“Consumptionism” Is the Doctrine that the Fundamental Problem of Economic Life Is How to Increase the Need and Desire to Consume in the Face of an Ability to Produce that Exceeds Them

In the twentieth century, there has been a growing influence of irrationalist philosophy, which denies the reliability and efficacy of human reason and which disregards the profound influence that the possession of reason exerts on every aspect of human life. According to such philosophy, there is little to distinguish man from the lower animals. Indeed, as we have seen, man is depicted as “the trousered ape”; porpoises, it is asserted, may possess intelligence comparable to man’s; snail darters, we are told, have equal rights with man. Thus, at bottom, man, it is held, is just another animal. On such a view of man, it follows that man’s needs and desires must be as limited as those of an animal and thus fundamentally incapable of extending beyond the range of minimum necessities. The fact that man’s desires obviously do extend beyond the range of an animal’s is held to be the result of “social and cultural conditioning” and the work of advertisers; at the same time, the desires are denounced as “unnatural,” “artificial,” and “created.” Thus, the basic economic premise is advanced that the need and desire to consume are essentially fixed and given, and that the ability to produce threatens constantly to outrun them.

This premise, together with its leading implications, I call consumptionism. It is the doctrine that the fundamental problem of economic life is how to increase the need and desire to consume in the face of an ability to produce that exceeds them. Consumptionism proceeds as though the problem of economic life were not the production of wealth, but the production of consumption.

The consumptionist premise must be characterized as nothing less than the premise of anti-economics. This is because, as we shall see, point by point, it leads to a total inversion of the conclusions of sound, rational economic science.

--George Reisman, Capitalism: A Treatise on Economics (Laguna Hills, CA: TJS Books, 1998), 543.

The Abandonment of the Wages-Fund Doctrine Made Possible the Acceptance of Keynesianism and the Policy of Inflation, Deficits, and Ever Expanding Government Spending

The tragedy of the relationship between classical economics and the exploitation theory has not only been that errors and confusions in classical economics have supported the exploitation theory and thereby the assault on capitalism and advancement of the cause of socialism. That would have been bad enough. The further tragedy and irony has been that because this support was perceived as necessary and inescapable—as based on the essential nature of classical economics—the opponents of the exploitation theory—that is, the defenders of capitalism from the late nineteenth century on, who had the most to gain from the knowledge provided by classical economics—felt obliged to discard virtually the whole of it insofar as it could not immediately be validated on the basis of the neoclassical principle of diminishing marginal utility, or otherwise independently of classical economics’ basic framework.

Thus, along with “the labor theory of value” and the “iron law of wages,” they discarded such further features of classical economics as the wages-fund doctrine and its corollary that savings and capital are the source of almost all spending in the economic system. (The wages-fund doctrine held that at any given time there is a determinate total expenditure of funds for the payment of wages in the economic system, and that the wages of the employees of business firms are paid by businessmen and capitalists, out of capital, which is the result of saving; not by consumers in the purchase of consumers’ goods.) Two generations later, the abandonment of the wages-fund doctrine and with it, classical economics’ perspective on saving and capital, made possible the acceptance of Keynesianism and the policy of inflation, deficits, and ever expanding government spending. In similarly paradoxical fashion, and with just about the same time lag, the abandonment of the classical doctrine that cost of production, rather than supply and demand, is the direct (though not the ultimate) determinant of the prices of most manufactured or processed goods led to the promulgation of the doctrines of “pure and perfect competition,” “oligopoly,” “monopolistic competition,” and “administered prices,” with their implicit call for a policy of radical antitrust or outright nationalizations to “curb the abuses of big business.” Thus, along these two further paths, the errors of classical economics in support of the exploitation theory have served in the assault on capitalism and to advance the cause of socialism. But this time, it was with the implicit support of those who had abandoned classical economics because of its service in the advancement of socialism, and who now, precisely because of that abandonment, were themselves making possible the advancement of socialism, however much they may have believed themselves to be incapable of acting in such a destructive way.

Indeed, so strong has been the conviction on the part of the defenders of capitalism that classical economics is permeated with support for Marxism, that even to suggest such a classical doctrine as that cost of production can be a direct determinant of price, is to invite one’s own censure for allegedly being sympathetic to Marxism—as well as for allegedly being ignorant of all that economics has taught on the subject of prices since 1870. Not surprisingly, in the great majority of cases, this hostility to classical economics on the part of the defenders of capitalism has kept them from any serious study of it.

--George Reisman, Capitalism: A Treatise on Economics (Laguna Hills, CA: TJS Books, 1998), 474-475.

Full Socialism Requires Nothing More Than the Socialization of New Investment Plus the Lapse of Time; Incredibly, Keynes Is Touted As a Man Who Saved Capitalism

In other words, Keynes sees the effect of his policies as that of accomplishing the just demands of Marxism—the expropriation of the “expropriators” and the redistribution of their allegedly excessive and ill-gotten wealth to the state and the population at large—but without the necessity of a violent revolution.

