant for him to purchase one. is a negative motive, Although the feeling'of extravagance it is caused partly by limited fi nancial resources, an objective condition. Likewise, a consumer may have a desire for a new automobile and yet realize that the purchase of the car would result in the sacrifice of other gratifications. If the desire for the other.satisfactions is stronger than that for the auto mobile, the machine will not be bought. The obstacles to purchase are both subjective and objective: the conflicting desires are subjective, but the limitation of purchasing power is objective. One of the most accurate gauges we have for measuring resistance is that of consumer distribution of expenditures. Commodities which any class of consumers purchases regularly without hesitation may be thought of as non-resistance goods to them. This does not mean that the buyer felt no re sistance at the time of the original purchase, but it does mean that the hesitancy felt the first time is lost as frequent purchases of the same kind of product are made. T3qe original commitment or decision becomes the basis for judgment as successive purchases are made. 33 Original purchases are likely to be made because of desire intensity or objective pressure. Intensity of desire for a good Implies a recognition of dependence of the con sumer upon the product for a particular satisfaction. Objective pressure, on the other hand, connotes the influ ence of customs. Repeated purchases are likely to result in habits and the removal of resistance. Certain attitudes are formed, and the consumer takes on a' mode of living from which he is not likely to vary in any period of time too short to permit of a change in habits. Habits .of consumption are likely to vary with groups according to age, sex, purchasing power, etc.^b While the seller should study the consumer according to all class ifications, one of the most important is that of purchasing power, which in most cases is indicated by income. We arrive at the conclusion then that goods toward which the consumer adopts an attitude of non-resistance are those to which a consumer or class of consumers, through habitual purchase and usage, becomes so accustomed that this person or class expects repeated consumption at somewhat regular Intervals. The familiarity with the commodities in the gratification of particular desires brings a close association of the satisfaction of these desires with the* 25 Supra p. 8 . 34 specified, products. The commitment of the consumer to the satisfaction of these particular desires results in an inertia to change and the attitude of the individual becomes one of assumption that particular desires will be gratified in usual ways. Since an attitude of non-resistance is actually an 8.ttitude of insistence upon, the gratification of a certain desire, we may say that certain resistances to change are developed by the consumer. These resistances may be general or specific. ■ The latter type may be divided into two class ifications, specific-inclusive and specific-exclusive. General resistance is the inertia of the consumer to give up the satisfaction of one certain desire for the gratification of any other desire. In other words, the consumer will not discontinue to purchase the means of gratifying a certain desire so that he may purchase the means of satisfying any other desire. The term "desire” is subject to more than one meaning, however. It may be looked upon in a general sense according to its nature, or it may be looked upon in a specific sense according to taste. A variety of kinds of products will satisfy the desire for hunger, for instance, but only one will satisfy the taste for tea. .Inertia which prevents any consumer from substituting one type of product for another that would in a general sense perform a similar 35 function, we shall speak of as. "specific-inclusive resistance,” but inertia which prevents any consumer from substituting one brand of a particular type of product for another, we shall speak of as "specific-exclusive re sistance." A refusal to substitute cocoa for coffee would be specific-inclusive resistance, but a refusal to substi tute X for Y brand of coffee would be specific-exclusive resistance. Goods to which the consumer has an attitude of resistance are those to the use of which he has -not become sufficiently accustomed to take regularity of purchase for granted. These are goods which, although they may be often purchased, are bought only after some hesitancy or vacil lation on the part of the buyer. There has not been a sufficiently-repeated usage of this kind of article for the consumer to take an attitude- of assumption of regularity of consumption. There is still some reluctance on the part of the consumer which causes him to hesitate to part with his dollars in making a purchase. Some consumers may develop an attitude of non-re sistance to a particular kind of product to which other buyers have an attitude of resistance. It is necessary to turn to various classifications of consumers to consider the 26 Infra, pp. 80-83. 36 resistance factor. Those with incomes of more than a hun dred thousand dollars annually may form through habitual usage of a town car an attitude of non-resistance to the product whereas those with incomes of under five thousand dollars a year may have very much resistance to the purchase of such a commodity. It does not- mean that the man with'the lower income does not desire the product--!t merely signifies that his resistance to the purchase of it is very strong. Attitudes of non-resistance are not controlled by considerations of well-being' in any strict sense. Econo mists have long recognized that articles they have considered as. luxuries become so habitually used by certain classes of buyers that they are purchased at the sacrifice of commodities which others consider physical necessities.27 V. MODES- OP L I V p G A mode of living is an acquired v m j of living. It Is comprised of the many habits which tend to give the life of a person a routine element. These habits result either from the repeated behavior of the individual following originally motivated responses or from external pressures. Carver, 27 Cf. Alfred Marshall, 0£. cit.« p. 70. o jd . cit., p. 587. Also- T. M . 37 There has been a wide difference in the many defi nitions given for standard of living.. Earlier economists defined the term as the number of desires a person required satisfied before he would marry and have children.28 Sociologists sometimes imply a moral significance. One view presents a standard of living as "a scientifically deter mined schedule of expenditures" designed to attain an end that is socially approved .29 Mo differentiation is made between standard and plane of living by some writers.30 Eliot, in the Introduction to American Standards and Planes of Living, draws a distinction between standards and planes of living by referring to the former as "a set of habitual valuations" or "attitudes of insistence" and by considering the latter as "the actual distribution of real income in goods, services, and advantages r e c e i v e d ." 3 1 Although the plane of living frequently is "our best practical objective measure of standards of living," there 28 See R, T. Ely, Outlines of Economics. Third Edition (New York: The Macmillan Company, 1919), p. 438 and T. N. Carver, The Distribution of Wealth (New York: The Macmillan Company, 1928), pT 170. 29 L. L. Bernard, Standards of Living and Planes'of Living in American Standards and Planes of Living, Thomas D. Eliot, editor, (Boston; Ginn and Company, c 19311, pp. 5.7-58. 30 N. H. Cornish, The Standard of Living (New York; The Macmillan Company, 1923), p. 62. 31 0£. cit., pp. 1- 6 . 38 are times when a gap exists between the two, such as when income is lowered or when poorer persons would like to emulate richer ones. He points out that costs of living, amount of income, and changes in the standard of living may cause variations in the plane of living. Often we are not fully mindful of the goods we use habitually until these articles are taken away from us and then Yire make every effort to secure the satisfactions they give us once more. Standards are naturally much broader in import than are planes of living. Eliot emphasizes this. As Alison Cornish observes, standards include "not only present con sumption wants but also needs of the future."32 This writer points' out that such things as "size and composition of the family, place of residence, type of occupation, custom, fashion, emulation, advertising, experience, and education" influence the standards of living.33E l i o t ’s distinction is helpful in that it differ entiates between the subjective and objective, but it is unilateral. Not only do standards affect planes, but planes affect standards. This point is observed by Cornish: 32 ’’Capacity to Consume," The American Economic' Review, XXVI:2 (June, 1936) 293. ■ . 33 hoc. cit. 59 It will toe seen that the factors of wants and of goods and services available are Interdependent. When wants are made effective, they are a determining influence on what goods and services will toe produced. Goods and services available, conversely, may determine wants, especially.through advertising.34 Careful attention to the actions of consumers shows us that the object or stimulus often brings a response which, after repeated action at intervals of time,-forms a habit. Habitual ways of responding to the stimuli of certain goods we shall consider as a mode of living. Attitudes toward commodities which spring from changes in a person's status in society, such as those resulting from education or from variations in environment or customs, we shall treat as the standard of living. The former has a more economic and quantitative, and the latter a more characteristic and qualitative significance. The importance of discriminating between attitudes may toe seen In the human being's tendency of thinking that what is should be. The longer what is taking place has taken place the more likely a person is to think that it is what should take place. The longer he follows certain habits of buying the greater becomes the inertia to change. It is important to recognize that modes of living may vary . because of standards. 34 Ibid.. p. 294 Attitudes created by changes in the 40 c harac ter^ 0f the individual may "bring new experiments with goods and, as a consequence, a new set of habits. VI. -EFFECT OF INCOME. CN MODS OF LIVING It must be clear, of course, that for some indi viduals income and purchasing power are not the same. Savings accumulated from Income in the past, as well as gifts and inheritances, may cause purchasing power to exceed Income at any one time. However, it is true that for most persons•Income .constitutes the major part, if not all, of purchasing power. It is because of the available data on Incomes as compared to those for total purchasing power that the former instead of the latter is dealt with here. The National Resources Committee made a study of consumer incomes in the United States for 1935-1936.36 This survey includes the incomes both of individuals and of families. It defines the former as individual householders, listed as one-person families by the census; single persons 35 pt should be remembered that the word "character ’1 has a social significance, but not an ethical one. * Consumer Incomes in the United States; Their Distribution in 1955-56 (Washington: United States Govern ment Printing Office, 1938). An interesting account of the concentration of individual incomes is given in the Tempo rary National Economic Committee report, Investigation of Concentration of Economic Power, monograph No. 4, Concen tration and Composition of Individual Incomes, 1918-1957 (Washington: United States Government Printing Office, 1940). 41 residing in lodging houses or hotels* servants or lodgers living in private homes, and sons and daughters residing with parents but paying for board and room instead of pooling earnings with family Income. The definition did not include those living i n 'institutions but took in single Individuals on relief .37 Family incomes were based on a sampling of families and a tabulation of material according -. to homogeneous groups. to tax data .38 The results were adjusted according Incomes varied considerably with geographic area. As shown in Tables I and II, more than 9 per cent of Individuals in the United States had Incomes of less than $>250 a year and almost 4 per cent of the families received less than this amount. Of Individuals, more than 80 per ■cent, and of families, almost 65 per cent received less than $1,500 a year. Less than 1 per cent of either single individuals or families had incomes of more than $ 10,000 annually. The highest percentage of individuals in any one income bracket was 19.62 in the $500 to $750 level, whereas the highest of families in one level was 14.55 in the $750 to $ 1,000 bracket. 37 Ibid.. p. 30 38 Ibid.. p. 14 I TAbJab Distribution of single Individuals and of aggregate income received, _______ by income level, 1955-365§ ____ ■ Single Individuals Income level Under $250 $250-<po^ <?!: $500-$750 *750-Sl,000 f il j000-lpl, 250 |l,250-|l,500 $1,500-f1,750 $1,750-82,000 $2,00042,250 S2,250-$2,500 $2,500-|5,000 $3,000-$3,500 ' $3,500-14,000 §4,000-$4,500 $4,500-$5,000 $5,000-87,500' $7,500-$10,000 $10,000-$15,000 $15,000-$20,000 $20,000-125,000 $25,000-$30,000. -30,000-|40,000 $ 40,000-$50,000. S50,000-|100,000 T100,000-1250,000 5250,000-$500, 000 $500,000-$l,000,000 $ 1,000,000 and over All levels Aggregate income Per cent Cumu'Amount lurnber at each lative (in thoulevel per cent sands) 960,644 1,571,983 1,972,745 1,599,030 1,108,551 877i956 546,54-6 398,985 283,652 210,099 161,275 108,360 63,731 36,105 25,491 57,316 88,582 20,861 9,436 5; 617 3,350 2,398 1,737, » 2,470 808 217 • 4-3 12 9.55 15.63 19.62 15.91 11.02 8.73 5.43 3.97 2.82 2.09 1.60 1.08 .63 .36 .25 .57 .28 .21 .09 .06 .03 9.55 25.18 44.80 60.71 71.73 80.46 85; 89 89.86 92.68 94.77 96.37 97.45 98.08 98.44 98.69 99.26 99.54 99.75 99.84 99.90 99.93 99.95 99.97 99.99 .02 .02 .02 .01 100.00 <*) <#> (*) ----- - $158,302 1.37 ■ 600,854 5.19 1,231,636 10.63 12.01 1,391,492 1,240,682 10.71 1,201,347 10.37 883,223 7.63 745,400 6.44 600,779 5.19 497,260 4.29 436,150 3.77 349,494 3.02 237,497 2.05 154,458 ■ 1.33 1.06 122,319 344,315 2.97 242,188 1.09 250,325 -2.16 160,910 1.39 126,874 1.10 92,701 .80 80,882 .70 75,622 .65 153,468 1.33 98:,452 .85 64,324 .56 23,849 .21 14 ,-587 .13 $11,579,390 ' 10,058,000 100.00 ..... Less than 0.005 per’ cent". ■ Per cent at each level Cumulative per cent • 1-.37 ' 6.56 17.19 ‘ 29.20 39.91 50.28 57.91 64.35 69.54 73.83 77.60 80.62 .82.67 ; 84.00 ' 85.06 88.03 90.12 ‘92.28 93.67 • 94.77 95.57 96.27 96.92 98.25 99.10 99; 66 99.87 100.00 100.00 ~ 39 Consumer Incomes in the United States; Their Distribution in 1935-56 (Washington; United States G-0v erhmeht “Printing Office, j.y38), p .50. ■ Distribution of families and of aggregate income received., by. income level. 1955-56^° Families Income level Number Under $&5(7 $250-$500 <1500-* l750-|l,000 $1,000-$1,25Q $1,250-^1,500 81,500-11,750 &1;750-^2,000 $2,000-|2,250 82,250-^2,500. $2,500-^3,000 $3,000-83,500 §3;500-84,000 X/ * -I14, 000—f,;4,500 $4j500-$5,000 $5,000-$7,500 $7,500-$10,000 $10,000-115,000 1-15,000-820,000' $20,000-825,000 125.000-130,000 $30,000-140,000 $40,000-850,000 850.000-1100,000 $100,000-8250,000 $250,000-$500,000 |500,000-$1,000,000 f>l,000,000~and over All levels ss Aggregate income Per cent uumuAmount at each lative (in thou level per cent sands ) 1,162,890 3,015,394 3,799,215 4,277,048 3,882,444 2,865,472 2,343,358 1,897,037 1,420,883 1,043,977 1,314,199 743,559 438,428 249,94-8 152,647 322,950 187,060 131,821 58,487 34,208 22,233 15,561 ■6,603 10,571 3,336 699 197 75 3.95 10.26 12.92 14.55 13.20 9.75 7.97 6.4o 4.83 3.55 4.47 2.53 1.49 .85 ;52 39,400,300 100.00 1.10 .64 .45 .20 .12 .08 .05 .02 .04 .01 (*) (*) (*) 3.95 14.21 27.13 41.68 54.88 64.63 72.60 79.05 83.88 87; 45 91.90 94.43 95.92 96.77 97.29 98.39 99.03 99.48 99.68 99.80 99.88 99; 93 99.95 99.99 100.00 Per cent at each level 0.28 2.45 f 135,836 1,166,509 2,384,017 3,738,014 4,348,429 3,907,765 3,777,570 3,468,803 3,002,082 2,471,672 3,568,624 2,385,993 1,625,887 1,048,368 719,447 1,900,091 1,605,632 1,496,600 1,013,664762,240 627,567 560,390 314-, 689 755,017 440,554 200,174 110,954 142,650 7.48 5.00 3.41 3.20 1.51 3.99 3.37 3.14 2.13 1.60 1.32 1.18 .66 1.58 .92 .42 .23 .30 |47,679,238 100.00 5 ;00 7.84 9.12 8.20 7.92 7.27 6.30 s;i8 Cumulative per cent 0.28 2.73 7.73 15.57 24.69 32.89 40.81 48.08 54.38 59.56 67.04 72.04 75.45 77.65 79.16 83.15 86.52 89.66 91.79 93.39 94.71 95.89 96.55 98.13 99.05 99.47 99.70 100.00 0* 005 per "cent'. 40 Consumer Incomes in the United States: Their Distribution in 1955-56 (Washington: United States Government Printing Office, 1938} p. 18. 44 Man j studies have, been made-of the distribution of family expenditures' according to size of income .44 Waite and Cassady estimate that more than 450 of these have been made in the United States .42 ^ more recent one is that of the Bureau of Labor Statistics cited in a report of the Temporary National Economic Committee.43 in this report it is shown that for the period 1935-1936 the income residuals remaining after food, home maintenance, clothing, and personal care have been provided for varied somewhat inver sely according to the size of the community but directly with the amount of income received. The variations accord ing to incomes are portrayed by the following figures; Income $750-|l,000 Residual percentage -8 to 20 $1,000-$1,250 7 to 21 $1,250-$1,500 10 to 28 $5,000-$7,500 32 to 51 $10,000 and over 44 51 to 68 44 National Resources Committee, Consumer Expenditures in the United States; Estimates for 1955i~36 (Washington; United States Government Printing Office, 1939), 42 Ojd• cit., pp. 184-185. ’ ^ Investigation of Coneentration of Economic Powe r , Monograph No. 1, Price Behavior and Business Policy, TWashington; United States Government Printing Office, 1940), pp. 132-133, 265. 44 Report on this group covers only a few areas A general tendency for percentages of residual to decrease with increase in size of city was shown, though this was' not true of the Rocky Mountain District, Likewise, ' according to area, larger percentages of residual were found in the west, and particularly in the northwestern states. This might have teen caused, partly, at least, .by higher prices in the eastern states. These' figures show that for.those in the lower income brackets very little remains after expenditures are made to provide satisfaction of the more fundamental desires of lifef^ hot only is the range of goods to which the consumer has developed attitudes of non-resistance through habitual usage limited, but experiments with commodities are restricted because of the lack of residual income. Consequently, novel expenditures for goods not habitually used are likely to be indulged in only for cheap commodities because of the high degree of resistance to the purchase of expensive commodities.46 This is-shown in the figures representing the re lationship of purchases of electric refrigerators, power 45 a fundamental desire is one which is not re stricted to any group of consumers, but which instead is likely to be common to all human beings. 46 c f . Yv'alter B. Pitkin, The Consumer; His Hature and His Changing Habits (Hew York; McGraw-Hill Book Com pany, 1952), pp. 222-225. washing machines, and vacuum cleaners to the incomes of families .417 The report, based on figures compiled by the Bureau of Labor Statistics for 1934-1936, covered three in come levels; #1,000, $1,600, and $2,100 a y e a r . 4 ^ With the exception of washing machines, the point of saturation rises directly with increases in income. For example, purchases of electric refrigerators in any one year in the $ 1,000 level were made by bnly 1.1 per cent of the families, but in the $2,100 bracket by 12.1 per cent. It is interesting to note that the percentage.of families purchasing washing machines in the $2,100 level is slightly less than that In the $1,600 bracket. This fact Is explained by the tendency of families to patronize laundries after higher income brackets are reached. It is also interesting to note the high percentage of homes in all but the very lowest income brackets owning radios.4^ This can be explained 'igr the fact that most families have developed attitudes of non-re sistance to the purchase of this commodity. 4>7 Temporary National Economic Committee, op. cit., pp. 120-130. 48 Ibid., p. 130. 49 Ibid.. pp. 128-129. 47 VII. INFLUENCE OF EDUCATION AND ENVIRONMENT The hesitancy to part with dollars cannot be measured by size of income in relation to prices alone, for It must depend partly upon the number of desires competing for satisfaction.- The point of view taken here is that desires spring largely but not absolutely from experiences with commodities. environment. Desires may arise from education arid Knowledge, advertising, and observation are important factors In changing the attitudes of consumers. Resistance depends, then, not only upon income or lack of it, but also upon the number and Intensity of desires competing for the consumerfs income. If we consider the intensities of desires of two consumers equal for the moment, we can make a comparison of their problems of choice by assuming that their incomes are the same but that their desire capacities are different. This Is illustrated in Forms I and II, showing the relation between Income and number of desires. We are supposing for the sake of analysis an unlikely condition in which the consumer represented by Form I has no greater number of desires than he has the Income with which to provide gratifications. The consumer illustrated by Form ll has just twice as many desires as he has the income with which to provide gratifications. Since the first consumer has h o greater desire capacity than he has LI LI U LI HI LI 14 HI IH r i ri n n M ij ij ij 14 14 n u 14 M LI LI u LI ri LI HI HI 14 14 11 u LI U LI n n ij ij LI HI LI HI 14 14 14 14 H n |nh*| n 0 LI HI HI ri n HI HI h LI LI HI LI HI mm 7 FORM : Income in number of dollars. 9 8 7 »i n 11 ij 14 5 4 3 5 4 3 . —.J....... 14 13 12 11 10 14 6 6 2 \1 |J Imn I Ci mm n Ci n mm 2 1 INCOME IN RELATION TO NUMBER OF DESIRES Desires in terras of dollars .required for gratification. FORM II. Income)in. Desires in number of •terms of doldoliars, lars requir ed for gratif ication. 49 purchasing power, he Is likely to have little relative resistance to the purchase of means of satisfaction for all his desires. The consumer represented by Form II has a much greater relative resistance to the expenditure of his dollars, for, because his desire capacity in terms of the money re quired for complete gratification is twice as great as his Income, he has a problem of selection. If the consumer represented by Form II were .to ex perience a change the results of which were to cause both Income and desire capacity to be increased proportionately to twice their present magnitude, his problem of selection would become more complex even though the ratio between income and desire capacity remains the same. If the ratio were to change from t*vo to one to four to one through a further expansion of desires, the problem of selection would become far more complicated, for a still greater proportion of desires to income would have to go unsat isfied. The difficulty of attempting to measure accurately the desire capacities of consumers is recognized; never theless we can, by assuming that some conditions are known, use comparisons which help us in drawing certain general conclusions. We know.that an indication of. desire capacity is found in the experiences, education, and environment of individuals. Since desires are based partly on experience, 50 capacities increase with broadened experience, and since experience with products broadens with. Increased purchasing power, we may say that desire capacities Increase with high er Incomes. They do not necessarily Increase proportion ately, however, for some consumers in lower Income brackets may have proportionately larger desire capacities than those in much higher levels. • One of the most important tasks of the seller is that of educating the consumer in the use of newer and more efficient products. In doing this the difficult part of the task is that of overcoming the Inertia of the mode of living. In this respect the seller must take into consid eration the factors that make up the standard of living. The attitude of many is that, since d_esires are considered to be limitless and purchasing power limited, the only way to turn desires to purchases is by Increasing the Income of the individual. true. This argument is only partly Comish refers to the savings of the rich as a con tradiction of this argument.50 Economists have long observed that some consumers, because of the lack of inten sity of their desires, devote less effort to increasing 50 Q£. cit., pp. 291-292. The point of view ex pressed in ouir study is that desires of thems.elves may be ' • unlimited but, becauise of the lack of Intensity and the strength of the resistance, the consumer may anticipate the satisfaction of very few of them. Because of this some may be so remote as to border on Indifference. 51 their incomes than they would if they were stimulated "by stronger motivation. ' On this point Carver says: It is a well-known fact that in certain low states of civilization the laborer or the peon is content with so few articles of consumption that he will not work efficiently or steadily. If by working three days In a week he can earn wages enough to support him, in the style to which he is accustomed, for seven days, he will ■work only three-days in the week. It has been generally recognized that the only cure for this difficulty is to raise his standard of living .and Increase his wants, so that he will, have a motive for ’regular and steady work.§! Ho one 7/111 deny that an increase in purchasing power usually causes an increase in demand in situations other than those of large incomes, for such an increase is tantamount to a decrease In objective resistance. It Is also true, however, that a heightened desire capacity as the conse quence of a change In attitude also increases demand, neither of these causal factors should be overlooked. •When we speak of limited desire capacities, we not only refer to number but also to intensity of desires* A consumer may have many desires, but, if the intensity is not great enough to overcome the resistance to satisfaction, he may be said to have a limited capacity. If desires can be intensified to the place where resistance is broken down, or to the extent that income is increased to make purchases easier or more possible, consumption increases. ■5-*- T. IT. Carver, Principles of national Economy, p. 589. 