The Cambridge Economic History of Modern Britain

INTRODUCTION

Households play key roles in consumption, savings, production, reproduction and human capital formation. They coordinate the activities of individuals – pooling and distributing resources, engaging in joint consumption and investment activities, and developing strategies to achieve various short-term and long-term goals. Interest in the microeconomics of household behaviour has been stimulated by Becker's ‘new household economics’, which views families as entities seeking to maximise their own well-being by making rational choices given their economic environment. The household thus becomes ‘a “small factory” … [combining] capital goods, raw materials and labour to clean, feed, procreate and otherwise produce useful commodities’ (Becker 1965: 496).

Yet there are serious limitations to assessing household behaviour using simple neoclassical models. Households do not compete with each other in the same way as firms and their behaviour is not as straightforwardly governed by financial considerations (Mokyr 2000: 4). Non-economic factors are probably of even greater importance in the less mobile working-class communities of pre-1939 Britain where, as Johnson (1985: 6) has shown, households operated ‘as part of a larger community or work group with its own customs, conventions, and codes of conduct, and an important aspect of many financial decisions was the potential social integration or alienation that might result’. Moreover, Becker's approach neglects the influence of power asymmetries within the family, which might bias decision-making in ways not predicted in neoclassical models.

Analysing household behaviour presents formidable empirical problems. Prior to the Second World War there is only a limited amount of social survey data, which is generally confined to the working classes. Even when data are available, analysis is complicated by the fact that decisions regarding housing, spending priorities, family size and the allocation of family members between market labour and other activities (such as housework or education) are endogenous, being taken jointly in the context of long-and short-term aspirations and constraints.