Not surprisingly he advocates the socialization of investment: “Furthermore, it seems unlikely that the influence of banking policy on the rate of interest will be sufficient by itself to determine an optimum rate of investment. I conceive, therefore, that a somewhat comprehensive socialisation of investment will prove the only means of securing an approximation to full employment.”

The meaning of this last passage is that Keynes thinks it unlikely that an increase in the quantity of money (which is what he means by “banking policy”) will be sufficient by itself to drive the rate of return below 2 percent, and that investment by the government, which will be willing to invest at a rate of return below 2 percent, will be necessary. Keynes claims to believe that nothing momentous is involved in the socialization of investment, for he immediately adds the words: “But beyond this no obvious case is made out for a system of State Socialism which would embrace most of the economic
life of the community.” These words in turn are quickly followed by the admission: “Moreover, the necessary measures of socialisation can be introduced gradually and without a break in the general traditions of society.” It should be obvious, of course, that since the total of all the capital that is accumulated is nothing but the summation of the investments of the preceding years, full socialism requires nothing more than the socialization of new investment plus the lapse of time. Nevertheless, incredibly, Keynes is touted as a man who saved capitalism.

--George Reisman, Capitalism: A Treatise on Economics (Laguna Hills, CA: TJS Books, 1998), 891.

The Keynesian Solution to the Alleged Unemployment Equilibrium of Capitalism Is Government Budget Deficits (Euphemistically Called “Fiscal Policy”)

To describe matters verbally, one could say this: The alleged problem of capitalism, according to the Keynesians, is that full employment results in a volume of saving that the economic system cannot profitably invest. In effect, such saving is a destructive by-product of full employment under capitalism, and thus prevents the existence of full employment. It is a kind of toxic excrescence—a veritable boil on the economic body that interferes with its vital functioning. Fortunately, however, there is a doctor, and he has a cure for the problem. The doctor is the government, and the cure is a deficit in its budget. As Keynes has explained matters, the government doctor will lance the savings boil and allow its destructive juices to flow into the waiting pan of the government’s deficit rather than into private investment, where it would reduce the rate of return on capital to an intolerably low level.

--George Reisman, Capitalism: A Treatise on Economics (Laguna Hills, CA: TJS Books, 1998), 878.

The Marxian Exploitation Theory Is Largely the Product of Major Errors in Classical Economics Such As Errors Pertaining to the Conceptual Framework of the Exploitation Theory

Nevertheless, it is certainly true that the Marxian exploitation theory is largely the product of major errors in classical economics, particularly, as I will show, in the writings of Adam Smith. The relationship between classical economics and the exploitation theory represents a tangle of irony and tragedy.

One irony is that while various errors and confusions in classical economics really did contribute to the exploitation theory, the most fundamental and important of these errors and confusions have gone unnoticed and unidentified. These are the errors and confusions pertaining to the conceptual framework of the exploitation theory, which assumes that all income due to the performance of labor is wages and that profits are a deduction from what is naturally wages. They have gone unnoticed and unidentified because the validity of this framework is taken for granted—as being literally unexceptionable and therefore unobjectionable. It is assumed to be correct by the opponents of Marx as much as by Marx; this includes Böhm-Bawerk, the leading critic of the exploitation theory, as will be obvious once I have explained the essentials of his critique of the exploitation theory.

--George Reisman, Capitalism: A Treatise on Economics (Laguna Hills, CA: TJS Books, 1998), 474.

The Mistaken Belief that Classical Economics Inevitably Leads to the Marxian Exploitation Theory

I will focus on the views of Smith and Ricardo, the two foremost representatives of the classical school, to whom Marx is assumed to be particularly indebted. On the basis of my discussions in these sections, it will be obvious later on, in Chapter 14, that what Marx meant by the labor theory of value and the iron law of wages are two very different sets of ideas than what the classical economists meant, and are in fact gross distortions of what the classical economists meant.

Nevertheless, mainly because of the prominent role played by “the labor theory of value” and “the iron law of wages,” however different their actual content in the two systems of thought, classical economics is almost universally assumed to lead inexorably to the Marxian exploitation theory.

My reason for writing this part, and presenting it here, is that subsequent chapters in this book depend vitally on leading doctrines I have taken over from the classical economists and reintroduced in a modernized form, doctrines which have been abandoned or forgotten precisely because of the mistaken belief that classical economics inevitably leads to the Marxian exploitation theory. As a result, in order to demonstrate the consistency of my profound intellectual indebtedness to classical economics with my unswerving support of capitalism, it is necessary for me to explain the actual nature of the relationship between classical economics and the Marxian exploitation theory, which, I will show, is ultimately one of the most intense opposition.

--George Reisman, Capitalism: A Treatise on Economics (Laguna Hills, CA: TJS Books, 1998), 473.