52 Our analysis, as yet is very incomplete, for we have not given attention to quantity as a variable which under conditions of diminishing utility has an important effect on resistance in general. And while we have given some consideration to income as a variable, we have not treated resistance under conditions of price changes of specific commodities, during times when general price levels remain the same. These considerations will be given attention in the following chapter. Any rise or fall in the general.price level without a proportionate change in income has an effect on the consumer similar to that of a decrease or increase in income; consequently changes in the general level of prices need be given no further consideration. Resistance may increase or diminish and habits change with any fluctuation in real income. VIII. CONCLUSIONS Thus far our efforts have been devoted to placing emphasis on a factor i n .demand that has been given too little attention: -i..e., the element of resistance. Our contention has been mainly that resistance, both subjective and objective, can .be measured to a certain extent at any one time by'the readiness or the reluctance'of the consumer to part with his dollars,^though the possibility of 53 Increased sacrifice to earn more money has been recognised. In classifying goods according to consumer attitudes of resistance or non-resistance, we are not basing our disposition upon any Inherent qualities in commodities, but instead upon a relationship between a human being and-his environment. This relationship is not restricted to the consumer and a single product, but to a selection of some goods from many. Choice is not the outgrowth of an attitude of a subject for a product in isolation, but of an attitude of an individual to'a product or number of products that exist in interdependence with many others In the environment. CHAPTER III CONSUMER DEMAND AS AFFECTED BY RESISTANCE In this chapter we shall consider demand -under con ditions in which it is unaffected by any kind of sales stimulation. Consumption under conditions of this kind is purely a matter of the consumer's attempting to gratify certain desires by exercising freedom of choice. The seller does no more than provide the means of satisfaction-without any effort to change or alter the selections of buyers. Demand is often defined as consumer willingness to buy linked with purchasing power. A better definition characterizes It as the series of quantities of a good which would be purchased by consumers in a given market, at a given time, at different prices per unit.-1- The laws of supply and demand are often explained: (1) when supply at a prevailing price is exceeded by demand, the price has a tendency to rise, and, conversely, when demand is exceeded by supply, the price has a tendency to fall* (2) demand has a'tendency to fall and supply to increase with a rise in price, and, conversely, supply has a tendency to decrease CJT* W. F. Ferger, "The Static and the Dynamic in Statistical Demand Curves," The Quarterly Journal of Eco nomics, XLVIIsl (November, 1952 ) ~ W . 55 and demand to increase with a fall in the price of any good; and (5) price tends to settle in the penumbra of the point of equilibrium at which the opposing forces of supply and demand are balanced.^ More specifically, the law of demand is that the quantity of any good that would be demanded at a series of prices varies inversely with price. This is explained for individual consumers by the law of diminishing utility, for individual producers by the law of diminishing productivity, and for groups of buyers by the differences in desires and in purchasing power. In Marshall’s Principles of Economics, the book upon which orthodox economic theory has been based in this country, the supply side is treated according to time periods, and consideration is given to periods which are so short that the quantity of any good offered must be taken as fixed and to longer periods in which production fa cilities may be changed. The demand side has been treated mainly under conditions of market time, however, with no provisions made for changes in habits, income, or personal ^ Of. H. D. Henderson, Supply and Demand. Cambridge Economic Handbooks, Ho. 1 (Hew York* Harcourt, Brace and Company, cl922), pp. 18-19; and Alfred Marshall, op. clt.. p*. 345. The latter says; ’’When demand and supply- are -in equilibrium, the amount of the commodity which is being pro duced in a unit of time may be called the equllibriumamount. and the price at which it Is being sold may be called the equilibrium-price.” 56 conditions.S There lias been a recent tendency for theorists to give attention to the time element in demand.4 This chapter will deal with (1) time that is too short to permit of change and (2) time that is long enough to allow changes to occur. I. INDIFFERENCE-CURVE ANALYSIS What are now called indifference curves were used by Marshall in presenting.the benefits to be attained in foreign t r a d e . 5 These curves were based on the principle of diminishing utility. Later Edgeworth, Pantaleoni, and Pareto used them, the last named in his consideration of economic equilibrium.® Marshall’s explanation of the ad vantages of foreign trade through indifference curves was that as increased total quantities of any good desired by a country are received in exchange for a commodity possessed, ® Ruby T. Norris, "The Analysis of Demand," The Quarterly Journal of Economics, LIV:1 (November, 1959 7 13l'-T4'2; 4 Of. Ruby T. Norris, loc. cit.; P. N. RosensteinRodan, b £ . cit., pp. 7 7 - 9 7 j and Henry Smith, 0£. cit., pp. 309-322. ® Edmund Whittaker, A History of Economic Ideas (Longmans, Green and Company, New York: 1940), pp. 4-48-449. The use of indifference curves in analyzing foreign trade Is also treated in a somewhat recent article by W. ¥. Leontief, "The Use of Indifference Curves in the Analysis of Foreign Trade," The Quarterly Journal of Economics, XLVII:3 (May, 1933) 493-503. ® Edmund Whittaker, loc. cit. 57 the desire to exchange loses intensity.^ John Hicks has made an interesting elatoration upon the work of Pareto, in which he translates diminishing marginal utility in terms of indifference curves and the diminishing marginal rate of substitution.® Hicks points' out that a "given want" to Marshall must .mean an assumption of a given "utility function" or desire intensity for a particular collection of goods, whereas he explains that a given -want to. Pareto need only be a given "scale of prefer ences." The marginal rate of substitution between two com modities is defined as the quantity of one good which just compensates the consumer for the loss of a marginal unit of another. The price of a commodity "equals the marginal rate of substitution of that commodity for money."® The di minishing marginal rate of substitution is explained by the fact that the amount of one good which has to be subtracted to set off an additional unit of another "will be less than that which has to be subtracted in order to set off the first unit."-*-®. The difference between the diminishing ^ ho°« cit. ® John Hicks, Value ana Capital: An Inquiry into Some Fundamental Principles of Economic Theory (Oxford; The Clarendon Press, 1959), pp. 11-41. 9 Ibid.. p. 20.. 10 Ibid.. pp. 20-21. 58 marginal rate of substitution and diminishing marginal utility is explained by reference to Marshall’s treatment of the marginal utility of money as constant. The con sideration of money as ’h aving a constant marginal utility, Hicks points out, leads to neglect of income differences in the treatment.of demand. As a consequence, Hicks makes use of what he calls an income-consumption curve. A valuable contribution made by Hicks is his sug gestion of the importance of particular price changes under conditions in which the general level of prices and income remain the same, which results in a positive or negative income effect.-*--*- Conditions of price change in this respect will be treated later. Though H i c k s ’ presentation is more literary .than are the so-called "pure” theories of consumption, which are expressed in terms of mathematics,12 very largely the same criticism applies. consideration.15 The time element is not taken into In addition to this, the principle Ibid., pp. 42-52. ' : •^ Georgescu-Roegen, "The Pure Theory of Con sumer ’s Behavior," The Quarterly Journal of Economics, L:4 (August, 1956) 545-593; Umberto Ricci, ""The Psychological Foundation of the Lav/ of- Demand," The -Journal of Political Economy, XL;2 (April, 1932) 145-185; and P.A. Samuelson, ’ T F Note on the Pure Theory of Consumer’s Behaviour, Economica, V (New Series);17 (February, 1938) 61-71. 15 Oskar Morgenstern, "Professor Hicks on Value and Capital," The Journal of Political Economy, XLIX:3 (June, 1941) 361-393. Also Gf. Emil LedereF, "Developments in Economic Theory," The American Economic Review, Supplement, XXVI *1 (March, 1936T-lF£h 59 advanced In Indifference-curve analysis can only be extended to more than two goods by changing the graphic portrayal to an "algebraic version."14 II. CONSUMER PREFERENCES IN THE SHORT RUN Choice Is always a matter of decision, but It Is not always a matter of current verdict. Many selections are based upon past decisions as In the case of purchases made as the.result of habits. Instead of choice being flexible in the making of selections, it becomes rigid in so far as many purchases are concerned. Contractual commitments and home and family responsibilities tend to prescribe conduct for periods of time.3-5 A person may bind himself to pay premiums on a life insurance policy for twenty years, he may obligate himself by Incurring debts for durable goods, or he may feel the responsibility of.providing certain means of education for his children till- they are grown. Our present problem Is a consideration of demand in the short run, or In time which is so short that no changes in income, prices, or attitudes of resistance or nonresistance occur. Income can be increased or decreased,' however, by drawing upon or by making savings. During the 14 John Hicks, o£. cit., p. 45. 15 Cf. Ruby T. Norris, o£. cit., pp. 132-155. 60 short rim we assume that attitudes of non-resistance to purchases or to expenditures, which are determinants of current choice on the basis of past decision, are suf ficiently rigid that'they do not vary. Considering savings as expenditure for future preferences, and recognizing that habits of saving may be just as fixed as those of purchasing certain goods,1® we can divide income in the short run into two classifications: • (1) that spent on goods to which the consumer has developed an attitude of non-resistance or that expended as a result, of previous commitments, and (2) that which is residual. The expenditures in the first category are made as the result of fixed attitudes and do not change in the short run. The expenditures in the second category are made up of those which are purely experimental and those which, though they are not experimental, are made only after some degree of hesitation or vacillation.^ The residual income for those in the lower income brackets is likely to be smaller.than it is for those in the higher income levels.-*-® The_ situation is altered consider ably by conditions prevailing at any given time. As the end •16 Infra Ch. V. II Cf. Ruby T. Norris, o£. cit.. p. 134. The margin referred to below which the consumer does not think it worth while weighing expenditure could more effectively be ex plained according to the resistance factor. I® Supra pp. 40-46. 61 of an income period is reached, individuals are more likely to have a greater resistance to spending any part of re sidual income, because of its diminished amount, than they are during an earlier part of the period.19 Since the resistance to the expenditure of any part of residual income is proportional to the amount of the residual income at that given time, resistance varies according to the time under consideration. The rigidities in income expenditure can be best studied according to groups. The age^O of the individual and the sise of his income are important. single or married, the number of his social circles in which he moves Whether he is dependents, and the are all determining factors. III. CONSUMER PREFERENCES IN THE LONG RIM By consumer preferences in the long run we mean in time sufficiently long to permit changes in income, prices, and attitudes of resistance or non-resistance to particular 19 Ruby T. Norris, o j d . cit., p. 135. The im portance of considering time in the income period is exempli fied in the test referred to by H. A. Burd and C. J. Miller, Business Letters: Their-Preparation and Use (New York; McGraw-Hill Book Company, 1930), p. 288, in the collection of accounts. Collection efforts were found to be much more effective toward the first than toward the end of the month. Ruby T. Norris, op. cit., p. 139, observes that fixed policies of expenditure develop with age. 62 expenditures. The importance of income in consumer prefer ences has already been noted.21 The effect of a change in price of any commodity regularly used at a time when income and the general price level remain the same will he treated ’ ■ «* in later sections of this chapter dealing with the principle of substitution and elasticity of demand. In this section, we shall consider mainly changes In attitudes of resistance ' or non-resistance. In the long run, consumers are able to evaluate their habits of expenditures and to change their mode of living. Judgments can be made more effectively after experiments involving risk and speculation have already been made and the consumer can evaluate the satisfaction or disappointment In each case. The buyer can amend his habits and com mitments and bring them more into line with his standard of living or his Ideal conception of life to which he aspires. The element of speculation and risk arising from the consumer's attitude of resistance to the exchange of leisure for knowledge in making d e c i s i o n s ^ is counterbalanced by experiences of satisfaction or dissatisfaction resulting from novel purchases. The risk present at the time of the first purchase is no longer present when repeated purchases Supra pp. 40-46. 22 gf. Henry Smith, 0£. cit.. pp. 316-317. 63 are made. The experience received serves to guide the consumer’s later action. Thus the tendency for a.person as he grows older to base his judgment in making purchases more and more upon experience and to rely less upon speculation is a sign 01 greater rationality of choice but at the same time of greater rigidity of expenditures. It must be clear, h o w e v e r , that all purchases, regardless of the risk or speculation involved, are made because the consumer has desires which he believes the goods he buys will satisfy. His purchases are based purely upon expectations of satisfactions.^ jp purchase is a novel one, there is some degree of speculation and risk since the satisfaction anticipated may not be realized. If the purchase is merely a repetition of a previous one, the element of speculation is lessened, if not eliminated. Thus consumer preferences In the short as well as the long run can' be explained in terms of marginal utility though better so in the long run because of the buyer’s possession of greater knowledge. IV. PRINCIPLE.OP DIMINISHING UTILITY Since the degree to which a consumer overcomes Oskar Morgens tern, o£. cit., p. 385 Fn., s¥iggests the word "anticipation” as Including foresight, planning, and expectation. Though he had producers in mind, It can be assumed that consumers have some degree of foresight and do some planning. 64 resistance depends partly upon the relative intensity of the desire, and since the relative desire intensity for any good diminishes with the consumption of each additional unit of the product at a given time, resistance may he said to in crease proportionately to desire satisfaction with each quantitative addition,of a unit of product. The consumer tends, therefore, in the short run to expend his residual income and in the long run to emend his commitments in such a way that, relative to resistance, the anticipated marginal utilities of all goods he purchases are proportional to the prices thereof. The anticipated utility of the last unit purchased must offset the reluctance of the buyer to part with the number of dollars required to pay for it. If the antici pated utility is greater, relatively, the buyer feels he is making a good purchase. If, however, the resistance to parting with the sum required to pay for a unit is much greater, relatively speaking,, than the anticipated satis faction to .be received In the consumption of that additional quantity, the consumer is likely to forego the gratification offered by that unit of produot.24 24 jevons worked out pleasure and pain curves. The pain or disutility was representative'of the labor performed' that the consumption might be enjoyed. "Cf. Edmund Whittaker, op. cit., pp. 449-450. In our analysis, we are assuming that a consumer has a-reluctance to part with money whether he has earned it or not. Those on relief have some hesi- ' tancy In spending their Incomes for some products as against others. 65 When we speak of goods to which the consumer has adopted an attitude of non-resistance, we must make quantity as well as commodity distinctions. Buyers form habits'with regard to amounts the same as they form habits with regard to kinds of articles, and they take for granted only par ticular quantities of consumption of certain goods. These amounts are purchased without hesitation or vacillation. ■Additional units are bought only after hesitation and vacil lation. ‘ When a consumer decides to make an unusual expendi ture that is relatively large, he does not ordinarily discontinue the consumption of any one product in its entirety but cuts down on the quantity of many other arti cles used in order to make up for the additional expendi ture. If it is not large, the expenditure is usually made from the residual income. If this unusual expenditure becomes a usual one, the consumer makes an adjustment in his mode of living and accustoms himself to the changes. The modes of living of progressive people are constantly in the process of adjustment. Changes are very gradual and hardly discernible at any one time but are easily noticeable over a period of years. Because of their many desires, advanced people are likely to spread the satisfaction of desires rather thin to make limited Incomes cover wide demand surfaces. 66 V. SUBSTITUTABILITY AND COMPLEMENTARINESS OF PRODUCTS- We have considered the effect of a change in real income, as a consequence of fluctuations one way or- another in income without corresponding shifts in the general-price level. Shifts in the general price level without corre sponding changes in income have a similar effect. If the result of the shift is a lowering of real Income, there may be a temporary gap between' the standard and the plane of living of any group, and new modes of living are likely to result. Adjustments are made by the consumer to the new situation. What happens, however, with price variations of par ticular products when the general level of prices and income remain the'same? Suppose, for instance, that the price of bread rises while the prices of other commodities remain the same. Will the consumer simply reduce the quantity of bread he consumes without increasing his consumption of any other good, will he decrease his consumption of the commodity In question and increase his consumption of some other com modity, or will he continue to use bread In the same quantity and diminish his use of other products accordingly? In searching for the answer, we must examine the interdependence■of bread and other goods. Economists usually regard given pairs of commodities as substitutable, 67 complementary, or Independent, respectively, according to whether a change in the price of one will have a similar, inverse, or negligible effect on the demand for the other . ^ If an Increase in the price of bread causes a rise in the . demand for another good, the two may be considered substi tutes, If it results in a decrease in the demand for the other, the two are complementary, and if it causes no change in the demand for the other, they are independent. Thus, if it may be assumed that consumers use more potatoes and less bread when the price of the latter rises, the two are substitu-tes. Since less butter Is used when the consumption of bread is reduced, butter and bread are com plementary. This assumes that the reduction in the use of butter through a decreased consumption of bread would not be offset by the use of the former on potatoes.26 jf a de creased consumption of bread, after a price rise, has no effect on the consumption of gasoline, the two are inde pendent. If potatoes are a substitute for bread,, then bread is a substitute for potatoes; and, if butter is complementary 25 e . E. Lev/Is, "The Relation of-Commodities in De mand," The American Economic Review, XXVIII:3 (September, 1938) 488-496. Also C f . Robert Triffin, Monopolistic Competition'and General Equilibrium Theory, Harvard Economic Studies, No. 47 (Cambridge: Harvard University Press,' 1940), pp. 91-93; and John Hicks, 0£. cit., pp. 42-52. 26 Because butter might be a complementary product to both bread and potatoes, the situation could be altered. 68 to bread, bread is complementary to butter.27 Lewis points out that a change in the price of a good affects substitutes in two ways: "through the change in their relative prices, and through the change in the con sumer’s r e s o u r c e s . "28 Commodities spoken of as independent are still affected by any variation in the resources of the c o n s u m e r . 29 as Hicks points out, a drop in the price of a commodity regularly used has two .effects on the demand.'for that commodity: (1) it has a positive income effect because "it makes the consumer better off"; (2) it brings about a. change in relative prices between the commodity in question and all other c o m m o d i t i e s . 80 positive income effect depends largely upon the "proportions in which the consumer was dividing his expenditure" as between the good in question and all other products. If the expenditure on the commodity is relatively great, the positive income effect is important. If it is relatively small, the income effect "is likely to be swamped by the Substitution Effect" re sulting from the change in relative p r i c e s . 27 John Hicks, op. cit., p. 42 . 28 Q£. cit.. p. 496 . l°c » eft. 8° John Hicks, oj>. cit. p p . ^ loe« cit.. 31-32 . 81 jf the 69 commodity in question is an inferior good, however, and the proportion of income spent on It Is large, any surplus resulting from a fall in price may be spent upon more "interesting” goods, for, the demand for "inferior" goods tends to fall with a rise In i n c o m e . 32 He sums the situation in the following w a y . 33 pn the case of.,a decrease in the price of a commodity, the sub stitution and the income effects may both increase the demand for the good. The substitution effect tends to decrease demand proportionately for all other products, but the positive income effect tends usually to increase it. Because of the "comparable magnitude" of the effects, the result may be a total increase or decrease in demand for other goods. In the case of two substitutable goods, the substi tution of X for Y upon a decrease in the price of the former at a time when that of the latter remains stationary depends on how highly substitutable the goods are. If they are perfect substitutes, the demand for the latter will fall to zero. The two goods would have to be indistinguishable, however, a situation which Hicks admits is not likely to exist. If the goods are highly substitutable, nevertheless, a substitution effect will predominate. 32 0£. cit.. pp. 28, 35-. 33 Ojd. cit., pp. 48-50. 70 If X and Y, on the other hand, are highly comple mentary, the substitution effect in the event of a price drop for X may "drown" the income effect, and the demand for Y is increased. If only mild complementarity exists, the income effect is likely to go In the direction of the substitution effect, and hence there will be somewhat of an increase in the demand for Y. How does a functional interdependence among products affect our classification of commodities into non-resistance and resistance goods? It is likely that an increase in the price of a good habitually used may cause resistance to spring up very suddenly. Some consumers may decrease their expenditures on that good proportionately. If there are other goods of functional similarity, those who are not in the habit of using certain substitutes may begin using them and, in consequence, build new habits of consumption. A later cut in the price of the article originally used does not necessarily, because of these new habits, bring the return of patronage. If an upward swing in the price of any good merely brings a directly proportionate decrease in consumption, It is likely that in the future some consumers will not, immediately at least, increase their consumption of this good to its former level even though the price drops to what, it previously was. Many consumers will find that they can 71 get along with a smaller quantity of the product and use the positive income effect in the gratification of other desires.^4 Though substitution is likely to involve products of functional similarity, those that will satisfy the same desire, it is not necessarily limited in this respect. If the price of- furniture increases, a man may discontinue buying It and use his money for a product of•functional dissimilarity, such as a trip or new clothing.35 Substi tution of products of functional similarity will be referred to as specific substitution, and that of products of functional dissimilarity as general substitution. These terms'will be used In our development of the subject of monopolistic competition in the next chapter. VI. ELASTICITY OF DEMAND The extent to which consumer attitudes of nonresistance may become attitudes of resistance with a change in the price relationship of a good to other commodities is explicable in terms of elasticity of demand. Most econo mists agree that goods which are low in price, goods which . 