Production Versus Consumption

Nothing unites the economic phi­losophy of the twentieth century more closely with that of the seventeenth century and separates it more widely from that of the nineteenth century than this: In the nineteenth century economists identified the fundamental prob­lem of economic life as production. Implicitly or explicitly, they per­ceived the base both of economic activity and economic theory in the fact that man’s life and well­being depend on the production of wealth. Man’s nature makes him need wealth; his simplest percep­tions make him desire it; the problem, they held, is to produce it. Economic theory, therefore, could take for granted the desire to consume, and focus on the ways and means by which production might be increased.

In the twentieth century, economists have returned to the directly opposite view. Instead of the problem being how continu­ously to expand production in the face of a limitless desire for wealth resulting from the limit­less possibilities of improvement in the satisfaction of man’s needs, the problem is imagined to be how to expand the desire to consume so that consumption may be ade­quate to production. Economic theory in the twentieth century takes production for granted and focuses on the ways and means by which consumption may be in­creased. It proceeds as though the problem of economic life were not the production of wealth, but the production of consumption.

These two diametrically op­posed and mutually exclusive basic premises about the funda­mental problem of economic life play the same role in economic theory as do conflicting meta­physics in philosophy. Point for point, they result either in op­posite conclusions or in the ad­vancement of opposite reasons for the same conclusion. So thorough­ly and fundamentally do they de­termine economic theory that they give rise to two completely differ­ent systems of economic thought.

Two Views of Employment

If one is on the nineteenth cen­tury, productionist premise, one realizes first of all that there is no such thing as a problem of “creating jobs.” There is a prob­lem of creating remunerative jobs, but not jobs. At all times, the productionist holds, there is as much work to be done—as many potential jobs to be filled—as there are unsatisfied human desires which could be satisfied with a greater production of wealth; and as these desires are limitless, the amount of work to be done—the number of potential jobs to be filled—is also limitless. The em­ployment of more and better ma­chinery, therefore, argues the productionist, does not cause un­employment. It merely allows men, to the extent that they do not pre­fer leisure, to produce more and thus to provide for their needs more fully and in a better way. Nor does the working of longer hours or the employment of wom­en, children, foreigners, people of minority races or religions de­prive anyone of employment. It simply makes possible an expan­sion of production.

If one is on the twentieth cen­tury, consumptionist premise, one takes another view of machinery and the employment of more peo­ple. One regards every expansion of production as a threat to some portion of what is already being produced. One imagines that pro­duction is limited by the desire to consume. One fears that this de­sire may be deficient and, there­fore, that an expansion of pro­duction in any one segment must force a contraction of production in some other segment. Hence, one fears that the work performed by machines leaves less work to be performed by people, that the work performed by women leaves less work to be performed by men, that the work performed by chil­dren leaves less to be performed by adults, that the work performed by Jews leaves less to be per­formed by Christians, that the work performed by blacks leaves less to be performed by whites, and that the extra work of some means a deficiency of work avail­able for others.

Neither the productionist nor the consumptionist desires long hours or child labor. Here, to this extent, both reach the same con­clusion. But their reasons are completely different. The latter does not desire them because he thinks the problem is what to do with the resulting products, un­less other products are to cease being produced and other workers are to become unemployed. The former does not desire them be­cause he attaches no value to fa­tigue or premature exertion. The problem, in the eyes of the pro­ductionist, is not what to do with the additional products produced by longer hours or by child labor—only the intense need for the additional products calls forth this additional labor—but how to raise the productivity of labor to the point that people can afford to have time for leisure and to dis­pense with the labor of their children.

Wealth Through Scarcity!

Because he imagines production to be limited by the desire to consume, rather than consumption being limited by the ability to produce, the consumptionist val­ues not wealth, but the absence of wealth. For example, he imagines that the relative absence of houses, automobiles, television sets, and refrigerators in Europe is an asset of the European econ­omy because it represents a large supply of unused consumer desire, thereby supposedly ensuring a strong consumer demand. At the same time, the relative abundance of these goods in the United States is imagined to be a liability of the American economy because it represents a depleted supply of consumer desire, thereby sup­posedly ensuring only a weak con­sumer demand. Prosperity de­pends on the absence of wealth, and poverty follows from its abundance, the consumptionist concludes, because, he imagines, that priceless commodity, consum­er desire, more limited in supply than diamonds, is produced by the absence and consumed by the presence of wealth. It is on this principle that the consumptionist relishes war and destruction as sources of prosperity and attrib­utes the poverty of depressions to “overproduction.”

