Is Hayek a critic or an advocate of limitless consumption?
Hayek’s Stand on Limitless consumption
Hayek’s Stand on Limitless consumption
This study presents the arguments of Hayek about how the market can be shaped by the changing economic trends in the consumption of goods and services to aid the market to remain free from overstretching so as to satisfy its demands as well as the demands of the people. It further looks at the other factors contributing to limitless consumption and examines how each of them contributes to the overall set-up of the economy of the people and the nation. This paper aims to critique Hayek’s theory on the use of information in economics and evaluates whether limitless consumption is a core scope of any economy. The core concern this study seeks to address is whether Hayek, through his various economic theories and arguments was for or against limitless consumption.
There two key words that will serve as a guide for the larger part of this work and they are the ones that define the meaning and scope of Hayek’s work. Overconsumption and forced saving are the core terms from which the study of human consumption and human satisfaction are derived. The two aforementioned terms are often used in the description of the business cycle that is demonstrated in depth by various economists such as Hayek and Mises. For long term revival of a country’s economy and for economic boom conditions, it is imperative that the two terms be identified and the significance of the terms underscored in the paper. Applying the two concepts demonstrated by the two terms is also significant in the boom economic situation (Kilbourne, McDonagh & Prothero, 1997).
Understanding the two terms in depth and having a deep understanding of the circumstances in which the two terms can be used is crucial in understanding the fundamental differences that exist in the various schools of thought regarding the subject. The theory of overconsumption is critical in the larger school of thought that is demonstrated by Hayek in the business cycle works and it is critical in understanding the effect of limitless consumption. Understanding limitless consumption also helps in reconciling the various schools of thought by various economic philosophers and also in enhancing the understanding of the various economic situations affecting a country’s economy and how they can be used to positively influence a country’s economy. Other philosophers criticized Hayek’s works though Hayek often welcomed criticism as he viewed the criticism as a way of learning and improving this own theories. However, he also does offer retaliatory writings during his time. Hayek preferred to let his work be criticized as a way of learning and further understanding limitless consumption as an important scope of human consumption.
Most of the theoretical arguments and schools of thought put forward by renowned economic scholars and philosophers has been able to fully underline the role of limitless consumption in an economy thus far. Does under consumption or overconsumption pose any danger to the world economy? Is there a sustainable way to curb limitless consumption without interfering with market rules and the rights of customers to consume to their fullest satisfaction regardless of the impact their consumption poses to the market stability? Several factors influence the degree of consumption from person to person, but the common trend is that all those behaviors contribute to the eventual well-being of a society economically (Shrivastava, 1995). Over consumption and under consumption are a vital pillar of a balanced economy but the danger comes when there is imbalance between the two. The market is expanding and each day new products are finding their way into the market. This trend attracts more and more people to the market and the rate of consumption is pushed up as a result( Langlois, 2001).
Larger economies in the world have gone back to the ancient theories and tried to relate them to the present world and then gauge from there how to best maintain a sustained consumption model that poses no risk to the economy. The current market is planned and run largely based on the latest technologies and information systems, unlike the ancient times. The model gives much more space and freedom to the buyers to consume and consume as this translates to improved sales and growth and expansion of the market. Equity is hard to be effected in a more free economic and market set-up, but even a slight balance can make a huge difference. The thorny issue of whether to embrace over consumption or under consumption can only be fully addressed by looking at how the market has been transforming under the changing economic models over the years. The risks that come with over consumption are huge and stretch beyond just the market imbalance. For instance, the ballooning exploitation of natural resources like trees triggered by the rapidly growing world population threatens the existence of forests. However, on the other hand, poverty cannot be an alternative, because it is not only harmful to the people but also the entire world. The two entities go hand in hand but when one surpasses the other, the imbalance created is equally harmful.
