ADVERTISING AND THE PROPENSITY TO CONSUME*
| Published date | 01 August 1981 |
| Date | 01 August 1981 |
| DOI | http://doi.org/10.1111/j.1468-0084.1981.mp43003003.x |
ADVERTISING AND THE PROPENSITY
TO CONSUME*
M. M. Metwally and H. U Tamaschke
INTRODUCTION
Advertising was not mentioned by Keynes as one of the objective
factors determining the propensity to consume.1 This exclusion, which
might have been justified at the time The General Theory was written,
cannot be taken for granted in recent years where advertising is playing
an increasingly important role in the economic life of almost every
market economy. Australia, for example, spent over one billion Austra-
lian dollars on advertising in 1979. As a proportion of national income,
advertising expenditure in this country averaged approximately 1.5 per
cent during the period 1960-78.
Claims are often made that most, if not all, these expenditures are
an economic waste in the sense that they do not benefit the consumer.
Some go even further and suggest that advertising results only in a
reallocation of the market positions of existing firms with no effect
on total consumption or the propensity to consume. In other words
they claim that the informative role of advertising is not strong enough
to motivate potential customers to expand their income (through
increased effort) in order to finance increased consumption expenditure.
Despite these claims and despite the importance of evaluating the role
of advertising in modern economies, literature in this field has been
almost neglected?
*The authors are grateful to Garnsey Clemenger Pty. Ltd., Brisbane, Australia for supplying
the necessary data on advertising and to the BULLETIN's referees for their comments.
'Keynes listed six objective factors: changes in the wage (and price) level; changes in
accounting practice with respect to depreciation; windfall gains or losses; changes in fiscal
policy; changes in expectations and changes in the rate of interest. See Keynes (1936), The
General Theory of Employment, Interest and Money, pp. 91-5. The bibliography to this
paper provides additional references to the consumption function literature.
2As far as the authors are aware there have only been three studies in the area in the last
decade. Taylor and Weiserbs (1972), examined the relationship between levels of total ad-
vertising and total consumption using only the 'Houthakker-Taylor Model' of consumer be-
haviour. In a recent article Ashley, Granger and Schmalensee (1980) use Box-Jenkins methods
to analyse relationships between levels of aggregate consumption and levels of aggregate ad-
vertising only. No other economic variables, including the a priori important income are con-
sidered. Earlier, one of the co-authors, R. Schmalensee (1972), had also experimented with
levels of aggregate consumption and levels of aggregate advertising in 'incomplete' models. In
addition, none of the studies attempted disaggregation to examine the effects of advertising on
different commodity groups on the consumption function. The lack of disaggregation prevented
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