Consumption. Mark Hudson
the poor.
Alternative goals which explicitly acknowledge the importance of how income is distributed have been put forward, from egalitarianism to Rawlsian justice (which seeks to ensure a respectable income for the poorest members of society). Notwithstanding these pesky inconveniences to what the neoclassicals viewed as their purely scientific theory of the economy, it was nonetheless true that, as one economic historian put it, Jevons, Menger and Walras opened up a theory of consumption in which individual behaviour should be modelled as “rational, calculating maximization of utility” (Hunt, 1979: 237). These foundations have been further formalized and refined by subsequent authors, particularly Alfred Marshall, who measured the utility of commodities in terms of the price at which they exchanged and argued that the utility of individuals could be added together to measure the utility of all products (Stigler, 1950: 326). “We may regard the aggregate of the money measures of the total utility of wealth as a fair measure of that part of happiness which is dependent on wealth” (Marshall, 1890: 179–80). In other words, the amount of money you spend on a shirt is a direct measure of how much happiness you get out of it. Add up all the spending on shirts, pants, socks, Xboxes, Teslas and the rest, and you get a pretty solid assessment of happiness from all purchased consumption in society. You might also get some joy from picking daisies in a field, but economics hasn’t paid much attention to daisy-picking (at least it didn’t until the economics of happiness emerged and discovered that much of what makes us happy cannot be purchased).
Some of the proponents of the rational maximizing consumer are not completely convinced that it represents an accurate assumption of how people behave. Yet they argue that, despite its lack of realism, it should still be maintained. This point was perhaps most famously made by Milton Friedman (1953), who argued that theories should be judged not on their descriptive accuracy but whether their predictions are successful. So it may not be true that people are actually capable of the complex calculus of genuine rational maximizing, but, because the predictions that follow from assuming that people behave in this manner are accurate, the theory should be judged favourably. Friedman uses the example of a billiards player to illustrate his point. Billiards players do not actually make all the complicated geometrical calculations in preparing a shot. However, if you modelled players “as if” they made these calculations, it would most likely provide a fairly good prediction of the shot that they would actually make. Similarly, consumers may not go through the mental gymnastics required to calculate the utility from different purchases, but if the predictions that stem from modelling consumers “as if” they do yield accurate predictions, then that is a sound basis to accept this assumption.
This particular species of consumer, based as it is on some fairly strong assumptions about human nature, was deemed a sufficiently unique animal that it merited its own scientific name – Homo oeconomicus. Consumers were modelled as (if not actually thought to be) actors capable of making rational choices in order to gain maximum satisfaction from their buying (Sassatelli, 2010). As we shall see, not all economists were convinced that this species actually existed, but it was sufficiently entrenched as a model of the individual that one observer in the mid-1990s could declare: “I suspect that the majority of economists remain confident of the survival of their favorite species. In fact, many see economic man as virtually the only civilized species” (Persky, 1995).
Even in economics, the characterization of consumers as insatiable individuals, interested in, and capable of, maximizing utility, had its critics. As we shall see in chapter 4, those critics have become more numerous in recent decades. Other academic disciplines have been even more scathing in their rejection. Sociologist Pierre Bourdieu, for example, referred to Homo oeconomicus as a “kind of anthropological monster. … the most extreme personification of the scholastic fallacy,” an error “by which the scholar puts into the heads of the agents he is studying … the theoretical considerations and constructions he has had to develop in order to account for those practices” (Bourdieu [1988] 2016: 209). In subsequent chapters of this book, we will examine many of the theories from other disciplines, particularly sociology, which reject Homo oeconomicus and embed consumption in a broader context. However, despite the academic scorn heaped on Homo oeconomicus, it provides a compelling justification for the “consumerist” interpretation. First, people know what creates satisfaction for them, and this cannot be judged by any outside observer. The act of paying for diamonds or Instagram-inspired clothing indicates that these items yield genuine satisfaction for the buyer. Further, the amount paid represents a measure of how much utility the consumer receives from the purchase. Consumers are also capable of judging the benefits they receive from alternative products, whether that is different offerings within the same category (for example, a Hyundai versus a Ford) or different categories of products (a car versus a vacation). This theory of the consumer lends itself to the idea that consumers know what is best for them and will be well served by a policy environment in which they can exercise their freedom of choice. It importantly also provides a justification for increasing consumption being interpreted as increasing individual well-being and, therefore, an important social goal. The model of Homo oeconomicus provides a logic for the dominant discourse surrounding the sovereignty of the consumer and the pre-eminence of consumer choice.
To see one example of how these premises justify the benefits of consumer choice and dismiss government intervention in consumption, we can look at Friedman’s example of consumer safety – whether the things people consume are safe. For Friedman, the combination of rational, self-interested consumers and a competitive market rendered regulations unnecessary. Since people take advantage of the information available to them, indeed, even seek out information on products, any substandard or hazardous products are likely to be detected by savvy consumers and the miscreant firms punished as customers reject their inferior or dangerous goods. Using Friedman’s own rhetorical flourish, the answer to the question “Who protects the consumer?” is “other firms” (Friedman, 1962), but this is possible only if people are well informed and rational.
A controversial example of this is Friedman’s claim that “licensure has reduced both the quantity and quality of medical practice” (Friedman, 1962: 158). According to Friedman, there should be no rules specifying the amount and type of training for health professionals. Providers of medical services will offer appropriate and affordable treatments in the absence of mandated training because consumers, able to discern effective treatments from chicanery, will demand it of them. Further, any practitioner that does provide poor service will soon find themselves out of business courtesy of market competition. “Insofar as [the doctor] harms only his patient, that is simply a question of voluntary contract and exchange between patient and physician. On this score, there is no ground for intervention” (ibid.: 147). Anyone with the inclination and ability should be able to hang out a medical shingle and the well-informed consumer will ensure that the market separates the healer from the quack.
In a more positive manner, freedom of choice is also held to be an important principle in its own right. It is an important principle of liberalism, which puts forward an idea of liberty that is based on maximizing the scope of choice that does not reduce the liberties of another. For liberals, government intervention reduces liberty by restricting the freedom to engage in voluntary and, consequently, mutually improving exchanges. For example, policies that would tax, restrict or ban the sale of high-sugar drinks have been criticized on the basis that these dietary choices are best left to the individual and that government has no role interfering with the free choice of consumers. While an “unfettered” consumer is not, strictly speaking, necessary to liberal theory, the claim that people are rational maximizers, capable of making decisions that are genuinely welfare improving, lends credence to the idea that people should be free to make their own consumption choices.
Friendly Amendments: Alterations to the Theory with Similar Implications
Like the Yeti, Homo oeconomicus is very difficult to find in the field. Critics have expressed varying degrees of doubt over the ability of individual, rational, maximizing assumptions to predict accurately how consumers actually behave. In this section we will focus on some modifications to these assumptions which still maintain the positive normative implications about