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Consumption Is Indeed the End; Production Is Indeed Only a Means

In a Facebook comment to this post, Kenneth Betts objected to my repeat of Adam Smith’s insight that consumption is the end to which production is a means.  Mr. Betts’s objection springs from a fact of reality, but that fact does not refute my point.

The fact of reality that Mr. Betts emphasizes is that resources used in consumption are not resources used to further increase the productive capacity of the economy.  True enough.  But one must ask: What is the purpose of having an economy with a high productive capacity?  And, even more fundamentally: How to assess productive capacity to begin with?  The key to both answers lies in understanding that the purpose of all economic activity is ultimately to satisfy each person’s desire to enjoy a high standard of living (including, let us not forget, opportunities to enjoy leisure).  Here’s my slightly edited reply to Mr. Betts on Facebook:

Mr. Betts: You misunderstand the point. The point is not that resources do not have to be husbanded well and used efficiently in order to promote economic growth. Nor is the point that economic growth is undesirable. Quite the opposite. The point is that the point of it all is to enable us humans to enjoy standards of living as high as possible. And success or failure on that score is measured in our ability to consume.

Suppose that I have at my disposal some metal, glue, rubber, fruit, and flour. Suppose further that I use the fruit and flour to fashion a faucet for my bathroom, and the metal, glue, and rubber as ingredients in a pie that I bake. How productive have I been? I would argue, not very.  (Indeed, I have been unproductive given that I squandered perfectly good inputs, including my time, to produce outputs that are of no use to anyone.)

Now suppose that I instead use the fruit and flour as ingredients in a pie that I bake and the metal, glue, and rubber to construct a faucet for my bathroom. Has my productivity changed? I would argue – and I’ll bet you would, too – that I was more productive in the second case than in the first. And this fact is true even if I spent as much, or even more, time working in the first case than in the second case. The point is that productivity is ultimately measured by how well raw materials, inputs, and human labor contributes to output that people wish to consume.  Production for the sake of production is pointless; the point of production is to satisfy consumer desires either directly (as when a supplier sells directly to a final consumer) or indirectly as when a supplier supplies an input used by another producer who is part of a chain of production that results in goods or services for final consumers.

I note again that to say that production is ‘only’ a means is not to denigrate the importance of production.  Production is an essential means toward the end of consumption.  The more production there is, the more consumption there can be.  But we use the means to create the end.  We produce in order to consume; we do not consume in order to produce.  Anyone who doubts the truth of this claim should try to explain to himself or herself (and to others) why people must be paid to work but pay to consume.