Mises Wire

Capitalism Doesn’t Cause Consumerism — Governments Do

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Condemnations of consumerism are nearly ubiquitous in modern media and popular culture. Anyone who has seen “A Charlie Brown Christmas,” produced in 1965, knows the drill. Every time we see Charlie Brown choose an “authentic” Christmas — by buying a small, natural Christmas tree instead of a showy pink mass-produced aluminum one — we’re reminded it’s important to not sell out to corporate marketers.

Little has changed since then. “9 ways to resist the siren call of consumerism,” reads a recent headline from a lifestyle magazine. “4 Things To Do Instead Of Shopping In Black Friday’s Frenzy Of Consumerism,” reads another headline from HuffPo.

More ponderously, Pope Francis has repeatedly condemned consumerism by name in recent months, while English politician Ken Livingstone insists consumerism causes climate change, and thus will “destroy the world of our children.”

Often, defenders of markets and capitalism take these criticisms as direct attacks on markets themselves.

This reflexive conflation of consumerism and capitalism then often leads to impassioned defenses of consumerism from market defenders, as if defending consumerism is necessarily also a defense of capitalism.

I would suggest, however, that this is a mistake. Consumerism and capitalism are not the same thing, nor are the two necessarily connected.

The anti-capitalist left, of course, does want to make this connection, and it does want to generate public opposition to consumerism that will then serve as generalized opposition to markets overall. By allowing leftists to establish an unquestioned connection between markets and consumerism, though, we only help them perpetuate a myth.

What Exactly Is Consumerism?

All too often, the debate over consumerism is woefully lacking in precision. So before we can go on, we first must define what exactly consumerism is. For this, we might consult Wikipedia, which is generally useful for the popular definition of things. Wikipedia defines consumerism as “a social and economic order that encourages the acquisition of goods and services in ever-increasing amounts.” Mirriam-Webster also provides two definitions that are helpful for our purposes here:

1. “the theory that an increasing consumption of goods is economically desirable”

2. “a preoccupation with and an inclination toward the buying of consumer goods.”

In all of these definitions we find a certain element of insatiability: consumerism is the belief that it’s a good thing to continually increase one’s consumption of goods.

The Theory that Markets Create Consumerism, And Depend Upon It

These definitions are all fair enough. But why should capitalism be blamed for this?

After all, capitalism has historically often been associated with misers and with economic theorists who have placed a sizable emphasis on work, savings, and thriftiness. Ebenezer Scrooge, of course, is perhaps the most famous capitalist villain in English literature. Yet Scrooge is notable for his famous condemnation of Christmas, expressed precisely because Christmas encouraged consumerism. Similarly, pro-capitalist adherents of the so-called “protestant work ethic” — as described by Max Weber — repeatedly condemned excessive consumption, while exalting saving and hard work. Scholars have noted the role of “thrift” as both a moral and capitalist imperative in American culture during the eighteenth and nineteenth century. 

So if capitalists were once associated with using money prudently, why are they now blamed for today’s alleged obsession with endless consumption?

The theory the left uses here is basically this: if capitalism is to survive, it requires ever greater levels of consumption. If people stop spending every last penny on conspicuous consumption, capitalism will collapse on itself. This is summed up in a (surprisingly ungrammatical) explanation of consumerism in the Journal of Politics and Law by Ahmad Jansiz. In his 2014 article titled “The Ideology of Consumption: The Challenges Facing a Consumerist Society,” Jansiz writes :

To achieve [profit], more production, sale, investment, and again production are considered as essential. To put it differently, in each cycle the goal is to sell more goods and gain more profits.

It was initially believed that higher classes are the main buyers of the capitalist goods, but then they found that mass production requires mass consumers as well. As high-class families were not large enough in volume, the need for mass consumers became apparent.

In primary productions, meeting biological needs of the consumers was considered as important, but as the biological needs of the consumers are limited in number, non-biological needs should be created in the consuming societies. Non-biological needs would also be limited, but the producers would not lose their mass production characteristic as one of their goals. For this purpose, false needs were created in the capitalist countries so that mass goods would be consumed fast. In other societies, this pattern prevailed and they either were gradually weakened or gave in to capitalism. Capitalism currently holds the patterns of production and consumption dominant in the world.

Unfortunately for promoters of this theory, this description of capitalism is quite wrong.

