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Production Not Aimed At Satisfying Consumption Desires Is Waste

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My Mercatus Center colleague Dan Griswold has a superb review, forthcoming in the Cato Journal, of Oren Cass’s new book, The Once and Future Worker: A Vision for the Renewal of Work in America. Here’s a passage from Dan’s review:

Cass flatly rejects Adam Smith’s fundamental observation that “consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer.” He argues instead that production comes first: “Production without consumption creates options; consumption without production creates dependence and debt.”

In his review, Dan does a splendid job exposing the folly of Cass’s rejection of Smith’s point. I will not here repeat Dan’s argument; when his review is published I will link to it at Cafe Hayek. I will, though, here add my own thoughts on this matter.

People such as Cass who assert that Adam Smith was mistaken on this point – people who insist that production is more important than consumption – come across to many, and likely also to themselves, as possessing a grasp of reality that is firmer than, a degree of prudence that is higher than, and an immunity to frivolity that is more reliable than that of those of us who insist that consumption rather than production is the ultimate goal of all economic activity.

But people such as Cass are mistaken. They either do not understand Smith’s point – for example, Smith’s point is not that consumption is possible, or ought to be attempted, without production – or those who reject Smith’s point possess preferences that not only are possessed by almost no one else, but that also are self-destructive.

I’ve written at this blog often on this myth (for example, here [2] and here [3]). I’ll not repeat all that I’ve said about it in the past. But I will note again that Smith’s point is not the Keynesian one that declares that an autonomous increase in consumption demand is sufficient to improve the economic well-being of a country. Nor is Smith’s point one that discounts the importance of prudence, savings, and production. Very much the opposite!

Instead, Smith’s point is that production is worthwhile only if that which is produced is of value to human beings. If that which is produced is of no value to anyone, all the effort and resources that are poured into production are wasted. Smith was correct to write that this “maxim is so perfectly self-evident, that it would be absurd to attempt to prove it.”

Well, let me here, again, attempt the absurd. After all, many people – such as Oren Cass – do not get it.

If people such as Cass were correct that Adam Smith was mistaken and that production rather than consumption is the ultimate end of economic activity, then each of the following statements would be true:

– If I spend five hours of my time and $10 worth of other resources baking a sawdust-and-maggot pie, my expenditure of this time and those resources is just as worthwhile – just as valuable – just as laudable – had I instead spent this time and those resources baking an apple pie.

– If tomorrow we Americans all quit our current jobs in order to work full-time and with equal diligence and sweat at digging and redigging holes and then re-filling these holes over and over and over again, we would be just as well off as we are today.

– Burglars, pickpockets, and other thieves are heroes in Cass’s world, for they not only exert work effort, but also, by stripping their victims of goods, they strip their victims of nothing really valuable while simultaneously prompting their victims to exert more work effort to replace the (valueless) things that are stolen.

– The thug who, exerting great effort and exposing himself to high risks, breaks people’s legs is just as worthy a member of society as is the physician who mends these broken legs.

(It will not do, as a response to this example, to observe that breaking people’s legs is destruction rather than production. The reason is that we can distinguish destruction from production only by first having in mind some sense of what is valuable – some sense of what we wish to consume. If, as Cass would have it, the exertion of effort and expenditure of resources that we call “production” is itself a valuable end in itself – and if, also as Cass would have it, the value to someone of the consumption experience of having unbroken legs is inferior to the exertion of effort and expenditure of resources in the production experience of breaking legs – then breaking legs in Cass’s world is just as productive as is chopping down trees for lumber in the real world.)

– Ironically, the production > consumption folks such as Cass share a great deal with Keynesians. The reason is that for both Cass and Keynes, the hurricane that levels a town turns out to increase the wealth of the town by calling forth work effort that would otherwise not be called forth. (Actually, Keynes is not as bad as Cass, for Keynes did not believe that the hurricane is a source of value during periods of full employment. Cass, in contrast, would apparently find the hurricane to be a source of value at all times.)

– The slave driven to toil 18 hours daily, 365 days a year, for his or her entire life is wealthier – has more dignity – than is the non-slave who not only works less than does the slave, but fritters away much of his time on consumption activities.

Cass and those who are inclined to defend him will object to the above claims. “That’s not true!” they will assert. “Boudreaux is creating a straw man!” they will insist. But their assertion and insistence will be wrong. If consumption is not the ultimate goal of economic activity – if production is an end in itself superior to consumption – if government is justified in taxing and otherwise forcing consumers to spend their money not to satisfy their consumption desires but instead to enable existing producers to continue to work at these producers’ current jobs  – all of the above statements are true.

…..

Again, my Smithian point emphatically is not that work is not valuable. Of course work is valuable. Of course production is valuable. Of course consumption is impossible without production. And temporally, production does indeed precede consumption. But here’s another truth: genuine production – producing things that are worthwhile instead of producing things that are worthless – is possible only because people wish to consume that which is produced.

And so while, to repeat, production does indeed precede consumption temporally, consumption precedes production motivationally and economically. We produce in order to consume; we do not consume in order to produce.

…..

A final thought: one reason why it’s so difficult to get one’s mind around the illogic of Oren Cass’s claim is that it is so deeply at odds with real-world human motivations and experiences. To take seriously Cass’s claim without subtly and unawares stopping along the way to reintroduce the primacy of consumption is to enter a bizarro world, a world that is to us almost inconceivably twisted and backwards.

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