CHAPTER XLI

MEANING AND IMPORTANCE OF CONSUMPTION

Two meanings of the word "consumption." There have been two meanings given by economists to the term "consumption of wealth." By one group it has been made to include any utilization of wealth in which the wealth is worn out, used up, or destroyed in the process; by another group it is defined as meaning only such utilization as gives direct satisfaction to a consumer. Under the first definition coal is consumed when it is burned to make steam for the running of machinery as well as when it is burned to supply warmth for the comfort of the human body; under the second definition only the latter use of coal would be called consumption. Those who hold to the first definition are compelled to divide consumption into two kinds; namely, productive consumption and unproductive consumption. It is always explained, however, that the term 'unproductive consumption" does not mean useless or unnecessary consumption. It means that wealth thus consumed, in contradistinction to that which is productively consumed, is not used up in the process of producing other wealth. It is used rather for the final purpose for which all wealth is commonly supposed to be produced; namely, the direct satisfaction of human desires or needs.1

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The tendency among recent writers is to use the term "consumption" in the narrower sense. By the consumption of wealth under this definition is meant the culmination of the whole economic process; namely, the satisfaction of human desires. Wealth which is worn out or used up in the process of production is not itself yielding satisfaction to consumers

1 Compare the author's article on "Consumption" in the Encyclopædia Americana.

directly. It is yielding it indirectly, or helping to produce other things which will satisfy consumers directly.

The purpose of the user is the determining factor. Under modern conditions goods are used either for direct satisfaction or for the getting of an income. If they are being used for the getting of an income, they are not being consumed in the economic sense. The physician's automobile which is used in his profession is being worn out, but it is not being consumed in this sense. When the same automobile is used for his own enjoyment or that of his family, it is being consumed. Again, a thing may be in the process of consumption even though it is being used up very slowly. A diamond which is used as an article of pleasure or adornment is in the process of consumption, even though it may never be really worn out; but when it is a part of the stock of the jeweler, like the rest of his stock, it is being used for the purpose of getting an income. A substantial piece of furniture, when used for direct satisfaction, is being consumed; but while it is in a furniture store the immediate purpose of the owner is to gain a profit from it rather than to enjoy it, and therefore it is not yet in the process of consumption. In short, the consumer of an article is the one whose desires it satisfies directly. The article begins to be consumed whenever it begins to satisfy a consumer's desires directly; that is, when it has passed through all the channels of business and trade, where it is used for the purpose of getting an income, and comes into the possession of someone for whose satisfaction it is designed.

Importance of consumption. Most textbook writers on economics have regarded the consumption of wealth as a department of the subject coördinate with such departments as production, exchange, and distribution. None of them, however, has given as much space to it as to those other departments. The reason has apparently been the general opinion that consumption is essentially an individual matter with which the public has had little or no concern. Laws relating to consumption have been called sumptuary laws and have generally been condemned or

only half-heartedly approved. There is a growing opinion, however, that consumption is quite as important, from its effect on national prosperity, power, and greatness, as any department of economics. Even the regulation of consumption, as in the case of laws regulating or prohibiting the use of alcoholic beverages, is becoming popular. Probably no movement of recent years in America has been quite so popular or so democratic as the prohibition movement.

The importance of the consumption of wealth is further emphasized by the consideration that as many and as dire calamities have overtaken nations and peoples because of their irrational habits of consumption as because of inefficient systems of production, exchange, or distribution. In fact, consumption reacts powerfully upon all the other departments, particularly upon distribution. It was shown in the chapter on What determines the Rate of Wages that the standard of living of the laboring classes, which is a part of consumption, has much the same influence upon the price of their labor as that exercised by the cost of production upon the price of a material commodity. Again, the rate of the accumulation of capital, upon which so many things depend, is largely determined by the habits of consumption. The effect of luxury upon industry and general national strength is one of the largest of all questions. These illustrations are enough to show that the subject of consumption deserves the most careful study and the most serious treatment which economists can give it.

Ratio of consumption to production. In a profound illuminating article on War and Economics,1 Dr. E. V. Robinson calls attention to the fact that in any country, when its production exceeds its consumption, the result is economic progress, but that when consumption exceeds production the result is economic retrogression. When production exceeds consumption, wealth is accumulating and taking on durable forms; when consumption exceeds production the national wealth shrinks, and the nation lives on its accumulated capital and, more

1 Political Science Quarterly (December, 1900), Vol. XV, p. 581.

over, allows its accumulated fund of durable wealth to deteriorate. Since it spends little time and energy in keeping its durable wealth in repair or its volume intact, but spends most of its time and energy in producing ephemeral goods for immediate self-gratification, its great architectural monuments, if it has any, sink into decay; its buildings become dilapidated for the same reason; its soil becomes depleted because no energy is spent in conserving its fertility; the people live, as it were, from hand to mouth, and everything tends downwards.

When production exceeds consumption, on the other hand, not only are durable forms of wealth conserved-kept in repair and intact-but they are continually improved and new forms produced. There is energy to spare from the work of producing ephemeral articles for immediate consumption, and time is devoted to permanent works and new forms of construction. Durable goods multiply in quantity, capital accumulates, more and better tools and equipment are provided, and productive power accumulates by a kind of geometrical progression.

Whether, in the nation at large, production exceeds consumption or not depends on the general habits of the average person. If the average person demands large quantities of those things which supply physical and temporary satisfaction, such as luxurious food and drink, fashionable clothing, and expensive amusements, there will be a tendency for consumption to exceed production. If, however, the average citizen is satisfied with the kind of food which nourishes, and increases strength and efficiency, with clothing which affords comfort and convenience, with amusements which are inexpensive and which tend to preserve the health, strength, and agility of both mind and body, there will be a tendency for wealth to accumulate.

Other factors are, however, involved. There might be a population with simple habits such as we have indicated, but with no desire for the durable satisfactions of life and with little energy to devote to production. Such a population would necessarily remain in a low state of civilization. It would not provide abundantly either for the temporary or for the permanent means

of satisfaction, but would remain in sloth and squalor. But if, in addition to the simple habits of consumption so far as food, clothing, and amusements were concerned, the average person possessed an intense desire for durable goods,-for architecture, libraries, schools, and other civilizing agencies, the conditions would be favorable to the accumulation of wealth and to all forms of economic progress. If, in addition to all these, the average person were energetic and not disinclined toward work, -if he were willing to study hard and work hard, and if his motives were such as to drive his mind and body at high speed,— the conditions would be still more favorable. This combination of favorable conditions would make progress almost a necessity. Nothing except a geological cataclysm or a world war would prevent such a people from advancing in the arts of civilization.

Preference for durable goods. It is to be borne in mind that the motives and desires of people are fundamental to this problem. As was shown in a previous chapter, any people can have as much progress and as high a state of civilization as they desire, provided they desire them strongly enough and are willing to pay the price.

Value of a man. From the standpoint of national prosperity the value of the individual depends on the excess of his production over his consumption. The following formula will determine with mathematical accuracy how much a person is worth from the standpoint of national prosperity:

V=P-C

In this formula V stands for value (that is, the value of the man); P stands for his production; C, for his consumption. Thus the formula reads, The value of the man equals his production minus his consumption. In the cases where his consumption exceeds his production his value is negative; he is a drag on progress, and the world will at least save his victuals when he leaves it.

The whole life is the unit. Lest this be too hastily interpreted, it should be pointed out that a human life as a whole,