Hayek, through his theory, Knowledge in Society (1945) tried to relate the various parameters that constitute human life economically and draw a conclusion on whether there was a need to limit human consumption in the capitalist era. This was a major undertaking that could go on to influence the human evaluation of consumption. This was in direct contrast to other economists and philosophers who had all along ignored this subject matter. Today, the same problem exists and has in several cases put people, nations and economies in great danger of collapse triggered by an imbalanced consumption and production systems. In the post-communist era, Hayek’s arguments have started getting greater recognition especially due to the shortcomings that have been detected in another related thesis. The question whether to embrace limitless consumption or opt against it will go a long way in shaping the economies of the world as well as a favorable environment that makes human life easy and more convenient. We all ought to know how much enough is and how much consumption the earth can be able to sustain at a given period (Goldman & Schurman, 2000).
Human satisfaction is created when there is a feeling of content that whatever you have purchased and used has given you the service you expected and which you feel is enough to keep your life going. However, having too much or too little has an impact on our lives. This calls for urgent need to determine under which circumstances consumption ceases to add value to human life depending on the impact the act has on the general well-being of humans and the limit within which planet earth can sustain their needs. Hayek tried to answer some of these questions in his theory to further highlight the importance of sustained consumption levels in an economy. The Hayek model was termed as being general by many critics and that it he himself lacked the courage to declare what he stood for pertaining limitless consumption. Several decades later, however, his works can be critically analyzed so as to come to a conclusive statement on which stand he took in terms of addressing human consumption (Mort, 1996). This paper is one of those that have been put forward over the past decades on the subject of consumption and the best way to go as a society and the entire world in order to maintain a balanced environment while obtaining the best levels of satisfaction from the various resources at our disposal.
All the arguments in this work are not a means of countering Hayek’s work, but rather an elaboration of his philosophy with slight critique largely necessitated by the change in economic eras from communism to post-communism. During the ancient era, there were no larger threats to human life than there are today. The world population has almost doubled over that period and the need for a defined model of consumption and characterized by a clear balance is relevant today than it was back then. Hayek’s model has done much to define the market today and a closer look at his work can help a big deal in showing to the entire world how limitless consumption can enhance or hinder the stability of the market as well as the economy of the world and the well-being of man. Too often, however, Hayek’s work titled ‘The Use of Knowledge in Society’ (1945) has received sustained criticism for being too vociferous and doctored to suit the interest of his profession rather than providing solutions to the problem at hand. This is more so due to the fact that Hayek’s roots are not traced into the traditional British set-up but rather the Marshallian system. But overall, his works have continued to draw recognition for the vital role they have played in shaping the scope of economics throughout the world. This study and the eventual conclusion on what Hayek stood for in terms of consumption is done in relation to other equally important scholarly materials and other research carried out in order to come up with a more comprehensive case.
A large portion of this work is derived from Hayek’s theory on Consumption and a balanced economy, other sources have also been incorporated to form a formidable basis upon which the end objective scan be met. This is more so in particular due to the fact that newer theories have been developed with the changing times to try and address the same issue thus, the need to update Hayek’s work by supplementing it with other vitally relevant information drawn from the emerging theories.
In order to come out with the best conclusion about how Hayek viewed the issue of limitless consumption, a closer look at what other scholars have written about consumption can help a big deal. Some of the materials are outlined below and the rest will be stated further in the references page.
‘Limiting Consumption Towards a Sustainable Culture’ ( Durning and Allan 2004)
This is what forms the basis the basis of the argument that in order to have a balanced society where the needs of all are accessible; we need to embrace a more positive approach to our consumption. The author argues that in order to be able to achieve socially, economically and politically the model of consumption needs to be sustainable.
The government has a role to play in attaining this, but the greater responsibility lies on the citizens. It encourages a more divers model of spending and consumption so as to make the economy more and more stronger rather than bringing it down by either over consumption or under consumption.
‘Need for New Theory’
The main argument from the author is that unlike the old times when there were limited technologies to produce goods and services to satisfy the needs of all people, today that trend has changed. It further points out that regardless of the every individual’s consumption levels, the economy of the world is not endangered at all. The falling economies are instead attributed to improper planning by the governments and, therefore, human consumption has nothing at all to do with the economy. The theory calls for an extensive analysis of the economic planning and prioritized spending to reduce the burden on the citizen s allowing them to exercise choice in terms of consumption patterns.
