Conspicuous Consumption and Capitalism--Slowguy and Others

The Coffee Shop
1

Reading the Global Warming thread got me going on this—

Our society seems to be caught up in conspicuous consumption or conspicuous consumerism–i.e., buying or spending more than you need for a particular item (such as an SUV vs. a sedan or a Serotta Ottrot vs. a Cannondale R600). People shrug this off by saying that is “how capitalism works” and “it’s good for the economy.” But, consider what Adam Smith, the “father of Capitalism” had to say on this subject in “Wealth of Nations”:

"The prodigal (recklessly extravagant, wasteful) perverts it in this manner. By not confining his expence within his income, he encroaches upon his capital. Like him who perverts the revenues of some pious foundation to profane purposes, he pays the wages of idleness with those funds which the frugality of his forefathers had, as it were, consecrated to the maintenance of industry. By diminishing the funds destined for the employment of productive labour, he necessarily diminishes, so far as it depends upon him, the quantity of that labour which adds a value to the subject upon which it is bestowed, and, consequently, the value of the annual produce of the land and labour of the whole country, the real wealth and revenue of its inhabitants. If the prodigality of some was not compensated by the frugality of others, the conduct of every prodigal, by feeding the idle with the bread of the industrious, tends not only to beggar himself, but to impoverish his country."

In other words, if I buy a $35,000 SUV vs. a $20,000 sedan, just for the prestige, I am not only needlessly taking $15,000 out of my own capital, but also out of the capital of the country. In other words, assuming a propensity to save on my part of 10%, that means I would have an additional $13,500 of capital to spend on other needs if I bought the sedan vice the SUV. I would probably buy things like TVs, refrigerators, bigger house, whatever–but, that capital would then be productively employed better by being spread across other sectors rather than just one, thereby reducing unemployment and increasing the overall wealth of the nation.

Therefore, conspicuous consumption and true capitalism are really inherently incompatible, because true capitalism is as much about the preservation of capital towards its best and highest use as it is about the creation of capital.

Flame away.

2

‘Conspicuous consumption’ was first analysed by Thorstein Veblen in ‘The Theory of the Leisure Class.’ I think you might like it.

3

Read it in college 30 years ago along with “Absentee Ownership.” I liked TOLC better, but both were tough reads. That old Thorstein, he was quite the iconoclast. Communists, capitalists, socialists, etc., all tried to claim him or disown him at one time or another.

4

Dude… Thank you. Don’t even get me started…

First off, I am as or more guilty of consumer excess than most.

Now that that’s out of the way, what the fuck is up owning a big house and a big car? Why is that the focus of existence? Why is that the number one value? Why is that the standard against which people are judged?

And don’t even try to argue with me that it isn’t.

Why is most of the nation’s wealth (and debt) tied up in something as fucking utterly, intrinisically worthless as real estate. I mean people, think about it- if you don’t buy it, *it won’t go away. *It is dirt- literally. What if some guy said, “I am an air broker, I am here to finance the air you breath…” Would you buy into that? Apparently so, since dumbasses all over the US are lining up to finance a third of a million in debt that really REALLY can’t afford to own… for what? A Pulte monstrosity or a Toll Brother’s lumber heap… Do they even use lumber anymore? When I look at those houses “From the $450’s” I think “I’d pay $60,000 for it, that is what it’s worth.”

The ultimate mystery is when people buy apartments- like in New York City. They don’t own the walls or any part of the building, just the space inside. Is this real? At least with a house you do have $600 worth of potting soil and sod and about $30,000 worth of construction materials to show for your $350,000 investment. Now, that sounds like a $311,000 net loss to me, but hey, that’s just me.

Americans… Gotta love 'em. I have never understood this. My house is a little dump of a thing I rented for 11 years before I bought it for about the cost of repairs. I love it- except for the crummy bathrooms which I am having redone. It’s the nicest place I have ever lived, and exactly twice as large as I need, but it is the smallest, cheapest thing close to the store. If I could live here I would.

I have no interest in being at home. Home is the place you leave to go do something worthwhile and the place you come home to for laundry. My cats get more use out of my house than me.

Don;t even get me started on this. I went round and round with this chick for years- her world revolved around owning real estate- she even had a real estate license. She used to watch that channel on TV that shows houses for sale. WTF? When our relationship was on the rocks her answer was to buy a bigger house. Mine was to see a relationship counselor. To her working on the relationship was buying bigger house. Six months later she was banging the plumber- I am totally serious. And of course, not being a big mortgage man, I was out the door.

Like I said- don;t get me started…

5

Therefore, conspicuous consumption and true capitalism are really inherently incompatible, because true capitalism is as much about the preservation of capital towards its best and highest use as it is about the creation of capital.

“True” capitalism! Ah ha ha ha ha ha!

Define “best and highest use.”

Capitalism depends on conspicuous consumption for growth. You can’t keep producing more and more if people don’t buy more and more.

