Capitalism Does Not Require Ever-Expanding Consumption

A notable chapter in Deirdre McCloskey’s 2019 book, Why Liberalism Works, presents her response to the oft-repeated belief that the sustainability of market capitalism requires always-increasing levels of consumption and growth. Like a giant pyramid scheme, the argument goes, if the coveting and obsessive consumption end, the whole system would collapse.

We see variants of this claim repeated endlessly on the left as well as on the post-liberal right. On the Marxian left we get theoretical arguments of the ultimate disequilibrium of market economies. Among left-wing neo-Romantic postliberals, we get criticisms of consumer society and the degradation that capitalism’s growth culture wreaks on both the soul and the environment. Right-wing neo-Romantic postliberals sing pretty much the same song. Patrick Deneen argues that liberalism’s bargain that receives “the population’s full acquiescence” is one that promises “the ongoing delivery of increasing material prosperity for every member of society.” Similarly, John Milbank and Adrian Pabst, never resisting the opportunity for florid overstatement, write of the need in capitalist systems for:

the oligarchy [to] seduce the masses to consume more and more shoddy goods whose appeal will, indeed, soon pale—causing them to seek to earn more in order to be able to buy a new variant or new seductive novelty.

Not so, suggests McCloskey. And, actually, the substance of McCloskey’s response is obvious. Yet I recall few other authors taking the point seriously enough to respond to it. Given the incessant repetition of the criticism among post- and anti-liberals, and how very incorrect it is, it undoubtedly has been a mistake to let it go largely unanswered. McCloskey remedies that oversight.

McCloskey makes, as I suggest above, what is an obvious response:

Nothing would befall the market economy in the long run, says the modern [classical] liberal economist, if we tempered our desires to a thrifty style of life, one beat-up Volvo and a little house with a vegetable garden, and a moderate amount of tofu and jug wine from the co-op.

Market economies are entirely consistent with humble, ungrasping lifestyles. McCloskey correctly points out that there is nothing inherent in the notion of market equilibrium that requires the consumption of “more and more” (as Milbank and Pabst would have it).

McCloskey’s point is that should people desire it, market capitalism presents no barrier at all to the widespread adoption of a humbler life style.

McCloskey is on solid ground here. While McCloskey is critical of the use of highly abstract mathematical models of economic equilibrium, here, I think, general equilibrium models are in fact valuable. As the name suggests, this class of models shows how everything fits together in equilibrium in market economies. They are in general mathematically abstract models. Yet, lest one think that the abstraction detracts from the argument rather than contributes to it, consider this: Setting aside the labor theory of value, Marx’s fundamental economic mistake—his recognition that capitalists are forced to reduce wages because of competition, and yet his failure to recognize that the same competitive pressures that force capitalists to keep wage-costs low also mean that lower wage costs would then be reflected in lower prices for the goods they’re selling, to the benefit of workers—is the error of making general equilibrium conclusions based on partial equilibrium analysis.

Gerard Debreu’s short albeit mathematically dense book, Theory of Value: An Axiomatic Analysis of Economic Equilibrium, for which he was awarded the Nobel Memorial Prize in Economics, puts everything together in a rigorous form—producer and consumer behavior—and demonstrates the existence of general equilibrium in an abstract market economy. I take it to be the definitive theoretical refutation of Marx’s economics. (I should add that Debreu developed the theory along with other economists, most notably Kenneth Arrow, who also won the Nobel Memorial Prize in part for the work he did in this area.)

Notably, and critically in light of postliberal criticisms, Debreu’s derivation of general market equilibrium does so without requiring or resulting in continual growth in consumption. That is, the “masses” do not need to be “seduced” into buying more and more “shoddy goods” in order for market capitalism to work just fine.

Even neoclassical “growth” theory does not require more and more consumption as an inherent feature. In its simplest models the rate of economic growth equals the growth in population. That is, everybody consumes at the same levels over time. Per capita consumption does not change. Yet this characterizes an economic “steady state,” that is, one that is not collapsing.

McCloskey’s point is that should people desire it, market capitalism presents no barrier at all to the widespread adoption of a humbler life style. Consumption-driven arguments mistake contingency for essence.

Yet while widely repeated today, the error is not new. McCloskey points out that even Bernard Mandeville committed the same error in the early eighteenth century, although he was corrected almost as early:

Mandeville had argued that universal honesty would put locksmiths out of work and therefore would damage prosperity. Better for the hive to be dishonest. [George] Blewhitt replied, “The change [to an honest way of life must necessarily be supposed to be gradual; and then it will appear still plainer that there would arise a succession of new trades . . . in proportion as the trades in providing against roguery grew useless and wore off.” Spot on.

To be sure, while growth is not of the essence of market capitalism, there is a long commitment and expectation of economic growth in the U.S. A part of Ross Douthat’s argument in his recent book, Decadent Society: How We Became the Victims of Our Own Success, is that “economic stagnation”—that is, that Americans are not generally getting richer than their parents—is a part of the decadence he describes.

