… is from page 176 of the original edition of Walter Lippmann’s sometimes deeply flawed but profoundly insightful and important 1937 book, The Good Society:
The market is not something invented by businessmen and speculators for their profit, or by the classical economists for their intellectual pleasure. The market is the only possible method by which labor that has been analyzed into separate specialities can be synthesized into useful work.
DBx: This truth is not grasped by Oren Cass, Lina Khan, Robert Lighthizer, and others who argue that the ultimate purpose of economic activity is not exclusively the satisfaction of consumer desires but, instead, includes – or is even dominated by – the need to protect individuals in the particular roles they happen to occupy, or that they wish to occupy, as producers.
Pundits, professors, and politicians who deny the centrality of consumer sovereignty – people who, in other words, dismiss the centrality of the consumer-welfare standard – misunderstand what is meant by “consumption.” This error is their first: Interpreting advocacy of consumer sovereignty as advocacy of irresponsible and myopic gluttony or soulless pursuit of shallow pleasures, the “anti-consumerists” (as I’ll call them) refuse to acknowledge that “pro-consumerists,” from Adam Smith forward, quite clearly meant by “consumption” no such thing. What Smith and other “pro-consumerists” mean by “consumption” is the pursuit by individuals of whatever are the ends that individuals who work and produce aim to achieve through their working and producing. The consumer is neither analytically nor in practice only the sybarite who goes to Las Vegas to gamble, dine, drink, and be sensually entertained. Nor is the consumer a cartoonish buffoon who works himself to the brink of the grave in order only to build an ever-larger McMansion to be filled with an ever-greater number of baubles and bottles of bubbly.
Of course consumption includes eating, being clothed, and being sheltered. But beyond these basic physical necessities, consumption can – and does for nearly everyone who lives above subsistence – also include non-material satisfactions: leisure time with family, friends, and neighbors; mastering a musical instrument or a foreign language simply for the joy of doing so; helping to pay for the education of children and grandchildren; working at a particular job that doesn’t pay the highest available monetary income but offers non-monetary amenities worth more than the foregone monetary income; travel that enriches the soul and mind – this list can be much-extended.
Understanding what the anti-consumerists fail to understand about the meaning of consumption reveals a second flaw in the anti-consumerists’ case: They also fail to understand that the only practical way to determine which uses of resources are most productive is to allow maximum freedom to earners of income to spend those incomes (but only those incomes) as they choose. The earning of the income is the means; the specifics of how the income is spent, insofar as this spending isn’t artificially obstructed by the threat of coercive force, reveal the ends that the income earners are pursuing. This freedom to spend generates prices that reveal the relative values of units of goods and services.
In a society with a division of labor, each of us produces indirectly that which we wish to consume; we ‘produce’ for ourselves that which we wish to consume by first directly producing those goods and services at which we have a comparative advantage. We then sell these outputs to people who wish to buy these outputs. We then use the incomes we thereby earn to acquire that which we desire. It follows that if Sam prevents Adam from spending his (Adam’s) income as Adam chooses, Sam reduces Adam’s productivity. He denies to Adam the opportunity to get the most from his productive efforts.
Sam, at this point, protests that the purchases that his (Sam’s) interventions compel Adam to make enable Lina and Robert to work at producing outputs that Lina and Robert wish to generate. Sam admits that his intervention reduces Adam’s consumption, but, insists Sam, consumption is less important than production. And, Sam continues, behold the additional production that Lina and Robert are now doing because of Sam’s noble efforts to reduce Adam’s selfish or myopic consumption. Sam congratulates himself for his wisdom and maturity – for his seeing the baseness of the materialistic neoliberals’ naive supposition that the only thing that human beings want to achieve is maximum satisfaction of their sensual desires.
Being so caught up in self-congratulation, Sam misses at least four key empirical realities. The first reality that he misses is that his arranging for Lina and Robert to work more at producing the gidgets that they wish to produce causes their fellow citizens Adam, Rose, and Frederic to work less at producing the widgets that they wish to produce. Sam doesn’t care about Adam, Rose, and Frederic because, not seeing them, they are, too him, unreal and, therefore, insignificant.
The second reality that Sam misses is one that we’ve already mentioned: Sam’s interventions reduce the value of Adam’s, Rose’s, and Frederic’s work effort by reducing the value of the bundle of goods and services for which these workers are able to exchange the fruits of their work. Sam’s interventions make Adam, Rose, and Frederic less productive.
The third reality that escapes Sam’s notice is that market prices set by freedom to trade – the freedom of income earners to spend their incomes (and only their incomes) as they choose, and the freedom of entrepreneurs and investors to enter and exit industries as the choose – are the only remotely reliable available sources of information about which uses of scarce resources, including labor, are most productive.
The fourth reality missed by Sam is that if Lina and Robert truly do value the opportunity to work more (or more securely) at producing gidgets, they can achieve this outcome by agreeing to accept lower pay to work as gidget producers. But with Sam officiously in the picture, Lina and Robert are able to avoid having to pay to satisfy this particular preference of theirs; Sam compels Adam, Rose, and Frederic to pay to satisfy Lina’s and Robert’s preference. Sam reduces the value of Adam’s, Rose’s, and Frederic’s production by forcing them to pay for the satisfaction of one of Lina’s and Robert’s consumption preferences – namely, to work at jobs from which Lina and Robert derive personal satisfaction but that result in the production of output that Adam, Rose, Frederic, and other fellow citizens are unwilling voluntarily to pay for.
Sam fancies himself wiser, more mature, and more in-tune with rich and diverse human nature than are the people who he contemptuously dismisses as “neoliberals” or “market fundamentalists.” Sam wallows in this self-satisfying fancy only because he refuses, or is unable, to understand the case for free markets and free trade. Failing to understand this case, he constructs a straw man, calls it ‘the case for free markets and free trade,’ and then proceeds to slay it and then bask in the adoring applause of throngs of people who are as ignorant as is he about the actual case for free markets and free trade.
