[First published on Free Life]

The belief that economic progress is boosted by consumption is based upon the kind of misunderstanding that could be made only by intellectuals – the product of theorising that is completely detached from the common sense that everyone else possesses.

The misunderstanding is based on a conflation of the desire to consume on the one hand with the act of consumption on the other – or, in other words, it confuses motive with cause.

All economic progress is motivated by the desire to achieve consumption – in other words, to satisfy as many of our ends as possible. Without any desire to consume or to satisfy any ends there would never be any economic activity whatsoever. Thus, the bigger our desire for consumption then the greater will be our efforts to speed up economic progress.

However, economic progress is not caused, or brought into being, by the act of consumption. Rather, the act of consumption is the result of economic progress (i.e. of increased production). Actually consuming is what we to do in order to reward ourselves once we have produced something – it is not what we do in order to start production in the first place. Indeed, as is so often the case with realities that are hidden by myths, this truth is intuitive – you cannot consume a good unless it has first been brought into existence by production.

At any one moment in time there is an array of produced goods available to us. Each of us faces a basic choice as to what to do with these goods – consume them now, or turn them into productive capital goods that will yield a greater output of consumption goods in the future. The latter is the path to economic progress. If, however, we choose the first path – consumption – all we do is reduce the number of goods available to us and we are left with less. We may have achieved immediate satisfaction but we now have fewer resources left with which to produce more in the future.

For example, if I burn a log of wood to keep warm I cannot then use that log to build a fishing boat later on. Rather that log is gone forever and I will now have to labour in order to search for fresh building materials if I am to make good this loss. A farmer who decides to eat the seeds for crops in the spring will then have nothing to sow come harvest time, and will be left with barren and empty fields rather than lush acres full of wheat. Beyond the point of providing nourishment and sustenance to the human body the act of consuming of these goods will not provide any economic progress.

Consumption, for the most part, is the destruction of what we have. Economic progress is the transformation of what we have into something that will produce more for us in the future. If we choose the second option – that of turning our goods into productive resources – rather than destroying the resources available to us we will invest them in productive enterprises that raises the yield of consumer goods in the future.

The key to promoting economic progress, therefore, is not to encourage the act of consumption, which equates with an act of destruction. Rather it is to encourage production and a direction of a greater proportion of our resources available today towards saving and investment so that we may consume more in the future.

This is particularly important following a bust that results from a boom or bubble inflated by credit expansion. With so many malinvestments left starved of resources the best thing we can do to minimise the pain is to increase the proportion of saving and investing so that at least some of the doomed projects may realise a degree of viability. Instead our economic lords and masters misdiagnose the problem as a “lack of demand” and encourage us to borrow, spend and consume which only exacerbates the losses experienced by those projects that were started in the boom.

Nothing that has been said here should be taken as a condemnation of consumption or an exaltation of saving and investment. We all have to consume in order to live and it is ultimately up to the individual how much he desires to consume and how much he desires to save. However, once one has made the choice to achieve more wealth then this must begin with production, saving, and sound investment which is rewarded by greater consumption later on. Consumption will never lead to growth, and it is important for Austro-libertarians to point out this grave fallacy.

The Christmas shopping period – one of the busiest in the year for the retail industry – has begun with a starter pistol on so-called “Black Friday”, with the culmination due in the January sales. The period of celebration, feasting and gift-giving is critical to the annual revenue and profits of hundreds of consumer-facing industries, with the volume of spending increasing by more than 50% according to some estimates.

Against all of this is the charge that capitalism has served to distort and destroy the older traditions and practices of the holiday season. What was once a period of religious observance and a time for more modest celebrations with one’s friends and family has mutated into a mass shopping frenzy in which people care more about what they can buy rather than the meaning and significance of Christmas. Greedy retailers encourage us to spend increasing amounts of money on clothes, furniture, electronics, and entertainment that most of us probably do not need. We guzzle with merriment on tons of sugary and fattening food and alcohol, expanding our waistlines through a myriad of parties and get-togethers. Once we have stuffed ourselves silly, we then “invest” in our new year’s resolutions by forking out on so-called “detox” and exercise regimens, driving money to many of the same peddlers who made us fat in the first place.

Indeed, there can be little doubt that this “consumerism” has changed the traditions of the winter period in the past few generations, as retailers attempt to fill the long void between the end of summer and December 25th. Advent was previously a time of preparation and observance, during which the last of the harvest foods were gathered and preserved ready for the long winter ahead. Christmas, on the other hand, was the beginning of period of feasting and celebration that brought cheer and merriment to the cold, dark winter days which lasted until the arrival of Lent in mid to late February. With the evenings then growing lighter and the temperature warmer, the inducement to “give up” after the previous period of luxuriant consumption was altogether easier.

Today, however, the period of celebration – parties, get-togethers and splashing out – has shifted to December, culminating, rather than commencing, on Christmas Day. Once we have all had our fill of turkey, there is little more to look forward to other than new year’s celebrations, after which – at the darkest, deadest and least conducive period of the year – we are expected to start afresh by lifting weights at the gym and slimming down. It is for this reason that Christmas seems to come earlier every year. Given that so much is now packed into just three or four weeks of what is often still late autumn weather, all of the planning and preparation spills into the earlier months – sometimes, to the discontent of many traditionalists. Indeed, it is possible to spot mince pies and Christmas crackers on supermarket shelves as early as September.

One may be tempted to suggest that Christmas spending this year may be somewhat muted given that we are enduring a cost of living crisis. This, however, could make the general aura of consumerism worse, given that desperate retailers will bend over backwards to attract more reticent consumers. The latter, for their part, may be more willing to dip into debt simply to achieve an expected level of enjoyment.

