Social Interdependencies in Consumption: An Early Economic Debate on Social Distinction, Emulation, and Fashion

This article analyzes an early and relatively little known debate on the role of social interdependencies in consumption and their implications for economic theory. The debate began in the pages of the Economic Journal when, in 1892, Alfred Marshall's student Henry Cunynghame addressed the consequences that an increase in the supply of goods might have for individual utility when this includes external effects such as a desire for display and distinction. Such interdependencies in consumption were also taken very seriously by A. C. Pigou who, in successive articles in the same journal (1903, 1910, 1913), explored in great detail the impact of third-party consumption on an individual's utility function and, potentially, on social welfare. In fact, in such cases, the derivation of the market demand curve, and even the very notion of consumer surplus, seemed to become problematic. Both Marshall and F. Y. Edgeworth remained skeptical toward the theoretical treatment of externalities in consumption, offering reasons of both practical and analytical relevance. In the same period in the Economic Journal, Caroline Foley (1893) analyzed the phenomenon of social interrelations among consumers in a more evolutionary perspective, emphasizing in addition more general possibilities in interdependencies, including change and innovation. What is of interest in this debate is that it was the first attempt in the history of economic analysis to examine the analytical consequences that considerations of social interdependencies in consumption may have for economic theory. These related to the drawing of the market demand curve, the measurement of consumer surplus, and the more general issue of how to deal with time and change in economic models. These considerations, however, proved difficult to be addressed with the then available economic tools and this, in turn, led to their being simply shelved. We conclude by noting that the participants in this debate cast the problem of social interrelations in consumption almost exclusively in terms of positional rivalry and emulation. This overshadowed the creative dimension and positive externalities that can arise through such interrelations. Foley's more historical perspective has the merit of highlighting precisely this dimension.