34 This constitutes, in a broad sense, a type of substitution. 35 Cf. Robert Trlffin, op. cit., pp. 90-93. 72 have few close substitutes, relatively speaking, and. goods which have very few uses are likely to have inelastic de mand. On the other hand,' the demand for goods which are high in price, goods which have many close substitutes, and goods which have many uses tends to be elastic.33 This explanation is inadequate, "however, for what a person is accustomed to plays an important part in the elasticity of his demand in two respects: (1) the fixity of his habits in regularly gratifying particular desires, and (2) the extent of the association of the means of satisfaction, the product, with a certain price. If we could assume that the consumer's anticipation of satisfaction with respect to two substitutable goods of functional similarity were the same, a case of perfect substitutability, the consumer would not hesitate substi tuting the one for the other in the event of a price differ entiation. But consumers rarely anticipate equal satis faction from substitutable goods of functional similarity. The extent to which substitution is likely to take place depends upon the degree of resistance resulting from the price increase and the proportion to which anticipated satisfaction will- be diminished by the substitution. 36 Gf. F. B. Garver and A. H. Hansen, Principles of Economics, Revised Edition (Boston: Ginn and Company, cl957), p. 104. 73 Any price rise of a particular good must mean an adjustment in the'amount of the commodity consumed, a substitution, or a change in other expenditures, or a com-, bination of' those. If the attitude of insistence to any desire satisfaction is strong enough that an individual prefers to continue to enjoy a particular gratification at, a proportionate increase in price and to adjust his other expenditures accordingly rather than to decrease his con sumption of the good, the demand for the means of satis faction is inelastic. .A gratification commonly enjoyed is usually associ ated with a means of satisfaction, which in turn is associ ated with a price. The first time the gratification is enjoyed the price forms an element of resistance, relatively speaking. As the satisfaction is enjoyed at intervals, the price becomes closely associated with the gratification, and the resistance to paying it becomes almost negligible. Any increase in that price breaks the association and makes room for new resistance. Sherman observes: Prior to the World War, over large sections of the United States the customary price of bread had become five cents per loaf. The customary loaf was one pound. Bakers1 competition appeared in variations of quality, in advertising, and in slightly overweight loaves, sold as pound loaves. When the price of wheat sharply in creased at the beginning of the war, the baking industry in those sections found it difficult to adjust. Attempts to increase the customary, price resulted In heavy loss 74 of volume. Housewives who bought in routine fashion at 5 cents, took the matter out of routine at 6 cents, and displayed an unexpected degree of independence.37 Henry Smith suggests that, because of his lack of knowledge, the most rational type of habit for the consumer would be that of adhering to a price rather than to a brand.38 The risk that an inferior product will be received if substitution is resorted to acts as a deterrent, however. In cases in which knowledge is limited and the price of a commodity regularly used is increased, it is a matter of the consumer's paying a higher price and cutting consumption of the product or of other products, or of both; or it Is a matter of his accepting risk of inferiority of product through substitution. The consumer may minimize this risk by sacrificing leisure to obtain knowledge. Observation shows that consumers are reluctant to do so, however. The general tendency Is for the demand for products to which the consumer has become accustomed to paying certain fairly well standardized prices and to which he has become accustomed to the consumption of particular quanti ties to be inelastic. Vaile and Slagvold observe; In general, it may be said that necessities, staple commodities, things which are in constant customary use, 37 John H. Sherman, "Observations on Custom in-Price Phenomena," The American Economic Review, XVIII;4 (December, 1928) 668. The author criticizes certain common assumptions of custom in the fixing of prices by retail sellers but at least acknowledges In these lines the influence of customary prices in so far as the attitudes of consumers are concerned. 38 0£. oit., p. 316 75 have inelastic demand schedules. Many of the staple food products, medium-priced articles of clothing, items sold most' commonly by hardware stores, all Delong in this class. For such articles, price concessions may change patronage from one store to another, or from one week to an earlier one, hut they are not likely to increase the total seasonal sales.39 An interesting suggestion is that made by Broadus Mitchell, linking the elasticity of demand.to the standard ization or lack of standardization of products. In cases In which standardization of goods has been more nearly at tained, there is likely to be more elasticity of demand. He compares men's suits to women's dinner gowns and thinks that a man Is more likely to know the price of the former than a woman is that of the latter.40 Probably just as Important as present prices in an . analysis of consumer preferences are expectations of future prices. If the consumer expects the price of a commodity he is accustomed'to using to go up, he Increases his pur chases, but, If he expects the price to go down, he post pones them.41 Hicks defines an individual's elasticity of 39 R.-S. Valle and P. L. Slagvold, Market Organi zation (Hew York: The Ronald Press Company, cl929), pp7"lU9-110. ^ General Economics, Revised Edition (New York: Henry HoIt and ''C'ompany, c1937), pp. 149-150. 41 M. A. Copeland, ’'Economic Theory and the Natural Science Point of View,” The American Economic Review, XXI;1 (March, 1931) 71-72. 76 expectations of the price of a commodity X "as the ratio of the proportional rise In expected future prices of X to the proportional rise in Its current p r i c e . "42 Tf expectations are inelastic and present Increases in price are considered as -only temporary, there will be a tendency on ‘the part of the consumer to make substitutions or to postpone purchases until the price drops to its former l e v e l . 43 Tf the elas ticities of expectations of prices are greater than unity or In other words if the present increases In prices are taken to be a trend which will continue Into the future, buying Is' likely to Increase. If, on the other hand, present price Increases are considered as only temporary, substitution and postponement of expenditure are likely to take p l a c e . 44 The three influences on price expectations are given as (1) non-economic: "psychology"; weather, political news, health, and (2) economic but not closely allied with actual price-movements: (3) experience with market superstitions, market news; p r i c e s . 45 42 0£. cit., p. 205. 43 ,0£. cit., pp. 250-251. 44 op. cit., pp. 251-255. Hicks, op. eft., p. 205, says that Hilae elasticity of expectations oi price is unit y when "a change in current prices-will change expected prices in the same direction and in the same proportion"; elasticity of expectations•of prices is greater than unity when people believe that present increases In price are a trend and that they will continue rising and less than unity when people believe that present increases in price are only temporary. 45 op. cit., p. 204. 77 VII. CONCLUSIONS In this chapter the significance of habits under certain varjring conditions was analyzed, and-the resistance •factor was related to such variables as quantity of con sumption and specific price .changes. In making-our analysis, we have used the term "consumer" in the broader sense included in our definition.46 The impossibility of making any classification of commodities, per se, according to resistance should be clear. The terms "resistance" and "non-resistance" are representative of consumer attitudes and, in so far as these attitudes are constantly changing, we can only draw an Inference of the relationship between subject and object at any one-time under a given set of circumstances. Re sistance, which Is relative, varies with, the relationships between Individuals and different commodities according to conditions of time, place, and circumstances of environment. V/e are endeavoring not so much to describe the par ticular 'preferences of any group of consumers as v/e are to set up a basis for determining these preferences under different situations. In doing this, we are placing em phasis upon the negative factor of relative resistance because it is more easily measured than the positive element 46 Supra, p. 11 78 of relative intensity of desires. Since the willingness of the consumer to overcome the one is an indication of his intensity-feeling for,the other, our analysis of the neg ative element gives us a better understanding of the ' positive one. It must be remembered that a given attitude of the individual to all goods Is met by relative degrees of resistance. The use of some means the -sacrifice of others. His position with regard to many of these goods changes with the development of particular habits concerning them. Toward some commodities, under certain conditions, he de velops attitudes of non-resistance. Any change in a situation may cause new resistance to arise and the relation ship between subject and objects to become altered. adjustments are made, new habits become fixed. of living are constantly changing. After Thus modes CHAPTER IV THE RESISTANCE FACTOR IN PRODUCT DIFFERENTIATION. Legal and institutional elements of monopoly as well as restriction of entry Have long been taken cognizance of by economic theorists. As Machlup points out, the essential elements of monopoly were ’’scarcity and indivisibility of certain means of production, legal, institutional or other restrictions of entry into the trade, and various con sequences of these facts such as the existence of specific rents, and especially the fewness of s e l l e r s . A more recent school of economists has made an important con tribution by placing emphasis upon product differentiation under conditions of monopolistic competition. In so far as our study goes, we are not concerned with the problem of whether monopolistic competition causes higher prices than would exist under conditions of pure competition.^ The solution to such a problem must be sought In an analysis of production and selling costs under circumstances defined as monopolistic competition. The only reason that such a problem has some relevance in an analysis of consumer 1 Fritz Machlup, "Evaluation of the Practical Sig nificance of the-Theory of Monopolistic Competition," The American Economic Review, XXIX:2 (June, 1939) 230-231. 2 Cf. Edward Chamberlin, op. cit., pp. 130-176; A. R. B u m s , op. cit.« pp. 372-417; Fritz Machlup, op. cit., pp. 231<r232; and Sumner H. Slichter, M o d e m Economic Society (New York: Henry Holt and Company, 1931), "p." 567. 80 preferences is that some consumers believe that advertising raises prices and are influenced in their choices of products as a result. Product differentiation and imperfect knowledge make the substitution of functionally similar products more difficult for the consumer and consequently cause the demand of buyers, generally speaking, to be somewhat less elastic than it otherwise would be.3 One of the purposes of sales manship is to create greater elasticity of substitution by the imparting of knowledge, and another is to influence preferences by altering desires.4 In this chapter we shall deal with the resistance factor in its relationship to general and specific substitution. Our treatment of the subject will lead us to analyze competition according to distinctions we shall make concerning consumer attitudes of resistance and non-resistance. I. PRODUCT DIFFERENTIATION Two commonly used bases for differentiating among commodities in economic theory are substitutability and technology,3 though these two would seem in most instances 3 Cf. Edward Chamberlin, op. cit.» p. 118. 4 Cf. Edward Chamberlin, op. cit., p. 119. 3 For an interesting discussion, see Robert Triffin, op. cit., pp. 75-96. 81 to be interdependent. For our purpose in dealing with con sumer preferences, function seems to be more important than technology since it is consumption and not production with which we are concerned. , Returning to our earlier definitions of general and specific s u b s t i t u t i o n , S we may say that goods which are generally substitutable are those which are commonly substi tuted by consumers to satisfy different desires or to satisfy one desire instead of another, and 'that goods which are specifically substitutable are those which are commonly substituted by consumers in satisfying the same desire. Accordingly, we have a differentiation of commodities based on both substitutability and function. Our definition is broad enough to take -account of difficulties that must be encountered in trying to base a definition on function only, for’though products have capacities for consumer satis faction which make them functionally similar, area and price range must be taken into consideration.7 Regardless of how functionally similar two articles are, they can hardly be said to compete with each other if the one is sold in a store in New York City and the other in Los Angeles. And regardless of the fact that they are functionally similar, 6 Supra, p. 71. ^ Cf.'" Robert Triffin, o£. cit., pp. 87-89. a $25 overcoat hardly competes with a $200 one. On the other hand, a differentiation of commodities based ex clusively on substitutability fails to account for two distinctly different kinds of .substitution. The man who deliberates upon vdiether he should buy a new automobile or more furniture represents a different problem from the one who questions whether he should substitute brand nY" for brand "X" of butter. Our differentiation is not complete, however, for distinction must be made among substitutable goods that are functionally similar and those that are functionally quasi similar. A man may deliberate upon whether to buy a theater ticket or gasoline for a pleasure trip. Either product would furnish amusement, but the forms are different. In the same sense, a housewife may hesitate between the purchase of meat or fish. Both would satisfy the general desire for food. To make our differentiation more accurate, we must dis tinguish between general desires and specific tastes. Substitutable goods which are functionally dissimilar are those which are used only in the satisfaction of desires which are different In nature, such as food, clothing, furniture, automobiles, etc. Substitutable goods which are functionally quasi-similar are those which are capable of satisfying any one general desire, such as food items, which have capacities for satisfying hunger, and fashion items, 83 which have capacities for satisfying self-esteem. Substi tutable goods which are functionally similar are those which have capacities for satisfying specific tastes, such as ,fX" brand of coffee has the capacity for satisfying the con sumer’s taste for coffee. Attitudes of resistance vary with regard to product differentiation. The resistance to substituting one •functionally dissimilar good for another is general re sistance, that to substituting one functionally quasi similar good for another is specific-inclusive resistance, and that to substituting one functionally similar good for another is specific-exclusive resistance.® These terms will be helpful to us in our analysis of competition. II. GENERAL AND SPECIFIC COMPETITION Most sellers compete on the basis of both quality and price and usually what Is spoken of as ’’nonprice" compe tition is no more than the placing of emphasis on quality.at a price in sales competition. Rarely is either quality or price ignored entirely in sales efforts though sometimes the stress is laid upon one or the other. The reasons that non price factors are often emphasized instead of price factors ® Supra» p. 35. 84 lie partly with sellers and partly with buyers.® .Business men have come to fear the consequences resulting from price emphasis, which sometimes leads to price cutting and price wars. Buyers are usually unable to make effective compari sons on the basis of price and are sometimes prone to judge •quality by p r i c e . A n d finally, consumers have a tendency to form habits with regard to prices, which tend to make demand inelastic.H For our purposes, competition can be more effectively classified on the basis of product differentiation than it can on the basis of quality and price. We shall consider as general that competition which exists among sellers of substitutable goods which are functionally dissimilar, as quasi-specifIc that competition which exists among sellers of substitutable goods which are functionally quasi-similar, and as specific that competition which exists among sellers of substitutable goods which are functionally similar.10 ® Temporary National Economic Committee, op. cit., pp. 60-63. 10 Cf. M. A. Copeland, op. cit., pp. 309-314. 11 Cf. Henry Smith, op. cit., pp. 309-314. This author observes that If demand is elastic the demand for a product may decrease with a drop in price If inferiority is suspected. '10 Paul D. Converse, In The Elements of Marketing, Revised Edition (New York; Prentice-HalT, 1^35), pp. 20-21, refers to general competition as inter-industry and specific competition as intra-industry competition. 85 Sellers of any one group not only compete among them selves, but they also compete with other groups. A grocer, for instance, not only competes specifically with other grocers, but he competes quasi-specifically with bakers, butchers, and delicatessens, and generally with furniture stores, automobile agencies, theaters, and hardware stores. To increase his business, he might try to draw customers only from other grocers in his area, or he might attempt to increase his sales at the expense of other competing groups as well* The three kinds of resistance he would meet in winning the trade of consumers from competitors in the three groups respectively we shall refer to as specific, quasispecific, and general resistance. III. COMPETITION IN THE SHORT RUN The sales problems of sellers are of both an inform ative and manipulative nature; they must, first, -provide means of letting buyers know about the existence and nature of the products offered for sale and, second, provide means of stimulating the desires of consumers.14 As Chamberlin, points out, "new products and new varieties of old products would have virtually no market at all" if sellers did not l^ Supra, p. 83. 14 Edward Chamberlin, op. cit., p. 119. 86 provide consumers with information about them, But the informative function Is only one of the purposes of selling. and advertising. As Sumner H. Slichter observes; But we should overlook much of the significance of modern marketing methods if we regarded them solely as ways of informing consumers about opportunities to spend money. Marketing is an attempt to mold the consumer's valuations, to influence the importance which he attaches to things— in other words, to do the very thing that religion and- education endeavor to do. By their influence upon the valuations of millions of men, marketing experts help mold the very philosophy of the age. Indeed, they are doing more than this, for since men are largely what their desires make them, marketing experts are engaged in nothing less momentous than the molding of human character on a gigantic scale ...!6 Our present task is that of examining these two functions of selling according to the time factor. The purchase of goods to which the consumer has an attitude of non-resistance is fixed during short time. In so far as expenditures for these goods are concerned, the attitudes of buyers are conditioned by habit, and sometimes, as in the case of durable goods, by contractual commitments, and changes do not occur in short tlme. There may be, however, some switching from store to store or from brand to brand. For particular groups, this depends entirely upon the kind, of resistance developed. If the resistance to change of patronage is general, buyers may switch from one store to 0£* cit., p. 119. i-6 6p. cit. , p. 564. 87 another, provided both sell substitutable goods which are functionally similar or quasi-similar. If the resistance is quasi-specific, a more restricted change from store to store may take place, for both stores must be selling substitutable goods that are functionally similar. If the resistance is specific, habits of consumer patronage are definite enough to prevent customers from switching their trade during short t i m e . 17 On the other hand, if the re sistance to substitution of goods is general, buyers may substitute freely among functionally similar and quasisimilar goods. If it is specific-inclusive, their substi tutions are limited to functionally similar goods. But if it is specific-exclusive, no substitution takes place in short time. Since the market of any retail institution or for any one product is likely to be made up of intermingling groups, the resistance factor may be said to vary in most markets. Consequently, there is likely to be some elasticity of de mand in the market of any store or for any single commodity at any-given.time. In addition, a commodity to which some consumers have developed attitudes of non-resistance is usually a good to which others have attitudes of resistance, Supra, p. 85 1® Supra, p. 83 a fact which assures some elasticity of total demand for most products at any one time. In a similar sense, while some consumers have established fixed habits of patronage with respect to particular retail institutions, others have not, a fact which assures some elasticity of total demand for the services of any single store at any one time. a result, salesmanship and advertising may increase the total demand for a good or service at any one time though it may not affect the expenditures of s o m e .consumers. By Imparting knowledge of substitutable goods which are functionally similar or functionally quasi-similar, sellers can influence consumers who have developed attitudes of general resistance or specific-inclusive resistance to change to make substitutions in short time. They cannot influence those who have developed attitudes of specificexclusive resistance against change with respect to certain commodities to substitute other goods for these commodities in short time, however. Expenditures made by.buyers from residual income may be manipulated by sellers, notwithstanding, for these ex penditures are often speculative and represent purchases for goods to which consumers have attitudes of resistance. For consumers in the lower income brackets, these residuals are small and resistance is relative to the number of desires competing for satisfaction and the price charged for the means of gratifying each of them. Usually the expenditures are necessarily small as a result. IV. COMPETITION IN THE LONG RUN The overcoming of general resistance usually requires the application of long-time sales efforts In accordance with definite selling policies. Not only do sellers give general knov/ledge of product and sales conditions, but they also create in buyers a consciousness of certain ends or results to be attained from the goods they sell, which is tantamount to the stimulation of desires. In this respect, selling is both informative and manipulative. Time is allowed for a change in habits and an adjustment In con tractual commitments, and the substitution of products of functional dissimilarity may be brought about through the seller*s Influencing buyers to make adjustments in certain choices which are fixed in the short run. Time is also permitted for overcoming quasi-specific and specific attitudes of resistance with regard to patronage, and for overcoming specific-inclusive and specific-exclusive attitudes of resistance with regard to particular commodities. Long-run sales policies as they apply to consumer expenditures of residual income are ordinarily concerned with, the changing of attitudes of resistance to those of non-resistance. .Markets are in a constant state of flux as a result of births, deaths, marriages, changes in location, changes in income status, etc.2^ any length of time. ifo market is static for Sellers must not only compete in retaining customers whose patronage is sought by competi tors, but they must find new patrons to replace those lost as a consequence of natural changes in the market. Expendi tures made in experimentation by buyers today may be fixed by habit tomorrow. Thus the long-time policy of most retail sellers must provide for efforts which will not only bring immediate purchases from the residual incomes of consumers, but-which will also tend to develop habits which will rigidify future purchases in their favor. Since widespread efforts at overcoming the general resistance of consumers may work to the advantage of all the sellers of goods which are functionally similar in any area, sellers sometimes use cooperative advertising to build the market for their products .21 For example, theater owners r might engage in a cooperative campaign to urge consumers to spend more money for theatrical entertainment, which would involve, of course, smaller expenditures on functionally 20 ££• laul D. Converse, op. cit., pp. 30-51. 21 Cf. A. R. B u m s , o£. cit., p. 380. 