Principles of Microeconomics Scarcity and Social Provisioning Chapter 9 An Institutional Analysis of Modern Consumption

CHAPTER . AN INSTITUTIONAL ANALYSIS OF MODERN CONSUMPTION INTRODUCTION TO AN INSTITUTIONAL ANALYSIS OF MODERN CONSUMPTION The damned by Lorenzo , depicting consumerism and the barbarization of modern culture , metaphorically . jailed where they think to freely run , they can stop because a delay means ( Caption quote from , WHO ARE WE AND WHAT DO WE WANT ?

One of the more notorious elements of the neoclassical perspective in economics is its treatment of people as isolated , PRINCIPLES or ECONOMICS 265 interested individuals . These economic agents are endowed with their own personal utility functions and de est tastes are simply a matter of personal preference . The choices we make , then , are nothing more than the manifestation of our tastes as we calculate the most satisfaction We can get from our scarce importantly , our money , which We begrudgingly acquire through work . Pause for a moment to think about the following questions what does it mean to be human ?

What is our atomistic approach to utility maximizing agents saying about human nature ?

And finally , does this offer a complete explanation of Why We consume the things We consume ( and often times aspire to consume more in the future ) TER OB ( In this chapter , you will learn about Institutional Analysis Conspicuous Consumption The Complex World of Modern Consumption The hedonistic man ( or homo ) of neoclassical economics is , as institutional economist observed , a lightning calculator of pleasures and pains , who oscillates like a homogeneous globule of desire of happiness under the impulse of stimuli that shift him about the area , but leave him intact . He has neither antecedent nor consequent . The hedonistic man is not a prime mover . He is not the seat of a process of living . In point of fact , however , it seems obvious that . People do behave deliberately and consciously , in ways that affect the world around them that is , they are prime movers , not simply reacting to external changes . People change , they develop , in ways that can not simply be construed as of scarce resources that is , people have antecedents ( where they came from ) and ( where they re going ) And , perhaps most importantly , people are social . Homo sapiens is a species that , unlike say ( earthworms ) must live in groups . This fact has been long recognized . Take , for instance , Aristotle Man is by nature a social animal an individual who is unsocial naturally and not accidentally is either beneath our notice or more than human . Society is something that precedes the . Anyone who either can not lead the common life or is so as not to need to , and therefore does not partake of society , is either a beast or a god . While human societies are made up of individuals , any given individual must come out of a society

266 ERIK DEAN , JUSTIN , MITCH GREEN , BENJAMIN WILSON , AND SEBASTIAN BERGER which existed before she did . This would suggest that our approach to understanding individual behavior should start with an understanding of society , not the other way around . In this chapter you will be introduced to an alternative , heterodox analysis along these lines the institutional approach and you will explore the new insights that this analysis brings to the study of consumption in modern economies .

INSTITUTIONAL ANALYSIS economics that treats institutions as primary is necessary to understand the economic of is , people making decisions within the context of their families , communities , industries , and other forms of organization , formal and informal . It is these social and organizations to which heterodox economists are referring when they use the term institutions . A broad definition of the term might be stated as follows Institutions are collectively shared habits of knowing , doing , and control , expand , and liberate individual action . As Aristotle recognized some 24 centuries ago , these institutions exist prior to the individuals born into them . They are the rules we learn that tell us what to do and what not to do . But as constricting as that may sound , institutions also constitute a powerful tool for the human race they allow to forego solving problems that others have already solved ( so that we don have to reinvent the wheel , as it were ) and they create reasonable expectations of others behavior , allowing us to act . Take , for instance , the simple collectively shared habit of thought concerning which side of the road to drive on . Knowing ahead of time which side we re to drive on saves us from the dangerous requirement of learning through trial and error . Likewise , this simple institution doesn just restrict our decisions it also produces expectations of what others will be doing , allowing us to travel more safely than we could without those expectations . In this manner , our actions are expanded beyond what they could otherwise would , in fact , be more limited without this institution . Of course , individuals are could not to conform precisely to the institutions into which they are is not a rigid mold into which each person is poured at birth . We are prime movers capable of making our own decisions and , to some extent , of changing the institutions of our society . But , it is the collective power that institutions give human communities as a whole which ultimately liberates us , that allows us to shape our own destinies and to participate in the shaping of our community destiny as well . Finally , as habits , institutions clearly must stay the same over some period of time . Yet , the gies , laws , culture , and so is , the any given society evolve over time , too . This occurs through the accidental and intentional adaptation of how we habits of thought an world around us . But , this creates an inherent tension within the concept of as the essential means by which humans collectively survive , institutions must constantly evolve to meet the we face yet , as habits , they must have a resilience to change , a constancy , to be of any use at all . Recognizing this tension offers an important insight into the nature of present institutions our collectively shared habits of thought are always a combination of useful ways of solving problems and the useless remnants of old ways of thinking . With the basic tools and insights of institutional analysis in hand , we turn now to analyzing

