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2.1 Who are Consumers?
Who is the consumer? There are in fact two types of consumers.
First, there are individuals and their households. Goods and services
intended for these types of consumers are known as 'final' or 'consumer'
goods and services. Goods and services intended for business as an
input to the production function are known as 'intermediate' or 'producers'
goods. The final consumer is the
focus of microeconomic theory.
And what do consumer's get from consuming goods & services?
They get 'utility'. In common language, this seems to suggests 'usefulness'. However, in
economics 'utility' has a much deeper and in some ways darker meaning within
the 'felicitous calculus' of
Jeremy Bentham (1748-1832). In simple terms,
Bentham believed that all of human existence could be explained by the
search for pleasure and the avoidance of pain. Thus 'pleasure and pain are
the sovereign rulers of the State'. He believed that pleasure and
pain could be reduced to what would eventually prove to be physically
measurable units called 'utiles', hence 'utilitarianism'. Thus
utilitarianism is radically materialistic at root.
Another name for utilitarianism, as defined by Bentham, is
'ethical hedonism'. The search for pleasure was inhibited in Bentham's
scheme by the assumption that human beings carried a God-given ethic of
right and wrong - essentially the Protestant work ethic. Once that ethic
faded, however, we were left with only 'Me-ism': only my pleasure counts,
and anything I do to increase it, no matter the pain and suffering to
others, does not matter! It is ironic that what Plato feared most
about Art was realized by economics:
We must remain firm in our
conviction that hymns to the gods and praise of famous men are the only
poetry which ought to be admitted into our State. For if you go beyond this
and allow honeyed muse to enter, either in epic or lyric verse, not law and
the reason of mankind, which by common consent have been ever deemed best,
but pleasure and pain will be the rulers in our State.
Book X of The Republic
Joseph Schumpeter in his classic the History of Economic
Analysis described utilitarianism as "the shallowest of all conceivable
philosophies of life that stands indeed in a position irreconcilable
antagonism to the rest of them" (Schumpeter 1949: 133).
Subsequent economists have struggled to escape the grasping hand of Bentham.
Thus of consumer goods and services, Alfred Lord Marshall noted:
Increasingly wealth is enabling people to buy things of all kinds to suit
the fancy, with but a secondary regard to their powers of wearing; so that
in all kinds of clothing and furniture it is every day more true that it is
the pattern which sells the things (Marshall 1920; 177-8).
The consumer goods market, as we know it today, began to emerged in the 18th
century with the arrival of a mass 'middle class' or bourgeoisie.
Before that time the lower classes, in the main, produced their own consumer
goods at home while the upper classes either directly employed craftspersons
and artisans in their 'great houses' or estates or contracted 'freemen' to
produce the quality goods required by 'nobles'.
Grant McCraken, in his book Culture and Consumption: New Approaches to
the Symbolic Character of Consumer Goods and Activities (Indiana
University Press 1988), outlines the origin of this modern consumption
pattern. I quote from my book review:
McCraken begins by describing a consumer boom in 16th century
England in which, he argues, it was the court of Elizabeth I, not Louis XIV
a century later, that revolutionized the nature of consumption. To keep
Catholic and other nobles loyal in troubled times, she exploited the
"hegemonic power of things to communicate the legitimacy of Her Rule".
Before Her Time, the family was the traditional unit of consumption. One
bought for future generations. One bought that which would last because it
took five generations of patina to move one's family into the "gentle"
class. She, however, forced those aspiring to rise above their station to
spend now, for themselves -- to be the prettiest peacock at court, the most
generous. Like the potlach (praised as the quintessential example of
"caring" capitalism by George Gilder in his influential 1981 paean to the
Reagan Revolution entitled Wealth and Poverty) members of the court
were compelled to consume their way to honour, power and gentility. This
shift from long-term to short-term consumption had a dramatic impact on the
evolution of Western culture contributing to the breakdown of feudal
society. At the same time, however, in England and other European countries,
punitive feudal 'sumptuary' legislation remained in place to be used by the
State to restrict "status fraud", i.e. persons of the lower classes dressing
or otherwise pretending to a higher station in society.
McCraken goes on to explore the consumer revolution of the
18th century with particular emphasis on the role of Josiah Wedgewood in
shifting the source of fashion from the nobility to the bourgeois marketeer,
or what McCraken calls "market ethnographers" who watched for patterns and
regularlities and adjusted products and marketing strategies to take
advantage of emerging opportunities. By the 19th century such observers of
society attained unprecedented social mobility. Thus McCraken notes: "In the
person of Beau Brummel we see nothing less than the abrogation of powers of
influence that had previously been possessed only by the monarch".