6

Best and highest use is that use in which you obtain the maximum utility value for the least capital expenditure. In other words, the utility value of a vehicle is its capability to transport you where, when, and how much you need. “Prestige,” to a “rational” person, has zero utility value. If you buy more vehicle than you need, which means more money spent usually, you are not putting your capital to its highest and best use, especially if that extra expense for the vehicle causes you to have to forego another purchase or investment.

Conspicuous consumption is buying more than you need for the express purpose of impressing others with your wealth. What Smith is saying is that any expense over and above the true utility value of a purchase is wasteful, because that amount could have been better utilized in some other fashion. If everyone maximized the highest and best use of their capital, there would not only be enough work to keep everyone who wanted to be gainfully employed, but there would also be sufficient capital left over to stimulate and allow for growth of the economy. If I have a choice between a car that costs $23,000 and a car that costs $20,000, assuming both meet my needs in a vehicle, I’ll buy the cheaper one and use the $3,000 to buy something else that wouldn’t get bought if I had bought the more expensive car. Or, I’ll invest the money, and a capitalist will borrow it to start a business with.

If conspicuous consumption is so good for the economy, why isn’t the economy better than it is?

8

Best and highest use is that use in which you obtain the maximum utility value for the least capital expenditure. In other words, the utility value of a vehicle is its capability to transport you where, when, and how much you need.

And by that definition, most Americans would be driving Yugos.

Conspicuous consumption is buying more than you need for the express purpose of impressing others with your wealth.

And what makes that any worse than regular rampant consumption? It makes a difference if I buy a plasma tv to impress my neighbors vs buying one because I think it’s cool? What if I buy a tv for every room in the house, even though I don’t let the neighbors inside to take a look- how does that fit into your utilitarian understanding of capitalism?

What Smith is saying is that any expense over and above the true utility value of a purchase is wasteful, because that amount could have been better utilized in some other fashion.

And what I’m saying is, what’s wrong with that? What makes you think that if I save $3,000 on a car, I’ll put that money to “better” use? If I’m in a position to make that choice, obviously my basic needs are already met. What use of that money do you think would meet with Smith’s approval at that point?

Or, I’ll invest the money, and a capitalist will borrow it to start a business with. How is that different, or better, than giving the $3,000 to the car manufacturer, who after all is a capitalist himself, and presumably is going to use that money to develop his business?

The problem with capitalism is that it has no end goal except increased profit through increased production- therefore production must continually be increased, with the necessary consequence that consumption must also continually increase. If everyone was satisfied with those purchases that only had true utility value, the system would collapse.

**If conspicuous consumption is so good for the economy, why isn’t the economy better than it is? **

??? What do you think would happen to the economy if conspicuous (and plain rampant) consumption stopped?

9

Get that man out of the Sun–his brain is cooking. Brain, what are you doing talking Commie smack? For example:

<< Best and highest use is that use in which you obtain the maximum utility value for the least capital expenditure. In other words, the utility value of a vehicle is its capability to transport you where, when, and how much you need. >> Yeah, all I need is a pair of grey wool trousers and grey wool jacket…

<<What Smith is saying is that any expense over and above the true utility value of a purchase is wasteful, because that amount could have been better utilized in some other fashion.>>

Perhaps the government is more qualified to make decisions on how you spend your money. How about 80% tax rate?

<<there would not only be enough work to keep everyone who wanted to be gainfully employed, but there would also be sufficient capital left over to stimulate and allow for growth of the economy>>

I don’t have time to cover all of ECON 101 here, but money doesn’t grow unless it circulates. If we only spend what bare-minimum we need and the rest is in savings presumably to be borrowed by businesses for further investment, why invest in a new business? Just to produce a luxury item that nobody would by because it represents “excess?”

<<If conspicuous consumption is so good for the economy, why isn’t the economy better than it is?>>

Our highs may not be as high, but our lows are not as low. The World has experienced nearly a half century of the most relative peace that this planet has seen since it’s creation. All thanks to a fairly healthy World economy (lead in large part by the United States).

No nation has taxed itself into prosperity either…

No training for 72 hours, Brian, your system needs to recover.

HTH
Brett

10

“The problem with capitalism is that it has no end goal except increased profit…”

You obviously don’t understand capitalism. It’s goal is not increased profits. That really means nothing. the goal of a capitalist is to maximize his capital. You don’t necessarily do that by increasing profits. You also do that by conserving capital through maximizing the utility value of your purchases. If you make the assumption that income is unlimited, then it really doesn’t matter. But, as Smith points out and as we all know, there is a limit to income, either of a nation or of an individual. The question then is how you get the most of what you need and want with the income you have. If you do that, you will have maximized the value of your capital to yourself and the nation, and therefore, the nation will be richer as well for it.

The book is called “Wealth of Nations,” not “Income of Nations.” There is a big difference. You can’t spend yourself into prosperity.

11

So, in other words, the price of your girlfriend’s companionship exceeded its utility value to you, and you told her you were no longer interested in purchasing her wares.