263 ERIK DEAN , JUSTIN , MITCH GREEN , BENJAMIN WILSON , AND SEBASTIAN BERGER tion in modern society . As you see , the decisions we make when it comes to What we consume and why we make those decisions can look very different once We take this fundamentally distinct as our starting point . Our understanding of how We act as consumers depends on our standing of who we are as a species .

CONSPICUOUS CONSUMPTION institutional analysis of modern consumption patterns would , of course , look first and most to a society institutions to explain these behaviors . Our tastes and preferences , in this view , are primarily the result , not of some abstract lightning calculation of marginal utilities per dollar , but rather of the common habits of thought shared among our peers , our family , and our society more generally . They do not emerge miraculously from each of our individual constitutions . Instead , they are the result of an institutional evolution , occurring in part by unplanned drift , and in part by intentional acts of problem solving , ceremonial observance , and persuasion . In this view , we re consuming the things we consume today largely because we learned that those things are appropriate to consume . And , importantly , the institutions that define what is and is not appropriate do not entirely reflect what is most conducive to nurturing individual , social cooperation , and sustainable uses of technology . Rather , they will reflect in part the imbecile and anachronistic habits of thought inherited from our past . Take for instance one of concepts , conspicuous consumption consuming goods not for their capacity to produce personal satisfaction ( utility ) but rather because they allow the to demonstrate or enhance her prestige . Surely , a host of examples come to mind readily designer clothing that serves no better as clothing than equivalents without the brand recognition upscale dining establishments serving food that is no more nutritional than their more modest sports cars that , while perhaps hypothetically capable of winning races , are no better at what they actually be used for ( driving around town and sitting in traffic ) than an ordinary automobile . What do all of these have in common ?

While one could argue that each of these examples is a good or service of a higher quality than their cheaper alternatives , most people would easily recognize that there is an element in each of allowing one to conspicuously show off the fact that one has the money to make purchases that others simply could not afford . The question becomes , why would someone go out of their way to spend money on things that , in fact , don provide additional utility or value in use ?

And , as you might have guessed , answering this question requires an analysis of the institutions that guide our tion decisions in modern society . The following breakout box points the way toward ultimate conclusion . Sometimes referred to as the first feminist economist , published his Economic Theory of Dress in 1894 , breaking down the characteristics of the apparel of his time that offered the consumer something more than simply protection from the elements . His three cardinal principles of women dress , each of which was advertising the fiction that they live without any gainful occupation , were

270 ERIK DEAN , JUSTIN , MITCH GREEN , BENJAMIN WILSON , AND SEBASTIAN BERGER . Expensiveness clothing must be uneconomical is , demonstrating that the wearer , or her family , has the means to waste money on items of little functional value . brand names make this easier to recognize for the uninitiated but ultimately the expense of the work and material that went into producing these items is a more subtle , sophisticated way of indicating the same . Novelty to the extent that clothing is useful , the wearer must not get the full use value from it . She must discard articles well before even insignificant wear starts to show . Observing seasonal changes in fashion helps to coordinate and enforce this sort of consumption observance . clothing must show that the wearer does have to participate in useful work . For instance , clothing might be severely binding , or footwear might restrict movement . Can you think of any examples of consumption goods outside of women apparel that fit this description ?

My personal favorite comes from men professional clothing the necktie . As you probably aware , neckties don serve much of a re certainly not providing warmth , and in fact they not even covering up an otherwise naked part of the body . So why do some men find themselves compelled not only to buy and wear these products , but to periodically discard the old ones and purchase new ones ?

