ABSTRACT
Consumption is the sole end and purpose of all production. (WN 660.49)
One of the most important contributions of An Inquiry into the Nature and Causes of the Wealth of Nations (WN) was the discrediting of the mercantile system. The advocates of that system claimed that the wealth of a nation was to be found in its stores of gold and silver (WN 450.35). The nation became wealthier when it had a favorable balance of trade – which meant exporting as many goods as possible in exchange for gold and silver while limiting imports. Smith’s most important critique of mercantilism was that gold and silver are only proxies for wealth: “Every man is rich or poor according to the degree in which he can afford and enjoy the necessaries, conveniencies, and amusements of human life” (WN 47.1). The man with a vault full of gold is considered rich, but only because of what he can buy with his gold. If he were prohibited from spending any of the gold in his vault, he would be little more than a pauper. So it is with nations. Goods and services are the real wealth of a nation; not gold coins, but chairs,
clothing, books, and bread. Mercantilism was particularly pernicious because it deliberately sacrificed real wealth (goods) to stockpile idle metals. Despite demolishing the mercantilist fallacy that gold and silver are wealth, Smith runs into his own conundrum between how to value the “nature” of wealth (consumption) and its “causes” (production). The reason that goods and services constitute wealth is because people’s lives are made better by consuming them. Yet Smith does not condone all consumption as contributing to one’s wellbeing. He thinks that consumption can be wasteful, extravagant, ill-conceived, and socially damaging. This chapter addresses the following question: How is it that Smith could think that consumption is the true measure of wealth, the sole end of production, and yet sometimes be a bad thing? For the past century economists have shied away from passing any judgment on
consumption decisions. Ludwig von Mises (1949) argues stridently in Human Action that the economist only evaluates the means to accomplish some end, not
the end itself. The consumer is king and his consumption choices cannot be disputed or criticized except within a means-ends framework:
economics deal[s] with the means for the attainment of ends chosen by the acting individuals. They do not express any opinion with regard to such problems as whether or not sybaritism is better than asceticism.…Any examination of ultimate ends turns out to be purely subjective and therefore arbitrary.