If we assume that this type of so-called consumerism is a bad thing and has, indeed, served to distort and ruin treasured seasonal traditions, can we say that this is a downside of the free market? That, having rescued us from a life characterised by mud huts and starvation, modern economies have made us all slaves to materialism with no regard for anything deeper or more meaningful? (We will ignore the fact that capitalism is also blamed for preserving poverty and destitution; critics of capitalism are seldom consistent in their indictments).

The proper retort to such a charge is that capitalism is, in fact, the very opposite of consumerism – or, rather, that consumerism is more likely to be an effect of an anti-capitalist economic order.

First, modern, free market economic orders are distinguished by the fact that, empirically, they have tended towards a higher accumulation of capital. In other words a relatively high percentage of current income is saved and invested in capital goods that will yield a higher production of consumer goods only at a later date.

Consumerism, however, is distinguished by people failing to save and invest, deciding instead to spend a relatively higher proportion of their current incomes on consumer goods. In the lexicon of economics, a capitalist society is one of low time preference and wealth accumulation; a consumerist society, on the other hand, is one of high time preference and wealth destruction. The worst case of consumerism – and one in which we partly live – is where people consume more than their current incomes on consumer goods by borrowing money.

It is true, of course, that capitalism creates the wherewithal to produce a higher number of consumer goods than any other economic order. Hence, those living in a capitalist society will tend to enjoy a higher absolute volume of consumption than those living in a non-capitalist society. However, the charge of anti-consumerism is nothing to do with this absolute volume of consumer goods that are purchased. Rather, the problem is the obsession with (and focus on) consumption at the expense of anything else. Indeed, consumerism, we might say, is a symptom of a previously capitalist-oriented society that has turned its efforts away from saving and capital accumulation and towards the consumption of everything that has thus far been produced – possibly including the consumption of accumulated capital.

From where does the inducement to this consumerism come? It is true, of course, that nothing about capitalism serves categorically to prevent people from turning towards a desire for excessive consumption; but neither, too, is there anything to encourage it. To the extent, therefore, that the phenomenon is widespread there must be some kind of systemic influence towards consumerism other than anything to do with capitalism itself.

This systemic influence is the very opposite of capitalism, or rather, we might say, perversions of capitalist orders – the false economic theories and destructive economic practices of the state. These false economic theories – such as varieties of Keynesianism – promote consumption as the foundation of economic growth, whereas abstinence from consumption and saving are painted as cumulatively destructive practices.

National accounting figures do little more than present the economy as one, giant number which, if rising, represents a good state of affairs and, if falling, represents a perilous state of affairs. These, however, have inbuilt consumption biases which give the illusion that consumption leads to prosperity.

For instance, a large portion of so-called Gross Domestic Product (GDP) consists of both consumption spending and government spending (the latter of which, by its nature, is always consumption spending). Boost these figures and up goes the standard of living, so we are told. Moreover, the obsession with avoiding any kind of “double counting” means that a significant proportion of what is truly the gross annual product – such as investment in early stage capital goods – are simply discounted, further inflating the importance of consumption spending.

Because of this it is possible to have prosperous GDP figures, “moderate” interest rates and what appears to be relatively low price inflation all serving to mask underlying economic distortions. Such was the case in the period leading up to the 2008 financial crisis. These financial crises are themselves, of course, the result of destructive economic practices induced by the state, such as the forced lowering of interest rates and the expansion of the volume of credit. Such acts cause the ill-fated boom phase of the business cycle, but they also encourage our main bugbear of consumerism. When people see their nominal wages and asset prices rising rapidly – something that would not happen in a genuine free market distinguished by increasing real wages – they believe that they are wealthier than they actually are. The result is that they are duped into thinking that they have a greater proportion of their incomes available for consumption spending. If boosting their spending on consumer goods was not bad enough, however, they even begin to secure loans and borrowings against the rising value of their assets in order to further fuel increased consumption.

Indeed, credit expansion in and of itself encourages a debt fuelled society. Apart from actually creating the money to be loaned out, the accompanying price inflation makes debt finance more attractive than funding expenditure out of savings. The illusion that money is cheap, that everything can be bought now, and that we needn’t bother with either prudence or patience simply exacerbates the high time preference, consumerist society.

As we mentioned earlier, nothing about a free society will ever prevent people from becoming consumerist in the same was that it doesn’t stop people from becoming drug users or prostitutes (or from engaging in other non-aggressive but otherwise illicit activities). However, we can make a case for saying that such acts are always likely to be more prevalent in the kind of high time preference society that the state encourages. A high incidence of drug use and prostitution, for example, indicates that people prefer a “quick fix” now and are not willing to wait for good feelings and pleasurable experiences to culminate as a result of longer or more difficult (but ultimately more rewarding) endeavours such as exercise and building strong relationships. Given that wealth in a free society accumulates to those who best serve the needs of consumers, the qualities needed for the fulfilment of that objective are likely to become prevalent. Thus, relatively conservative virtues such as patience, prudence, trustworthiness, reliability, good taste and judgment, are likely to be the hallmarks of a capitalist society rather than substance abuse and casual sex.

If, therefore, consumerism is to be deplored we should focus our ire not at the capitalist system that simply permits us to enjoy the Christmas period however we want (and, moreover, creates the wherewithal for us to do so – plump roast turkeys on almost every dining table is a relatively new phenomenon). Instead, we should direct it at the state whose false prophets and destructive practices turn us from a society of wealth creators to one of wealth destroyers.