The average U.S. resident, in a year, consumes 269 pounds of meat, uses 605 pounds of paper, and uses energy equivalent to 8 metric tons of oil. Forty years ago, the average American ate 197 pounds of meat, used 366 pounds of paper, and used energy equivalent to 5.5 metric tons of oil. In the U.S., there is about 1 passenger car for every two people. Europeans have about 1 passenger car for every 3.5 people. Developing countries have, on average, about 1 passenger car for every 68 people. What does economics have to tell us about these differences in consumption?
Most introductory economics textbooks portray consumer behavior as relatively simple, rational, and untouched by social influences. Rather than focusing on choices made by people who live in social and environmental contexts, the “utility theory” view taught in such texts focuses on behavior that individual consumers would logically pursue, given certain assumptions. Such an approach leaves out a number of important factors which merit exploring.
Consumption is the process by which goods and services are, at last, put to final use by people. Consumption is at the end of the line of economic activities that starts with an evaluation of available resources and proceeds through production of goods and services and distribution of goods and services (or the means to acquire them) among people and groups. At last, the goods and services themselves come to be used. The effect of this consumption, including depletion of resources and generation of waste as well as enhancement of human survival and flourishing, determines the resource base for the next round of economic activity.
The "Sovereign" Consumer?
Much of economic discourse, from Adam Smith onward, has assumed that everything we value about the functioning of an economy is to be found in the final demand for goods and services. As Smith said,
Consumption is the sole end and purpose of all production and the welfare of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer. (Adam Smith, The Wealth of Nations, 1937 Modern Library edition, p. 625)
The belief that consumer satisfaction is the ultimate economic goal and that the economy is fundamentally ruled by consumer desires is called consumer sovereignty. Is this belief valid? That is, are the final goals of economic activity all to be found in the act of consumption?
Arguments in Favor of Consumer Sovereignty. There are, indeed, two quite different answers to the question of why consumers are important in economics. One is the traditional assumption, as stated by Smith, that final consumption is the ultimate purpose of all economic activity; production and distribution exist solely to increase the well-being of consumers. In this view, consumers are the justification for economic activity and therefore for economic theory as well.
The other answer is that consumers keep the economy going by generating demand for goods and services. Without this demand, the supply side of the economy would expire: How long can producers keep producing if no one buys their goods? From this perspective, consumers as a source of demand are central to the mechanism that makes the economic system run.
Arguments Against Consumer Sovereignty. Regarding the justification argument for consumer sovereignty, it should be remembered that although the end products of production derive their value solely from their contribution to the well-being of society and of individual consumers, the process of production is valuable for other reasons as well. People are more than just consumers. Consumption activities most directly address living standard (or lifestyle) goals, which have to do with satisfying basic needs and getting pleasure through the use of goods and services.
But people are also often interested in goals such as self-realization, fairness, freedom, participation, social relations, and ecological balance. These may be either served by, or in conflict with, their goals as consumers. People also often get intrinsic satisfaction from working and producing. For many people, work defines a significant part of their role in society. Work can create and maintain relationships. It may be a basis for self-respect and a significant part of what gives life interest and meaning.
If the economy is to promote well-being, all these goals must be taken into account. An economy that made people moderately happy as consumers, but absolutely miserable as workers or community members, could hardly be considered a rousing success!
Regarding the view that consumer sovereignty is the fundamental mechanism that guides economies, we need to recall that consumers—as members of complex larger organizations including families, communities, corporations, and nations—are subject to many influences from social institutions. The idea of a “sovereign consumer” implies someone who independently makes decisions. But what if those decisions are—instead of being independent—heavily influenced by community norms and aggressive marketing by businesses? Who “rules” then? When we look at an economy from this perspective, we can see that consumer behavior is often cultivated as a means to the ends of producers, rather than the other way around.
Who Are the Consumers?
We generally think of consumption as something that benefits individuals. When one person eats an apple, no other individual person can benefit from that apple. We also tend to think of consumption decisions as being made by individuals and families, and not so much by businesses, governments, or other organizations. In contemporary economies, however, consumption decisions and consumption benefits are more complicated than this individualistic picture implies.
The fact that individuals (except for hermits) always live in society complicates the discussion of consumption. Consumption of a public good, like a pleasant city park, can be experienced by many people at the same time. Decision-making about whether to build a park is done at a community level, not by an individual.
Even within a household, both decision-making and enjoyment of consumption may involve more than one individual. Adults may negotiate about what to produce or purchase. The heat from a home furnace is a small-scale “public good,” since everyone in the household benefits from it.
Many goods and services are also consumed by people while in their roles in business or other organizations. For example, some employees are given opportunities to satisfy their individual needs for food and entertainment through business lunches and employer-sponsored sports outings.
In practice, however, economic analysis concerning consumption tends to focus on “the consumer” as the unit of analysis. The individual decision maker is assumed to be making consumption choices for himself or herself or on behalf of his or her entire household. Imagining the consumer to be an individual economic actor, such analysis ignores both the larger issues of social consumption and the complications of decision-making and enjoyment within households.
Limiting analysis to the individual level is a useful simplification for some purposes. In other articles we examine two major theories about how individuals make consumption decisions: the marketing view and the utility theory view. We also examine the issues of consumption viewed at a society-wide scale and the effect of consumption on human well-being.
- Global Development And Environment Institute at Tufts University