91 dissimilar or quasi-similar goods. In the same sense, sellers might cooperate to overcome hoth general and spe cific-inclusive resistance. The overcoming of specific- exclusive resistance offers no' opportunity for cooperation. . V. SALES POLICIES OP SELLERS The sales policies of sellers are rarely limited to providing means for meeting one kind of competition only, for unless a seller has a monopoly in his particular area he usually faces general, quasi-specific, and specific competition. An automobile dealer, for Instance, attempts In the long run to get persons who have never owned auto mobiles to develop habits of buying them and tries to pre vent persons who already have developed attitudes on nonresistance to the purchase of cars from changing their attitudes to those of resistance. He also attempts, if he sells X brand of cars, to get persons to develop habits of buying this make of automobile. In addition,, he encourages the use of automobile transportation over other kinds of transportation. In this sense, he competes with street cars, railroads, and in many cases with steamship agencies. The seller should take cognizance of the kinds of resistance he must overcome to increase sales. He searches for the most effective combination of selling media in relation to their cost in the light of his particular 92 m a r k e t ^ any particular price, advertising may bring, as additional selling costs are incurred, comparatively speaking, increasing or decreasing results.23 Increasing results tend to come from the cumulative effect of advertising which accrues from repetition in the overcoming of resistance. Small expenditures to overcome either general or specific resistance may easily be wasted. The greatest benefits to be derived from small outlays would seem to be those which accrue as the result of urging consumers to spend their residual income in particular ways since this kind of selling may be effective in the short run. Increasing results also result from improvements that can be attained In organization of expenditure with enlarge ment of outlay. Diminishing results usually result from attempts to expand the area of the market or from attempts at In tensifying the exploitation of a given market. Since what is a non-resistance good to some is a resistance good to others, and since habits vary with groups of consumers, some can be more easily persuaded to purchase than can others. It must be remembered that the relative resistance to the purchase of any good increases with each additional unit bought. 22 cf. Edward Chamberlin, op. cit.t pp. 130-140. 23 of. Edward Chamberlin, op. cit., pp. 134-137. 93 ¥1. CONCLUSIONS Product differentiation is necessary in an analysis of the resistance factor. For our purposes, products are most conveniently differentiated according to substi tutability and functional similarity. The. resistance factor is also closely related to the time element. In the short run It is fixed with regard to many expenditures; in the long run It is subject to adjust ment with respect to all expenditures.. General desires do not change In the short run but some substitutions of functionally similar products may take place In the satis fying of those desires which are regularly gratified by consumers. The extent to which this substitution occurs depends upon the particular attitude of resistance of any buyer. To bring about adjustments in consumer purchasing habitSj long-time sales efforts must be carried out in accordance with definite selling policies. Expenditures ■ from residual income may be influenced, however, by sporadic and unrelated sales efforts. Nevertheless, since expendi tures which are made on the basis of experiment in the present often lead to attitudes of non-resistance with respect to the purchases of particular goods in the future, most selling efforts are related to a long-time sales policy. Selling m a y toe either informative or manipulative, or it may toe tooth. Informative selling in the short run ■ may bring atoout some switching of consumers from store .to store or from brand to brand. Manipulative selling in the short run can affect only those expenditures, which are made from residual income. Both informative and manipulative selling are used In the long run. CHAPTER V C OH SUMER TIME PREFEREN CE In analyzing consumer preferences, we Have not as yet discriminated between present desires for immediate satisfaction and those for future gratification. The purpose of this chapter is that of comparing these two, which we shall speak of as Immediate and* future preferences. A future preference Is only one kind of present preference, for It Is the current attitude of a consumer to gratifications which he hopes in the present to enjoy in the future. A man may forego some satisfactions in the present so that he can save money with which to buy a home, enjoy leisure, or travel in the future. one for a future satisfaction. The desire is a present The attitude may change as time goes b y , ■but it is characteristic of the human being to think of satisfactions he may enjoy In future time in terms of present evaluations.1 The relative nature of resistance is more readily seen when it is realized that not only does the consumer have competing desires for current satisfaction, but he also has a present attitude with re spect to consumption in the future. Consequently, there is 1 Much of the thought expressed in this chapter Is based upon Robert B. Pettengillfs Distribution Theory (Los Angeles; University of Southern California, 1941). 96 not only a competition among all present desires, but this competition Is heightened by current desires for future gratification. For instance, a man may not' only feel the sacrifice of other current .satisfactions when he uses his money to go on a vacation trip, but he may also feel that he Is spending money which he would like to save for his children’s education. He may resort to a less expensive trip than he had planned or he may abandon the trip entirely according to the relative intensity of his desires. The future preference is a direct competitor with present preferences in this case. When a consumer has a positive time preference, immediate or direct uses are given a higher relative valu ation than future or indirect consumption, but when he has a negative time preference, the opposite is true .2 As a result, the relative resistance to the purchase of goods for immediate gratification is greater, ceteris paribus, when there is a negative time preference than it is when there is a positive time preference. ■ In this chapter, we shall deal with three important elements in time preference: credit. viz., saving, durability, and These three we shall consider according to their relative importance in consumer preferences. 2 Cf. James G-. Smith, "The Measurement of Time Valu ation,” The American Economic Review," XVIII:2 (June, 1928) 251. 97 I. THE PROPENSITY TO SAVE Persons put off immediate consumption for many reasons: there‘is uncertainty with regard to the future, there is a reward- in-the way'-of interest, 3 there are future' preferences competing with immediate preferences, and there is a tendency for some persons to save because of the development of habits of thrift.4Not the least of the influences -on saving is the working of the principle of diminishing utility. A man. gets a- greater return in utility from the first dollar he spends at any one time than he does from the second, and a greater utility from the second than he does from the third, and so on. If he were to spend all his income at one time, the last unit of expenditure would bring a far smaller return in utility than the first one would. Before a man spends his money., he has estimates of the relative utility each unit of expenditure will bring him. He also has present estimates of the future utilities he would receive if he were to keep some of his money and 3 Some persons have a negative time preference to the extent that they would save if they had to pay to have their money taken care of. ^ Habits of this kind often develop from negative motives'. Supra, pp. 27-28. T. N. Carver, "Thrift and the Standard of Living," The Journal of Political Economy, XXVIII:9 (November, 1920) 764-786, declares that thrift and a high standard of living are not antagonistic. See his definition of standard of living, supra, p. 37n. 98 spend it for future preferences. Since the most intense desires for immediate gratification are.usually estimated more highly then the most intense desires for future satis faction, some 'immediate preferences are virtually always taken care of first. The question is, how many immediate preferences will be taken care of before money is saved for future preferences? As expenditures are increased for the satisfaction of immediate desires, a point is reached at which the estimate of an additional unit of spending for an immediate grati fication brings no greater utility than the saving of that unit for the satisfaction of a future preference. At this point it is a matter of indifference whether the man spends or saves the dollar. But the expenditure of the next additional unit of income for an immediate gratification would bring less utility, according, to estimate, than the saving of that unit for a future satisfaction. Conse quently, at about this juncture the consumer begins to devote his dollars to the most alluring of his future preferences.5 «4 The principle of diminishing utility applies to saving as 'well as spending. Each additional unit of saving brings present estimates of smaller utility. As a result, 5 An excellent discussion of the working, of this principle is given in T. h. Carver's The Distribution of Wealth, pp. 232-236. See his chart on p. 233. 99 . .the consumer spends and saves to the extent, roughly speaking, that the marginal utility of a unit of the one is proportional to that of. a unit of the other. The possibility of interest alters the situation, however, for a reward ms,j be offered.to the one who saves. Instead of saying that the point at which saving begins is reached about when the estimate of the utility of another-immediate preference good equals the estimate of the utility to be derived from the satisfaction of the most desirable future preference, we should say that the point at which saving begins is reached about when the estimate of the utility of another immediate preference good equals the estimate of the utility to be derived from the satisfaction of the most desirable future preference plus the utility to be derived from the goods that can be purchased with the interest. This analysis, which Is conventional, is very in adequate notwithstanding, for two important considerations have not been given attention. In the first place, future preferences often become very vague and remote as the con sumer looks further and further into the future .6 the individual may mistrust the economic future: Then, too, fear of inflation or suspicion of deflation' might influence or prevent present spending. The.idea that the consumer may do 6 Cf. P. N. Rosenstein-Rodan, op. cit., p. 82. 100 "better or worse "by spending immediately or deferring ex penditure may be responsible for bis actions.*^ In the second place, future preferences should be considered in their relation to consumer preferences in short and longrun time.- • Future preferences may be divided into two classifi cations; (1 ) the more concrete present desires for future satisfactions and (2 ) the more vague idea of remote and indeterminate satisfactions that may be desirable in the uncertain future.® The first category Includes future preferences that seem very real in the present and thatoffer a definite opportunity for comparison. The second category comprises those indefinite future preferences which are not clearly visualized In the present but which, because of an uncertain or somewhat pessimistic point of view of future resources in relation to desire capacity, have an efficacious Importance with regard to the present view of the future. As James G. Smith says, ’’Every present desire has as a-competitor other present desires and also other desires for future goods, and thus every valuation must be effected 7 Supra, pp. 75-76. ® P. N. Rosenstein-Rodan, op. cit., pp. 81-82, classi fies these as the future preferences which can be "foreseen concretely" and those which cannot and therefore must be considered as sundry. .101 Toy time valuation.1'® But the. opportunities of comparison of immediate preferences with each other are usually always direct whereas the opportunities for comparison of immediate preferences with future preferences may be either direct or indirect. If the future preference is concretely visu alized, a fairly direct comparison is possible. If It is in posse, t h e •comparison is usually indirect, such as the consideration of a commodity that would satisfy a current desire in relation to the general means of satisfying practicable desires of the future as they appear in a rather vague way in the present. Referring to our classification of consumer expendi tures on the basis of those that are fixed by habit and contractual commitment and those that are made from residxial income, v/e may say that in the short run any saving which is not done as a result of habit or previous commitment must be made from residual income. In this sense, immediate preferences are compared w/ith future preferences and time valuation is important. If fixed expenditures are large proportionately to Income, saving Is likely to be small. If fixed expenditures are small proportionately .to income, saving may be large, relatively speaking. ® Loc. cit. 10 Supra, pp. 59-63. Much depends upon 102 the time -preference of consumers* Persons who originally weigh immediate preferences against future preferences, and who, as rational consumers, start saving when their estimates of future utility are higher than those of immediate utility, often develop habits of saving in the long run. Money put aside as the result of habits of saving is very similar in effect on residual income to that of money used for fixed expenditures.H In the short run, habits of saving decrease residual income'the same as any fixed expenditure does. In the long run, habits of saving may be adjusted the same as habits of expenditure. The. time is sufficiently long to permit a more careful consideration of the relative utility to be received from . additional units of expenditxire in comparison with ad ditional units of saving. 12 Habit is often influenced by environmental factors, such as custom.. Persons reared in an atmosphere of thrift and taught to save when they are .young may develop habits that tend to fix their behavior patterns as they grow o l d e r . jn some communities, even, reputations have been Cf. Ruby T. Norris, o£. cit., p. 134. 12 Of. Ruby T. Norris, op. cit.t pp. 138-139. 13 £f. Paul H. Nystrom, op. cit., p. 487. 103 judged by amount of s a v i n g s . 14 jt is customary among many of the families of foreign extraction to save and some do so at the sacrifice of goods to which most Americans have developed attitudes of non-resistance. More important than any other consideration in an ex amination of the proportionate savings of consumers is size of income. A study made by the National Resources Committee showed that during the period 1935 to 1936 families with smaller incomes than $>1,250 annually consumed more than their incomes provided for. Debts, withdrawals from previous savings, and gifts made up the difference. In the $>1,750 to $2,000 level, an average of 5 per cent of income was saved. In the $4,000 to $5,000 bracket, 21 per cent of Income was saved. The estimation for families above $20,000 ran as high as 51 per cent.15 Even though we grant that individuals with larger incomes are apt to have greater desire capacities than those with lower incomes, these greater desire capacities are not likely to increase proportionately with income as the latter 14 Cf. Simon N. Patten, "The Standardization of Fami ly Life," Annals of the American Academy of Political and Social Science, XXXXVII i l J u l y , ~ 19l3) Bl-90'. 15 Citing Consumer Expenditures in the United States, 1935-36, (Washington": United States Government Printing Office, 1939), by Temporary National Economic Committee, Investigation of Concentration of Economic Power, Monograph No. 57, Saving, Investment, and National Income (Washington; United States Government Printing Office, 1943),, pp. 16-17. 104 peaches the higher brackets. The principle of diminishing utility is more clearly manifested in the cases of persons with larger than with smaller incomes as in the case of a man with an income of $50,000 a year compared to one with under $5,000 annually. Another element in income besides amount that affects saving is regularity. Persons engaged in seasonal occu- ' pations must save to provide regularity of consumption. G-. P. Watkins says: It Is obvious that the continuous regularity of its flow increases the satisfaction realized from a given size of income. If the income fluctuates considerably and is consumed during periods of abundance as com pletely as of shortage, then the principle of di minishing utility means that the satisfaction realized in the former situation is considerably less than that realized from like units spent during shortage. The most important ground for saving is that income is thereby better distributed in time and thus has greater utility...I® In general we may conclude, then, that savings have a tendency to increase directly with size of income but in versely to number and intensity of desires for Immediate gratification and to fixed expenditures which are the result of habit. Although the desire capacity for’ immediate satis factions is apt to grow with earning capacity, it does not increase proportionately; consequently diminishing utility usually affects more those with larger than with smaller "Economics of Saving," The American Economic Review, XXIII:! (March, 1935) 70. 105 incomes. The tendency for immediate preferences to be more intense than future preferences is offset partly by the reward that may be received for saving and partly by atti tudes of non-resistance toward saving by consumers. II. THE FACTOR OF DURABILITY The satisfaction derived from some consumer goods is short lived, and the gratification can be renewed only by the consumption of more of the same kind of commodities* These products are spoken of as single-use goods. The satisfaction received from other commodities extends over a considerable period of time and the gratification is usually derived at periodic Intervals. as durable. These products are spoken of 'Food and picture shows are single-use commodi ties, but pianos and automobiles are durable products.I5? Clothing is semi-durable. • Since the consumption of durable goods begins in the present but extends Into the future, these goods satisfy both immediate and future preferences. The degree to. which they are consumed In present or future depends upon the extent to which they are durable. If a person's time ^ James G. Smith, 033. cit., p. 227, explains, "Every more or less durable good Tincluding land) may be looked upon as a series or ’bundle' of separable uses, extending over a period of time. There exists a market in which the durable goods themselves are bought and sold for prices where the whole ’bundle' of separable uses are exchanged at once." .106 valuation Is negative, he either saves or buys commodities. Persons form habits with regard to the time of re placement of durable goods just as they form habits with r \ regard to the choice of products. change in the short run. * These habits do not They may, nevertheless, be ad justed in the long run just the same as other habits. Observation shows us that decreases in real income are more likely to affect the demand for durable goods than that for single-use commodities. During times of falling real Incomes, consumers are likely to feel the pinch of emergency, and in periods such as this their thoughts run more to immediate than they do to future preferences. latter can wait. postponed.^® The Hence the replacement of durable goods is This is Illustrated by the following quotation from Paul D. Converse: As a general statement we may say that when the country becomes more prosperous, people spend more on durable goods such as houses, automobiles, furn iture, and rugs, and on such services as travel, education, and domestic service. When the national income decreases, the purchase of such goods and ser vices is curtailed. It appears that there is relative ly little variation in the purchase of perishable consumption goods such, as food, clothing, gasoline, and tobacco. In the Tebbutt study it was shown that there was no falling off in the consumption of food from 1928 to 1932, although there were some shifts' !® James G. Smith, o p . 'cit., pp. 231-232, offers an explanation of the effect of war upon time preference. In times of uncertainty, consumers have a positive time prefer ence; v/hen the war is over, the future becomes more certain and they have a more negative time preference. 107 in the consumption of individual items. The con sumption of w o m e n ’s clothing did not decrease in the aggregate in 1952 as compared with 1928j the'con sumption of m e n ’s clothing may have declined slightly. The consumption of gasoline was 11 per cent higher in 1932 than in 1928, while, the consumption of cigar- / ettes was 2 per cent lower. After allowing for the increase in population, we may s a j that there was a very slight decline in the per capita consumption of perishable consumption goods. The big decline occurred in durable goods such as buildings., industrial machin ery, automobiles, and furniture. The ups and downs in business activity appear to be caused very largely by variations in the activities of the industries producing durable goods. An opposing force to durability is that of style. Rapid changes in this element tend to give durable goods a more positive time preference. The importance of being in fashion in the present is greater than the desire for gratification in the future. This may be cited as a reason for the difference in consumption changes between m e n ’s and w o m e n ’s clothing during 1928 and 1932.20 Our deduction is, then, that during, times when a con sumer must make adjustments in expenditures because of a drop in real income, he tends to use the durable goods he already owns longer and to make fewer replacements. This Op. cit., pp. 34-55. Cf. also J. P. Pyle, Market ing Principles, Revised Edition T W e w York: McGraw-Hill Book Company^ 1936)', PP» 422-436 and A. R. Tebbutt, The Behavior of Consumption in Business Depression, Harvard University Business Research Studies, Ho. 3, August, 1933. ^9 Leon Kelley, in "Outmoded Durability,” Printers’ Ink Weekly, CLXXIV:2 (January 9, 1936) 59-61, takes the attitude that durability is a detriment to good business. 108 tendency is generally noticeable among buyers during periods of national or local emergency. The reason is that a con sumer naturally tends during a time such as this to concen trate his attention on the immediate. III. C ON SUMER C REDIT Other than during times of emergency or economic depression, persons with positive time preference; not only spend more freely, comparatively speaking, on immediate preferences than do those with negative time preference, but they also borrow or use their credit to enjoy Immediate satisfactions rather than wait to get the use of goods after they have saved the money to buy them. This does not mean that credit is not used during times of emergency or eco nomic depression, but it does mean that it is used more guardedly during these times. The reason Is not only that credit is not so liberally offered during these times, but also that consumers have a more pessimistic vlevi with regard to their ability to pay. Factors causing the consumer to discount the future for the present are optimism and indifference. A person will borrow or use his credit If his desire Intensity for immediate gratification is greater than his desire intensity for future satisfactions by sufficient margin to pay the Interest costs. 109 The kind of consumer credit we are particularly Interested in is that of the contractual type granted in the sales of semi-durable and durable goods. The situation is- different from that in which a person uses,-credit in buying single-use goods, for, instead of balancing present prefer ences and interest costs against future preferences, the consumer usually weighs part present and part future prefer ences against the present sacrifice entailed in the down payment and the future sacrifices represented by the pay ments. The interest cost is included in these payments. If we assume that X, a durable commodity, costs $100 but may be purchased for $10 down and $10 a month for twelve months, the consumer is likely to balance what he could purchase immediately with $ 10 ,and what he could purchase in the future for each of twelve months for $10 against the immedi ate and future utilities to be derived from X. It must be clear that In this situation durable goods may satisfy in part immediate preferences. Thus there is general compe tition between the sellers of single-use goods and those of durable commodities .21 Persons with a negative time preference may weigh the Immediate utility to be derived from a durable commodity and interest costs against the postponement of utility less C f . E. R. A. Seligman, The Economics of Installment Selling (New York; Harper & Brothers" 1927), Vol. 1, p. 260. 110 Interest costs. Pew consumers, however, have a sufficiently negative time preference to wait until they have the money saved for cash purchase of comparatively high-priced durable products. Many would not even postpone consumption until they had the money saved for cash purchase of semi-durable commodities.22 Were installment payment, plans discontinued, many would spend money previously used for durable goods for low-priced immediate preference goods. Time-payment plans have removed some of the resistance of the consumer to the purchase of relatively high-priced durable and semi-durable goods. As a result, many products that would,■because of price, be looked upon by consumers with attitudes of re sistance have through time-payment plans which necessitate only small down payments become habitually purchased and consequently looked upon by buyers with attitudes of nonresistance. N. R. Danielson presents a reasonable argument that the consumer "discounts the future costs more than he does the future utilities of the durable commodity" because "under high-pressure salesmanship and in the absence of the necessity of making immediate payment in full, the present utility yielding power of the commodity is paramount in the 22 c f . Avard L. Bishop, "Social and Economic Aspects of Instalment Buying," The Journal of Business of the Uni versity of Chicago, 11:1 ("January, 19291 20; and Paul H. Uystrom, op. cit., p. 546. purchaser's mind when he makes the decision to sign the contract." It happens that "future costs are underestimated because the consumer cannot forsee the possibilities of more desirable alternative ways of spending in the future."23 One of the most important influences of installment selling on consumer preferences is found In the effect it has on the distribution of the buyer's expenditures In the short run. The contractual obligations can only be adjusted In the long run and hence at any one time the amount of residual income Is definitely lessened by the payments to which the consumer has committed himself.24 pf these pay ments -.are large proportionately to income, the freedom of selection of the buyer is restricted In the short run. If this hampered choice in short time becomes oppressive to some consumers, a resistance to time-payment plans arises which may result in the adjustment of expenditures in the long run. IV. CONCLUSIONS ■ The conflict between both opposing motives and com peting positive desires is heightened considerably by future preferences. One of the important negative motives causing 23 "The Theory of Consumers' Credit," The American Economic Heview, XIX;3 (September, 1929) 397-39*8. 