The consumptionist does not believe that the destruction of wealth is the only means of achiev­ing prosperity. Though he be­lieves it difficult of accomplish­ment, he has hopes that the supply of his commodity, consum­er desire, may nevertheless be in­creased by positive measures. One such measure is a high birth rate. By bringing more people into the world, one brings more consumer desire into the world. The exist­ence of a larger number of people, the consumptionist tells business­men, will make it possible for business to find someone upon whom to unload its otherwise superfluous goods. Business will prosper because its supply of goods will find a counterpart in an adequate supply of desire for goods. In the absence of a high birth rate, or along with a high birth rate, the consumptionist be­lieves advertising may suggest to the otherwise fully sated consum­ers some new desire. And, on a somewhat different plane, techno­logical progress, the consumption­ist argues, may provide new uses for an expanding supply of capi­tal goods, which otherwise would find no “investment outlets.” Or, if all else fails, the government may be counted upon to supply an unlimited consumption—even in the absence of desire. Or perhaps, the consumptionist hopes, a coun­try may be fortunate enough to be in danger of attack by foreign ene­mies and therefore stand under the necessity of maintaining a large defense establishment. In either case, the consumptionist imagines that the government will be able to promote prosperity by exchanging its necessary or un­necessary consumption for the people’s products.

Production Limits Consumption

The productionist, of course, takes a different view of matters. He argues that the birth and up­bringing of children always con­stitutes an expense to the parents.

In raising children, the parents must spend money on them which they otherwise would have spent on themselves. Of course, the parents may, and hopefully will, consider the money better and more enjoyably spent on their children; but still, it is an ex­pense. And if they have enough children, they will be reduced to poverty. This is a fact, the pro­ductionist argues, that anyone may observe in any large family which does not possess a cor­respondingly large income. The presence of children does not make the parents spend more than they otherwise would have, but only spend differently than they other­wise would have. They buy baby food, bicycles, and toys instead of more restaurant meals, a better car, or costlier vacations. There is no stimulus given to production. Production is merely differently directed, to the different distribu­tion of demand.

The only increase in production that could take place, the pro­ductionist maintains, would be as a result of the parents having to take an extra job or work longer hours to support their children and still be able to maintain their own previous standard of living. And when the children grow up, the additional market which they are supposed to constitute for houses and automobiles and the like will only materialize to the extent that they themselves are able to produce the equivalent of these things and thereby earn the money with which to purchase them. It will only be by virtue of their production, and not by virtue of their desire to consume, that they will be able to constitute an additional market.

Advertising and the Consumer

Advertising, the productionist holds, does not create consumer desire where no such desire would otherwise have existed. It is not the case that, in the absence of advertising, people would be at a loss as to how to spend their money. Advertising is not re­quired, and would not be suf­ficient, to rouse vegetables into men. What advertising does is to lead people to consume differently and in a better way than they otherwise would have. It is a tool of competition, and, as such, for every competing product whose sale is increased by it, there is another competing product whose sale is decreased by it.

The consumptionist’s attitude toward advertising brings into clear relief some further corol­laries and implications of his basic premise. His estimate of advertising, like that of war and destruction, is ambivalent, and necessarily so. On the one hand, he approves of it, on the grounds that by creating consumer desires, it creates the work required to satisfy those desires. However, this very belief, that advertising creates desires where absolutely no desires would otherwise exist, also makes him condemn advertis­ing. For if it were true that, in the absence of advertising, men would be perfectly content with very little, the desires created by advertising must appear to be only superficial and basically unneces­sary and unnatural.

And this is precisely how the consumptionist regards them. In his eyes, all desires men have for goods, beyond what is necessary to make possible bare physical survival and a vegetative exist­ence, represent an unnatural taste for “luxuries.” These desires the consumptionist considers to be in­herently unimportant. Their only justification is the creation of work. The consumptionist’s con­ception of the greater part of eco­nomic activity, therefore, is that it represents senseless motion, with deceit and deception required to make people desire goods for which they have no need, in order to enable them to pass their lives in the production of those very same goods.

Paradoxical as it may at first appear, it is the productionist who attaches importance to consumer desires. In his view, the desire for “luxuries” is important; it is necessary and natural; for it is nothing but the desire to satisfy one’s basic needs (which include the need for aesthetic satisfac­tion) in a more perfect and more improved way. It is from the im­portance which attaches to the satisfaction of the desire for “lux­uries,” the productionist main­tains, that the importance of the work required to produce them is derived, and not vice versa.

