7 Measures for Stepping Up Consumption | Keynes Psychological Law

The following points highlight the seven measures for stepping up consumption. The measures are: 1. Income Redistribution 2. Social Security 3. Wages Policy 4. Easy Credit Facilities 5. Urbanisation and Colonisation 6. Advertisement and Propaganda 7. Conspicuous Consumption.

Stepping Up Consumption Measure # 1. Income Redistribution:

We have known that the propensity to consume of the poor people is higher than the propensity to consume of the rich people because the latter section has already fulfilled most of its needs and all the increments in income are likely to be saved, whereas the poor people spend major parts of the increments in income on the satisfaction of unfulfilled wants.

It is, therefore, suggested that in order to stimulate or stabiles the consumption function redistribution of national income should take place in favour of the poor.

Redistribution of income from the rich to the poor should be possible by increasing the productivity and efficiency of lower income groups by raising their purchasing power, by providing better employment opportunities and working conditions by taxing the rich progressively and by incurring expenditure on the welfare and provision of social services to the poor. All these and other measures of income redistribution should not, however, adversely affect capital formation through private net investment in the economy.

Stepping Up Consumption Measure # 2. Social Security:

Social security measures like unemployment compensation, old-age pensions, health insurance etc., raise and stabilise consumption function. At the time of depression there is a fall in investments and incomes of the people and lowering of the propensity to consume. An efficient system of social security measures (unemployment allowances, doles) provide a ray of hope because additional purchasing power will be generated.

Even in normal times well-planned system of social security measures provides the workers freedom from fear of insecurity and makes them free from the need of providing for the rainy day and as such workers spend more. According to Prof. K. Kurihara “in the wealthy industrial countries there is increasing recognition that an extensive system of social security is needed for achieving high- consumptions or low-saving economy. A social security programme is regarded as a solution to the ‘paradox of thrift’ common to all wealthy capitalist economies.”

Stepping Up Consumption Measure # 3. Wages Policy:

Wage policy of raising consumption function has to be considered from short-run and long-run points of view. In the short run, wages policy-may raise the amount of consumption expenditure through higher money wage rates, though it cannot raise the propensity to consume itself. But labour productivity, being constant in the short period, does not admit of an increase in wage rates, i. e., if wages are raised without increasing labour productivity, it will harm workers more than benefit them since the productivity of labour cannot be increased in the short period; it tends to raise costs and hence unemployment.

On the other hand, a long-period wage policy is concerned with raising the entire consumption schedule; as such, it is concerned with the transfer of income from non-wage groups to wage groups through fiscal measures like progressive taxation, subsidies etc.

Stepping Up Consumption Measure # 4. Easy Credit Facilities:

It has been observed that easy consumer credit facilities for installment buying increase consumption. Most of the sales of durable consumer goods like radio-sets, cars, fans, etc., in modern industrial society, are done on credit basis.

The demand for these goods is one of the most unstable constituents of effective demand (because demand for such goods is liable to be postponed). Easy consumer credit facilities come to play an important part and become an effective measure of anti-depression policy. Such consumer credit facilities would stimulate the demand for consumer goods and would help us maintain or raise consumption function.

Stepping Up Consumption Measure # 5. Urbanisation and Colonisation:

Another effective measure to raise consumption function is the process of urbanisation and colonisation. Studies in family budget establish that city people and those living in newly developed industrial colonies (like Rajpura, Nilokheri, Faridabad) have a higher propensity to consume than the village people.

Mechanisation of agriculture, industrialisation, slum clearance, low-cost housing, establishment of industrial estates all further the process of urbanisation and thus increase consumption of the people living in urban areas will not alone go to increase consumption unless steps are taken to exhort the people to spend more on buying new goods and services as a result of an increase in their wants.

Stepping Up Consumption Measure # 6. Advertisement and Propaganda:

It has been found that the right type of advertisement, propaganda and salesmanship also help to maintain the consumption function by bringing to the notice of the consumers goods and services, which otherwise they would have never known. A well-knit and properly planned system of advertisement and publicity through the press, stage and radio go to create additional wants and induce the consumers to raise consumption by spending more.

Stepping Up Consumption Measure # 7. Conspicuous Consumption:

Conspicuous consumption combined with interpersonal comparisons of the standards of living of the people in different parts of the same country or different countries also create additional wants necessitating additional expenditure on consumption goods. People in poor countries have been found to imitate the consumption standards of the people living in rich countries and as a result increase their own consumption.