Capitalism doesn't cause consumerism – the state does

Original article: Ryan McMaken, mises.org

The condemnation of consumerism is ubiquitous in modern media and popular culture. Anyone who has seen “A Charlie Brown Christmas” from 1965 knows about this struggle. Every time we see Charlie Brown opt for the “authentic” Christmas—buying himself a small Christmas tree that is natural instead of some mass-produced aluminum rose tree—we are reminded not to sell out to corporate marketing.

The situation has changed little since then. “9 Steps to Keeping the Mermaid Song of Consumerism” is one headline in major lifestyle magazines. “4 Things to Do Instead of Shopping in the Madhouse of Black Friday” is another headline in HuffPo.

In turn, Pope Francis has also reiterated his denial of consumerism in recent months, while English politician Ken Livingstone insists that consumerism is causing climate change and will thus “destroy our children’s world.”

Often, defenders of the market and capitalism take these criticisms as direct attacks on the market as such.

This reflexive linking of consumerism and capitalism often leads to fervent defenses of consumerism by defenders of the market, as if by defending consumerism we are also defending capitalism.

I would say that this is a big mistake. Consumerism and capitalism are not the same thing, and they are also not incredibly related.

The anti-capitalist left, of course, wants to impose this connection and wants to create a public opposition to consumerism that will also serve as an opposition to the free market in general. When we allow the left to establish an unchallenged connection between the market and consumerism, we only help them impose a myth.

What actually is consumerism?

Too often, the debate about consumerism lacks any factual accuracy. Before we proceed, we must first define what consumerism is. For this, we can refer to Wikipedia, which usually does a good job with general definitions. Wikipedia defines consumerism as “a social and economic order that encourages the acquisition of goods and services in ever-increasing quantities.” Merriam-Webster also adds two definitions that are useful in our analysis:

1. "theory that increasing consumption of goods is economically desirable";
2. "concern for and propensity to purchase consumer goods."

In all these definitions, we find an element of instability: consumerism is the belief that a constant increase in the consumption of goods is good.

The theory that the market creates consumerism and depends on it

These definitions are sufficient. But why should capitalism take the blame for this?

Yet capitalism has historically been associated with miserliness and with economic theorists who have placed a primary focus on labor, savings, and thrift. Ebenezer Scrooge is, of course, the most famous capitalist villain in English literature. But Scrooge is known for his great disdain for Christmas, expressed precisely because Christmas encourages consumerism. Similarly, pro-capitalists have adopted what Max Weber calls the Protestant work ethic, repeatedly condemning excessive consumption while extolling thrift and hard work. Scholars have noted that the propensity to save was a moral and capitalist imperative in American culture in the 18th and 19th centuries.

So if capitalists were actually associated with using money frugally, why are they now being blamed for today's obsession with endless consumption?

The theory that the left uses is roughly this: if capitalism is to survive, it needs ever-increasing levels of consumption. If people stop spending every penny on consumption, capitalism will collapse on its own. That is the conclusion of a (stunningly grammatically incorrect) explanation of consumerism in the Journal of Politics and Law by Ahmad Jansiz. In his 2014 article, “The Ideology of Consumption: The Challenges Facing a Consumerist Society,” Jansiz writes:

To achieve profit, more production, sales, investment, and manufacturing are essential . In other words, in each cycle, the goal is to sell more goods and accumulate more profits.

Initially, it was thought that the upper class were the main consumers of capitalist goods and services, but mass production also required mass consumers. Since upper class families were not numerous enough, the need for mass consumers became obvious.

In basic production, meeting the biological needs of consumers was considered important, but since biological needs are not infinite, non-biological desires must be created in consumer societies. Non-biological needs are also not infinite, but producers do not want to change their goals to mass producers. To this end, false needs were created in capitalist countries so that mass production could be consumed quickly. In other societies, this pattern prevailed, and they either weakened greatly or surrendered to capitalism. Capitalism now holds the dominant model of production and consumption in the world.