12

Umm, more like, she bitched at me for years about being “accountable” and “faithful” while she was busy cheating on me.

I wish I could have that entire episode carved from my brain I despise her so much.

13

I for one like to have a house that could fit a family of 6 - all for me. I like my cars that all burn gas and cost more than they should. I like nice watches, clothing and yes nice bikes. Why the fuck not? If you can afford it - get it…

Waiting now for my next new toy…stuck between another 6 banger turbo or may move to an Italian V10…decisions decisions…conspicuous? Sure as hell is.

14

Tom, my partner and I just bought a new place in a deeply unfashionable part of town. When we mention where we are going to live, peoples’ jaws drop. But the reality is that it is 15 mins by train from where we live now, and therefore 30 mins away from the centre of my home town, pop. 1.2 m. It is a great old house, really nice, and we will be quite happy there. It cost about $200k in your money.

I think that is a great deal of money, but mortgage brokers were trying to get us to borrow up to $800k (US). People can’t believe we were willing to spend so little, but in six months of looking this was the only area which we thought had realistic value. People buy real estate for its ability to impress other people.

Here’s the kicker, for me, though: why the f*** are people bothered enough about what total strangers think of them to make purchasing decisions based on impressing people they will never meet? I honestly can’t get that.

15

How is it any different owning an expensive bike vs. expensive bike or car. Either way, it’s more than what is needed. To each his own.
note: This is from someone who used to pride himself on having a bike that is worth more than his vehicle. (I blew it in 2000 when I bought a new truck). Jeez, that old Chevy Citation with hatch back was the bomb!

16

Holy shit record you do have the life of a young turk … the benz … the porsche … the litespeed(s) … the softrides … the X,000 square ft palazzo … and now contemplating an italiano sports car …

on my run this evening, i saw a fat guy with a beard roaring down the street in an orange Lambo Murcielago (sp??) – sounded like a Raptor overhead … followed 1/4 block back by a whipped out Bentley with more panel tvs than I could count as it rolled by.

Dudes: according to Veblen, if I may paraphrase the creator of the phrase, conspicuous consumption is a hallmark of a post modern society filled with new Royalty and Symbolic Analysts. The Leisured and Monied Class needs something to spend its time and money on … and, thus, pecuniary emulation: the crux off the argument.

If not a Bentley, then what? And if not to impress, then why? To announce a social position … do you really think P Diddy would roll up in a Camry when a Maybach would do? I think not, because the point is not transportation, it’s Arriving.

17

I recently encounterd the question “What car would Jesus drive?”. Now I’m surprised that a Conspicuously Christian country like the US appears to ask itself this type of question so seldom.

18

I like living in a nice house and my Lexus is a dreamy ride. I could give a shit what anyone else thinks.

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I could give a shit what anyone else thinks.

Exactly Amy…exactly.

And what would jesus drive…I would be a Ferrari Enzo or a Carrera GT

20

Just a few thoughts:

People who are workaholics and slaves to money shouldn’t complain about how much they work and how much they owe (and don’t have time for family, or to train, for that matter). We all make choices: small rental or 3,500 sq foot house; 15-year-old beater or brand new ride: Which path do you choose to follow? I don’t care what anyone says, your kids will be fine in either environment.

People (like me), a teacher also don’t have a right to complain about “only” having a $1,000 road bike and a 1,000 sq. foot house. I could have chosen another career. I still can change, if I want. But nothing I want to do makes much money.

My parents (very middle class and comfortable, but never well-off) two best friends are opposites: One family is wealthy: huge house, rentals, condos all over the country, planes, the works. Another family took 20 years to build their little cabin on 10 acres and lived on $15 to $30K a year from the 70s through the 90s. Both families are very happy; their philosophies are totally different. The poorer family is very educated, BTW, they were part-time teachers and librarians. The other family owned a lucrative business.

I believe Americans need to save more, though. Some of us will be pretty well screwed if the economy takes a major downturn. I don’t know a lot, but I think Japan and Korea got through the late 90s recession (much worse than ours) because people save more in those countries. Could we do as well?

21

You raise some good points. My .02–

You can become a millionaire even on a modest income. Millions of Americans have done it. How? By avoiding conspicuous consumption and saving/investing. My parents were career government employees, never made a lot, but are worth a lot of money now. We were the last ones on the block with a color TV, last ones without an air conditioned car, my father brown-bagged for lunch every day–yet we never lacked any essentials.

Our US propensity to consume is far too high and propensity to save is far too low. In fact, many American families are going further into debt every year by spending more than they make. This means there is insufficient available capital in the system for new business formation or just for a rainy day like you say. The system will not crash, as some are saying, but the potential for long-term inflation exists as a result. Trouble is, our economy right now is as addicted to spending as a junkie is to crack. It needs to be weaned back to a better balance between spending and investment.

I have been down both roads in life–as I get older and start nearing retirement, I often wish I had lived more like my parents and had some of that money back.