Business cycle theory(Mises and Hayek 1974)
Friedrich Hayek and Ludwig Von Mises are responsible for the development of the business cycle theory during the First World War. The theory of the business cycle is based on the unsustainable boom. Even in the case of harsh economic times, a country can set itself up on a growth curve that is in direct contrast with the economic situation on the ground. This scenario usually plays out during times when the country’s central bank lays out cheap credit policies. The end result is that the country experiences a robust sustained growth regardless of the economic situation on the ground due to the various internal forces that continue to guide consumption as well as investment in the market.
The various market processes that affect the growth and the decline of a country’s economy and the processes that are entailed within the various situations form a big part of the writings by Hayek and Mises. A misallocation of resources often results from the divergence that is common in this situation where the rate of market interest and the natural rate keep diverging. The temporary misallocation happens in the various sequenced stages of production. The upper turning point of the cycle is often characterized by “internal tensions”. This notion is according to Mises’ account of the market situations. There also exist “counter-movements” in the various prices of the consumption goods as compared to prices of the goods that are responsible for production purposes. At given times, these relative prices fall but they also rise at given times of the business cycle. They fall during the boom of the cycle, but they rise after sometime. The rise often results in the counter-movements of resources and the rise also marks the transitioning of the economy from the boom consition to the bust condition. Breaking down and analyzing Hayek’s work helps in the understanding of the work he did and the various situations in the business cycle. The consumption patterns recognized and detailed in the business cycle can easily be related to the global economic situations present today (Redclift, 2013).
The end result is an easy outline from which one can draw a conclusion on whether Hayek’s theory stood for or against limitless consumption. The outline is a look at the various components that determine how people in a society make their consumption decisions and the major impact their choices have in the long term economic stability within their locality
2. The theory Outlined in Relation to Economy and Human Consumption.
2.1 Philosophy and philosophical background
Here Hayek seeks to portray the decision an individual chooses to make in relation to establishing his/her consumption patterns as a direct consequence of the philosophy that guides the market and resources he has direct access to. Philosophy can be seen to dictate how things are done and why they are done in a particular way. Although times have rapidly changed with the evolving economic world, certain aspects of human consumptions are still bound to ancient philosophies. The core concern addressed here is the utilization of information that we gain from our continuous exposure to certain changes in terms of the basic needs and wants of human life. Hayek clearly demonstrates how human nature chooses to use the various goods and services at his disposal to make ends meet. Some needs keep recurring and thus cannot be avoided or foregone at any given pint whereas others can be pushed down the ladder and reserved for later purchase and consumption. Such commodities are therefore limited in consumption due to their lower degree of necessity to human life (Cohen, Comrov & Hoffner, 2005).
Philosophy as an important arm of social science tends to rely more on facts and figures or opinions upheld by people who have existed before but who are believed to have great influence in shaping the knowledge and thinking of the present and future generations. That is where Hayek brings out the argument that human consumption ought to advance in terms of decision making on matters pertaining consumption cycles that are important in shaping the world economy. Limitless consumption not only poses a threat to the economic well-being of a nation but also the entire world.
2.2 Economic situation.
Hayek took another dimension of the need to spend on goods and services as a direct result of the financial position of members of the society. The society, depending on the ratio of the rich to the poor, or the rich to the middle class will always experience varied consumption trends that can never be maintained at any particular point as long as the two categories of people exist within the same locality. The needs and wants of every individual vary across the economic scale depending on the degree of necessity attached to a particular need at a certain point in time.
The bigger observation here is that financial stability puts different individuals at equally different angles from which they view and access the market. For instance, poor people will continue to spend on food on a daily basis because they can’t afford to buy in bulk and be able to be sustained for a longer period before making the next purchase. On the other hand, a person who is well off can afford to buy what can sustain him for long. Such a person can be able to spend on other goods and luxuries on a regular basis. There is no need and criteria whatsoever to regulate the spending and consumption of such a person so as to suit the interests of those whose spending power is slightly lower. The limitless consumption cycle is repeated all through and cannot be altered by any means (Brown & Cave, 2010). Hayek argues that even though this is the case, still there is urgent need to come up with urgent measures that can define the most effective spendingan consumption models so as to save the world from overstretching the already scarce resources especially with a greater look at the swelling population.
