Consumption. Mark Hudson
Schumpeter broke from the neoclassical economists on a number of fronts, perhaps most famously their focus on static efficiency, analyzing economic performance at any one moment in time. In terms of consumption, static efficiency would mean that the largest quantity of a good should be produced at the lowest price – a result that would occur when supply equaled demand in a competitive marketplace. Schumpeter argued that thinking about a capitalist economy at any specific moment in time is to miss the point of the entire economic system, which is the dynamic “creative destruction” of the old by the new (Schumpeter, [1943] 2010: 73). This dynamism is at its best, according to Schumpeter, when facilitated by high prices and industries dominated by a few large concerns, which create the income and incentive for investment and innovation (ibid.: 79).
Schumpeter’s general idea of creative destruction creates a picture of the consumer that, in some ways, contrasts with the neoclassical picture of rational, individual maximization. The main distinction is that, in Schumpeter’s economy of continuous creation and destruction of products, consumers will not have a complete understanding of the menu of options available to them. New products and options will always be cropping up with which people have no experience and, therefore, will have difficulty evaluating. As a result, their tastes and preferences are not properly formed and not perfectly understood. In the absence of personal familiarity, people’s preferences are influenced by their social environment, and especially by innovative consumers who eagerly try, evaluate and publicize new products, blazing a trail for others to follow (Jonsson, 1994: 309). People rely heavily on custom and experience to make their decisions on goods with which they are familiar, creating an inertia that must be broken in order for people to change their preferences.
This is a different consumer than that modelled by the neoclassicals. Rather than being able to maximize utility from the consumption of products, people fumble haltingly toward their desired spending patterns. Further, unlike the neoclassicals, Schumpeter argued that people’s preferences are malleable rather than individually determined and that an important area of economic inquiry should be the manner in which preferences are formed (Jonsson, 1994: 307). However, Schumpeter’s differences from the neoclassicals over consumer behaviour must be placed in the overarching context of his overwhelmingly positive interpretation of innovation in consumer goods. For Schumpeter, the genius of capitalism was not ensuring low prices through competition but its tremendous capacity to better the human condition through new products and techniques of production. Consumers may not be rational maximizers in the neoclassical sense, but they most definitely benefit from the new technologies made available by the process of creative destruction.
One group did follow up on Schumpeter’s desire to study some of the influences on consumer preferences. These “behaviouralists” were uncomfortable with the lack of similarity between Homo oeconomicus and what psychological research has established about how humans actually behave. An early pioneer in this area was George Katona. He was particularly concerned that consumers’ desires and motivations were being overly simplified by the neoclassical economic assumptions and sought to discover what people were actually up to in their purchasing behaviour (Caplovitz, 1966). Based on his analysis of extensive consumer surveys, Katona deduced that, although consumers did attempt to inform themselves on economic matters, they were often slow to learn, which did not square well with the assumption of rational maximization (Hosseini, 2017: 132). Habitual behaviour and genuine decision-making were, according to Katona, the two most common determinants of purchasing behaviour. “The American consumer is a sensible person and is a discriminating buyer who seeks information and tries to understand what is going on. … This does not mean that he is an ideal rational man. Old stereotypes and attitudes persist even when no longer applicable and habitual behavior is very common” (Katona, 1964: 333). While individuals may not be rationally maximizing in the genuine neoclassical sense, they are sufficiently well informed to understand their desires and are able to realize them through their purchasing behaviour.
The manner in which Katona interprets the role of advertising in society is a good example of how he viewed consumption. For Katona, advertising does not sway impressionable consumers into frivolous purchases. Rather, it plays a vital role in informing people about a product’s existence, function and price. Further, to the extent that a few commercials do attempt to sway people’s purchasing through “unreasoned appeals” which rely on emotion rather than fact, these are likely to work only for unimportant goods, such as toothpaste, on which people will not expend a great deal of time and effort in making their decisions (Katona, 1964: 58–9). The individual is “not a pawn moved about by marketers and advertisers at will” (ibid.: 333). Katona does reject that idea that people have individually determined “autonomous” preferences. He argues that people’s desires are primarily influenced not by the allure of marketing but by groups to which they belong, such as their family or friends. Like Schumpeter, Katona maintains that, because of product innovation, consumers do not really understand the full range of choices available to them. Many valuable products, from air conditioning, to automobiles, to cigarettes, were not originally wanted by consumers, but, once they were created and popularized, these products were successful only because they satisfied a genuine desire from consumers (ibid.: 55).
Katona’s normative conclusions about the role of consumption in society portrayed the growing mass consumption of the early 1960s in an overwhelmingly positive light. According to Katona, the neoclassical assumption of non-satiation was backed up by his survey data. The more people have, the more they want. As we shall see in later chapters, some critics of consumerism place a negative spin on this for a variety of reasons, but Katona argued that these growing aspirations are beneficial for the individual and the economy.
For the individual, the continued desire for materialistic consumption is the hallmark of a flourishing society in which the masses can obtain what, in the past, would have been the exclusive domain of the rich (Katona, 1960). “The common man can have what he likes rather than what he needs” (Katona, 1964: 4). For the economy, increased material aspiration is what encourages people to work hard, creating economic growth. “It is precisely the wanting and striving for improvement in private living standards that forms the solid basis for American prosperity” (ibid.: 65). Far from being wasteful consumption, this represents the triumph of a successful economy: “by raising the living standards of the American masses and demonstrating to the world at large that it is possible for the greater majority of the people to live decently, the United States has once against presented new goals and aspirations for all the world” (ibid.: 53).
Another slight modification of neoclassical theory stressed that consumers’ utility comes from the characteristics that goods offer rather than the goods themselves (Ackerman, 1997: 659). To use an example from K. J. Lancaster (1966), all dish detergents are not equal. They contain a bundle of different characteristics that consumers may find more or less appealing, from their cleaning ability to their scent. If the characteristics of the dish soap are altered, for example, by adding a skin softener, then it should not be considered to be the same good, providing the same utility to consumers as a detergent that leaves your hands dry and chapped. Here, again, advertising plays an important and positive role for consumers. Given the complex collection of characteristics embodied in any good, providing consumers with information on the diverse and beneficial “consumption technology” available to them fulfills an important social function. As with Katona, the role of advertising illustrates Lancaster’s general interpretation of consumption, which is that people’s choice between characteristics leads to maximizing their utility.
So, for Katona, Lancaster and Schumpeter, people are well served by an economy geared toward innovating new consumer products. For Lancaster, the inclusion of new features in a product actually changed the product, and if consumers approved of the new characteristic it would represent an increase in satisfaction from the same good or service. For Katona, the desire for more and more up-to-date consumer goods was not only good for those who had the wherewithal to purchase them, but it also provided a beacon of possibility and motivation for those who could not. Consumption beyond need, once associated with pride, vanity and wastefulness, became a virtue.
However, for Katona and for Schumpeter, against the grain of neoclassical conceptions, consumers’ preferences – only half-informed at best, in flux and socially conditioned –