Certainly, it would appear to give an accurate view of some industries. Makers of luxury cars and high-end shoes benefit when they can convince actors in the marketplace to consume things far above and beyond what Jansiz calls “biological needs.” Similarly, the perceived need for 300-dollar name-brand dress shoes could plausibly be called “false needs,” to use Jansiz’s terminology.

But companies that sell pricey apparel and big SUVs are not the only players in the marketplace. Also in the marketplace are companies that sell services like retirement savings accounts or investment instruments designed to provide long-term savings and investment for the purposes of deferring consumption. 

Surely, firms offering retirements funds and savings accounts are not less “capitalist” than firms that sell designer jeans. Ebenezer Scrooge would no doubt smile on the retirement fund firms while condemning the sellers of luxury cars.

So why are we to believe that markets and capitalism are to be embodied only by the firms that ask consumers to blow all their money on the immediate consumption of consumer goods?

Bad Economics = The Belief that Spending Drives Economic Growth

The answer lies in the fact that popular notions of economic growth — both on the left and on the right — insist that a healthy economic system relies almost exclusively on consumption.

We are reminded of this every time we are told that consumer demand must be increased in order to increase economic growth, or to keep the boom going. We are reminded of this when, during an economic bust, economists tell people they must spend, or the economy will collapse.

Sometimes, this view becomes so extreme that we’re told spending is our patriotic duty. This is no mere hyperbole. Financial and economics writers actually say this. Back in 2001, for example, as the recession settled in and as the US reacted to 9/11. Dick Cheney said he hoped Americans would “stick their thumb in the eye of the terrorists and ... not let what’s happened here in any way throw off their normal level of economic activity.” what he meant was simply “buy more stuff, or the terrorists win.”

The same general idea cropped up again in 2009, when economics “experts” insisted that the way to save the economy from the great recession was for people to spend more. We were warned that the “paradox of thrift” would condemn us all to a perpetual depression if people didn’t get out there and blow all their savings on a few more high-end electronics.

But economies don’t function that way at all. As Lew Rockwell summed up in 2010 as we were being harangued by mainstream economists to spend more:

The trouble is that spending is not the cause of economic growth. Investment, which begins in saving, is the root of economic growth. It doesn’t matter that consumption makes up a certain percentage of economic activity. That’s only the surface you are looking at. Spending and consumption without saving and investment is a prescription for devouring the prospects for prosperity down the line. In this case, the best thing that the rich can do for a future of economic growth is not to spend but to save toward investment.

This should be self evident if we consider how people and economies get rich in the first place. If workers are to be able to spend on consumer goods, they must first produce enough goods and services of high enough value so as to have a surplus. And how can workers produce more valuable goods in less time? This is made possible by capital in the form of machines, computers, tractors, and factories. Before all of those things were available, most human beings spent many hours scratching a subsistence-level living out of the ground.

It was only after centuries of capital accumulation took place — accumulation made possible by saving and investment — that industrialization took place and workers were able to become productive enough to both produce and consume all the goods and services we now associate with a market-oriented society.

Without saving, the ability to maintain, improve, invent, develop, and build machines and factories goes away. And when that goes away, we’re all back to scratching around on subsistence farms and living in one-room hovels.

Some will point out: “but without consumption, no one will buy what these companies and factories make, and everything will come crashing down!”

Yes, it’s true that economies require both consumption and saving to function normally. But one is not more important than the other. Fortunately, markets have a built-in mechanism for balancing out saving and investment. It’s called “interest rates.” Interest rates are signals the market sends to consumers which tell them whether it’s a good idea to save or to consume. When savings are sparse, interest rates go up, and consumers save more money to take advantage of the high interest rates. When savings are plentiful, interest rates go down, signaling to consumers that it’s a good time to take advantage of low interest rates, borrow more, and consume more cars, houses, and other goods.

When Governments Intervene to Stimulate More Spending

This system breaks down, however, when governments and central banks intervene to “stimulate” the economy through more government spending and through central banks forcing down interest rates.

This “stimulus” is done for the purposes of getting the consumers to spend more. But it’s not something markets or capitalists can do. It requires government intervention, and is thus not part of the market economy.

There is no denying, however, that this leads to more spending — for a while. But this sort of government intervention also produces unsustainable debt levels, low saving levels, and excessive spending. In other words, it’s government policies that cause what we now call “consumerism.”

Strangely enough, though, its capitalism and markets that get the blame.

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