2.3 Production and consumption.
In another related note, there is a strong argument that consumption should be practiced in line with what an economy can be able to produce within a specified period of time. Production, rather than financial capability or degree of need is seen as the most important defining tool for any consumption model taken by a person or the society at large. According to this argument, the consumer should make decisions on how to buy depending on the quantity the producer can be able to produce and put forth for purchase.
The world is evolving in terms of population whereas natural resources and vital goods and services that are equally vital for sustaining human life are nearing depletion. The wider concern, however, is how the producer can regulate production minus having to compromise on the returns in terms of profit. Hayek argues that with proper study of the market, a producer can be able to project the future market trends and make a decision based on the perceived cycles.
2.4 Prevailing Market Prices
More often, consumers tend to spend on goods and services depending on the prevailing market prices. With the looming harsh financial times, people tend to go for alternatively cheaper goods to satisfy their needs. The price in the market is determined by various factors such as the demand and supply levels at that particular point. Most consumers use the price as the most preferred determinant of what they intend to buy. In most cases, cheaper goods attract more customers, especially where the market scope is largely constituted by people of average income. The most direct consequence of this notion is the increase in consumption of such goods.
There are counter arguments about the suitability of such a phenomena in the current market, but Hayek highlighted this as a healthy aspect of business and one that tries to bring a balance in the consumption of goods especially in an environment where there are distinct classes of citizens with different financial capabilities. Although this trend does not amount to a long and sustained consumption model, it does allow a majority of consumers with limited consumption due to financial incapability to enter the market and lower the gap even for a short period.
2.5 Over consumption and saving.
This argument is based on the simple hypothesis that sustained saving and investment in the society has a direct impact on the consumption trends in the same locality. The basic assumption, in this case, is that whenever there is an increase in saving, the level of investment is also triggered upwards. At the other end, consumption is altered and, as a result, the economy experiences significant improvement. Hayek further argues that this model is ideal for a growing economy. On the other hand, this behavior reveals that expanding credit gives rise to a higher and expanded saving and consumption cycle in the market-an essential pillar for the economy of a country (Mont and Plepys 2008).
Under such arrangements, resources depending on how they are allocated can allow consumers to make decisions pertaining to their consumption in tandem with their actual preferences. The imbalance caused by the changes as a result of switching from one phase economical phase to another is suppressed by unlimited consumption measures. The likelihood of market forces reverting the economy back to the initial state before balance is attained is effectively alleviated by counterproductive measures formulated by relevant authorities and other market stakeholders. This is all done to avoid and depression initiated by a sudden change in business cycle.
2.6 Over consumption and Forced Saving.
Hayek at this point sought to point out at the direct and indirect impact of over consumption and forced savings on the long term stability of an economy. Credit was healthy but added credits were more encouraged in the market as they pushed up the demand of certain goods in the market without significant delay. The overall of production and output of most consumer goods is considered elastic and thus affects the production of goods in other industries such as construction. Therefore as a result of over consumption, other industries directly benefit and the consumption cycle is put at a more stable equilibrium.
As a result of this argument, overconsumption is therefore embraced as it is necessary for countering the small problems caused by a corresponding decrease in saving. This is better illustrated by Hayek’s triangle and clarified by other economic philosophers such as Mises (1913). Further according to Hayek, overconsumption does not necessarily imply overspending and limitless consumption largely due to the immense capital creation that comes with the former. For Hayek, overconsumption seems to be an impossibility by the very virtue of forced saving: “This phenomenon, we are to understand, consists of an increase in capital creation at the cost of consumption, through the granting of additional credit, without voluntary action on the part of individuals who forgo consumption, and without their deriving any immediate benefit.” (Hayek, 1975).