Continuing his journey towards the present, McCraken
highlights the emergence and impact of the department store, mail order
catalogue and advertising. In fact, McCraken manages to shift the entire
focus of the Industrial Revolution from the production-side, which is the
principle object of economic analysis, towards the consumption-side. He also
demonstrates that older patterns of consumption, e.g. patina, remain
vestigal part of contemporary consumption.
The last third of the book is focused on more theoretical
issues but still spiced with real world observations. McCraken considers
issues like: clothing as language (which he effectively discounts);
"meaning" manufacture by advertisers who place a product within a positive,
socially acceptable context and try to transfer the acceptability of the
context to the product; rehabilitation of the "trickle-down' theory; the
evocative power of things; and Diderot Unities and Effects, i.e. forces that
compel the individual to maintain cultural consistency in consumption as
well as forces which encourage the individual to change lifestyle.
While McCraken's work can be seen in the context of the
emerging field of consumer hedonics -- consumers buy fulfillment of
fantasies, not solutions to problems -- an approach pioneered by Hirschman
and Holbrook, the fact remains that McCraken roots this new concept of
consumer behaviour in the history of Western civilization. For those
concerned with the economic implications of the arts, McCraken provides a
foundation upon which much fruitful research and study can be conducted and
from which a greater appreciation of the North American "yuppie" trade
deficit will surely emerge.
Book Review, H.H. Chartrand, Journal of Arts Management & Law,
Volume 19, No. 4, Winter 1990
Second, there are firms that purchase goods and services as 'inputs' to the
production process of final goods and services. Goods and services
purchased by firms are known as 'intermediate' or 'producer' goods and
services. Taste and style play a significantly less important role.
Rather it is price and technical quality that dominate the producers' goods
or the 'input' or 'factor of production' marketplace. Firms as
consumers are the subject of a separate part of microeconomic analysis known
as 'factor market' analysis.
In what follows only consumer or final goods and services are considered.
As an introduction to a more detailed analysis of consumer behaviour
consider these words by Tibor Scitovsky:
The most important price taker in our society is the consumer
who faces set offers in practically all his market transactions. He has an
income which he can spend on different goods and services in a variety of
ways; and the alternative patterns of expenditure open to him are determined
by the variety of offers and the structure of prices facing him. Of the
alternatives made available to him by his income and his market
opportunities, he will choose the one that best conforms to his preferences.
The way in which he actually spends his income therefore depends on his
personal preferences, on the size of his income, and on his market
opportunities. In the following, we shall discuss, first, the way in which
the market's offers and the consumer's income determine the latter's market
behavior and, second, how changes in income and market offers affect his
behavior. The consumer's preferences, however, we shall regard as fixed. The
economist's task is to analyze how and to what extent economic activity
conforms to consumers' preferences; but these he cannot question and must
accept as given. 1
How can we find out what the consumer's preferences are? We
can hardly question him on the subject and so establish his scale of
preferences. This would be a lengthy and clumsy process even if applied to
only one person and is obviously impossible to apply to all members of the
community. We can, however, infer the consumer's preferences from his market
behavior, on the assumption that this is governed by rational choice and is
not merely a matter of habit or accident. When the consumer spends his
income in a certain way, we assume that he finds this the best way of
spending his income at the existing structure of market prices, because it
it were not, he would surely spend his income differently. The theory
of consumer's behavior, therefore, is purely descriptive and describes the
behavior of the rational consumer. We can neither prescribe how the
consumer should behave nor judge his behavior by comparison to an ideal
behavior pattern, because we have no such ideal pattern. To establish
an ideal behavior pattern would require independent information of the
consumer's tastes and preferences; whereas we know these only as they are
reflected in his market behavior. This means conformity of the
consumer's market behavior to his preferences is the assumption we start out
with and not something that can be proved or disproved by our analysis.
1. Producers, however,
do not always accept consumers' preferences as given but often try to
influence them through advertising and other means. This raises the problem
as to whether consumers' preferences, dependent as they are on advertising,
should really be regarded as the ultimate standard.
Tibor Scitovsky, Welfare and Competition,
Irwin,
Homewood, Illinois, 1971, pp. 27-28. |
