NRPLUS MEMBER ARTICLE B eneath the debates about economic policy presently dividing the American Right, there is one particular economic dispute that is crucial to understanding the division. It also reflects the New Right’s effort to effectively “rewrite” economics, much as John Maynard Keynes did in the 1930s.
On the one hand, there are those who stand with Adam Smith, who famously stated that “consumption is the sole end and purpose of production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer.”
Put differently: We don’t consume goods and services to promote production. The end point of production is not production for its own sake. Instead, production occurs to satisfy consumers’ needs and wants. It is about creating things that people value, not bolstering businesses for their own sake.
Contrary to what you may have heard, this isn’t an idiosyncratically “libertarian” position. It’s a basic building block of economics per se.
Those seeking to overturn this classical axiom of consumer sovereignty in the name of a new self-described “conservative economics” insist that this principle needs to be qualified by (if not subordinated to) a different priority. The focus, they argue, must be more on production — if necessary, sustained and stimulated by state intervention — because production, among other things, produces jobs.
That matters, the argument goes, because work is good for humans qua humans. Consumer desires shouldn’t get in the way of providing forms of work for which particular people may be well suited but whose product isn’t in as great demand as other goods and services.
Like many problematic arguments, there is a kernel of truth to the “production should trump consumption” position. If there is anything we know about humans, it is that we are pre-programmed to work. Unlike animals, humans must cultivate and subdue the earth if we are to survive.
We also know that work often brings people satisfaction beyond material necessities. It delivers a sense of accomplishment, enables us to assume responsibility for ourselves and our families, and opens up new possibilities for acquiring particular virtues such as industriousness and patience. Even Keynes, who envisaged a world in which the economic problem had been solved and people spent most of their time in the realm of the senses, observed in his 1930 essay “Economic Possibilities for our Grandchildren” that “for many ages to come the old Adam will be so strong in us that everybody will need to do some work if he is to be contented.”
These features of work help explain why unemployment is demoralizing for so many people. But do the benefits of work mean that we should deploy measures like industrial policy to try to provide more jobs to unemployed and underemployed people in those parts of America where such jobs are lacking? Isn’t there a case for having the government shore up specific industries via means such as wage supplements, even if consumers prefer goods and services produced by companies elsewhere? Shouldn’t we occasionally be willing to consider putting the welfare of producers on par with that of consumers?
When you look carefully at the writings of various conservatives arguing for the primacy of producers over consumers and the type of interventionist policies that they believe will advance this goal, this is the logic that prevails. It is often accompanied by an understanding of consumption as a form of hedonistic materialism. From this standpoint, prioritizing the hip Silicon Valley–dweller’s desire to download the latest iteration of Call of Duty on the umpteenth version of an iPhone over the need of working-class people in Youngstown, Ohio, to work and earn a good wage looks positively perverse.
There are, however, some major problems with this way of thinking. One is that it reflects a mistaken conception of consumption.
Consumption, at least in the way that Adam Smith understood it, is not an expression of philosophical or practical materialism. Rather, consumption concerns whatever gives satisfaction to consumers: that is, what they value.
I attach, for instance, great value to the music of Mozart. I’m thus far more likely to buy a quality rendition of Mozart’s “Coronation Mass” rather than download, say, Lady Gaga’s latest album. But millions of other people find musical satisfaction in acoustical experiences different from the ones I prefer. Other people enjoy sport, and even particular sports, more than others. Some people prefer Italian to Thai food, Michelangelo to Picasso, Roman buildings to Baroque architecture, or Batman to Superman cartoons.
This isn’t naked hedonism or soft relativism. It simply reflects the fact that people value different things. The economic significance of this is that producers can only create value and the economic growth that helps generate jobs, wages, and surplus capital by trying to satisfy some of the billions of ever-changing consumption preferences of billions of individuals. In short, producers need to subordinate themselves to consumers if they are to create value — not the other way around.
The same point can be made by asking ourselves this question: What would happen if we subordinated consumption to production?
For one thing, it would mean businesses producing things that people don’t apparently desire or value. Theoretically, an American car company could produce the same type of vehicles that it made in the 1950s, forgo automation and technological change, and strive to keep employing the same numbers of workers that it did in 1950. Given, however, that American consumers in 2023 don’t want cars made to 1950s specifications, this gap between consumer wants and the car company’s product would eventually result in the business ceasing to generate revenue. Without revenue, the company will disappear, alongside the jobs and wages which it hitherto provided.
Of course, the government could step in to purchase the vehicles produced by this car company or, more likely, provide the business with subsidies to offset its losses and maintain the jobs in place. In a world in which “producer sovereignty” logic ruled, it would be rational to do so.
Such measures, however, avoid addressing the fundamental problem: that people do not value the cars made by the now-subsidized business. Until production is oriented toward satisfying consumer needs and wants, the company will effectively remain a “fake” business that maintains in place “fake” jobs, propped up by a taxpayer-supported industrial policy. Gradually, any remaining incentives to be entrepreneurial and competitive would become ever more attenuated, thereby rendering the business increasingly dependent on the state.
The dysfunctions arising from producer sovereignty would be even worse if its logic were applied across an economy the size of America’s. Why? Because if consumers were expected to meet the demands of producers by buying products that they don’t actually want or were required to accept substandard goods and services to which they attach little value, then consumers’ capacity to satisfy their preferences would be severely constricted, if not annulled altogether.
And an economy in which most consumers struggle to satisfy their preferences is not a wealth-generating economy. Wealth doesn’t consist in the possession of things like precious metals, as the pre-Smithian mercantilists believed. Wealth is our capacity to satisfy our wants and needs relative to others’ ability to satisfy their wants and needs. From this perspective, it’s clear that producer sovereignty writ large is a surefire way to diminish an entire society’s wealth.
The marvelous thing about consumer sovereignty is that it constantly coordinates the self-interest of consumers and the self-interest of producers, without any top-down planning. If producers are interested in acquiring wealth, they must interest themselves in what consumers prefer. By signaling what they want through the free-price system, consumers get what they want from producers and, in the process of doing so, make producers wealthy. Consumers and producers thus both “win.”
Yes, this does mean that we have to accept flexible labor markets, and the churn that can go with them, as businesses innovate, adapt, and compete in response to consumer demand. Such dynamism can be unsettling. The alternative, however, is an economy in which the stagnation induced by producer sovereignty prevails.
And therein lies the sad irony. Those self-described conservative economists pushing for producer sovereignty through government intervention often do so in the name of the dignity of American workers. Yet they generally won’t acknowledge that their policies will make American businesses increasingly uncompetitive, reluctant to innovate and adapt, and inclined to play the crony-capitalism game.
Not only would American consumers suffer. Such a business environment will also make it harder for Americans (apart from cronies and parasitic rent-seekers) to find jobs and thus more difficult for them to realize the economic and noneconomic goods attainable through work.
To that degree, all of us would end up poorer — and not just economically. That, however, is the dead end where the new conservative economics would take us: a new world of economic and social mediocrity.