Hayek’s Stand on Limitless consumption
The above arguments by Hayek and other scholars brought a much heated debate on what each of them stood for in terms of the sensitive scope of limitless consumption (Salecl, 2004). In some cases, all the theories brought about pertaining this matter exhibited some similarities as well as differences. For example, Mise’s theory on human consumption (1913) sought to amend the same theory by Hayek by adding some accounting aspect into it. There was, however, criticism across the quarters whether this was important or it was just a way of gaining ground by the inspiring scholars.
The basis on which Hayek build his case was a mixture of denial as well as some degree of acceptance that indeed limitless consumption was a practical solution to the ballooning economic strain occasioned by the rapid growth of population. The resources are bound to get more and more limited as a direct result of many people scrambling for them. The wider angle from which we can reach at a clear and objective conclusion of what Hayek overall stood for is the dynamic changes in terms of economic trends and expenditure by the world nations today.
It is, therefore, important to note that regardless of the few objections of the Hayek theory, largely he stood for a world that was focused terms of expenditure and consumption (Borgmann, 2000). Hayek viewed limitless consumption as a danger to the future generations more so now that people were increasing and almost depleting the already scarce resources. Although he admitted that attaining a sustained and limited consumption model was far from reality, Hayek demonstrated that a proper synthesis and information system among key market stakeholders could make this possible.
On the other hand, the overconsumption element is never identified as critical in effectively responding to various criticisms brought forward by other philosophers in the world of economics. Hayek (1978) does not advocate overconsumption; instead, he offers his literary works as a reference in the support of the notion of the substantial breaks between increased consumption and the increased spending on investments. Other scholars, understandably, found Hayek’s analogy unhelpful as Hayek’s views did not compare favorably with Keynes’ views and also did not offer a comprehensive view of the rise and the decline of the overconsumption element.
Hayek’s Theory and the Modern World.
Hayek’s theory on the cycle of business has still remained relevant and a major point of reference to the modern world. It has become an integral basis on which the sustainability of a certain consumption model can be outlined. There could be no other time that Hayek’s work can become relevant than now. Resources are getting smaller while the number of people dependent on them is swelling.Diversity in choice of consumption model is encouraged as a way of dealing with the runaway economic crisis especially in developing and third world countries.
With the expanding need to acquire a variety of goods and services, consumers have become more and more focused on getting the best quality of goods and services at relatively lower cost. This is largely due to the fact that human consumption has witnessed a sustained but steady resurgence brought about by regular introduction of new goods and services into the market system. Unlike in the Hayek era when the market majorly contained goods that lie within the basic human needs and wants, the modern market is flooded with millions of products that range between needs and luxuries. Such a situation puts the consumer at a risk of getting the priorities wrong and sets up an awkward market consumption model (Barber, 2008).
The issue of savings and consumption is also a modern case that requires clear definition and a well-defined model. Saving can be seen as the foundation of investment and financial well-being of an individual and the nation at large. Spending should have a limit, but saving has no limit. More saving translates to less spending and high investments. Overconsumption of resources threatens the long-term financial strength of a person and the society. The interest rates equally go up as a result of overconsumption and reduced savings. The end result is a population deprived of key financial advantages and stagnated development.
In conclusion, this paper has been able to look at the Hayek e as well as the other related works of renowned scholars to highlight the key areas of concern in the discipline of human consumption(limited or limitless). The various thesis developed in relation to this area are have a huge impact on how an individual, society, nation or even the entire world can develop and maintain a sustained consumption model that conforms with the objectives of the nation as well as the long-term economic projections.
The various sources have been cited to illustrate the credibility of this paper as it is a key document that can be applicable to man.Whether to go for limitless consumption or not, remains the decision of an individual but this paper recommends that due to the current economic situation in most parts of the world, it is essential that we develop individual consumption models that will enable more and more other people to have access to the limited resources that make life possible (Fisk,1973). The paper is a major breakthrough and can be used as a blueprint for extensive economic planning.
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