Technology and Capital Goods

The value of technological prog­ress, the productionist holds, does not lie in the creation of “invest­ment outlets” or “investment op­portunities” for an expanding supply of capital goods. If the concept of capital goods is prop­erly understood, as denoting all goods which the buyer employs for the purpose of producing goods which are to be sold, then, the productionist maintains, there is no such thing as a lack of “in­vestment opportunity” for capital goods. So long as more or im­proved consumers’ goods are de­sired, there is need of a larger supply of capital goods.

For example, ten million auto­mobiles of a given quality require the employment of twice the quan­tity of capital goods—twice the quantity of steel, glass, tires, paint, engines, and machinery—in their production as do five mil­lion automobiles. If the quality of the automobiles is to be im­proved, then a larger quantity of capital goods is required for the production of the same number of automobiles. For example, a given number of cars of Chevrolet qual­ity require a larger quantity of capital goods in their production than the same number of cars of Volkswagen quality; the same number of cars of Cadillac qual­ity require still a larger supply of capital goods; and the same number of cars of Rolls Royce quality require yet an even more enlarged supply.

The identical principle applies to houses of different size and quality. A given quantity of eight-room houses of a given quality requires the employment of a larg­er supply of capital goods than the same number of seven-room houses of the same quality. A given number of brick houses re­quires a larger supply of capital goods than the same number of wooden houses of the same size; the bricks or any more expensive material constitute a larger sup­ply of capital goods because a larger quantity of labor is re­quired to produce it. The prin­ciple applies to food and clothing, to furniture and appliances, to every good. So long as more of any consumers’ good is desired, so long as not every consumers’ good that is produced is of the very best known quality, there is a need for a larger supply of cap­ital goods.

As Technology Advances

It is not the case that in the absence of technological progress, the supply of capital goods would continue to expand, but find no “investment outlet.” It is not the case that what we have to fear from a lack of technological prog­ress is a flood of goods in which every car produced will be the equivalent of the finest known model Rolls Royce, in which every house that is built will be a pala­tial mansion, in which every suit of clothes produced will be fit for the Duke of Windsor, and in which every morsel of food will be a rare delicacy, and that then we shall be at a loss as to how to employ our expanding supply of capital goods. On the contrary, what we have to fear from a lack of technological progress, the pro­ductionist argues, is that we shall not have an increase in the supply of capital goods, that we shall not be able to exploit any con­siderable portion of the virtually limitless “investment outlets” which already exist, within the framework of known technology.

The value of technological progress, the productionist maintains, consists in the fact that it enables us to obtain a larger supply of capital goods, and not that it solves the problem of what to do with a larger supply. The tech­nological advances which made possible the canal building and railroad building of the nine­teenth century and the develop­ment of the steel industry were valuable, not because they ab­sorbed capital goods, as the con­sumptionist maintains, but be­cause they made possible the ac­cumulation of capital goods. The consumptionist does not realize that capital goods can only be expanded in supply by means of an expansion in their production, and that precisely this is what technological progress makes pos­sible. Had the technological ad­vances which made possible the first railroads in the 1830′s not taken place, the supply of capital goods required for the expanded and improved railroad building of the 1840′s would not have been obtainable; or, if obtainable, only at the price of the expan­sion of some other industry. Had no technological advances been made in railroading in the 1840′s, the supply of capital goods in the 1850′s would have been less, both for railroads and all other industries. And so it would have been decade by decade, had the technological advances made in railroading or in any other in­dustry not taken place.

Quandaries of the Consumptionist

For capital accumulation to continue for any period of time, technological progress is indis­pensable. Only it can make pos­sible continued increases in pro­duction, and only continued in­creases in production can make possible continued capital accumu­lation. The consumptionist is not aware that the very thing which he considers to be the solution to his imagined problem is the source of what he imagines to be the problem. Nor is he aware that when he advances technological progress as the solution to the problem of what to do with more capital goods, he is confronting himself with the problem of what to do with the larger supply of consumers’ goods, which even he admits results from technological progress. The consumptionist is faced, in addition to other quan­daries, with the dilemma of ex­plaining how it is that technologi­cal progress may raise the rate of profit by, as he puts it, “in­creasing the demand for capital,” while at the same time, as he ad­mits, it increases the production of consumers’ goods, which, he maintains, lowers the rate of profit through “overproduction.”

The idea that by consuming his product, one benefits the producer, by giving him the work to do of making possible one’s consump­tion, is absurd, the production­ist holds. Only the use of money lends it the least semblance of plausibility. If it were true, then every slave who ever lived should have cherished his master’s every whim the satisfaction of which required of him more work. A slave should have been grateful if his master desired a larger house, an improved road, more food, more parties, and so on; for the provision of the means of satisfying these desires would have given him correspondingly more work to do.

