Discounting consumption and elevating production is superficially appealing. Cass, Lighthizer, and others who do such discounting achieve, in many eyes, an aura of mature sophistication and gravitas that seems unavailable to people who insist that, ultimately, economic activity’s only goal is consumption. Consumption is enjoyable and easy, and we willingly pay to do it. Working, in contrast, is often hard and is never so enjoyable that we willingly do it without being paid. Consumption is an activity that we naturally want to engage in. Unlike laboring, consumption is its own reward and, hence, its own motivation. Because consumption is naturally attractive to humans, we’ll do too much of it if we’re not properly incited to control our urge to consume. In contrast, working — the exertion of time and effort to produce — is not its own reward; we’ll do too little of it unless we’re properly incited to put forth productive effort.
Furthermore, consumption requires neither skill nor self-control. We consume from the moment we’re conceived and continue to be only consumers throughout childhood. But to produce, we must have at least minimal skill and self-control. While even the most aimless and immature individuals can and do consume, production requires maturity and competence. Not everyone does it. Unsurprisingly, prosperous societies develop norms and attitudes that laud and encourage dispositions toward productive activity as they also temper our natural eagerness to consume.
Protesting against Adam Smith’s insistence on the primacy of consumption thus seems to be merited, and perhaps even praiseworthy. Consumption, it appears, is valued above all and exclusively only by the frivolous, myopic, and childish. People who are serious, prudent, and mature understand that production is no less important — and perhaps even more important — than consumption.
A Category Error
Protestors against Adam Smith’s insistence on the primacy of consumption are mistaken. They commit a category error. They presume that production is in the same category of activities as consumption. Specifically, these anti-Smithians presume that production and consumption are alternative, competing human ends. It follows from this presumption that prudent societies aim to achieve an optimal mix of production and consumption, while imprudent ones aim for excessive consumption and too little production. But, as noted, this presumption is mistaken. As economic activities, production and consumption differ from each other categorically. Production is a means toward the fulfillment of human ends (whatever these might be); consumption is the satisfaction of these ends. Production (the means) and consumption (the ends) are not traded off against each other as a consumer trades off one good against another good.
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Any activity that will be performed only if the persons performing it are paid to do so is obviously not an end in itself; that activity is not its own reward or its own motivation. That activity is obviously a means. Activities that people pay to engage in are ends. These activities are what Adam Smith meant, and what all sensible economists today mean, by “consumption.” If work in a particular job were an end in itself, the individuals performing that job would not only not have to be paid to do it, they would pay to do it. The need to pay people to work — the need to pay even those persons who enjoy their jobs to work — proves that work is not an end in itself. Likewise, the need to pay firm owners to produce the outputs they produce and make available for sale proves that those production activities are not ends in themselves. As indispensable and praiseworthy as they unquestionably are, work and production are not ends. Work and production are means. Consumption is the end.
To Be Productive, Workers and Other Input Suppliers Must Heed the Demands of Consumers
The end is consumption: “To produce” is necessarily “to increase individuals’ ability to satisfy their consumption desires.” Those activities, and only those activities, that further people’s ability to consume are productive. To spend time, effort, and resources baking sawdust-and-maggot pies would be wasteful, not productive. To be productive, therefore, workers and resource owners must have some way to determine which of the gazillion possible different ways these inputs can be put to use has the greatest likelihood of satisfying as many actual consumption desires as possible. Without this knowledge, work effort and resource use will almost certainly be wasteful rather than productive.
Free to spend their own (and only their own) money expressing their demands for different goods and services, “sovereign” consumers interact with suppliers who are equally free to use their own (and only their own) resources to produce and offer outputs for sale. The resulting exchanges result in market prices that simultaneously inform and incite resource owners to use their resources in ways that generate outputs of the greatest value to consumers. F.A. Hayek’s 1945 paper “The Use of Knowledge In Society” is justly credited as showing that prices — including wages and interest rates — allow enormous amounts of knowledge, dispersed today across billions of minds and millions of square miles, to be used in ways that generate modern prosperity. The knowledge put to daily, productive use in markets could not possibly be gathered, sent to a central location, and processed usefully by government officials. Therefore, to override markets in an attempt to allocate resources by conscious design in units larger than small bands is little better than an attempt to usefully allocate resources by throwing dice or by using some other method of random chance.
One consequence of this reality is that if genuine production is to occur in a group of people larger than a few dozen, the only reliable means of getting sufficient information about which uses of resources are productive and which aren’t is the market price system. By responding to market prices, individuals in their capacity as producers combine different resources into outputs for sale to consumers. Outputs bought by consumers in sufficient quantities and at prices sufficiently high to keep the production operations going are more valuable than the outputs that would have been produced had inputs been used differently. Using inputs to produce outputs sold at prices that cover their costs of production is productive; using inputs to produce outputs sold at prices that do not cover their costs of production is wasteful. Although in both of these cases workers exert effort to transform physical matter from some forms into other forms, production occurs only when outputs exceed costs.
Oren Cass, Robert Lighthizer, and others who attempt to justify protective tariffs on the grounds that production be given its appropriate weight (relative to consumption) are thus mistaken. Protective tariffs do, of course, protect particular producers from competition and, therefore, enable these producers to continue to be paid to perform their long-standing jobs. These work activities appear to the uncritical eye to be productive. Also, the individuals who perform these protected activities no doubt feel as though they are being productive. But here, appearances and feelings deceive.
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