“As I understand an economy, its ultimate purpose is to produce more consumer goods. This is the goal. This is the object of everything that we are working at: to produce things for consumers.”
Those words were spoken by the economist Raymond Saulnier at a Congressional hearing in 1959. Saulnier was chairman of the Council of Economic Advisors at the time, a position he held from 1956 to 1961 under President Eisenhower.
For decades his quote was relegated to the dustbin of history, but in December 2007 Annie Leonard brought it back into public consciousness when she featured it in her famous video The Story of Stuff.
The video, which now has over 8 million views, tells the story of our material possessions, from extraction to production to distribution to consumption to disposal. Leonard points out that our culture of consumerism is getting out of hand, and she argues that much of the blame lies with big businesses and economists like Saulnier who see the production of more consumer goods as the way to “ramp up the economy.”
“More consumer goods?” she asks, reacting to the quote. “Our ultimate purpose? Not provide healthcare or education or safe transportation or sustainability or justice? Consumer goods? How did they get us to jump onboard this program so enthusiastically?”
As far as Leonard is concerned, there are a lot of things more important than consumer goods, but achieving them means fighting back against big businesses and “taking back our government, so that it really is by the people for the people.”
Goods and Services
Because of videos like The Story of Stuff, there’s a common perception that the economy is all about creating and consuming material goods. With this paradigm, you can see why many people say capitalism is destroying the planet, and humanity along with it.
But this is a distorted view of economics and of capitalism. Saulnier was wrong to say that the ultimate purpose of an economy is to produce more consumer goods—assuming consumer goods are narrowly defined as material possessions.
The actual end goal of the economy is meeting the wants and needs of people, whatever they are. This includes physical objects, but it also includes all the other things that make for a good quality of life, from healthcare to a clean environment to a safe community.
Writing in his 1962 treatise Man, Economy, and State, the economist Murray Rothbard set the record straight.
“It should be clear that the end of the production process—the consumers’ good—is valued because it is a direct means of satisfying man’s ends. The consumers’ good is consumed, and this act of consumption constitutes the satisfying of human wants. This consumers’ good may be a material object like bread or an immaterial one like friendship. Its important quality is not whether it is material or not, but whether it is valued by man as a means of satisfying his wants. This function of a consumers’ good is called its service in ministering to human wants. Thus, the material bread is valued not for itself, but for its service in satisfying wants; just as an immaterial thing, such as music or medical care, is obviously valued for such service. All these services are ‘consumed’ to satisfy wants. ‘Economic’ is by no means equivalent to ‘material.’”
It’s important to understand that when economists talk about consumption they don’t just mean physical consumption like eating food or buying a new phone. You can also “consume” services like doctor’s visits and haircuts. (Saulnier may have implied “goods and services” when he said “consumer goods,” though Leonard certainly interprets him as referring only to physical “stuff”). The point is that you are using up a scarce resource. The consumed resource might involve a tangible item that was extracted from the earth and ends up in a dump, but by no means does it have to.
A well-functioning economy, then, provides much more than mere trinkets. It also provides services people value, like the ones Leonard mentioned. Healthcare, education, safe transportation, sustainability, and justice—all these and more are part of the economy. If enough people want them, you can be sure there will be entrepreneurs finding ways to meet the demand—assuming the government lets them.
The Economy Is about Human Well-Being
As a diehard capitalist, I will be the first to tell you that wealth has very little to do with possessions. It’s about the people in your life, having a lifestyle you enjoy, a healthy body and a sense of purpose and meaning.
But economics is as relevant to those things as it is to material possessions. It isn’t just about getting more stuff. It’s about satisfying human values—all our values.
Economics is as much about getting more and better friendships as it is about getting more and better shoes. It gives us awesome music, movies, and hobbies as much as phones, computers, and cars.
The job of an entrepreneur in capitalism is simply to help people accomplish their goals, whatever they are. Sometimes that means providing shoes. But sometimes it means providing a space where people can meet new friends, like a sports league. Sometimes it means writing a book that can help people improve their lives. Sometimes it means offering counseling to help people with their mental health or rehab programs for recovering addicts.
Improving the economy is about building a better world. And that doesn’t necessarily mean a world with more stuff. It means a world with more of whatever we think it needs.
So let’s not acquiesce to those who would limit economics to material prosperity. Economics is about satisfying human needs and wants in all their forms, tangible and intangible. Of course, a healthy economy can’t solve all our problems. But I think it can help us solve a lot of problems that we don’t normally think of as economic problems, from environmental degradation and crime to mental health and substance abuse.
The kind of human flourishing environmentalists and progressives want is absolutely within our reach. But if we want to achieve it, we need to start seeing economics and the economy as more than a cheap talking point used by selfish businessmen.
This article was adapted from an issue of the FEE Daily email newsletter. Click here to sign up and get free-market news and analysis like this in your inbox every weekday.