A common response from students is they make you look professional . But , that just begs the question , why do they make you look is , why do we associate neckties with professionalism ?

Surely men in most professions actually make use of the tie in their work ( though I found they make a convenient wipe for smudged eyeglasses ) sider cardinal principles above as applied to the necktie . Expensiveness while presumably whatever function neckties serve could be equally were they made from a relatively inexpensive material like cotton ( or , for that matter , paper ) they tend instead to be made of more expensive materials like silk . Novelty those who follow men fashion will know that neckties are subject to similar style changes as other types of terms , especially , of patterns and widths . Most people are probably able to discern a tie that was purchased in the versus the , much as most people can give a rough date to when a car was produced just by looking at it . paradoxically , to demonstrate professionalism , men are often expected to wear apparel that does more to hinder than to aid their capacity for work . The delicate and expensive fabric , for instance , indicates that the professional man is not likely doing work that would involve getting his hands dirty in the literal sense . Likewise , it would not typically be wise to wear a long necktie in a manufacturing context in which machines are being used , lest the tie get caught in the machine . These are strange principles by which to guide your consumption goods , indeed and certainly not ones that are limited to women even clothing in general . A little reflection on modern culture and the reader could probably see these principles in much of what we consume today . But , again , why are these apparently useless and even wasteful elements so to the modern consumer ?

Why would someone want to waste money , or to show off they they do contribute to society ?

The remainder of this section will give a summary explanation . It goes almost without saying that , as social creatures , we humans feel a sense of based in part on how we think others see us . We strive to fit in , to avoid feeling inferior , and at times to

PRINCIPLES or ECONOMICS 271 show our superiority to , of course , must make others feel inferior . But , how we do so is dictated by the accepted social we were born into and those institutions have mutated through generations to produce a strange set of criteria for who is superior and who is inferior . In much earlier times one prowess , the respect afforded by one peers , would reflect the capacity to ably accomplish something that was useful to the group . As humans technologies improved , however , it became increasingly the case that . The greatest contribution to current productivity came from the countless generations of workers , inventors , engineers , and so on from whom society had inherited its industrial arts . And , As technologies became increasingly sophisticated , more and more people , each having increasingly specialized skills , was necessary to efficiently produce things with these more sophisticated technologies . The problem with these developments is that it becomes very difficult to differentiate one person contribution from another , or , more accurately , from the general productivity of the group acting collectively . Consequently , over a very long time the presumption developed that how much you contributed to others would simply be in how much money you made ( whether this is true or not is another matter altogether ) But this presented a problem for establishing the amount of prestige others should afford you how much you have in your bank account isn typically public information , and politeness dictates that you shouldnt go around waving your most recent ATM account balance slip in people faces . The solution ?

Demonstrate your prowess , as evidenced by your vast riches , by wasting money wherever possible . Part of this anthropological history , which can only be given in the most rudimentary of forms here , also demonstrates a division of in terms of prestige . In particular , early humans prestige from exercising their power over the natural and killing large game , or controlling the through irrigation channels , for instance . However , once technologies improved , it became increasingly the case that demonstrating power meant controlling or extracting from the productive community is , from so than from nature . As a result , the higher classes came to be associated with occupations of predation , control , and instance , politics and war , management and finance , celebrity and fashion , With consumption as the chief way to demonstrate , and to reinforce in the minds of ones peers , that one belongs to the better class of people , our institutions began to prescribe an element of ineptitude , showing exemption from useful labor .