The belief that the consumption of the government benefits and helps to support the economic sys­tem is on precisely the same foot­ing, the productionist argues, as the belief that the consumption of the master benefits and supports the slave. It is a belief the absurd­ity of which is matched only by the injustice it makes possible. It is the means by which parasitical pressure groups, employing the government as an agent of plun­der, seek to delude their victims into imagining that they are bene­fitted and supported by those who take their products and give them nothing in return.

The only economic benefit which one can give to a producer, argues the productionist, consists in the exchange of one’s own products or services for his products or services. It is by means of what one produces and offers in ex­change that one benefits pro­ducers, not by means of what one consumes. To the extent that one consumes the products or ser­vices of others without offering products or services in exchange, one consumes at their expense.

Where Money Comes In

The use of money makes this point somewhat less obvious but no less true. Where money is em­ployed, producers do not exchange directly, but indirectly. The buyer receives his goods from the seller. The seller receives his goods from other sellers, who in turn may re­ceive their goods from still other sellers. But the first buyer in the series must either himself possess goods or have obtained his money from someone who does possess goods, so that the series of ex­changes may be closed with the first buyer, or the party from whom he has obtained his funds, making sales of goods equivalent to his earlier purchases.

What makes the mere spending of money appear beneficial is that it is the receipt of money by one set of sellers which enables them to obtain the goods of another set of sellers. If, however, the spending is initiated by those who have no goods to sell and who have not obtained their money from someone who has, then there must be a set of sellers who can obtain nothing in return for the goods they have sold. Their loss will take the form either of a depletion of their capital, a diminution of their consumption, or a lack of reward for their added labor, precisely equal to the purchases of the buy­ers who have not produced.

The consumptionist’s advocacy of consumption by those who do not produce, to ensure the pros­perity of those who do, is, the productionist argues, a pathologi­cal response to an economic world which the consumptionist imag­ines to be ruled by pathology. The consumptionist has always before him the pathology of the miser. His reasoning is dominated by the thought of cash hoarding. He believes that one part of mankind is driven by a purposeless passion for work without reward, which requires for its fulfillment the ex­istence of another part of man­kind willing to accept reward without work. This is the meaning of the belief that one set of men desire only to produce and sell, but not to buy and consume, and the inference that what is required is another set of men who will buy and consume, but who will not produce and sell. In the consump­tionist’s world, the producers are imagined to produce merely for the sake of obtaining money. The consumptionist stands ready to supply them with money in ex­change for their goods—he pro­poses either to take from them the money he believes they would not spend, and then have someone else spend it, or to print more money and allow them to accumu­late paper as others acquire their goods.

Hoarding is not the only phe­nomenon upon which the consump­tionist seizes. Where nothing in reality, however unimportant and insignificant it may be, will serve, the consumptionist is highly adept at bringing forth totally imagi­nary causes of economic catastro­phe. Invariably, the solution is consumption by those who have not produced, for the sake of those who have. Always, the goal is to demonstrate the necessity and ben­eficial effect of parasitism—to make parasitism a source of support.

The Rationality of Economic Life

In view of the overwhelming absurdities and contradictions of consumptionism and the literal perversion of values and emotions which it engenders, one may only conclude that its support is founded on the interest which it obviously serves. This, of course, does not relieve the economist of the duty of identifying the par­ticular errors of every consump­tionist argument as though it were advanced in good faith. It does, however, disqualify every consumptionist as an economist. No scientist, in any field, can ac­cept the view that reality is irra­tional and that irrational action is required to deal with it.

Those economists of the present day who openly and defiantly pro­claim that the economic world is “non-Euclidean,” do so happily. That is the way they would like the economic world to be. If they merely believed that economic life appeared to be irrational, and did not at the same time desire it to be irrational, they would never proclaim it to be so in fact. In­stead of leaping to the support of consumptionism after only the most casual examination of their subject, they would not rest until they had identified the errors which could make them believe that eco­nomic life possessed the appear­ance of irrationality; and the greater and more overwhelming such an appearance might be, the greater would they realize their own ignorance to be, and the harder would they work to over­come it and expose the errors in­volved. It is this which distin­guishes an economist from a Lord Keynes.

Copyright 1990 George Reisman. All rights reserved. The encyclopedic Capitalism: A Treatise on Economics is a required reference for every Capitalist’s library. Reisman’s treatise is now available in two volumes: Volume I (focuses on microeconomic issues) and Volume II (focuses on macroeconomic issues).