Consumers in Capitalism

Before I address the issue of “ethical consumption” in my next post, I need to take on the topic of consumption itself.

According to neoclassical economics, a consumer is an informed individual, making rational decisions in the marketplace to maximize his/her self-interest. There’s no surplus, growth is an accident of production, and capital comes from investors beating the odds for a while. Workers and owners are just temporary categories; we’re really just individuals who come to market to meet our infinite needs, and some of us are lucky enough have extra cash on hand to sell goods to others. By demonstrating a preference for particular goods, consumers can change the way those goods are produced and distributed.

In reality, this doesn’t describe most people, who consume according to standard patterns, socialized through culture and family. However, it does describe capitalists, who come to the market as a purchaser (consumer) of labor power.

Neoclassical economics focuses on consumers, but this reflects reality only for the capitalist. Any economic theory beginning with consumers, consumption, or exchange adopts the capitalist’s point of view. This is flawed in two ways:

  1. Wages don’t create all demand: they’re just one way for capitalists to realize the capital invested in commodities. There are three other circuits that supply public and private goods at all stages of production. Most people encounter the market when they shop, so it seems natural to think that capitalism exists to satisfy their consumer needs. But while the market in consumer goods is constantly on display, exploitation is hidden. Workers matter only as providers of labor power, the source of surplus value: they’re only able to receive and spend a wage if their employer makes a profit first. Moreover, capitalists also create commodities (the means of production), that only other capitalists buy. For example: steel producers buy coal to make steel; manufacturers of coal-mining equipment buy steel to produce mining equipment; mine owners buy mining equipment to mine coal, that they then sell to steel producers. There are enormous areas of the economy where workers’ spending power has no impact at all.
  2. Money capital funds every circuit: it not only provides start-up capital but helps workers’ wages circulate by providing personal credit, increasing capital through banks and corporate self-financing. New forms of credit continue to spawn, both because industries self-finance, and because speculators can suck up surplus value that can’t be reinvested profitably. To influence this process, consumers would have to find some way of controlling investment decisions at all stages of capital circulation, including private investment and state purchase of goods. Otherwise, capitalists would pull investment dollars from the more expensive, less technically-developed, ethical local industries.

Consumer spending is a form of distribution, it represents the reproduction of workers’ own labor power, not control over the entire process. The idea that workers could control the circuit of capital repeats Ricardo’s error by assuming workers receive the full value of their labor, rather than the value of their labor power in production. Even if localist advocates convinced all workers that local consumption could change the world, workers could, at best, change the conditions of production for their own housing and durable goods, a small portion of the overall capital circuit.

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Pro-Market Localism

Localism has developed into many different streams which can be roughly grouped into localists who support capitalism and those who want to overcome it. Pro-market localists suggest that market regulation can create ethical local capitalism. Some build small businesses, while others promote non-profits and cooperatives. Locally-owned businesses are supposed to keep money in the local communities and, since they’re small, treat workers and the environment better.

Pro-market localists say that if the economy is just a collection of use-values, then we can make capitalism better by producing fewer, high-quality goods. Markets are good things and they can be regulated, providing they are operated according to principles of social justice. The answer is to make the economy less efficient.

They also claim the small scale of local business makes it more ethical. Big business separates owners from those who work and consume; bring them together, the localists say, and business will be more personal. In these circumstances, labor exploitation no longer matters: “even autocratic control is no serious problem in a small-scale enterprise which, led by a working proprietor, has almost a family character.” As long as the business is small, “private ownership is natural, fruitful, and just.” Capitalism is fair as long as it’s done correctly. Profit can be made optional by caring about the proper, local size.

This points to a key confusion at the heart of localism: it conflates the size of ownership with the size of production. The two are very different: while larger production needs concentrations of machinery and labor power, larger ownership doesn’t. Confusing facilities with ownership allows localists to echo Adam Smith’s promotion of small, equal capitals. Opposed to a capitalism controlled by monopolies, Smith believed that markets could be self-regulating and competitive if producers and consumers were kept small. Smith had the benefit of describing his own historical period: during the 18th century, small companies battled it out to control local markets. Not today: small business is less important to directing economic activity.

Idealizing small business is simply a form of nostalgia for earlier forms of capitalism, which weren’t necessarily any better. Small, family-owned businesses also pay poor wages, price-gouge customers, and destroy the environment. As of 2010, U.S. small business owners were 83% white, married, older men. That figure shrank only 4% from 2000. This means that the small business culture localists defend is also fairly exclusive.

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Greg Sharzer, No Local: Why Small-Scale Alternatives Won’t Change The World (Winchester, UK: Zero Books, 2012), 20-23, 29.