Why do people continue spending even when their income falls? Why do some households feel poor despite earning relatively high salaries? And why does consumption seem to spread through society like a social contagion?
These questions were addressed by economist James Duesenberry in his influential 1949 book Income, Saving and the Theory of Consumer Behavior. Although less famous today than Keynes or Friedman, Duesenberry developed one of the most sociological theories ever proposed within economics. His central insight was simple: people do not consume in isolation. They consume in relation to others.
The Problem with Traditional Economic Thinking
Classical economic theories generally assumed that consumption depends primarily on income. The more money people earn, the more they spend; the less they earn, the less they spend.
While intuitive, this view struggles to explain many real-world behaviors. People often maintain lifestyles they can no longer afford, accumulate debt to sustain consumption, or feel compelled to purchase goods that exceed their practical needs.
Duesenberry argued that economists were missing an essential factor: social comparison.
The Relative Income Hypothesis
According to Duesenberry, individuals evaluate their economic position relative to those around them. Consumption is therefore influenced not only by how much people earn, but also by how much their peers earn and consume.
This idea became known as the Relative Income Hypothesis.
A family earning $60,000 per year may feel relatively comfortable in a community where most households earn similar amounts. The same family may feel economically disadvantaged if they live in a neighborhood where most households earn $150,000. Their objective income remains unchanged, but their perception of what constitutes a normal standard of living shifts dramatically.
Consumption therefore becomes a social process. Individuals are constantly exposed to the lifestyles, possessions, and aspirations of others and adjust their own expectations accordingly.
Keeping Up with the Joneses
One of the most enduring concepts associated with Duesenberry is the idea commonly summarized as “keeping up with the Joneses.”
People often consume not only because they need something but because consumption communicates social status, belonging, and success. The purchase of a larger house, a newer car, or the latest smartphone may be motivated partly by the desire to maintain one’s position within a social group.
Today, this dynamic is amplified by social media. Platforms such as Instagram, TikTok, and Facebook expose users to carefully curated images of other people’s lifestyles, making social comparison a constant feature of everyday life.
Although Duesenberry wrote decades before the internet existed, his theory anticipated many of the consumption patterns that characterize contemporary digital societies.
Why Consumption Does Not Fall Easily
Another important contribution of Duesenberry is what later became known as the Ratchet Effect.
He observed that people adjust relatively quickly to higher standards of living. However, once those standards are established, reducing consumption becomes psychologically and socially difficult.
Imagine a household whose income increases substantially over several years. They move into a larger house, purchase a second car, and adopt more expensive consumption habits. If their income later declines, they rarely reduce their spending proportionally. Instead, they attempt to preserve their established lifestyle by drawing on savings, taking on debt, or cutting expenditures only gradually.
Consumption therefore tends to be “sticky” downward.
This helps explain why economic downturns often generate financial stress even among households that previously enjoyed stable incomes. The problem is not simply reduced earnings but the difficulty of adjusting expectations and lifestyles.
Consumption as a Social Phenomenon
Duesenberry’s theory occupies an interesting position between economics and sociology. Rather than viewing consumers as isolated decision-makers, he emphasized the social environment in which economic choices occur.
His work anticipated many ideas later developed by sociologists such as Pierre Bourdieu, who examined how consumption reflects social distinction and status, and economists such as Fred Hirsch, who explored competition for positional goods.
The theory also shares affinities with the earlier work of Thorstein Veblen, whose concept of conspicuous consumption highlighted how spending can serve as a display of social prestige.
Together, these perspectives challenge the idea that consumption is merely a matter of individual preferences. Instead, they suggest that what people buy is deeply shaped by social norms, status hierarchies, and collective expectations.
Why Duesenberry Still Matters
More than seventy years after its publication, Duesenberry’s work remains remarkably relevant.
Rising household debt, housing affordability crises, consumer culture, and the influence of social media all point to the continuing importance of social comparison in economic life. In a world where individuals are constantly exposed to the lifestyles of others, consumption is increasingly driven by relative rather than absolute standards.
Duesenberry reminds us that economic behavior cannot be understood solely through income, prices, and rational calculation. Consumption is also about identity, status, belonging, and the social worlds in which people live.
In that sense, one of the most important lessons of his theory is that prosperity is never evaluated in absolute terms. People do not simply ask, “How much do I have?” They also ask, consciously or unconsciously, “How much do I have compared to everyone else?”