112 hesitation by the consumer in the spending of his money is the feeling of uncertainty with regard to future needs. This retardation may take the form of a habit which, unless adjusted in the long run, reduces spending. Just as important is- the conflict between present and future preferences. A provident person not only weighs prevailing estimates of immediate gratifications against one another, but he compares them with future preferences. This comparison may be made with respect to expenditures from re sidual income in the short run or with respect to adjustments of habits of. expenditure in the long run. The competition of desires for satisfaction is thus intensified. The consumer may develop, attitudes of non-resistance with regard to future preferences just the same as with regard to present preferences. Habits of saving and of purchasing durable goods may cause the consumer to devote a smaller proportion of his income to the satisfaction of immediate preferences. During times of emergency, however, the .buyer has a tendency to devote his attention to immedi ate preferences, and particularly to postpone replacements of durable and even semi-durable goods. Since saving has usually been a prerequisite to purchase of relatively high-priced durable commodities in the past by consumers in the lower income brackets, the comparison of relatively low-priced single-use goods with 113 durable commodities has been that of immediate preference with future -preference. Time-payment plans have removed the necessity for prior saving and have made available the immediate utility that can be derived from durable goods purchased with small down payments. Consequently, install ment selling has intensified the general competition between sellers of comparatively low-priced single-use goods and those of durable commodities by making the basis of com parison for buyers that of immediate preference with that of part immediate and part future preference. Since the immediate utility to be derived from durable goods is often paramount in the minds of consumers, choices are frequently made on the basis of comparisons among immediate preferences only. CHAPTER VI CONSUMER PLACE PREFERENCE We have already said that, when the'relative desire intensity of a consumer for a good is. greater than his relative'resistance to purchasing it, he is likely to buy the product if he has the mone 3r.l To the extent that this relative desire intensity is much greater than the relative resistance', the consumer feels he is making a good buy. This means that of the many uses to which the consumer could put the dollars required in the purchase of a particular commodity, the purchase of a specific good gives the greatest estimate of relative utility in comparison to relative resistance. The assumption here seems to be that the variotis uses to which the consumer might put his money are equally available and that the relative resistance can be measured by the comparative reluctance and vacillation on the part of the buyer in parting with dollars for any one use. But goods and services are not equally accessible, and any-analysis of consumer preferences must take some account of the relative.inconvenience to which the consumer must go in making different purchases. 1 Supra, p. 64. 115 If a man is willing on a warm afternoon to pay the customary price, five cents, for an ice cream cone, he may he unwilling to walk six blocks to get one. He might even, be willing to pay tv/ice the customary price if he could get the product with little effort. If the nearest store that handles ice cream is located six blocks away, no sale is made.2 But if a vendor passes the home of this man and proffers the commodity, a sale is made. If a sale is to take place, then, the estimated utility to be derived from any product must not only be great enough to offset the consumer's disinclination to part with the money required to pay for it, but it must also, in addition, be great enough to overcome any inconvenience that must be suffered in making the purchase. It often happens that a person makes a decision to buy a product but postpones the actual purchase until It is convenient for him to make it. But If the desire is a transient one, postponement may defeat purchase. If there is merely a postponement, the estimate of utility is great enough to balance the resistance *to part’with money suf ficient to constitute the price, but it is not high enough in addition to overcome the obstacle of inconvenience. When the estimate of utility is Just equal to that of the resistance to part with the price, relatively speaking, a 2 Many consumers would not walk this distance If the product-were offered gratis. 116 sale will not result unless the product is made more accessible or sales effort is used. Students of retailing have long recognized the importance of location in catering to the desires of con sumers. A classification of .goods frequently used.is that which divides retail products into convenience, and specialty a r t i c l e s , ^ shopping, Since this classification has as its basis the distance factor, we shall examine it in the following pages. I. CONVENIENCE, SHOPPING, AND SPECIALTY GOODS A convenience good is one which the consumer refuses to go any distance, relatively speaking, to buy. It is the type of commodity he expects to be able to purchase without any great deal of effort beyond that represented by payment. Norris A. Brisco, who reclassifies this type of product, divides it into impulse, utility, and emergency goods.. Impulse goods are those bought "on the spur of the moment," such as candy. Utility goods are those "generally • used by the average- customer" but ptirchased at a time of convenience, as when a consumer is shopping for other merchandise. Tooth paste is an example. Emergency articles 3 In so far as this writer knows, M. T. Copeland in "Relations of Consumers' Buying Habits to Marketing Methods," Harvard Business Review (April, 1923) 282-286, yms the first to use this classification. 117 are those bought because of the urgency of the moment. Shopping bags are an example,.4 Shopping goods are those "in the purchase of which one wants to compare values, prices, and styles." Usually "the customer will make a .special trip to several stores to' Inspect them before purchasing." Commodities of this type appeal to the "comparison habit" of the consumer, and the tendency of stores selling this kind of goods is "to group themselves in what is knoxwi as the shopping district. "5Specialty goods may be defined as "those which are sufficiently different from other goods in the same class to possess reputation enough to cause the consumer to go to considerable inconvenience— usually to' a particular firm--to purchase them."® Substitutions can only be made for these articles at the. sacrifice of gratification. One of the weaknesses found in classifications of this kind is that writers, without remembering that their definitions are largely adapted to the meanings of products to consumers, frequently tend to consider goods of them selves as fitting into these divisions. - Retailing (New York; A commodity has no Prentice-Eall, 1935), op. 86- 87. ® C. Vh Barker and I. C. Anderson, Principles of Retailing (New York; McGraw-Hill Book Company, 1935), pp. 4314-"4". ® Warren C. Waite and Ralph Cassady, op. cit., p. 231. 118 economic significance other than that it has meaning to a ..human'being. Since the import of products varies with persons, the utility estimates of these persons may be said to vary; For instance, one consumer might shop for certain articles of clothing, another might go out of his way to buy these at a particular store, and still another, might buy these articles at the most convenient place. Consequently, we cannot classify goods per se but.must divide them according to their meanings to consumers. Consequently, we must reject such a classification. Consumers form attitudes of resistance or nonresistance to different inconveniences just as they develop these attitudes toward goods. A man who is in the habit of traveling a particular distance to purchase a commodity may feel no resistance to the inconvenience involved at any one time. In the short run this attitude does not change. But habits are taken stock of. and evaluated in the long run, and consumers may adjust them writh regard to the convenience factor. In the expenditure of residual income, buyers are constantly estimating the relative factors-.of resistance represented in both price and inconvenience in making purchases. Many of the decisions made may serve to guide future behavior; therefore,, in the next few pages we shall consider the relationship between the two factors of re sistance, price and inconvenience, in the expenditure of 119 'residual income during short time. II. RELATION OP PRICE AND -INCONVENIENCE If we consider that in the case of a particular con sumer the estimate of the utility of a specific product-to which this consumer has an attitude of resistance Is fixed, we may make some interesting speculations with regard to the relationship between price and Inconvenience of purchase. If the utility estimate is low and a purchase is to take place, the price must be low and the convenience high, relatively speaking. The lower the price in relation to other goods, the greater the comrjarative resistance may be, but the total resistance, relatively, cannot exceed the estimate of utility. The Inconvenience factor Is altered by the number of goods the consumer is desirous of buying at one place.- If It Is only one, total relative resistance must not exceed total relative utility expectations. If it is five, total relative resistance likewise must not exceed total relative utility expectations, but the factor of inconvenience does not,always increase proportionately with utility expec tations and with price resistance when the number of g oods to be purchased at a particular place and time Increases. For example, a buyer might be unwilling to travel a mile to buy commodity X at a price of ten cents. He might be willing, 120 however, to travel a mile to buy commodities A, B, C, D, and X, each at a price of ten cents. The narrow d.ifference between relative utility estimate and relative price resistance in the case of commodity X may not be great enough to induce the consumer to suffer the inconvenience of traveling a mile, but, if we add this narrow estimate of utility surplus of each of the five products, the total may be sufficient to induce the consumer to travel the distance. There is considerable distinction between the purchase of only one and that of several goods for which the consumer has low-utility estimates. A woman who would not go an additional half mile to a shopping center to save two cents on a pound of sugar might travel this distance if, in addition to saving the two cents on the sugar, she could also save two cents on the purchase of each of another halfdozen products. Some allowance must be made, of course, for the added inconvenience of carrying the five products, but if the goods are not bulky our assumptions are generally true. The importance of price advertising by shopping centers is thus seen. If for the sake of illustration we may speak of the relative utility estimates of a particular consumer for three specific products as low, medium, and high, re spectively, we can generalize upon the differences in in convenience that may be suffered In the making of purchases. 121 If purchase of the first commodity is to he made, con venience must he high,- regardless -of price. If it is not, inconvenience would be greater than utility even though the article were offered free. The inconvenience suffered in buying the second commodity may be much greater and purchase still be made. The higher the utility estimate -the more likely it Is that there will be a comparative difference between .utility expectations and price resistance. Con sequently the inconvenience to be suffered in buying the third commodity might be relatively high and purchase still be made by the consumer. 'Whereas a consumer may refuse to go six blocks for an ice cream- cone even if he could get it for nothing, he may be willing to travel four times this distance for a fishing rod that costs four dollars. The higher degree of utility estimate offers a greater chance that there will be a wider margin of utility surplus over price resistance. It sometimes happens that even in situations of highutility estimates, the degree of desire intensity and re sistance to pay the price balance each other to the extent that indifference results and the consumer puts off purchase because of inconvenience. The higher the utility estimate, however, the less likely situations of this kind are to arise other than when the inconvenience is relatively very great. Only a wide difference between utility estimate and 122 price resistance for instance causes some, persons to go from Los Angeles to Flint to purchase their automobiles. - The situation may .be altered by the durability or lack of durability of the product. The desires for single use goods are sometimes transient. The consumer who post pones purchase of an' ice cream cone today because o f ■the inconv.enience that must be suffered in purchasing it-may not care for one tomorrow when he passes a store that sells ice cream. Desires for durable goods are oftentimes more stable because of the chain of utilities that may be derived from the use of the product. Whereas-postponement of the satis faction that may be derived from a single-use article may be permanent, postponement of the satisfaction derived from a durable good is often temporary. III. ¥, ON-RESISTANCE ATTITUDES TOWARDS INCONVEN1EUGE Persons learn not only to associate gratifications with the means of satisfaction, but they also come to associate the means of satisfaction with price and with methods of acquirement.-. Consequently, the thought of'a certain product brings particular'expectations concerning not only the price which must be paid for it but also the inconvenience which must be suffered in getting it. If a consumer is in the habit of purchasing a com modity through a method that requires. .little inconvenience, 123 it is-likely that his resistance to any increased discom modity will be great. If, on the other hand, he is used to going to considerable effort in purchasing an article, he may not notice the Inconvenience as he repeatedly makes the purchase. Attitudes of non-resistance with regard to incon venience are often closely related to consumer habits of. patronage. Individuals acquire habits of trading with ' particular retail Institutions and quasi-specific or specific attitudes of resistance to change are developed.® A change in patronage, even though it would offer greater convenience, may involve risk of Inferiority of product or of poorer service, and hence the buyer continues to trade ■«ith particular stores. These attitudes may be overcome in the long run through informative advertising. The group to which one belongs may Influence the buying methods u.sed. A w o m a n hearing her neighbors tell about bargains received in shopping may feel that she is extravagant In having her groceries delivered from a neighborhood store instead of going to a large shopping center for them.. On the other hand, some persons might feel 7 Cf* H . H . Maynard, W. C. Weidler, and T. 1. Beckman, Principles of Marketing, Revised Edition (lew York; The Ronald Press Company, c!932), p. 83. ® Supra, p. 84. •124 that they would lose social distinction if they were seen carrying shopping baskets. In this respect, habits may develop as a result of social influences. IV. CONCLUSIONS Price resistance and Inconvenience are both impedi ments to purchase. The latter is easily observed In the aversion of consumers to go to any great inconvenience to buy goods which they look upon with low-utility estimates.Unless a person's attitude toward the inconvenience that must be suffered in purchasing any good is fixed by habit or what this person is used to, the basis for judging this factor of resistance is one of comparison with the incon venience which must be suffered in purchasing other goods. Hence, Inconvenience as a factor of resistance Is relative in the same sense that, price resistance is. A buyer may make general, quasi-specific, or specific substitutions on the basis of relative inconvenience just the same as he may on the basis of relative price resistance. •In introducing Inconvenience as a factor of resistance along with price, we are broadening our concept of total resistance and giving the term a significance ydiich more closely approximates what economists speak of as disutility costs as distinguished from expenditures or expenses. CHAPTER VII C ON SUMER BUYING. MOTIVATION The Interpretations'of human, conduct made by econo mists who have used deductive methods have been the target for much criticism.. If the psychic element knoiwi as the human desire is unpredictable and changeable, how can it be made the basis of a science? In the words of a critic, J. M. Clark, marginal utility "is in appearance a theory of equilibrium and something to gratify the treacherous yearn ing for a psychic entity which price can be said to measure.”! The charge that orthodox economists are still trying to measure the abstract by the objective, the cravings of the soul by the price the body pays for gratification, Is not uncommon. As C. E. Ayres puts it, "Either wants are stable and known to be stable and reliable guides to human destiny, or no significance whatever attaches to them or to utility or to maximization or to price equilibrium. The attitude that motives should not be stixdied because they are unknowable, however, is untenable in so far as the point of view of this study is concerned. Instead, 1- "Economics and Modern Psychology," The Journal of Political Economy, XXXVI:1 (January, 1918) 5. 2 "Fifty Y e a r s ’ Developments in Ideas of Human Nature and Motivation," The American Economic .Review, SuoDlement, XXVI :1 (March, 19337 126 we shall follow the reasoning set 'forth in a recent paper by Robert■M . MacIver: .We cannot accept the intellectual asceticism of those who would rule out of the realm of science the study of motivation, since by that decree we would be denying to the scientist a vast area of human interests. Those who assert, as an objective against the language of "motives and goals," that the scientist is concerned only with the how of things are not really facing the issue...Now, among the conditions of human behavior are the subjective attitudes and impulses without which It would certainly not be human. To the agent himself these subjective urges are important as conditions and explanations of his a c t . . . 3 The.purpose of this chapter Is to examine one kind of economic motivation, that which controls the buying action of the consumer. In this analysis we shall attempt to establish no specific schedule of motives. Instead, we shall examine certain common operations in the motivation of human beings that guide their actions. It is not our intention to compose any specific classification of motives. Instead, the study tries to establish a basis for such classifications according to uniformities of desires among groups.' A "motive," as the term is used in this analysis, is not limited to the narrow meaning usually Implied in the word "instinct." As we are ■using the word, It is synonymous with "desire." The latter term has been differentiated from the word "want," which is considered to have a negative connotation. In using the term "desire," we are making allowances for both innate 3 "The Imputation of Motives," The American Journal of Sociology, X L V I :1 ■(July, 1940) 3. 127 tendencies and acquired characteristics. To segregate the inherent or the unlearned tendencies from the learned ones would seem to be a difficult if not impossible task because of the interdependence of the two. I. PRIMARY MOTIVATION Studies of motivation are fogged by much controversy over how much of a m a n ’s conduct is controlled by Innate forces as against acquired disposition. The influence of those who believe that the human being is the slave of Inherent tendencies to react to particular situations in certain ways has prompted many college teachers to advance theories of salesmanship which proclaim that all one has to do to get a particular response from a consumer is to set certain stimuli in force. William McDougall, often called the father of instinctivism, has been the inspiration for much misguided thought. He says; The department of psychology that is of primary importance for the social sciences is that which deals with the springs of human action, the impulses and motives that sustain merital and bodily activity and regulate conduct; and this, of all the departments of psychology, is the one that has remained In the most backward state, In which the greatest obscurity, vagueness, and confusion still reign...- 4 An Introduction to Social Psychology, Fifteenth Edition (Boston; John W. Luce & Company, 1923), pp. 2-3. 128 Critics have not been slow to take advantage of what they have considered to be a variation of opinion with regard to human propensities to act. Ellsworth Paris queries; How does it happen that- gifted-men are so 'unable to agree on what they consider the basic.facts of human nature? Some slight differences m i g h t ■be umderstood, but surely the range is distressingly wide. One, or two, or four, or eleven, or sixteen, or thirty, or forty— this looks s u s p i c i o u s . . . 5 The perplexities entertained in ascribing man's actions to inherent causes is easily seen in the reasoning of Paris that "habit and social interaction enter in so early that it is difficult to disentangle the original from the acquired."® It is interesting, however, to observe the so-called primary motives listed by authorities in the field of merchandising and selling. First of all, we must ascertain what is meant by primary. Customarily the term Is used to signify innate, unlearned tendencies.^ But not all writers limit their classification'of primary motives to tendencies appearing at birth. Burtt uses the word "instinct" in what he speaks of as a loose.usage and admits that in his list are motives 5 "Are Instincts Data or Hypotheses?" The American Journal of Sociology, XXVII;2 (September, 19211 188. 6 L o c . cit. V G f . D. B. Lucas and C. E. Benson, Psychology for Advertisers (He?/ York; Harper & Brothers, T93(31, p. 51. .129 which some might hesitate to call innate.® Tipper, Hotch kiss, Hollingworth, and Parsons use the term "fundamental” instead of "primary" and include acquired tendencies which they consider to be common to human beings.® .- Drives which-are learned or derived are often referred to as secondary,I® though many prefer to classify motives as primary and selective rather than as primary and seconda r y . H Considerable difference of opinion exists among writers. For example, there is some question of whether cleanliness is innate o r .acquired.12 Strong leans upon Tolman in classifying wants according to the physiological state of the individual. needs.13 Those wants which are primary are organic This distinction is similar to the one made by Young.14 8 Harold E. Burtt, Psychology of Advertising, (Boston: Houghton Mifflin Company, c 19381” p p . 76-787” ® Harry Tipper, et al, The Principles of Advertising, Second Edition (New Yorkl* T h e Ronald Press Comnahy, cl925T, pp. 67-77. 1° Edward K. Strong, Psychological Aspects of Business, pp. 75-76, refers to wants as primary, secondary, and tertiary. 11 Cf. Harold H. Maynard, Walter C. Weidler, and Theodore N. Beckman, op. cit., pp. 58-60. 18 Cf. Harold E. Burtt, ojp. cit., p. 77, and H. P. Adams, Advertising and Its Mental Lav/s (New York: The Macmillan Company, 192677 P* 117. 13 Edward K. Strong, Loc. cit. 14 P. T. Young, Motivation of Behavior (New York; John Wiley & Sons, 19367*, pp. 154-155. 