There are things to worry about with a lack of economic growth. In particular, if the economic pie is not growing, then distributive questions become purely redistributive questions. What one person gains another must have lost. With economic growth, distributive questions become less critical because everyone is eating more, no matter whether relative positions change.

At the same time, and interestingly, there is in McCloskey’s chapter an openness to—what should we call it? Steady state capitalism? Less-is-more capitalism? Christian capitalism? (Common good capitalism? Ha!) I don’t know.

McCloskey refers to “bleeding heart libertarianism” and “humane true liberalism,” which catches a part of it. But her focus on the “Great Expansion” throughout the bulk of her book is just a little different than the focus in this one chapter. To be sure, throughout the book McCloskey makes liberalism about more than just material prosperity. Beyond “the economic success of the modern world,” liberalism in McCloskey’s telling also brought increasing “kindness . . . toleration . . . inclusiveness . . . cosmopolitanism . . . and massive liberation of more and more people from violent hierarchies ancient and modern.” And yet the bulk of her book focuses on increasing economic wealth.

In this chapter, however, McCloskey suggests that the frenetic pace and consumption-focus of American economic life is not a result of market capitalism. Thus, she hints, it is something that we could consider giving up, or at least muting, perhaps for our own well-being. Perhaps the obsession that every generation be economically better off than the previous generation is an unhealthy expectation. I don’t want to put too many words in her mouth. But perhaps there are declining marginal payoffs to increased material prosperity after reaching a certain threshold (which is not to say it’s not critically important below the threshold, particularly as one gets closer to the “extreme poverty”). After this point, however, perhaps matters of the soul invite heightened attention, even if at the cost of giving up a bit of material prosperity.

The suggestion isn’t new. Tocqueville made much of America’s material “restlessness.” For him the obsession for “always more” was an American attribute, not a capitalist attribute. And one perhaps with a sting at the end when it is indulged:

The love of well-being [in democratic peoples] is there displayed as a tenacious, exclusive, universal passion, but its range is confined. To build enormous palaces, to conquer or to mimic nature, to ransack the world in order to gratify the passions of a man, is not thought of, but to add a few yards of land to your field, to plant an orchard, to enlarge a dwelling, to be always making life more comfortable and convenient, to avoid trouble, and to satisfy the smallest wants without effort and almost without cost. These are small objects, but the soul clings to them; it dwells upon them closely and day by day, till they at last shut out the rest of the world and sometimes intervene between itself and heaven.

I don’t think McCloskey would necessarily disagree.

Reader Discussion

Law & Liberty welcomes civil and lively discussion of its articles. Abusive comments will not be tolerated. We reserve the right to delete comments - or ban users - without notification or explanation.

on April 14, 2020 at 09:45:47 am

Professor Rogers repeats here his disconcerting proclivity to use catchy, catch-all labels as descriptors of economic and political theory. E.g., am I (to use Rogers' confusing descriptors) "on the post-liberal right" (note the use of hyphenation) or "the Marxian left?" Am I a mere "liberal" or a more exotic "postliberal" ( no hyphenation, one word, like groundwater?) Or do I belong "(a)mong left-wing neo-Romantic postliberals" or instead, with the "(r)ight-wing neo-Romantic postliberals?"

Confusing, catchy catch-all's aside, this essay seems to me to say, "Some folks think that capitalism is like Aristotle's acorn, it has a natural teleology, which is consumption without end; whereas other folks disagree and think that the ends or goals of capitalism are extrinsic, and capitalism's teleology, being man-made, can be moderated or curbed and need not be merely acquiring more and more stuff for the purpose of acquiring more and more stuff, stuff without end, amen."

And that would be a useful purpose for an essay, to contrast the differing teleology of two disparate lives, that (just for hypothetical example) of Jeff Bezos and that of Rousseau's Candide: on the one hand, the world's richest person, the ever-aspiring Bezos, building a Babel Tower of wealth ever-greater toward the endless purpose (and the purposeless end) of owning a tower ever-higher so that it may reach endlessly to the heavens and render his name eternal, and, on the other hand, the weary if now worldly-wise Candide, quietly tending his garden toward the modest purpose of contentment, whether in realistic retreat from society or as small contribution to its well-being.

Christianity made capitalism work in the West, and Christianity gave capitalism its true natural teleology. To know the purpose of a life well-lived and successfully based on competitive market principles, a Christian capitalist does not need a political economist or an economic ideology, whether "liberal," "post-liberal," postliberal," "neo-Romantic right-wing postliberal," or "neo-Romantic left-wing postliberal."

read full comment
Image of Paladin
on April 20, 2020 at 12:44:18 pm

Rousseau's Candide??

read full comment
Image of Hamar Foster
Hamar Foster
on April 14, 2020 at 13:21:14 pm

Interesting essay! - even more interesting is McCloskey's take on an inherent need within capitalism for endless expansion (or the lack thereof).
First a minor point. goods are not necessarily shoddy or cheap. Rather, contra its critics, capitalism appears to have provided us with a plethora of superior, in fact quite astounding products and, (ChiComm flu induced toilet paper shortages aside) in quite ample supply.
The question remains, however, "Is it ALL needed"?

