In America, and indeed most of the world now, the ideas of consumerism, materialism, Keynesianism, etc have been sold and swallowed by most people in one way or another. Granted, terms like “consumerism” and “materialism” are loaded words that can carry different connotations to different people depending on worldview and context, so let’s just say that I’m speaking to the macro idea that “consumers drive the economy” or “consumer spending is 70% of the American economy” and notions advanced by the current American president that the middle-class best contributes to economic growth by spending all their income on consumer goods. There is much that can be said about this from an Austrian (see: mises.org) economics standpoint, but consider the matter in the simplest of logical terms: how is it logically possible for consumption to make up a larger part of the economy than production? Are not the two, by physical necessity, in very near equilibrium (other than extenuating circumstances such as large-scale war where pre-existing and surplus capital is destroyed/consumed and not immediately replaced)? And furthermore, is it not logically impossible for consumption – the using up of goods and resources – to “grow” the economy if production remains the same? Wouldn’t this lead to shortages and higher prices rather than growth? Everyone knows the “consumer mindset” is destructive to the individual or family balance sheet, but there is the myth that, in the aggregate, its a good thing for people to fritter their money away on non-productive assets like TV, boats, sports cars, second homes, jewelry, etc.
Now consider on the other hand a producer economy. You have a steelmaker, an electronics manufacturer, and a farmer. The steelmaker takes coal and iron, very cheap goods, and turns them into steel, a more expensive good. The electronics manufacturer takes plastic, silicon, and copper (cheap goods) and turns them into high-dollar widgets. The farmer takes inexpensive seeds and free rain water and turns them into valuable corn. In all three of these cases, the economy has more valuable goods than it started with, rather than merely recycling the same amount of money amongst each other like the barber, teacher, and lawyer. This increase of valuable goods from production is true economic growth, which is properly supplemented and complimented by the service sector lawyers and doctors who can help it run more efficiently by enforcing producers’ contracts and keeping producers healthy. Thus, capital is the fuel, production is the engine, services are the lubricant, and partial consumption is the end reward (total consumption would prevent future production, since re-investment is constantly needed to replace worn out capital goods, as with the example of the barber who needs new scissors – this is where “saving” comes into the equation). It is because we have this equation almost entirely backwards that the American economy is in so much trouble.
(This article was originally published on my other blog, urbansaving.org on July 26, 2013)
An abandoned factory in Cincinnati, Ohio:
PS – It is no coincidence that Germany, the most manufacturing and export-oriented country in the Euro-zone, is the best performing economy in Europe with the lowest unemployment.
PSS - I've noticed that I'm getting a lot of hits on Silver Squirrel from Germany in the last couple months. Thanks!