The Consumption Motive
Table of Contents
The Consumer is King
The consumption or demand motive is one of the most important maxims of Adam Smith’s economic system, aside from the Effort Theory of Value . This maxim states that all economic activity is rooted in the people or the demanders in society and not in the producers or suppliers.
Consumption is the sole end and purpose of all production. The interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer. The maxim is so perfectly self-evident that it would be absurd to attempt to prove it.
But in the mercantile system the interest of the consumer is almost constantly sacrificed to that of the producer. It considers production, and not consumption, as the ultimate end and object of all industry and commerce.
Adam Smith
The Wealth Of Nations Book 4, Chapter 8
This is easily seen in the concept of the human family which is the smallest and most common type of society. We see parents work to provide or produce food for their children who are their consumers.
Humans do this by instinct because this is how our species has evolved to be so advanced over animals.
This means that there were proto-humans that did not have the same mentality to provide for their children and so naturally became extinct. For example, they might have done the opposite and have eaten their children as a food source just like some animals species.
In Neoclassical Economics, the Supplier is King
The maxim that the parents must provide for the children is the opposite of the current maxim of Economics of Say’s Law which states that production* is the root of all economic activity and is the source of demand.
The encouragement of mere consumption is no benefit to commerce because the difficulty is in supplying the means, not in stimulating the desire of consumption. Production alone furnishes those means. Thus, good governments stimulate production, bad governments encourage consumption.
Say
Book 1, Chapter 15
The maxim of Economics thus makes the children subservient to the parents instead of the parents serving their children.
This propensity is rooted in ego and is seen in the animal nature of survival of the fittest or those who can produce the most.
It’s common to hear that investment bankers (the ones that fund production) being called wolves, as in ‘The Wolf of Wall Street’.
Smith very clearly explains that such a Production Motive is a mercantile sophistry:
By such maxims as these, nations have been taught that their interest consisted in beggaring all their neighbours. Each nation has been made to look with an invidious eye on the prosperity of the nations with which it trades, and to consider their gain as its own loss.
Commerce, which ought naturally to be, among nations,as among individuals, a bond of union and friendship, has become the most fertile source of discord and animosity.. But the mean rapacity, monopolizing spirit of merchants and manufacturers, who neither are, nor ought to be, the rulers of mankind may very easily be prevented.
Adam Smith
The Wealth Of Nations Book 4, Chapter 3
Economics vs Supereconomics
These differing paradigms can lead to different supply curves and business behaviour:
| _ | Economics | Supereconomics |
|---|---|---|
| Competition | Either cut-throat competition or monopoly | Friendly competition with natural moral limits |
| _ |  |
 |
| Supply | Big suppliers can cut supply to achieve shortage and high prices, or build demand for unnecessary products | Supply is generated depending on real needs |
| Economic Power | Sellers have more economic power. Buyers have no choice of sellers but instead must compete with each other | Buyers have more economic power. Buyers can choose the seller they like |
| Success Metric | The success of the producers is the measure of the economy’s success, as Gross Domestic Product | The success of the people to buy what they need and want is the measure of the economy’s success, as Purchasing Power |
| Social View | Human creatures are customers and sellers of each other, isolated by ego, connected by money | Human creatures are friends and family of each other, connected naturally by morals and virtue |
Without a doubt, it was the spirit of monopoly which originally invented and propagated this doctrine. Those who first taught it were by no means such fools as those who believed it. In every country, it is always the people’s interest to buy whatever they want the cheapest. This proposition is so very manifest that it is ridiculous to take any pains to prove it. It could never have been questioned had not the sophistry of merchants and manufacturers confounded the common sense of mankind. Their interest is directly opposite of the people’s interest.
Adam Smith
The men of business stoop as they walk. They pretend not to see those whom they have already ruined. They insert their sting—their money—into someone else who is not on his guard against them. They recover the parent amount many times over multiplied into a family of children amounts. And so they make drone and pauper to abound in the State. The evil blazes up like a fire. They could extinguish it by restricting a man’s use of his own property and letting everyone enter into voluntary contracts at his own risk. But the men of business will not do this as this will lessen this scandalous money-making.
Socrates
The Republic By Plato Simplified, Book 8