And for that answer, we must do as Rogers does not; nor from this short essay can we infer whether Mccloskey does:

We must consider the role of individual human motivations / aspirational choices in the dynamics of our economy. Paladin alludes to this motivational factor in his comment on Jeff Bezos. Yet, there are other *motivated* actors involved in shaping our economic, and consequently our cultural and political destinies / policies.

"There are things to worry about with a lack of economic growth. In particular, if the economic pie is not growing, then distributive questions become purely redistributive questions. What one person gains another must have lost. With economic growth, distributive questions become less critical because everyone is eating more, no matter whether relative positions change."
The above quote is mostly correct. However, it fails to recognize a rather salient feature of our present economy. Even if the economic pie IS growing, one person's gains may be the others loss. In an economy that has become as "financialized" as has ours, the growth in GDP represented by financial services is considerable. Clearly, we have a growing economy. Yet, it comes at a considerable cost in the forms of lost employment, lost industries, etc. All this for inexpensive imports from China and other locales.
Is it inherent in the financial sector to so vigorously pursue profit at the expense of longer term economic stability?
Or is it due to the individual motivations of the *actors* comprising that sector of the economy, who are rewarded with significant (obscene?) levels of compensation / bonuses for their financial wherewithal (legerdemain).
Is it the individual motivation of corporate CEO's / Boards who have been convinced (like sheep, BTW) that it is far more personally profitable to offshore manufacturing as this will reflect positively and boost one's share price on Wall Street by demonstrating that one's return on assets is somewhat higher than the industry norm. No plant / infrastructure = lower asset base. And the "twenty-something" Wharton MBA's all issued "Buy" recommendations. For the corporate CEO (some of my bosses) the increase in wealth was both considerable and enjoyed considerably as their stock options reached ever higher levels of value.
Not so much those good people, I had to release.
So one motivation is greed / avarice.
Another may be power.
Consider the nexus between Finance and politics.
In the redistributive economy, one can expect that the "rich will always be with us" as will those who seek power and control, e.g. political actors of a certain disposition. Why support offshoring? Indeed, why not stop it? Could it be that the impoverishment of a large swath of the populace is viewed (hoped for?) as an opportunity to *minister* to the afflicted? as an opportunity to accrue greater power and control over the economy? the allocation of wealth?
The rich, as we observe today, do not strenuously object to this redistribution as they can afford it and they know that they will be pretty much left alone in their pursuits. The politicians are ecstatic as they now have a voice and a program that is being "accepted" and implemented.
Indeed, much of the politicians policies are geared towards assuring that "consumption" continues at comparable levels.
Yet, as McCloskey asks, "is it necessary that consumption be forever expanding"?
I think not.
We must also ask, is it necessary that financial profit making be forever expanding? I also think not as this only reinforces the "mis-incentivization" of our economic actors.
Perhaps, a significant decline in consumption would induce some change in the incentive / motivational structure of our economic overlords.
In a sense, the ChiComm Flu may provide a testing ground for that thesis. Must we over consume?
Must we continue to incentivize financial actors by rewarding over consumption from the ChiComms (and elsewhere) at the expense of our own citizenry?
A lesson is in the offering?
Do we have the good sense and the balls to take it?

read full comment
Image of gabe
on April 20, 2020 at 01:29:51 am

Yes, economic theory allows for equilibria at any level. But, I don't think that describes any world that I will ever live in. Whatever equilibrium we were close to on January 1, 2020 has been knocked into a cocked hat, flattened, and burned.

Nor, do I think that the idea of a hedonic treadmill describes the world we live in now or a few months ago. The fact is that gewgaws and plastic crap have grown amazingly cheap over the course of my 70 years. Their pursuit will not put anyone on a treadmill.

There are treadmills in our modern life, but they are limited to a few areas, most particularly: housing, education, and health care. And the problems that have created those treadmills are public policy, not capitalism.

The set of policies that plagues each of these areas is that demand is subsidized and supply is restricted. The demand subsidies include tax preferences such as the exclusion of health insurance premiums from taxable income, the mortgage interest and real estate tax deductions. Subsidized lending is a major factor as in the Federal Agencies that prop up the mortgage market and the entire mechanism of Federal Student loans. Also there are outright subsidies such as Obamacare and Pell grants. Supply restrictions include zoning and environmental laws, limits on the number of new doctors being educated, certificate of need laws, and the education accreditation process.

It is starting to look like the pandemic may force the educational system to change in radical ways. And maybe those changes will let parents off the treadmill. Health care and housing will need their own restructurings.

read full comment
Image of Walter Sobchak, Esq.
Walter Sobchak, Esq.

Law & Liberty welcomes civil and lively discussion of its articles. Abusive comments will not be tolerated. We reserve the right to delete comments - or ban users - without notification or explanation.