John Kenneth Galbraith Was Wrong About Advertising
Many anticapitalist ideologies have long relied on the idea that capitalist oppressors use advertising to force/compel/trick people into purchasing goods and services "they don't need." Advertising, the theory goes, is a tool employed by the capitalists to exercise power against the workers. Left to their own devices, workers would save more money and only buy things they truly need. Workers would then use this savings to gain greater financial independence from the capitalists.
The anticapitalists assure us that this doesn't happen however, because advertising exists as a means to control workers and force them to spend virtually all their surplus on useless trinkets and status symbols.
For more, see this analysis of "consumerism."
Mises used the example of how modern advertisers can't convince people to purchase technologically obsolete goods. He noted that all the ads in the world are unlikely to get people to stop buying lightbulbs and light their houses with candles instead.
A notable popularizer of the anticapitalist position on this, however, was John Kenneth Galbraith. Galbraith took the opposite position of the Austrians. While Austrians maintain that producers produce in order to meet consumer demand, Galbraith claimed that producers made things and then relied on advertising to get people to buy new things. In other words, in the Austrian view, producers follow the consumers. In the Galbraithian view, consumers follow the producers.
It's a pretty big difference with major implications that I won't cover here at the moment. But a central mechanism at the core of this idea is the notion that producers basically tell consumers what to to buy. And the producers do this by using advertisements.
But, as Mises suggested with this example of lightbulbs, there are ample examples disproving Galbraith's theory.
Three examples were discussed in my article last week:
1. Mike Bloomberg's failed $500 million ad campaign.
2. The demise of the waterbed industry.
3. The decline of expensive funerals.
But recently one reader, Richard Wilcke, a former business professor, noted a very important example: the Ford Edsel. He writes in an email:
The assumptions of "nudgers" that posters, PSAs, even horrific cancer warnings on cigarette packs as in the UK, have major effects on public opinion is not evident, a topic on which I have lectured often in the past.
What I wanted to share is an interesting coincidence. Precisely as Galbraith’s book contending that corporations have great power—expressly through advertising—to sell anything they choose to American consumers was being published, Ford Motor Company was in the midst of the largest advertising campaign in history to sell the Edsel as "the most exciting and advanced new car ever." Ford’s marketing execs loved that many thousands of consumers were lined up at dealers to see the vehicle as it was unveiled. They expanded the budget on the grounds that selling merely 200,000 Edsels would be a grand success.
But in spite of their advertising, they sold barely 70,000 in 18 months and the company pulled the plug. Most glowing reviews of Galbraith’s book did not get it; namely, that a real-world experiment—a test of the idea—had been going on at that same time. I believe it dramatically disproved Galbraith’s thesis.
Ford was highly motivated to get buyers for the Edsel, to say the least. And yet they failed. So, if ad wizards couldn't get people to buy the Edsel, why should we assume Galbraith and his fellow travelers have been right about advertising?
In this vein, we could also note Robert Batemarco's 2014 article, which observes two cases that also suggest advertising is not at all a reliable tool for "making" people do anything.
One is military enlistment. If ads works so well, why not just run a bunch of advertisements about how military service is wonderful? If this actually worked, then there would be no military draft. And even when there is no draft, if ads worked, the US government would never have to increase wages for military personnel. Why raise wages, when they could just run an ad campaign telling workers to be content with one dollar per hour, on-base housing, and some canned slop at the commissary? Yet, as it is, recruiters have to make all sorts of promises to convince people to sign up.
And then there's the problem of people not buying health insurance. As we've often been told in the context of Obamacare, there are too many uninsured Americans, because many simply don't buy health insurance. This is especially true of young and healthy people who need few medical services. The "solution" to this is assumed to be laws that force people to buy health insurance. But why pass laws when the feds could just run a bunch of ads commanding people to buy health insurance? If ads are so powerful in getting consumers to buy things, Obamacare mandates would have never been "necessary."