150 The. most commonly listed primary motives are food- getting, parental and maternal, sex, fear, curiosity, acquisition, self assertion, the desire for comfort, play, and gain. Frequently mentioned are avoidance, pride, emulation, constructiveness, affection, worship, and rival ry. Occasionally listed are mastery, fighting, health preservation, sociability, shyness, cleanliness, sympathy, and gregariousness. Many others are mentioned now and then, such as manipulation, exploration, dependability, economy, distinctiveness, admiration, fair play, cunning, gratitude, etc. Inadequacy of definition may be the cause of much lack of agreement among merchandising and sales authorities. For instance, to what extent does the term "emulation” signify "rivalry," or "manipulation" signify "construction," or "gain" signify "economy." It is very probable that some of the differences resu.lt from peculiarities of terminology. In our study, we avoid the difficulties that arise with the attempt to draw distinctions between primary and secondary motives.allowances for both. Our use of the term "desires" makes In this sense, we are using the term similarly to that in which R. B. Perry uses the word "interest": First, we can avoid the special questions arising from the interrelations of feeling, desire, will, Instinct and disposition, by using the term "interest," and leaving it ambiguous. This term calls attention to the essential fact that it is characteristic of mind as we know it to be for some things and against others• or to view some things with favor and others with disfavor. This duality of attitude appears in liking and disliking, in desire and aversion, in will and refusal, and in seeking and a v o i d i n g . . .lb We do know that human beings have desires and that many of these are the result of learning. these desires vary with groups. We also know that It is to the extent that many of them are common to the members of groups that a study of motivation is important in an analysis of consumer preferences. The investigator’s opportunities are clearljr pointed out in the words of Maclver; If, as social psychoanalyst, he is concerned with problems of group behavior, he can achieve the very considerable reinforcement of probability that comes from the study of the like behaving of many individuals. On this basis he can learn to predict with expertness hov/ people will, respond to similar situations as they occur - how, for example, a group of people of a particu lar culture will feel and act if they are treated thus and'thus by another group. If this art is still rudi mentary it Is not because the evidences of motivation are lacking but because the scientific study of these evidences has gone so short a way...The lapse from science appears when he claims unwarranted certainty and treats his inferences as though they were es tablished facts'. ..16 In the pages that -follow, we shall make no attempt to establish a list of motives to which advertisers may suc cessfully direct their appeals. Instead, we shall merely 132 attempt to establish a basis for the determination of desires. II. THE PSYCHOLOGICAL THEORY OF ADJUSTMENT L. F. Shaffer makes the striking statement that the "practical problems of the psychological practitioner have been greatly clarified by the concept that all behavior> no matter how strange, has its motives.” The import ”is recognized in many fields, as in industry, in law, in sport and in education. As' a preliminary definition, he speaks of a motive as "that which arouses, sustains and directs activity." The stimulus is the "trigger which sets off the activity of the response." Appetitive tensions are the result of the "Inner physiological state." For example, "visceral tension" might arouse activity the same as a stimulus in the way Of food. Stimuli cause tensions within the Individual which result In general activity or -"drives." .. Behavior Is adjusted to reduce these drives and these "adjustive habits" are mechanisms. This behavior, which is learned, Is directed, in the red.uction of the tension or the removal of the stimulus. But not all action of the indi vidual is toward removal of the stimulus. Some drives, ^ Psychology of Adjustment (Boston: Mifflin Company, cl93'6), p. S’ST. Houghton 133 referred to as adient, attempt to perpetuate the stimulus, such as a sweet taste or a flowery odor. Motives, then, are drives "which have been modified by ordinary processes of learning," The direction of this learning may be "to extend the range of' stimuli that will arouse the drive and to modify the activity that results." Drives natively aroused by internal stimuli caused by nutritional deficiency may be aroused, for example, by savory odors, and the response can be a _preparation in the way of bathing and dressing for dinner rather than an immediate removal of the stimulus by eating. Motives are derived chiefly from emotional tensions, which come not only from overstimulation but by conditioning. For instance, mastery or self-assertion motives may develop from fear, and social approval motives from love.18 Leaning on Shaffer's work, Haney gives an economic interpretation of motivation.!® He begins with the as sumption that the individual "has potentialities for certain physiological and related emotional disequilibria or tensions within himself, which, together with habits and sentiments, control both his responses to stimuli and his 18 Ibid., pp. 83-112. 19 cit., pp. 163-167. 134 motivated b e h a v i o r . ”20 These ’'tendencies to activity with reference to objects” are "desire tendencies, or desires." Valuation -begins with the "stimulus which causes some reaction in the subject." internal: Stimuli may be external or they may arise from objects in the environment or from "some inner physiological state of tension," stich as contraction of the muscles of the. s.tomach. It happens that "the mature subject senses the existence of the ’object’... and consciously or unconsciously assumes its reality.” There follows ’’generation of a more or less sustained tendency of the subject toward the object, which tendency may be described as a want,” and a feeling of "vague general appreciation of the object," which may be described as "an imputation of utility.” Undirected activity in the form of effort follows and results in "various reactions being tried.” learning process, habits or mechanisms, tendencies, are acquired. Through the learned behavior These tendencies modify drives. Hindrances, either in environment.or in the way of con flicting desires arise and adjustments are made for relief. As a consequence of "hindrances and adjustments, and habits, • 20 According to Shaffer, habits are "learned modes of responding to drives," ( o t d . cit., pp. 106-107) whereas sentiments are "systems of emotional response and of moti vation in relation to familiar objects and events and persons," such as love and hate (o£. cit. , pp. 108-109). 135 the subject’s motives become purposive.” wants to desires. They pass from Motives which are "directive and se lective” tend "toward specific activity.” The intensity of motivation or desire, when purposive, can be "measured by the obstacles which an individual overcomes to fulfil the motive, or gratify the desire. Briefly, then, we may say that motives are desires, and that desires imply learning, selection, and purpose. To be economic, they must, in addition, be met by obstacles; consequently the matter of determination or will arises. the objective worth striving for? Is How intense is the desire? We must understand that both intensity of desire and degree of resistance vary with stiuations and that both are conditioned not only by the circumstances prevailing at the time at which the subject and object are .brought into relationship, but also by the many factors, Internal and external, which complicate the attitude of the individual. III. SOCIAL INFLUENCES Any observation of human conduct must show that social influences play an important part in the motivation of the individual. A tendency by some to neglect environ mental factors has brought much criticism. .21 l . H. Haney, loc. cit. As J. K. Clark 136 points out, "The twentieth century is an age which,."beyond other ages, is aware how much man is molded by his environ ment, and is deliberately undertaking to control this molding process."22 The emphasis upon the social aspects of environment has given rise to a newer branch of psychology which has been kept separate from the conventional' field, social psychology.23 Generally speaking, modern socialistic psy chology shows a modified socialistic trend. The principle of conditioning is basic in the understanding of social responses and the implicit habit mechanisms. Fundamental in the thinking of this school is biology and statistical t e c h n i q u e s . E m p h a s i s is placed upon the prompting of individual action by social or group stimuli.25 In this study we are interested in an economic interpretation of human conduct, but in making this interpre tation we must be fully cognizant of the importance of social influences on the reaction of the individual to stimuli, known as goods. The point of view given by 22 Ojo. cit. , p. 6. ■23 q # 2 . Ayres, op. cit., p. 231. 24 c f . "The Status of Social Psychology," The American Journal of Sociology, XLVTj3 (November, 1940) 300. 25 cf. Ellsworth Paris, o£. cit., p. 195. 137 A. J. Snow Is an excellent expression of this exegesis: Because previous reactions and many other factors change the internal state of an organism, therefore, the response of an animal to any given stimuli is not to he inferred from the external environment alone or from the inherited traits, or even hoth, but from the total situation at any given'T i m e --the internal organic state and the external environ mental condition at the time in question.26 It is not our thesis that the individual is an aperture through which mysteries of the universe appear unveiled, but he is, in that he is human, characteristic of other men in certain respects and particularly Is he likely to have certain traits typical of the group to which he belongs. Haney expresses it thus: While organic wants unquestionably tend toward uniformity of individual action, and some "Instincts” work In the same direction, it may be granted that some tendencies, such as the so-called Instinct of self-display, may be acquired at a very early age, and lead to divergencies of action. In the scientific sense, however, such tendencies toward dissimilar action may be classified and understood, and thus in reality become the basi3 of social uniformities.27 Individual differences there are, but In the main they are subject to distribution according to a normal curve. Those that are not are problems for the psychoanalyst and not the economist. 26 "psychology in Economic Theory," The Journal of Political Economy, XXXII:4 (August, 1924) 487-49'6.” Snow's views on marginal utility are unreal. A person does-not just eat until he is no longer .hungry.and stop. There are degrees of hunger. Even though a person is still not satis fied after he has had a portion of food, he is not hungry to the same extent he was before he had that portion. 27 2R* oik*» PP* 58-59. Italics are -this writer's. 158 The more ■general desires of man are classifiable in a broad way according to age, sex, purchasing power, etc. Youth may not feel the need for insurance to the same extent, that adults do. Men are more likely than women to feel that the old furniture is good enough. Most women do not have the same desire intensity for sporting equipment that men have, and the more senile in both sexes are less likely to have any desire for it. The heads of large families, particularly if the children are young, are likely to believe that French furniture is not sturdy enough. 'When most men are wearing silk or rayon ties, any one man, particularly a young one, is not likely to wish to buy a knitted tie. Persons living in California are not apt to demand coal when natural gas is cheaper. incomes do not buy elaborate houses. Men with small Truck drivers do not usually collect.rare books, and persons with little edu cation do not on the whole purchase literary classics. The value of a study of consumer buying motives.rests on the uniform, the classifiable actions of buyers. The truth of this statement is found in the success of modern advertising. Though there are slight differences in specific motivation, an appeal to a general desire brings mass response. It is not the slight differences we are interested in but the general fact. 139 IV. WILL ■Our loasic assumption, thus far, has been that the relationship between any human being and the objects in his environment results In certain meanings to the individual. These meanings include appraisals of both utility from the use of and disutility in the acquiring of these objects. - Both appraisals are relative in that the human- being does not consider any one object In Isolation but instead con siders the utility and disutility Involved In the use of one, product as compared to that of another. The appraisals made by the individual are not only learned from experiments with goods biit also through education. If a good means a specific satisfaction to an Indivi dual and, If the good can only be obtained through the overcoming of certain resistance, we say that the article has economic significance. The balancing of the obstacle, which may be the sacrifice of other gratifications, against the satisfaction to be derived, brings decision or Inde cision. Indecision must change to positive decision before a satisfaction can be enjoyed. Decision may be either positive or negative. If it is positive, desire is stronger than subjective resistance, and the individual determines to overcome objective re sistance. This kind of determination we shall speak of as 140 will.28 Will is shown either in the overcoming of the re sistance represented Toy the consumer’s reluctance to part with dollars or in the overcoming of aversion to incon venience. It is, then, the- degree of positive determination necessary to overcome the negative attitude of a person whose desires meet with resistance, and it is the subjective force which impels the individual to use the required effort to overpower any objective impediments. Money is not necessarily a part of a transaction in volving the exchange of economic goods, though this medium usually does figure in most exchanges of commodities in civilized countries, free goods of nature, such as air, are not considered economic since there is no resistance to attaining them. Though water is often treated as belonging in this category, this good is usually economic. Most persons living in urban communities pay for the commodity. True, they could in many instances go to rivers or streams and get the product free, but the inconvenience is great enough to prompt them to pay for it. Farmers usually go to effort in digging and expense In -paying for the piping of wells. The factor of will is exemplified in the hypothetical case of the traveler who hears water running in a canyon 28 of. r . s. Woodworth, op. cit., 523-550. beneath, his path. If thirst is great enough, he will descend the ravine to get a drink. against the impediment. He weighs the desire If thirst is great and the canyon small, a decision is quickly forthcoming. If the desire is less intense and the inconvenience great, he will pass on without gratification. If a boy is in readiness to offer his services in fetching water for-travelers, the resistance instead of inconvenience, is a reluctance to part with money If a positive decision is made, will is-the resolution of attitude to attain the desired end. Woodworth explains that the Individual is moving towards a certain goal, but encounters obstruction* and his response is effort, or increased energy put into his movements towards the goal. So long as the tendency towards a goal finds smooth going, there is not the same determination that appears as soon as an obstruction is encountered...29 By. balancing desire against resistance, the individ ual formulates his Ideas of subjective worth.30 The extent to which he decides that resistance should be overcome to bring satisfaction is the degree of worth he attributes to the means. If the traveler decides that his thirst is great enough to make It worth his while to enter the ravine, he believes the product is worth the effort. If he gives a boy ten cents to bring the \7ater to him, on the other hand, he 29 Ibid., p. 536 142 decides the water to be worth the sacrifice of money. He might feel that the product is worth much more, but he pays the minimum requirement for satisfaction. The law of di minishing utility applies to the situation, of course. If the boy charges according to the quantity fetched, the traveler will buy only the amount he feels to be worth the charge. Will is, in a sense, a measure of effective desire. Because it is impossible to know the extent of ineffective desire, we can only roughly approximate it by observing variations in effective desire with changes in price, con venience, etc. V. HABIT Since, habits are conditioning, based partly on experience,, we may say that a habit is a learned method of responding to a particular stimulus. Like all forms of learning, habit formation involves time. Persons do not change their habits so much as they grow out of them. Naturally as the individual acquires new or additional ex periences, he learns new methods of responding to stimuli. Not only this, but his environment is usually subject to gradual change. At any one time a large part of a person’s conduct is controlled by habit, but certainly not all of it is so controlled. Hew stimuli are forever presenting 143 themselves and new decisions are constantly being made. We need have no objection, then, to J. M. Clark’s statement that: it is'only by the aid of habit that the marginal ' utility principle is approximated in real life, for only so is it possible to have choosing which is both effortless ’and intelligent, embodying the results of deliberation or of experience without the accompanying cost of decision which, as we have seen, must prevent the most rational hedonist from attaining hedonistic perfection. For'habit is' n a t u r e ’s machinery for handing over to the lower brain and nerve centers the carrying on o f ‘work done first by the higher apparatus of conscious deliberation.31 This must not be taken, notwithstanding, to mean that the marginal utility principle does not apply in the short run.32 Clark’s words admit that conscious deliberation often precedes habit. While habits are .acquirements of experience, original decisions are based on expectations. If a man makes a decision today and finds that the results bring greater satisfaction than sacrifice, he may follow the same resolution when confronted by a similar problem. If the problem changes, the previous decision does not apply. If, however, there Is some degree of similarity, the ex perience attained in solving the first problem may be of help in reaching a later conclusion. 31 Og-. cit. , pp. 26-2,7 32 Supra, p. 64. This does not imply 144 psychological principles of adiency through pleasure and pain motives. Especially it does not imply that material istic doctrine known as hedonism. person involve direct habit. Many of the actions of a This is merely another way of saying that much of an individual's current choice is based upon past decision or judgment. Habit patterns control much of the action of the consumer in the short run. • In the long run, however, these patterns are evaluated according to a standard which functions in the mind of the individual. This standard is the individual's value structure. "Life is not fundamentally a striving for ends, for satisfactions, but rather for bases for further striving," as Knight expresses it.33 A cluster of grapes may leave an impression of color that is of a different complexion from any one of the grapes clinging to it. Similarly, the choice of an individual is affected by a total value structure and not elemental experiences which give rise to special habits. The habits are the accompaniment, but not the driving force. We study the fragments merely to get a picture of the whole. Materialistic philosophy denies or Ignores these Gestalten, and yet, as Knight points out, the individual sometimes ends life rather than to live it in a way which 33 P. II. Knight, "Ethics and the Economic Interpre tation, ".The Quarterly Journal of Economics, XXXVI;3 (May, 1922) 459. denies value structures.34 a materialistic conception of economic value takes account of -the mode of living, hut it refuses to recognize the higher concept of a standard of living predicated upon a total value structure.35 V I. CONSCIOUSNESS OP MOTIVES Economists have commonly used the terms "want" and "desire" interchangeably. For a careful analysis of con- sumer preferences a distinction seems desirable. The former signifies a negative quality, whereas the latter connotes something positive as well as negative.36 jf an indi vidual wants something, we say that he senses something missing or lacking. If he desires something, he. is conscious of his dependence upon an object for .gratification.37 The one is a manifestation of the other in terms of the purposive behavior of the individual in attempting to acquire a specific object for satisfaction of a desire. If we consider a need as a tissue requirement, a negative factor, the term "desire" Is not limited to the acquirement of objects for the satiation of needs, for many desires are 34 Loc* cit» 35 Supra, 'pp. 36-40. 36 2JL* p * Young, op. cit., pp. 80-81, 251-253. 14 6 founded In environmental conditions, social surroundings.38 Some needs may never evolve into desires,, for many physical requirements are not recognized by human beings.39 "Desire," as the term is used in this study, implies not only a consciousness of a dependence for gratification upon an object but also- a realization of obstacles which must be overcome in attainment of"satisfaction. Usually these obstacles involve the sacrifice of the means of gratifying other desires. always conscious. Thus we say that desires are Throuigh habit formulation, the action performed in satisfying a desire may be mechanically per formed, but the individual is always conscious of the end or goal to be attained. A person is usually conscious of a general endeavor to carry out a purpose though much of the specific action performed is done as a matter of routine. As Woodworth expresses it: The typist may write the letters mechanically, and if expert may write even words in this way, but all the time he is consciously aiming to copjr the passage. His attention and impulse have deserted the fully mastered details and attach themselves to the larger units. In the same way, in signing your name you have no conscious intention or impulse to write each successive letter; but ;fou fully intend to sign your name.40' Of. P. T. Young, op. cit., p. 252. 39 Ibid., p. 81. 49 0]D. cit., pp. 525-526. 14 7 Other than the simple reflexes, ideomotor action offers the best example of involuntary action. This kind of action is closely linked, through association, with par ticular ideas or stimuli. immediate response. The thought or stimulus brings For example, a man approaching the ticket window of a theater may, upon sight of the tickets, automatically reach into hi-s pocket for money. The idea suggested .by the stimulus brings 'an immediate response. The goal and the general striving' to attain the e n d •in view are conscious, nevertheless. A better understanding of involuntary action gives us a clearer insight to consumer attitudes of non-resistance. When a'person becomes accustomed to the regular gratifi cation of a particular desire through the means of a specific product, much of the action required in attaining the commodity becomes mechanical as a result of habit and association. The more complex the chain of acts prerequi site, the longer the time required for development of an attitude of non-resistance. The sacrifice of the means of gratifying other desires may be consciously recognized with the original purchase of a commodity by a consumer. As frequent purchases are made, the consumer becomes more conscious of his dependence upon the particular commodity toward which he develops an attitude of non-resistance and less aware of. the 148 sacrifices of other utilities. ' In the short run the element of sacrifice loses importance relative to the utility re ceived from a good to which the buyer has an attitude of non-resistance. ated. Only in the long run is the habit evalu Thus the principle of marginal utility applies only to expenditures from residual income in the short run. In the long run it applies to all expenditures.4^ VII. CONCLUSIONS Causation of human conduct is an interplay of many forces, some of which are subjective and some objective. The total effect of these interplaying forces is summed up in the totality of desires of the individual. The more common desires of man, vdiether they be elaborations on organic -wants, acquirements from experience and learning, acquisitions from geographical or social surroundings, or combinations of all these, may be classified according to well-defined groups. The economic significance of consumer goods rests on the meanings of these objects to human beings. These meanings are important in that they define commodities in terms of their capacities to gratify desires. Supra, p. 64 To find the 149 significance in tiie relationship of subject and object, we must associate meanings with desires. To the extent that both meanings and desires are common in the relationships of individuals of particular groups to specific commodities, we have a body of classi fiable data. In this sense, certainly, a study of consumer motivation is scientific. CHAPTER VIII DEMAND STIMULATION Methods of influencing demand have probably been used by men of most ages, but the development of any methods that even approach the scientific has taken place only .with in the last century. It is not the purpose of this chapter to give a history of salesmanship, showing the development of methods of influencing demand since the days of the peddler; neither is it the purpose to give any handbook rules of technique. Instead, this chapter will present a general classification of the.theories developed by various students of the .subject, a criticism of these theories, and a restatement of demand stimulation in the light of the analysis of consvtmer preferences made In previous chapters. For purposes of terminology, v/e shall classify approaches to the 'subject'Into subjective and objective categories. The former embraces the theories of those who believe that the approach to demand stimulation shovild begin with the consumer. V/e dismiss, of course, the works of those who have enveloped themselves in metaphysical specu lations. The objective approach, often followed by business men who have become discouraged-with abstract treatises.on motivation, seller. is concerned chiefly with the conduct of the College textbooks on salesmanship are full of the ' advocated procedLires drawn from the subjective approach, 151 'whereas business publications brim over with the objective pressure techniques. I. THE SUBJECTIVE APPROACH E. K. Strong, Jr., who composed one of the most comprehensive statements of salesmanship in his book, Psychological Aspects of Business,1 says that only three general theories of selling are "definitely f o r m u l a t e d . "2 The first is the attention, interest, desire, action, satis faction formula, which grew out of an advertising slogan composed in 1898. Though the statement o f ■the prescription has been frequently modified, the idea is found in the works of many later writers. Kitson uses it in describing and elaborating 'upon- the mental stages through which the mind of the consumer passes.3 A perusal of the chapters on sales letters in m o d e m business correspondence texts shows an amazing Inclination on the part of authors to follow this theory of selling. The very neatness of the formula itself may be responsible. A part of each sales letter can be addressed, supposedly, to a mental stage of the reader. 