Pragmatic Pluralism 3: Consumption

This chapter provides a map through the complex jungle of economic theories. There are many different theoretical approaches, and each aspect of the economy has been analysed by a number of different ones. However, it is neither feasible nor productive for students to engage with every possible angle for every topic. Hence, the chapters on different topics, together with Building Block 8: Economic Theories, sets out an alternative approach: pragmatic pluralism. Rather than pursuing the extreme of either only focusing on one approach, or including every possible strand of thought for every topic, we propose a pragmatic middle ground: teaching a select number of approaches for each topic. In this way, it is possible to introduce students to the variety and diversity of economic thinking, whilst still having enough time and space to properly discuss each of the insights in detail with them.

Topics:

Main opposing perspectives

■ Institutional economics: Preferences are culturally and socially constructed

■ Neoclassical economics: Humans have insatiable and innate preferences

Main complementary perspective

□ Ecological economics: Material consumption ≠ human wellbeing

Additional perspectives and insights

+ Other: Surveillance capitalism

There are two fundamentally different perspectives on consumption. One views it as the main goal of the economy as it allows individuals to satisfy their sovereign and given preferences. The other perspective sees consumption more as a social process in which learned habits and desires are met.

Already in the nineteenth century there was discussion about how autonomous consumers were in their decisions. Many classical political economists were arguing that consumers were sovereign, leading to a proposal of completely free markets, while most socialist thinkers questioned this sovereignty. Marx emphasised the distinction between use value and exchange value, with the former describing the intrinsic value which enables it to satisfy human needs or wants and the latter referring to what one can trade it for in the marketplace. 

Neoclassical economics responded to Marxian political economy by basing its theoretical framework on the idea of full consumer sovereignty. In neoclassical economics the only goal for people is to maximise their utility. Utility is derived from people’s personal preferences, which are eternally stable and given from birth, and consumption is their only means to endlessly satisfy those preferences. In this perspective, consumption in consequence becomes the sole reason to undertake work or educate ourselves, as it in turn enables us to consume more in the future. These atomistic and rational utility maximizing consumers determine through their demand what is produced. As such, neoclassical economics replaced the primacy of production, as in classical and Marxian political economy, with the primacy of market exchange, which enables individuals to consume.

Institutional economics, as well as the cultural approach and field theory, argue forcefully against the neoclassical idea that people have given and constant preferences, put more bluntly that people are born with certain tastes for what they like to consume for the rest of their life. Institutional economics rather emphasises the impact of institutions, such as cultural norms and advertisement, on people’s preferences. The cultural approach focuses more on how all wants are culturally constructed. The cultural approach thus goes further, as it argues that practically all consumption is to socially communicate symbols, while institutional economics argues that our wants are merely influenced by our environment. Important among those influences is advertisement by companies, which convinces people that they need things they previously didn’t. This is called the dependence effect, as (production) firms create artificial wants. Institutional economists therefore argue that the neoclassical idea that production exists purely to satisfy wants, is therefore untrue.

Another important factor shaping people’s consumption is social class. Thorstein Veblen, a founder of institutional economics, argued that people consumed luxury goods and services to enhance their status by displaying their economic power. He called this ‘conspicuous consumption’. A related concept is conspicuous leisure, which describes the socially motivated idleness in which elites throughout history engaged as they despised labor and glorified non-productivity. Many sociologists and anthropologists have further developed ideas about how consumption functions within societies, chief among them the theory of social distinction by Pierre Bourdieu, a major field theorist. He argues that people do not only show their economic capital through their consumption, but also their cultural capital which refers to cultural knowledge and skills people obtain through their education and upbringing. Drawing upon a wider range of schools and disciplines one can see that deciding what to buy is not simply a hedonistic individual decision, but part of social status games.

Ecological economists reject the hedonistic view of consumption from neoclassical economics, as they argue that there is no necessary link between material wealth and human well-being. Instead of seeing people as insatiable, they argue that people have a limited number of basic needs. The focus is therefore on how we can ensure all people are able to meet these basic needs while remaining within the planetary boundaries, rather than aiming for maximal consumption. Other economists, such as feminist and behavioural economists, have also been advocating to change the goal of the economy to a broader idea of human wellbeing. This line of research has initiated various alternative measurements to GDP, such as the Index of Sustainable Economic Welfare, Human Development Index, Happiness Index and the Better Life Index.

In 2019, the social psychologist Shoshana Zuboff published the book The Age of Surveillance Capitalism where she argued digital companies have developed a new business model that relies fundamentally on behavioural data. Many online products seem to be ‘free’ for consumers because they essentially pay with their personal data which is commodified mainly through targeted advertising which often has the power to influence or manipulate people’s behavior. While digitalization was earlier hoped to bring about a democratization of society, it seems to create new profit-making opportunities which poses problems for privacy rights and mental wellbeing. 

These new digital business models are also related to the concept of prosumption, in which the process of production and consumption become indistinguishable and are simultaneously performed by the same people, prosumers. Also within the energy sector the concept of prosumption is relevant, often seen in a more positive light, as solar panels, for example, allow households to simultaneously produce and consume energy.

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