Is it production or consumption that matter? In a sense, it is neither!
There has been a lot of ink spilled out there about whether it is production or consumption that matter. Without production we have nothing to consume! Without the urge to consume we wouldn’t produce anything!
People will talk about “Says Law” (supply creates its own demand), or jump around talking about Keynes or Malthus (effective demand can be too low, demand creating its own supply, underconsumption!).
This all sounds grand, and makes great soundbites as it lets us say one drives the other. But I’m always struck by the question “who cares”. Production, consumption, output, in our models none of this has any inherent value unless we “assume” value. And in the world we want to make conclusions about, the inherent subjective value is something that exists that we can’t necessarily observe.
When looking at an economy as a whole, we are not a “large firm” trying to maximise output, or maximise consumption. We are a series of individuals making choices for some reason. Understanding the choices, how they relate to value, is the starting point of any thought.
This is the kicker. When we turn around an apply models (either explicit or implict in our description and conclusion) we are apply our own value judgments. If we haven’t separated them out, we will sneakingly include value judgments solely based on our own experience “because they seem natural”. However, other individuals are inherently different beasts, rules we follow aren’t necessarily the same as the ones other follow, and the rules we have to understand the actions of a social group don’t necessarily have much relation to the true nature of those groups!
In this context, both production and consumption should be seen as a means to an end. And we should analyse them in this context – in what ways does this impact on our view of “social value” or welfare. This is a question we have to answer before concluding – and the assumptions involved can only be validated through the acceptance of a community, not by strict scientific measurement of value.
Overall, this is why economics is the study of trade-offs involved in scarcity, not the study of how we should allocate scarce resources. Economists merely ask that lessons involved from our series of descriptions are taken into account when society gets together to try to discuss what they believe is “fair” and “just”. And non-economists are merely asking economists to recognise that their framework allows description, but doesn’t give them a monopoly on understanding moral questions of value!