1 0|5. cit. 2 . PP« 206-211 3 Op. cit. 152 The second, theory, that of situation-response, or as it Is sometimes called, the appeal-response theory, is based on the belief that, if the proper situation or appeal is made'by the seller, a desired response will be received. This theory is thus described by one of Its proponents ;■ Managing the Interview is, In reality, planning the presentation of your appeal In such a way that the prospect's mind responds throughout the interview In a manner which will lead him eventually to-signing the application. A sale, after all, is nothing more than a series of situations created by the salesman with corresponding responses made by the prospect, and in managing the interview, you are planning your questions and your remarks so that they will present certain situations to the prospect which will produce certain responses. You are the engineer who guides the train of the prospect's t h o u g h t . 4 Daniel Starch places considerable emphasis on the classifi cation and selection of appeals. His interest is that of determining the'appeal the seller should use to get the proper response from the consumer.5 Strong uses what he terms a want-solution formula. The four elements in the analysis of.a purchase are w a n t , solution, purchase, and satisfaction.6 He classifies wants as primary, secondary, and tertiary, and considers the first 4 J. A. Stevenson, Selling Life Insurance (Hew York; Harper and Brothers, 1922), p. 129. 5 Principles of Advertising (Chicago: Company, 1923)• 6 Op. eft., p. 16. A. W. Shaw 153 as innate or the result of ’’natural maturation,” the second as acquired very early in life to satisfy the primary wants, and the third as want habits "peculiar to individuals."7 With regard to what wants the seller should appeal to, he is vague. He states, "Undoubtedly one of the best ways to discover what appeals to use is to put yourself in the place of the prospect and figure out what would make you yourself act as desired.”® In a rather interesting fashion, Lucas and Benson attempt- to break down the difference between the first and third formulae to show that they are not as -different as they may seem to be. Attention, interest, and desire become the same as want, whereas conviction, an addition often made to the first formula, becomes the same as solution. Both formulae aim at purchase and s a t i s f a c t i o n . 9 W. D. Scott’s contribution to sales theory should not be overlooked. suggestion. He distinguishes between deliberation and His explanation of the latter is helpful; "Every idea of an action will result in that action unless hindered by an impeding'idea or physical impediment."IQ But 7 OR- clt-» PP- 75-76. ® 0£. cit., p. 233.' 9 D. B. Lucas and C. E. Benson, op. .cit., pp. 130-132. York; Influencing Men in Business, Third Edition (Hew The Ronald Press Bompanyj cl928), p. 36. 154 Ills "types of decisions" are suggestive of types of indivi duals and subject to question accordingly.H Charles Bennett, who criticizes the three theories referred to by Strong on the ground that they are "formulated upon the premises that human behavior can be accounted for adequately by reference to the original nature of. man and instincts," suggests what he calls the "expansion of meaning" t h e o r y . 12 ■ g e critical of the vagueness of the term wants in the third t h e o ^ , suggests needs as a more appropriate expression, and speaks of the latter word as including both the psychological and the physiological. He is not clear concerning just what a need is, however.15 jje divides the sale into four stages: The first stage of selling procedure in the use of this theory is for the salesman to make an.effort to understand the prospect’s value complexes. The second stage is to present the proposition and explain its selling features. The third stage is to explain the proposition in relation to the needs of the prospect as determined in stage one and in accordance with the 11 rbld.« PP- 61-72. 12 Scientific Salesmanship (St. Louis; American Efficiency Bureau, 1933), pp.’"'72-85. Bennett’s book was written before Psychological Aspects ~of Business was pub lished and hence the criticism was based mainly on The Psychology•of Selling and Advertising, published in 1925 and The Psychology of Selling Life Insurance (New York: Harper & Brothers, 192’ST. I 3 In one place Bennett gives an ethical -significance 1° neecis. Ibid., p. 72. 155 utility of the product. The fourth stage is to meet the specific objections of the prospect... 14 This formula is somewhat similar to the want-solution theory. II. THE OBJECTIVE APPROACH A formula often used, by advocates of the objective approach is that of preapproach, gaining the interview, the approach, the demonstration, meeting objections, and the close.3-5 i>he experimental factor is important--what acts of sellers have proved most successful In selling practice? H. W. Hepner gives the reasons for the use of this approach by business men; Some sales managers who have trained salesmen claim that it is very difficult and decidedly confusing for a salesman to focus attention upon what the prospect is thinking. An easier and more effective method Is to train the salesman to think of what he himself does rather than what may be happening in the mind of his prospect. The mental states of the prospect cannot be ignored, but t h e 'emphasis should be upon what the salesman does and the objective 'fac"tors of the selling act.’..1£ An excellent example of the objective approach in the field of advertising is found in.Richard Surrey’s book, Layout Technique in Advertising.17 This author devotes his 14 Op. cit., p. 81. 15 Qf. p. a . Russell, Textbook of Salesmanship, Second Edition (McGraw-Hill Book Company, 19537. Psychology in Modern Business (New York; Hall, 1931), p . "3537 17 (New York; Prentice- McGraw-Hill Book Company, 1929). 156 attention to formulating principles for the layout man to follow in his work. It must be understood, of course, that objective factors are included in many books on selling or advertising that place emphasis on the consumer. The space devoted to such techniques as the use of calling cards or the focus of gaze during the interview or the mechanics of layout vary, however, and assume a place of first importance or of supplementary nature accordingly. For example, P. W. Ivey treats memory as a factor in the development'of a-sales personality!^ whereas Strong treats the subject in relation to the buyer.!® The difference is obvious. III. QUANTITIVE EMPHASIS H. C. Link, a behaviorist, is one of the most ardent advocates of empirical methods in the study of consumer p r e f e r e n c e s .20 The problem as he states it is not one of influencing the preferences of consumers but instead one of finding out what these preferences are in the present and using this knowledge in determining t r e n d s . 21 16 Successful Salesmanship (Hew York: 1937), pp. 104-107 * 19 Making the Prentice-Hall, clt»* PP* 551-375. 20 The Hew Psychology of Selling and Advertising (Hew York: - The Macmillan Company, 1932)7 21 Ibid., p. 1. 157 charge that the ''dominating theme" of sales liters.ture has been that of explaining how the seller can make the consumer buy what he did not previously want, Link stresses the Importance of finding out through quantitative studies what the buyer at any one time actually does wish as signified by his purchases. No denial of the value of quantitative methods should be made. These, however, should supplement introspective methods rather than replace them. The mere proof of the value of one method is no evidence of the lack of importance of other methods. Empirical observation, as a matter of fact, should show Link that consumer preferences are in fluenced by salesmanship and advertising and that many of the desires made manifest by the purchases of consumers today are the result of the sales efforts used by merchants yesterday. The significance of determining what the actions of buyers are does not refute the importance of ascertaining how these actions can be modified. A more justifiable accusation would be that sales theorists have exaggerated the relative importance of getting buyer response in re lation to other causal factors in consumer preferences. IV. CRITICISM OF SALES-THEORJ.e s Helpful though a few sales theories have been in diagnosing causal factors in consumer conduct, they are in 158 the main barren in philosophy, biased in point of view, superficial in analysis, and limited' in perspective. They are little more than cramped doctrines offering, in handbook fashion, rules whereby the conduct of the consumer can be modified, distorted, and controlled to the benefit of the seller with little analysis which penetrates into the causal factors of human behavior. Very few of them are diagnostic In character, com prehensive in range, or economic in treatment. If attention, interest, desire, action, satisfaction is the formula that will make the consumer a slave to an appeal, what is to happen after all sellers are using exaggerated methods of getting attention, screaming their wares in large type, and blandishing the buyer with selling stimuli? If the consumer is no more than a bundle of motives controlled by a keyboard, what is to happen if all sellers press the same key? Might not a slight change in service, price, or quality have more effect than the pressing of a dozen keys? Are not negative motives as important as positive ones In controlling human actions? Can the study of consumer buying motivation be divorced from an analysis of the economic situation of the buyer? Most subjective theorists have, as a matter of fact, leaned heavily on instincts.. Their conclusions suggest that all that is necessary to make sales is the application of 159 the proper stimuli--man’s inherent tendencies will accomp lish the feat. is shallow, to An explanation of human conduct this simple* say the least.22 jt is difficult to explain why sales theorists have evaded the fertile ground so long held in fee-simple by economists other than that they have been searching for an elementary explanation of buyer behavior. The want-solution theory seems to be the soundest ofthe subjective theories, but even it examines only a small range of human conduct. The point of view taken in this approach rests too heavily on instinctivism. Although Strong recognizes that interests may be acquired, a reading of his work gives the impression that innate wants deserve * much of the attention of the seller. Obviously, the objective approach cannot constitute a theory by itself. It may provide a valuable basis for vocational training by putting into practice a subjective theory, but it cannot stand alone. It Is only logical that what the salesman does must be guided, by the reaction he wishes to get from the buyer. Too much emphasis on the salesman’s acts can easily lead to high-pressure methods of 22 cf. Z. C. Dickinson, ojc. cit., p. 226. selling to which the consumer may quickly huild r e s i s t a n c e . ^3 Quantitative studies can be made very valuable In the field of consumer preferences, b u t 'they should be, after allj only a part of a broader study. They should supplement subjective theories but not replace them. In so far as they ascertain the how rather t h a n •the why or the cause, they are imcomplete. Sales theories should not be limited to methods of influencing demand alone but should be related to the broader field, economics, through the door of consumer preferences. We are not only interested in these prefer ences to be able to control them, but we are interested in why they are, what causes them to change, and how they function in relation to the economic system as a whole. After all, the principle of diminishing utility,, time preference, and place preference should be only a little, if any at all, less significant to the sales theorist than to the economist. V. ETHICAL SIGHIFICANCE Controversy has waged over whether salesmanship and 161 advertising create desires or whether they merely stimulate those already existlng.24 influence of instinctivism has influenced some theorists,' no doubt, to maintain that desires cannot be created but are merely stimulated and directed. Then, too, the ethical significance of selling is one which most authors on demand stimulation wish to evade. If it is admitted that desires can be created, is It appropriate to ask what desires should be created and what ones should not be? The mere denial of "desire creation" does not remove the question of ethics, however, for It is just as logical to ask what desires should be stimulated’as it is to ask what ones should be created. What difference does it make whether we are creating unsocial desires or are appealing * to the baser Instincts? Is one more wrong than the other? For the sake of precision, it might be better to say that desires are cultivated than to say that they are created, though the point of view taken here coincides with that presented in' an article by G. A. Stocking in The American Economic Review, in which that writer maintained "that the fundamental aims of advertising are; the crea.tion of wants, the shaping of tastes, the determination of values, "25 • ■; • 24 Gf. C. A., Stocking, 25 Loc. cit. o jd . cit. p . 50. 162 The erroneous idea that desires can he created by the advertiser in some supernatural way as by the waving of a magic wand must be guarded against, hoxvever. Likewise,, one must guard against the idea that desires lie dormant -until they are awakened by the seller. Such a belief does not conform to sound theory on motivation. The consumer, in such an event, would be unconscious of desire. Our distinction between want and desire is that the latter implies a consciousness of both end and means and a purposiveness of.action when the consumer wills to satisfy a desire.^7 Some desires obviously grow out of organic wants, but in their cultivation they often become so elaborate as to be hardly comparable to the raw material from which they sprang. J. M. Clark’s statement is interesting in this respect: The primitive instincts appear to be few in number, general in character, and attached to no one particular object. Economic wants for particular objects are manufactured out, of this simple and elemental raw material just as truly as rubber heels, tennis balls, fountain pens, -and automobile tires are manufactured out of the same crude r u b b e r . . . 28 The difference between what would be necessary to satisfy an organic want and what is.demanded in American 26 Supra, pp. 145-148. 27 Supra, pp. 146.-' 28 0£. cit., p. 8. V 163 society in the gratification of- desires is clearly presented in t h e .following passage from P. H. Knight: If we begin with food, the most material and necessary of our requirements, it is obvious that but a fraction of a modest expenditure for board in an American town would come under this head. And proceeding in order to our other "material” needs, clothing, shelter, furniture, etc., it is apparent that the farther v/e go the smaller the fraction becomes...29 That advertising, the same as any form of propagating knowledge, may cultivate desires is true, but that desires can be created overnight is untrue. Much advertising is no more than an appeal to desires of long culture, and, in this sense,is but a selling stimulant designed to bring a desired response from the consumer. It might be said that man is a "bundle” of desires and that these desires, clustered as they are about a general stem or base, make up the life of the individual. It Is this cluster of desires, some of which are being satisfied in the present and others for which the hope is that they will be satisfied In the future, that comprises what v/e call the standard of living. Among these desires are those which are gratified regularly by means or products to which the individual has developed ‘attitudes of non-resistance. Many desires are ‘not satisfied because they do not come up to the standard Implicit in the individual’s total value 29 Q£. cit., p. 462 164 structure.so This basis of evaluation, known as the standard of living, is influenced by many social factors as v/e1-1 as by education. As the causes change, the standard changes also. Over a long period of time, alterations which are gradually made in the cluster'may considerably vary the complexion of the whole, but the change at any one time is hardly noticeable. Thus we say that during short time many of the actions of the human being are fixed by habit. Consequently, to understand the preferences of any group we must turn to the common habits of that group. means that we must study modes of living* This But for a knowledge of trends we must examine the factors that In fluence the standards of living of groups. Social and educational tendencies are important. It. is not our problem to set up standards for evalu ating consumer preferences. Instead we are interested in setting up a basis for determining what the preferences of consumers are, why they are, and how they may be influenced by sellers. Our concern with social attributes is founded on neither a moral nor an ethical interest regarding the control society should exercise over the desires of indivi duals, but instead it is based on an interest in the extent 30 cf_. P. H. Knight, op. cit. , pp. 465-466. 165 to-which social relations do influence the desires of consumers. VI. THE RESISTANCE FACTOR IN DEMAND STIMULATION We have already'.said .that there are two kinds of competition, general, which exists among sellers of substi tutable products which are functionally dissimilar and specific, which exists among sellers of substitutable goods which are functionally similar.31 kinds of competition. Many sellers meet both In other \vords, if a seller, attempts to sell an automobile to a man who has never driven one, he is competing generally with the clothier, the realtor, the jeweler, etc. He is, on the other hand, competing specifi cally with sellers of other makes of cars In a similar price class. Sellers in s.ny one of these competition groups may attempt to increase sales through advertising, but their problems differ. The man who meets only general competition tries to stimulate desire that requires for satisfaction a general type of product, such as an automobile.32 jje mus-t; have a monopoly on the general type of product he sells- in the area In which he does business or he would also meet 31 Supra, pp. 84-85. 32 This, of the three situations, is least likely to exist. 166 specific competition. If the desire of consumers for gratification is intense enough, they will buy the product from him. If the demand for a general type of product, such as an automobile in a particular price range, is already well established in an area, a seller may not try so much to increase this demand as to get his share of the sales of that product. In this case the problem is not that of stimulating,' hut that of directing desire. However, the man who not .only wishes to increase the demand for automobiles in a price range but also to get his share of the sales of this kind of product, must both stimulate and direct desire. In the second situation, that in which the demand for a general type of product is well established, we speak of the attitude of a group of buyers to the good as that of non-resistance, though we recognize that specific-exclusive resistance to the changing of brands of the commodity may be in existence.33 mjxe demand for the general type of product, at least, is Well established in this case. Even when this situation exists, general competition arises as soon as any of the sellers attempt to get consumers to use more of the commodity than they are accustomed to doing. For example, if sellers tried to get consumers to 23 Supra, p. 84 167 trade In their automobiles more often than they are ac customed to doing, general competition arises. If we define an appeal as an action designed by a seller to bring a desired response from a consumer, the appeals used in the three situations described would differ. Let us borrow" the word conviction from sales theorists and define it as knowledge.- Let us also differentiate between kinds of knowledge, with general conviction meaning' all information that convinces a consumer that a general type of product will satisfy a desire, and with specific conviction meaning all information that convinces a consumer that a particular make or brand of the commodity will most com pletely gratify a specific desire or a taste. Then the seller in the first situation provides general conviction and the one in the second situation provides specific con viction. The seller in the third situation provides both kinds. But, we may ask, -how does general conviction cultivate or create desire? If we assume- that a seller of soap wishes to increase the demand for his product in a certain locality, he may advertise the use of the commodity for cleanliness. If the people of the community are not conscious of un cleanliness, advertising may stimulate this c o n s c i o u s n e s s . ^4 34 C. A. Stocking, op. cit., p. 52, uses as an example Listerine advertising and halitosis. 168 The situation is different in the case of the second seller. The ass-umption is, in this situation, that consumers are conscious of uncleanliness and have the desire to be clean. All the seller often does is to try to convince buyers that the brand of soap he sells will give them more cleanliness for their -money than will that of any competitor. The third seller meets the problems of both the others and gives general and specific knowledge.' Obviously his appeal must be more extended than that used by sellers who meet only one of the two kinds of competition. One of the failures of many sellers is that they do not recognize that general conviction may sell the goods of competitors rather than their own if precautionary measures are not taken. Salesmanship and advertising are certainly educational forces if one of their main purposes is the imparting of knowledge to the cons^^mer. Nevertheless, this information is usually presented from a biased point of view and some consumers learn to evaluate sales stimulants just as they learn to appraise goods. If they feel that they have been tricked by -grossly exaggerated or -untruthful statements, they become critical of selling methods and build a certain amount of resistance to them. educated in the art of buying. Thus they become further 169 Some advertising is informative, only in that it gives the names of products. simple suppestions. Other advertising is limited to The extent to which resistance, either general or specific, is great or small is often a determin ing factor in the extent to which knowledge is given in selling.' A very rich man may, though even he is unlikely to, huy a house for his wife just because she thinks it is beautiful. A man in any of the lower income brackets certainly does not, even though both he and his wife think it beautiful, buy anything that costs as much as a house without receiving some information about it. Any realtor would be expected to give considerable data about property he is selling if he expects a buyer to purchase it. never theless, even a poor man is often willing to spend ten cents or a quarter at a side show of a circus or carnival. Many low-priced commodities are bought on impulse. This is because the resistance factor is not great enough to overcome impulse and force deliberation.35 There should be no confusion between goods bought on impulse and goods to which the consumer has an attitude of non-resistance. In the case of the latter, choice -is made on the basis of previous decision and,' though the-customer originally .35 classification of consumers according to de- ■ iiberative or emotional natures is purposely avoided. Supra, pp. 153-154. 170 deliberated before purchasing the product, he does not continue to do so after purchase is taken for granted. VII'. QUALITY MID PRICE Stress on quality and price or quality at a price is of-prime importance in selling substitutable goods which are' functionally similar after demand for a general type of product is well established. To the extent that many goods are easily substitutable in' the satisfaction of a particu lar desire, consumers are likely to make purchases on the basis of a quality-priee. differential so that they can maximize satisfaction.36 Since price resistance diminishes inversely as pur chasing power increases, quality. Is likely to be of greater Importance to persons with large incomes. Conversely, since price resistance increases as purchasing power de creases, price is likely to be of greater Importance to persons with smaller Incomes. But inconvenience resistance is likely to be rela tively more important in comparison to price resistance In the case of persons with high incomes and relatively less important in comparison to price resistance in the case of persons with low incomes. - 36 By maximizing satisfaction, we mean getting the greatest total gratification of all desires in proportion to total resistance that must be overcome. 