Capitalism Turns Luxuries Into Necessities
Bashing the rich is all the rage these days. In a clear appeal to envy, Democratic leaders are trying to outdo each other with escalating bids on how much of rich’s wealth should be stolen by government.
In one tweet, Elizabeth Warren called out a billionaire NFL owner for paying $100 million for a “superyacht,” insisting that instead he should be paying Warren’s proposed “Ultra Millionaire Tax” to those less wealthy.
The wealthy’s purchase of luxury items invites scorn from statists looking to tax their wealth, as well as those believing it is crass consumerism to indulge in such unnecessary extravagance.
How Luxury Goods Benefit Everyone
But the wealthy’s purchase of “luxury goods” serves a social purpose.
For starters, as Ludwig von Mises wrote, today’s luxuries turn into tomorrow’s necessities.
Indeed, years ago, people would say ‘nobody needs such luxuries’ about things like air conditioning, air travel, telephones, color TV, refrigerators, and other items that are common household items now owned by the masses. Never mind modern items like the internet, laptops and smartphones that sci-fi writers a generation ago couldn’t have conjured up in their wildest imaginations that are now taken for granted and virtually considered necessities for the common man.
As Mises related in a passage from his 1962 book Economic Freedom and Interventionism:
About 60 years ago Gabriel Tarde (1843–1904) the great French sociologist, dealt with the problem of the popularization of luxuries. An industrial innovation, he pointed out, enters the market as the extravagance of an elite before it finally turns, step by step, into a need of each and all and is considered indispensable. What was once a luxury becomes in the course of time a necessity.
With the progress enabled by capitalism, the process by which luxuries turn into necessities is drastically shortened. “There was in the past a considerable time lag between the emergence of something unheard of before and its becoming an article of everybody's use,” wrote Mises. “It sometimes took many centuries until an innovation was generally accepted at least within the orbit of Western civilization,” he continued, adding “Centuries passed before the fork turned from an implement of effeminate weaklings into a utensil of all people.”
Compare that to more modern times, when the “evolution of the motor car from a plaything of wealthy idlers into a universally used means of transportation required more than twenty years,” Mises noted.
The demand for these “luxury goods” created by the wealthy attracts the additional investment in their production that results in them becoming far more readily available for the common man.
Furthermore, no small part of the criticism of luxury goods comes from the fixed pie fallacy, which states that wealth is a fixed pie. As such, according to this fallacy, the more money the wealthy spend on luxuries, the less money others have for their basic needs.
We know, however, that wealth is clearly not fixed because there are far more items of value available to satisfy our wants today than there was 100, 50 or even 25 years ago.
For instance, 50 years ago common household items like dishwashers, air conditioning and televisions were very rare — found in about 10 to 20 percent of households. These were considered luxury items as only high-income households could afford them.
The Democratization of Luxury
Today, not only do virtually all households have these items, but the average household also has much more, such as cell phones and personal computers.
These items are in such great abundance that even low-income households own them in high percentages. Clearly, over time productivity gains enabled the production of more items of value, making them accessible to more households. The wealthy didn’t hoard these household items, leaving none for the poor. Rather, over time the wealth of society (i.e., goods of economic value) increased so that rich and poor alike could afford a growing number of household items.
Finally, critics of luxury expenditures allow their loathing of the rich to blind them to the fact that many of their working class neighbors are employed making luxury items.
Recall the “yacht tax” of 1990? In an effort to soak the rich deciding to buy an expensive boat, the federal government imposed a 10 percent tax on the purchase of boats valued over $100,000. Predictably, the sale of such boats plummeted, and an excess of 100,000 blue collar jobs were eliminated. The rich were still rich, but many working class people were driven to the unemployment line.
Envy-driven people allow themselves to be outraged by the “crass consumerism” of the purchase of luxury items. But today’s luxuries become the necessities of tomorrow, if progress is not stifled by government interference. Hindering luxury shopping by the wealthy will serve to hamper the process by which these luxury items become goods enjoyed by the majority of people in all income levels.
Why should we allow envy to deny the common man access to a greater abundance of goods that improve their lives?