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

Of course, it seems to provide an accurate explanation of some industries. Manufacturers of luxury cars and high-end shoes profit by persuading free-market participants to buy these goods at prices well above what Jancis calls biological needs. Similarly, the need for a $300 dress or shoes can be interpreted as “false needs,” to use Jancis’s terminology.

But companies that manage to sell expensive goods and large SUVs are not the only players in the market. Other players include companies that sell investment vehicles or retirement savings accounts, which aim to create savings and investment products that reduce consumerism in the present.

Surely companies offering pension funds and savings accounts are no less capitalist than companies selling designer jeans. Ebenezer Scrooge would smile at pension funds, but he would disapprove of luxury car salesmen.

Bad economy = belief that spending leads to economic growth

The answer lies in the fact that commonly accepted concepts of economic growth – on both the left and the right – insist that a healthy economic system is based on consumption.

We are reminded of this every time we are told that consumer demand must increase in order to increase economic growth or to continue an economic boom. Also, during an economic crisis, economists tell people that they must continue to consume or the economy will collapse.

Sometimes this view becomes so extreme that we are forced to believe that consumption is our patriotic duty. This is not just hyperbole. Financial and economic writers have argued this. In 2001, for example, when a recession was setting in and the United States was responding to the September 11 attacks, Dick Cheney said he hoped Americans would “stick their finger in the eye of terrorism and not let what has happened reduce their economic activity.” What he meant was simply “buy more or the terrorists win.”

The same idea surfaced in 2009, when economic “experts” insisted that the way to save the economy from a major recession was for people to spend more. We were warned that the “paradox of thrift” would doom us all to perpetual economic depression if people didn’t go out and spend all their savings on expensive gadgets.

But the economy doesn’t work that way. As Lew Rockwell concluded in 2010, we are pressured by mainstream economists to spend more:

The problem is that spending is not the source of economic growth. Investing, which begins with saving, is the root of economic growth. It doesn't matter if consumption makes up a certain percentage of economic activity. That's just the surface we're looking at. Spending and consuming without saving and investing is a recipe for destroying the prospects for long-term prosperity . In this case, the best thing the rich can do for the future of economic growth is not to spend, but to save in order to invest.

This should be clear enough from how people and economies get rich in the first place. In order for workers to be able to afford to buy goods, they first have to produce enough goods and services, of high enough value, to have a surplus to spend. 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 these things were available, most people spent endless hours tilling the earth's surface to eke out a living on the edge of survival.

Only after centuries of capital accumulation – an accumulation made possible by saving and investing – did the industrialization that followed allow workers to become productive enough to 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 would disappear. And when that ability disappears, we will once again return to cultivating the earth's surface to ensure an existential minimum and living in one-room buildings.

Some would note: “But without consumption, no one would buy the goods and services that these companies and factories produce – and everything would collapse!”

Yes, it's true that the economy requires both consumption and saving to function properly. But one is not more important than the other. Fortunately, the market has a built-in mechanism for balancing saving and investing. It's called the "interest rate." Interest rates are signals that the market gives to consumers about whether it's a good time to save or invest. When savings are low, interest rates rise, and consumers take advantage of the high interest rates to increase their savings. When there's a surplus of savings, interest rates fall, signaling to consumers that it's a good time to take advantage of low interest rates and borrow, and they consume more cars, houses, and other goods.

When governments intervene to induce more consumption

The system collapses when governments and central banks step in to “stimulate” the economy through more government purchases and through central banks pushing interest rates down.

This "stimulus" is created to make consumers spend more. But this is not something the market or capitalists can do. The government has to intervene and therefore it is not part of a market economy.

Of course, we don't deny that this creates more consumption - in the short term. It also creates unsustainable levels of debt, low savings, and excessive consumption. In other words, it is these government policies that lead to what we now call "consumerism."

But strangely enough, it is capitalism and the market that take the blame.

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