““Consumption is the sole end and purpose of all production,” Adam Smith confidently announced in The Wealth of Nations in 1776.”
“Smith’s quote is famous, but in reality this was one of the few times he explicitly addressed the topic. Consumption is conspicuous by its absence in The Wealth of Nations, and neither Smith nor his immediate pupils treated it as a separate branch of political economy.”
“It was in an earlier work, 1759’s The Theory of Moral Sentiments, that Smith put his finger on the social and psychological impulses that push people to accumulate objects and gadgets.”
“People, he observed, were stuffing their pockets with “little conveniences,” and then buying coats with more pockets to carry even more. By themselves, tweezer cases, elaborate snuff boxes, and other “baubles” might not have much use. But, Smith pointed out, what mattered was that people looked at them as “means of happiness.””
“It was in people’s imagination that these objects became part of a harmonious system and made the pleasures of wealth “grand and beautiful and noble.””
“The word came to mean using up, wasting away, and finishing.”
“Consumers, by contrast, were seen as fickle and a drain on wealth.”
“Adam Smith’s reappraisal of this group in 1776 came in the midst of a transformation that was as much material as it was cultural.”
“It was in Holland and Britain, though, where the momentum became self-sustaining. In China, goods had been prized for their antiquity; in Italy, a lot of them had circulated as gifts or stored wealth. The Dutch and English, by contrast, put a new premium on novelties such as Indian cottons, exotic goods like tea and coffee, and new products like the gadgets that caught Smith’s attention.”
“the pursuit of new objects and desires was now justified as acting out God’s will”
“By the late 18th century, then, there were in circulation many of the moral and analytical ingredients for a more positive theory of consumption. But the French Revolution and the subsequent reaction stopped them from coming together. For many radicals and conservatives alike, the revolution was a dangerous warning that excess and high living had eaten away at social virtues and stability. Austerity and a new simple life were held up as answers.”
“The French economist Jean-Baptiste Say—today remembered for Say’s law, which states that supply creates its own demand—was one of the few writers in the early 19th century who considered consumption on its own, according the topic a special section in his Treatise on Political Economy. Interestingly, he included the “reproductive consumption” of coal, wood, metal, and other goods used in factories alongside the private end-use by customers.”
“Elsewhere, other economists showed little interest in devising a unified theory of consumption. As the leading public moralist in Victorian England and a champion of the weak and vulnerable, John Stuart Mill naturally stood up for the protection of unorganized consumers against the interests of organized monopolies.”
“In his professional writings, however, consumption got short shrift. Mill even denied that it might be a worthy branch of economic analysis: “We know not of any laws of the consumption of wealth as the subject of a distinct science,” he declared in 1844.”
“It fell to a popular French liberal and writer, Frédéric Bastiat, to champion the consumer—supposedly his dying words in 1850 were “We must learn to look at everything from the point of view of the consumer.””
“That may have sounded prescient but it hardly qualified as a theory, since Bastiat believed that free markets ultimately took care of everything. For someone like Mill with a concern for social justice and situations when markets did not function, such laissez-faire dogma was bad politics just as much as bad economics.”
“Theory finally caught up in 1871, when William Stanley Jevons published his Theory of Political Economy. “The theory of economics,” he wrote, “must begin with a correct theory of consumption.””
“Mill and his ilk had it completely wrong, he argued. For them the value of goods was a function of their cost, such as the cloth and sweat that went into making a coat. Jevons looked at the matter from the other end. Value was created by the consumer, not the producer: The value of the coat depended on how much a person desired it.”
“desire was not fixed but varied, and depended on a product’s utility function. Goods had a “final (or marginal) utility,” where each additional portion had less utility than the one before, because the final one was less intensely desired, a foundational economic concept that can be understood intuitively through cake: The first slice may taste wonderful, but queasiness tends to come after the third or fourth.”
“Marginalism was born, and the utility of any given good could now be measured as a mathematical function.”
“Economists were not the only ones who discovered consumption in the late 19th century. They were part of a larger movement that included states, social reformers, and consumers themselves.”
“Attention now turned to “standard of living,” a new concept that launched thousands of investigations into household budgets from Boston to Berlin and Bombay.”
“The central idea behind these inquiries was that the welfare and happiness of a household was determined by habits of spending, and not just earnings. A better understanding of how money was spent assisted social reformers in teaching the art of prudent budgeting.”
““The consumer,” a German activist explained, “is the clock which regulates the relationship between employer and employee.” If the clock was driven by “selfishness, self-interest, thoughtlessness, greed and avarice, thousands of our fellow beings have to live in misery and depression.” If, on the other hand, consumers thought about the workers behind the product, they advanced social welfare and harmony.”
“Consumers, in other words, were asked to be citizens. For women, this new role as civic-minded consumers became a powerful weapon in the battle for the vote. This call on the “citizen-consumer” reached its apotheosis in Britain on the eve of the First World War in the popular campaigns for free trade, when millions rallied in defense of the consumer interest as the public interest.”
“Consumer associations and activism continue, but they have become dispersed between so many issues that they no longer carry the punch of the social-reform campaigns of the early 20th century; today there are, for example, movements for slow food, organic food, local food, fair-trade food—even ethical dog food.”