Explain the subjective factors of determining consumption functions.

Subjective Factors:

Subjective factors basically underlie and determine the form of the consumption function (i.e., its slope and position).

The subjective factors concerned are:

(1) behaviour patterns fixed by the psychology of human nature

(2) the institutional arrangements of the modern social order, and social practices relating to the behaviour patterns of business firms with respect to wage and dividend payments and retained earnings, and the institution controlling the distribution of income.

Human behaviour regarding consumption and savings out of increased income depends on psychological motives.

First, there are motives which “lead individuals to refrain from spending out of their incomes.”

Keynes enlists eight such motives:

1. The Motive of Precaution:

The desire to build up a reserve against unforeseen contingencies.

2. The Motive of Foresight:

The desire to provide for anticipated future needs, e.g., in relation to old age, family education, etc.

3. The Motive of Calculation:

The desire to enjoy interest and appreciation, because a larger real consumption, at a later date, is preferred to a smaller immediate consumption.

4. The Motive of Improvement:

The desire to enjoy a gradually increasing expenditure since it gratifies the common instinct to look forward to a gradually improving standard of life rather than otherwise.

5. The Motive of Independence:

The desire to enjoy a sense of independence and the power to do things.

6. The Motive of Enterprise:

The desire to secure a mass de manoeuvre to carry on speculation or establish business projects.

7. The Motive of Pride:

The desire to possess or to bequeath a fortune.

8. The Motive of Avarice:

The desire to satisfy pure miserliness, i.e., unreasonable, but insistent abstinence from expenditure as such.

To this, Keynes adds a corresponding list of motives on consumption such as enjoyment, short-sightedness, generosity, miscalculation, ostentation and extravagance.

No comments:

Post a Comment