171 Putting; this another way, we may say that persons with greater purchasing power are likely to be willing to pay more if the purchase of goods is made convenient for them and that persons with smaller.purchasing power are likely to be willing to go to greater Inconvenience to buy for less money. Service Is discounted for price reduction and price reduction for service accordingly. Time .preference influences quality-price estimate's,. Persons with positive time preference but low incomes are likely to demand less quality In durable goods so that they can. purchase more of them in the present. It Is not so much a matter of receiving future .utility as It is of satisfying an Immediate preference. VIII. COMPLEMENTARY GOODS The demand for some goods is derived from that for others. If a consumer buys an. automobile, he must, to derive utility from the product, purchase gasoline. By virtue of the purchase of one good, then, the buyer assumes an attitude of non-resistance to another. Similarly,'the sale of electrical equipment gives rise to an Increased demand for electricity. But the increased demand for complementary products varies with the consumption habits of buyers. If a person purchases an automobile, he also buys gasoline in some 172 quantity, depending upon the use he makes of the car. In the event that he uses it for business purposes only, more gasoline can be sold to him If he Is influenced to use’the machine for pleasure as w e l l . ' But while he has little resistance to the purchase of fuel for the automobile for business he does have resistance to the purchase of it for pleasure. Consumption habits are formulated not only with regard to type of product but also with regard to quantity. In the situation referred to, gasoline is taken for granted and purchased regularly for business purposes, but increased purchases for other uses are made only after some hesi tation or vacillation. The demand for one good does increase with an increase in demand for another good v/hich is complementary. This Increase, however, must not be considered directly pro portionate unless there is a condition of perfect comple-. mentarity, which seldom exists. Sales effort might be used successfully in increasing the proportionate sales of the one product to the other. For example, advertising might be used by tire manufacturers to increase the sales of their products proportionately to the sales of automobiles or by public utilities to increase their sales of electricity in proportion to the sales of electrical equipment. 173 IX. RES IS T M CE TO SELLING METHODS Since the consumer cannot satisfy all his desires, some are given preference over others. Sellers meeting general competition contend among one another to stimulate those desires the gratification of which mean increased sales of their products. The very nature of this compe tition, sponsored hy the profit motive, has forced the consumer to build a resistance to sales methods. Because of this the seller often seeks to conceal the nature of his efforts until he has aroused the interest of the buyer. Consequently, he concentrates his first efforts on the • stimulation of a desire which requires for gratification the general type of product offered for sale. For instance, the seller of life insurance stresses first in the advertisement the importance of independence after an individual has reached the age of sixty-five, or the seller of correspondence school education places emphasis on larger income or business success. Not until this is done is the consumer given any clue to the product. The second step is that of associating the gratification of the desire with the means, the article offered for sale. This is brought about through the use of general conviction. Although .this method is somewhat similar to the Yi/ant-solution formula, it differs in that advocates of the latter prescription lead one to believe that the want is 174 already In existence, whereas modern selling makes no such assumption. A person who had given no thought to what he would do after he became too old tohvork might be made conscious of the advantages of providing for his later years through a frequent repetition in advertising of the desira bility of being independent financially during senescence. What is desired and what is desirable differ only in respect to. 'consciousness of feeling. It is the latter rather than the former that is recognized as being of importance in salesmanship today. It rs erroneous to suppose that any one formula Is sufficiently expansible to apply to all selling situations. The seller of non-resistance goods need not concentrate on the stimulation or cultivation of desire before introducing the product, for, plainly enough, desire has already been adequately intense to induce regular or habitual use of the commodity, and special attempts to get Interest are un necessary. X. ENHANCING THE MEANINGS OF GOODS Products have meanings of utility and. disutility to consumers, and purchases are made only when there are estimated increments of the former over the latter or decrements of the latter under the former. Anything which a seller does to enhance the estimate of relative utility over 175 that of relative disutility is salesmanship. If shoes will pay for themselves in style and durability alone, the .addition of comfort is an increment of utility over re sistance, or if a worker ordinarily pays five dollars for a pair of shoes that last nine months, he is given an additional utility over resistance if he is sold shoes that last twelve months for the same price. And if coffee has only the meaning of a hot drink to a consumer, the idea of utility is projected with the suggestion of the product as an iced beverage. Coca Cola was commonly thought of as' a refreshing drink for warm .weather until the producers brought out the slogan, "Thirst knows no season." Auto mobiles may mean no more then speedy transportation until producers place emphasis upon comfort and safety. The limitation of meaning of any article to consumers restricts its sale, for buyers commonly turn to sellers for information about the commodities they s e l l . 37 When a sequence of acts is preliminary to -any single purchase, consumers are prone to weigh relative resistance In terms, of its totality in. 30 far as the particular purchase Is concerned. Sellers, realizing this, often direct their advertising.at overcoming only the resistance 37 h . D. KItson, "Economic Implications In Interest," The Journal of Political Economy, XXVIII:4 (April, 1920) 332- 3’5S“, says that interest in anything is developed by giving information about it. .176 to the first of the chain of actions. This may result in • the paying of a visit to the showrooms of an automobile agency, or the mailing of a coupon for more.information about a life insurance policy." After the consumer visits the display rooms or mails the coupon, the seller places emphasis upon the second act of the series. The resistance to any one of the sequence of acts is small when that act. is singled out from the others and subjected to special sales effort. Installment selling has been another important factor in breaking down the resistance to certain relatively high priced semi-durable or durable goods. The seller places emphasis uxpon the smallness of payments rather than the total price and takes advantage of the consumer’s tendency to discount future sacrifices against immediate- and future g r a t i f i c a t i o n s . W i t h little .if any down payment required, the present gratification is likely to exceed any immediate sacrifice. XI. CLASSIFICATION OF APPEALS ACCORDING TO MEDIA We have defined an appeal as any action of a seller designed to bring about a desired response from a consumer.3® 3® Supra, pp. 110-111 Supra, p. 167. 177 Tli© desired response does not have to be a purchase, for, as we have a l r e a d y explained, the purpose of an advertise ment may be no more than that of inducing the buyer to visit the display rooms of the seller. An appeal may be limited or extended, according to the purpose of the seller, the resistance that must be over come in getting the desired response, and the medium of selling used. It may be no more than a simple suggestion, or it may begin by stimulating or cultivating a desire, follow with general and specific conviction, and end with persuasion designed to overcome resistance. The purpose of the seller may be that of making a sale, that of getting the consumer to perform one of a sequence of acts preliminary to a sale, or that of supple menting other sales or advertising efforts. If the re sistance is great, the appeal is likely to be extended, but If It is small the appeal is likely to be limited. The medium of selling -may be suited to particular kinds of appeal only and thus place limitations upon the efforts of the seller. It is difficult to use more than a very limited appeal:' in:-billboard advertising; consequently the seller uses this medium when resistance is minor or when the purpose is to supplement other sales efforts. A mere suggestion may sell candy or cigarettes, but it will not 178 sell a radio or an automobile— it may help sell either a radio or an automobile If other efforts are used as well. Both newspapers and magazines may Toe used for either limited or extended appeals, and, if the resistance to the purchase of the commodity is great, the seller is likely to appeal often and use supplementary media. Sales letters, likewise, may be used to present complete appeals or they may be used for supplementary purposes. The radio comes in other between the billboard and the media in that it is not used very effectively for the presentation of extended appeals but can be used to achieve a small amount of conviction and persuasion. If the relative resistance to the purchase of an article is rather small, the radio can be used effectively, but, for any task beyond this, the medium is used mainly' in a supplementary way. Personal selling is used to perform part or all of the transactions prerequisite to a sale, but because of the high expense involved, relatively speaking, mass methods are usually used to break the ground and salesmen used to com plete the task. ■ Some personal selling amounts to little more than order taking after resistance is broken through advertising. 179 XII, CONCLUSIONS Sales theory has been limited principally to the narrow confines of methods in demand stimulation. The search for quick and easy ways of controlling and regu lating human conduct that would satisfy business men is responsible for neglect of the broader field of consumer preferences. If the disdain with which economists glance at the subject of salesmanship is to be replaced by deserved recognition, a broader vision on the part of sales theorists is necessary. Demand stimulation is only one phase of the broader field of economic motivation, and, in this respect, it cannot rest upon a handful of assumedly all-important instincts. Neither can it rest upon a few rules of person ality contrived for the Improvement of salesmen. No one handy formula can account for both the action of-the -individual in making a five-cent purchase of a candy bar and that in making a five-thousand-dollar purchase of a house. But some idea of the difference in attitude involved In both situations can be determined by analysis of the resistance factor under conditions of both purchases. Since one of the most accurate bases for measuring desire intensity is found in the quantum of the resistance element overcome in obtaining gratification, we have largely based our analysis of demand stimulation 180 upon the negative factor. A third element of resistance, that to sales efforts, is thus added to the two impediments to action treated in previous chapters: inconvenience. price and CHAPTER IX ..GENERAL CONCLUSIONS, T h e 'contribution o'f this study Tests In Its analysis of the relationship between economic theory and theories of demand stimulation. The material In itself has In the main been drawn from the many studies made in both fields. the presentation can be termed o r i g i n a l . 1 Only The -suggestion for a study of this kind came from an article by C. A. Stocking in The American Economic Review of March, 1931. In this paper the author took economists to task for ignoring the fact that desires are created by sales' efforts. Stocking1s- article was published after the writings of the newer school of economists who devoted their efforts to treatment of the subject of monopolistic competition had already begun to appear. Piero Sraffa's article entitled, "The Laws of Returns under Competitive Conditions," was published in the Economic Journal. December, 1926, while Harold Hotelling's paper, "Stability in Competition," appeared in the same publication in December, 1929. article by Edward Chamberlin, An "Duopoly and Oligopoly," appeared in The Quarterly Journal of Economics, November, 1929, preceding the appearance of the same author's book, 1 The orderly presentation of the entire subject mat ter, however, Is believed to be original. 182 The Theory of Monopolistic Competition, in 1933. Stocking’s article can hardly be said to have presaged the writings.of the newer school, since some of them had already appeared before his paper was published. The influence of- monopolistic competition in value theory has been given considerable attention by a host of economists. As yet, however, the relationship between demand and sales theory has largely been neglected. If the diagnosis presented in this study does 110 more than to encourage further speculation, it will have been worth while. In our analysis of the subject of consumer preferences, we have: (1) Defined the consumer according to a group concept. Our attention ha,s been devoted to the uniformities rather than the individual differences of buyers. The consumer in this sense is a characteristic person. (2) Distinguished between instincts and habits, classifying under the former, "unlearned tendenciesj” and under the latter, "learned tendencies." (3) Distinguished between wants and desires. The former signify something missing or lacking with only a very general arid vague idea of the means of satisfaction. The latter connote consciousness of both something missing or lacking and the means of gratification. An economic desire is one to the gratification of which there is relative 183 resistance. Desires may spring from innate .and acquired tendencies, or from environmental conditions,' or from an assimilation of these. (4) Classified products according to consumer atti tudes of resistance or non~resistanc8. Buyers have atti tudes of resistance to the purchase of all goods other than those to the use of which they have become accustomed by habit .or committed by previous decision. .purchase of goods is relative. Resistance to the Since most groups .of' consumers cannot satisfy all desires, some are gratified at ■ the sacrifice of other satisfactions. (5) Distinguished between modes and standards of living. The former is comprised of the many purchasing habits of consumers, whereas the latter involves the desires of consumers. The consumer tends to establish a basis for evaluating his desires. This basis is the foundation of his value structure■and we call it his standard of living. (6) Shown the importance of the time factor in an analysis of consumer preferences. and commitments' do not change. fixed. In the short run, habits Hence, many purchases are The marginal utility principle does not apply to purchases of goods to which the consumer has an attitude of non-resIstan.ce In the short run. This principle does apply to expenditures from residual income, nevertheless. Habits and commitments may change in the long run and consequently- 184 the principle of marginal utility applies more perfectly to expenditures in 'the long run. Sellers study modes of living to determine the preferences of consumers in the short run, but standards of living to determine the trends of consumer preferences in the long run. (7) Considered the interrelations of commodities according to substitutability and complementarity. A price increase of a commodity, regularly-used by a consumer at a time when other conditions remain the same usually involves substitution and always results in a negative income effect. Wide changes in consumption habits may result with changes in price. (8) Considered the effects of customary prices, expectations of prices, and anticipations of .quality on elasticity of demand. Consumers tend to form habits with regard to prices they pay for commodities just the same as they do with regard to the kinds of products they purchase. Increases in the prices of these goods give rise to consumer resistance to purchase. The demand for any commodity in creases with expectations of higher prices and decreases ■with, expectation of lower prices in the' future. The substi tution .of one commodity for another with an increa.se in the price of the latter depends partly upon anticipation of quality differences. If the price of a commodity regularly Used by a group of consumers is reduced, demand may 185 temporarily decrease rather than increase because of sus picions of inferiority of prodtict. (9) Treated competition under conditions of product .differentiation. .Competition was classified as general or specific according to whether it exists among sellers of substitutable goods which are. functionally similar or functionally dissimilar. All goods in a price range in a specific market compete with each other and are in a broad sense substitutable. But if the demand for a particular commodity Is well established, substitution is usually narrowed to substitutable goods which are functionally similar. Demand is established only for particular quanti ties of goods, however, and any attempt to increase the quantities customarily used by groups of consumers must meet with resistance. (10) Drawn distinctions between competition in the short run and competition in the long run. In the short run> general substitution of products to which the consumer has developed an attitude of non-resistance does not take place. Specific substitution may, however, be. Influenced by advertising. In the long run, both kinds of substitution of products to which the consumer has developed an attitude of non-resistance may be enhanced by advertising* (11) Dealt with consumer time preference with respect to the propensity to save, to buy durable or single-use 186 goods, and to make use of credit. Individuals have desires for immediate and for future gratifications and, although the most urgent of the former are given preference over the most intense of the latter, the degree to which immediate satisfactions are postponed for future gratifications depends upon how much of a negative or a positive time preference the consumer has. A person will satisfy immediate preferences to the point at which the estimated relative utility of a future satisfaction plus the satisfactions that can he attained from the interest reward are as great as that of another immediate gratification. 'For persons with negative time preference, this point is reached more quickly than It is for those W i t h positive time preference. Consumers form attitudes of non~resistance with respect to the replacement of durable'goods just as they form them with regard to choice of commodities. The regular replacement of articles Is carried-out without hesitation, but any attempt on the part of the seller to Increase sales by speeding the replacements of buyers meets with resistance. In times of emergency, consumers are inclined to concentrate on the immediate, and consequently they devote much of their Incomes to single-use goods and put off the replacement of durable commodities. Tinder conditions of sales stimulation and small down payment's, consumers with positive time preference are likely to give exaggerated appraisal to the immediate 18 7 gratification to be received from durable goods sold on the Installment plan and to discount the sacrifices represented by payments because of their postponement. (12) Stressed the Importance of inconvenience as a type of resistance. Consumers in the higher income brackets are inclined to discount price reduction for service, whereas those in the lower income brackets tend to discount service for price reduction.- The importance -of' advertising price concessions is exemplified in an analysis of inconvenience resistance. ,Although a consumer might be unwilling to travel any distance for a concession of a few cents in the price of any one commodity, he might be willing to go to considerable inconvenience if this concession were to be extended to a number of articles. (13) Treated consumer buying motives as desires which are caused by a number of interacting factors some of which are subjective and some objective. elaborations upon organic wants, Some motives are some acquirements from experience and learning, some acquisitions from geographical and social surroundings, and many are combinations of all these. Many of the desires of human beings are classifi able according to well-defined groups on the basis of age, sex, etc. If the more common meanings of a product to a consumer are understood and if the unexceptional desires of any group are definable, the subjective valuation of an 188 object to any consumer is likely to originate in the rapprochement. (14). Classified methods of demand stimulation as subjective and objective. They are concerned with the. behavior of the consumer or the technique of the seller. Obviously, if the desire of the buyer is a prerequisite to a .sale, any theory of demand stimulation must be predicated •upon a study of consumer preferences. Objective methods may supplement subjective theories but not replace them. Although theorists have found it convenient to deny that sales methods can create desires because of their wish to evade ethical probing concerning what desires should be given birth, the refutation hardly seems worth while. It is as logical to task what desires should be stimulated as it is to ask what ones should be created. A sales appeal must depend upon the resistance factor and the media available for expressing that appeal. Appeals vary according to consumer attitudes of general resistance, specific-inclusive resistance, and specific-exclusive resistance with respect to goods; consumer attitudes of general resistance, quasispecific resistance, and specific resistance with respect to patronage; and opportunities for extended or limited appeals with respect to media. Naturally no one sales formula can be used in selling all kinds of products. The extent of the appeal must depend upon the resistance factor. For 189 relatively high-priced commodities or those which are sold in inconvenient locations, extended and supplementary appeals are used. For relatively low-priced products sold in convenient locations, limited appeals are used. quality and price are important in selling. Both The former more particularly in appealing to those in the higher income levels and the latter in appealing to those in the lower income brackets. The thesis of this study does not rest on material istic foundations nor does it imply the materialistic ' doctrine known as hedonism. Psychologists recognize that objects can and do stimulate human.beings and are in a sense causal factors in human conduct. The current misunderstanding arises from a confusion of terms, that of causal factor and cause. An object has value significance only when considered in relationship with a subject. Hence, a good is not of itself a cause but only one of the many interplaying factors that in their totality are the cause. These interplaying factors are both subjective and objective in that they may be both organic and environmental, but there is no clear line of demarcation between the two unless we consider the infant .at birth, for from this period on the individual's capacity to-adjust himself to others and. to his surroundings results in a conditioning which we speak of as learning. 190 Habit, which is a conditioned method of responding to particular stimuli, is one kind of -learning that has par ticular significance, for it measures in a sense the extent to which the individual has overpowered resistance to certain actions. Habits, which are the static element in the lives of people, are transitory because any change in either the subjective or the objective conditions results in resistance arising in a new form.' .Either the new re sistance is overcome in turn or the habits change and with them the mode of living. But the standard of living, which is the basis of all evaluation, is the gauge by vdiich the individual appraises his mode of living, his present resting place, in terms of the level to which he aspires. In so far as he accepts what Is as the measure of what should be, his standard and his mode of living are the same, but in so far as he con siders what is as only a temporary state of affairs that must in time give way to a "better” life for which he Is striving, his mode and standard differ. Although the standard is influenced by a person's experience with objects, the mode is only a causal factor, and not the entire cause of the standard. Attitudes are retempered by idealistic beliefs, by education, by society1-, and by ethical criteria. Out of these grows a broad and . basic attitude toward life to which the Individual strives 191 to make the way of living conform. It. is like a hug'e mirror which reflects a fascicle of lights only one of which is the m o d e .of living. At any one time the seller turns to the mode of living to determine the resistance to his product. Nevertheless, a study of trends must take cognisance of the standard of living. The thesis of this study is that economists and theorists 'on the- subject of demand stimulation can profit by exploring common ground In the ascertainment of causal factors in consumer preferences. This can most accurately be accomplished through a careful Investigation of the relative resistance to purchase. Impediments to consumer action/ which are both subjective and objective, have as their fundamental base the attitude of the individual. The Individual makes a positive decision after overcoming con flicts both of contradictory motives and of numerous positive desires, all of which cannot be gratified. Posi tive decision Inspires will to attain, and will to attain Is manifested in purchases. Demand stimulation bids fair- to receive a greater recognition in demand theory in the future.. But the narrow concepts upon which sales theory has been constructed in the past must give way to a broader prospectus of the field In the future. No longer can the scope of demand creation be confined to the small area of methods in advertising and salesmanship. If this study has done no more than erect rope 'bridge over the chasm between the fields of demand theory and sales stimulation, it has made a contribution. Massive concrete may replace the fiber in years to come. BIBLIOGRAPHY I. GENERAL REFERENCES B u m s , A. R., The Decline of Competition. New York: McGraw-Hill Book Company, 1936. 619 pp. Carver, T. N., The Distribution of Wealth. Macmillan Company, 1928. 290 pp. _____ , Principles of National Economy. Company, C 1 9 2 1 . 773 pp. New York: Boston; The Ginn and Chamberlin, Edward, The. Theory of Monopolistic Competition. Harvard Economic Studies, No. 38. Cambridge; Harvard University Press, 1939. 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