≡ Menu

Consumption Is Indeed – As Adam Smith Said – “the Sole End and Purpose Of All Production”

In my latest column for AIER I explain that consumption, properly understood, is indeed (quoting Adam Smith) “the sole end and purpose of all production.” A slice:

No two people have exactly the same tastes and preferences. You might prefer a king-sized bed to a queen-sized one while I prefer the queen-sized version. But every person has consumption desires. And for every person these desires are what motivate him to engage in economic activity – that is, to work and to exchange. Work and exchange can, and often do, directly supply satisfaction independently of whatever is created by the work, or of whatever is obtained through the exchange. But working and exchanging are overwhelmingly means to achieve consumption goods and services.

I’ve known many people – including myself – who love their jobs. But I’ve never met anyone who was so in love with that job that he or she would continue to do it without pay. Even jobs that people love are means, not ends.

Likewise, my grandfathers and my father all enjoyed woodworking as a hobby, as does my son today. But I’ve never known any of them to be indifferent to the final physical results of their carpentry efforts. Each of these men worked to build things – kitchen cutting boards, bookcases, an addition to the house – that, when completed, supplied human satisfaction. None of these men ever sawed, hammered, sanded, drilled, or glued merely for the sake of sawing, hammering, sanding, drilling, or gluing. On those rare occasions when the results of their woodworking were worse than what they anticipated – say, the bookcase wasn’t level or the kitchen cutting board was aesthetically unappealing – they were disappointed. They assessed the time and effort spent to produce the defective outputs as wasted.

The economist, then, reasons from this reality that production is not simply the exertion of human effort to transform inputs into outputs. Production is the creation of value — “value” meaning additions to consumer welfare. For the economist, production and consumption are two sides of the same economic coin; one is inseparable from the other. As is obvious, nothing can be consumed unless it is first produced. But also, and as is much less obvious, nothing is produced unless it is destined to satisfy consumption desires.

The non-economist often misses the inseparability of the concept of production from that of consumption. The non-economist often thinks of production and consumption as being alternative, competing values. I can’t count the number of times that I’ve heard or read someone accuse economists — and especially economists who support free markets — of having a shallow, or excessively materialistic view of humans. “Life is about more than consumption!” we’re told. “People also find meaning in family, community, and work!”

To the ears of many non-economists, the word “consumption” seems to mean only the satisfaction of physical desires. The word here carries an almost negative connotation; it conjures images of individuals self-interestedly and narrow-mindedly satisfying ‘low’ desires with little concern for persons beyond themselves and their immediate families, or for values beyond base sensual gratification.

On this understanding of “consumption,” life is indeed about more — much more — than consumption. But, again, this understanding of “consumption” is emphatically not economists’ understanding. On economists’ understanding, consumption includes not only the likes of eating, watching the Super Bowl, and bedecking oneself with jewelry. Consumption includes also the satisfaction we get from living in safe and thriving communities, from enjoying our jobs, from interacting pleasantly with our neighbors, our fellow church members, and our co-workers. It includes the joy and knowledge derived from traveling, reading, and attending public lectures.

Consumption, as economists understand it, is that wide array of actions the experience of which we anticipate will directly make our lives more fulfilling. The fact that production is a necessary means to enable consumption is undeniable. Yet precisely because production is a means, while consumption is an end, there is no conflict between the ‘social value’ of consumption and the ‘social value’ of production. More consumption requires more production, and more production enables more consumption.