THE COMPLEX WORLD OF MODERN CONSUMPTION he institutional analysis of conspicuous consumption demonstrates the importance of moving past notions of utility maximization , and beginning to look at the historical and cultural reasons behind individual consumers decisions . Yet , consider the following Americans are exposed to hundreds , perhaps thousands , of advertisements every day Some consumers are willing to camp outside of stores for days just to be the first to purchases a new product The traditional holiday of Thanksgiving has now been paired with ( if not eclipsed by ) the called Black Friday it precedes These and many other examples might be taken to suggest that it is not only the individual decisions of consumers concerning what to buy that needs to be explained . Rather , we should also be looking to understand social preoccupation with acquiring and , most importantly , fying with consumer well . To understand the importance of advertising and consumerism today , the best place to start is with the work of institutional Kenneth . In Society ( 1958 ) and later in The New Industrial State ( 1967 ) argued forcefully that the historical conditions that classical and neoclassical economists were concerned , production of necessities amidst widespread poverty and the allocation of scarce been superseded by an age of relative . Mass production , as you see in a later chapter of this textbook , had largely solved the problem of producing enough to adequately meet the needs of the people ( though ensuring everyone has access to basic necessities remains a problem to this day ) Of course , solving one problem presents new ones , and for one of the most important problems society had come to face was how to ensure that there would be demand for what could be produced once our basic needs were met . Enter the adman . As argued , advertising and salesmanship became important once our basic needs were , for the most part , easily met , and our remaining desires were no long immediately evident to us . Advertising and salesmanship functioned , then , to synthesize , elaborate , and nurture our desires for goods and services beyond those serving simply to keep us fed , clothed , sheltered , and so on . Another way to look at it where businesses had come increasingly to serve customers in ways that went beyond providing the goods and services to meet basic needs , these businesses required a way to maintain willingness to hunger , cold , and so on would not . In this manner , advertising and salesmanship became a form of demand management , designed to keep sales up , to keep people buying even after they would have otherwise felt satisfied . With the ascendancy of marketing , the products we buy come to take on special characteristics as their design increasingly the needs of businesses to sell as much as our own personal wants and

PRINCIPLES OF ECONOMICS 273 The 1959 Cadillac , sporting the decorative that the increasing of marketing on automobile design in the century . user . Public Domain ) needs . More or less superficial options for colors and frequent style changes , for instance , that consumption is , increasingly , a conspicuous act . But more than this , these new characteristics indicate that people are associating their very identities with the consumption choices they make . Consider , for instance , what kind of car you would prefer to drive versus what kind of car you would want to be caught dead in . Or , ask yourself why it is common to see groups of people who are all dressed similarly . It likely not difficult to see that sumption and identity have become significantly intertwined in modern culture . But what of the people who refuse to conform ?

As you might have guessed , today there are plenty of products available for her as well . Consider the New York advertising firm Doyle Dane campaign to sell the Volkswagen Beetle in the . The ads famously used wit and humor to target drivers who favored reliability and over the increasingly common consumption elements of American automobiles . A 1963 magazine spread , for instance , depicted 15 identical images of the Beetle with model years from 1945 to 1963 under each image , indicating the utter lack of changes in the body design over this period . With advertising like this Volkswagen was able to successfully market its products to the consumers who did accommodate themselves to the mainstream preferences of the time . The ad campaign of the might be taken as marketing naturally restraining the potential excesses of conspicuous consumption needless model changes and functionless decorations were explicitly rejected , even mocked , in these ads . However , the important thing to recognize is that it also allowed consumers to display their of independence from the cultural trends while still their relationship with the businesses that provide these goods .

274 ERIK DEAN , JUSTIN , MITCH GREEN , BENJAMIN WILSON , AND SEBASTIAN BERGER Over the decades this form of marketing has evolved into what institutional economist Philip calls a form of marketing in which businesses promote the belief that are too smart to be fooled or persuaded by advertising , brands , and so on . With that belief firmly held , consumers are free to buy what they want , safe in the knowledge that their decisions are their own . becomes unnecessary , and ( potentially all ) differences of opinion , whether political , cultural , or otherwise , become expressible through the conspicuous consumption of goods and services . In this manner , the very concept of Self is reduced to selections from a menu of ping opportunities the boundaries between a persons identity and businesses marketing become , The curious result of all of this is that our consumption choices , our preferences , our very identifies seem more and more to be adjusted to fit the goods and services available for purchase , rather the reverse . To be sure , this is not a criticism of individuals who prefer one branded identity over another . It is , rather , an observation of the extent to which the complexity of the practices of conspicuous sumption and corporate demand management have .

CONCLUSION he neoclassical approach to understanding consumption decisions appears to make a lot of sense , given the specific ( perhaps peculiar ) way the question is posed . Why do people buy what they buy ?

Because they prefer these things over others . Of course ! But how well does this approach answer the truly interesting questions of modern consumption decisions ?

Why , for instance , do some people buy sports cars only to park them with everyone else in rush hour traffic ?

Why is it that , when we go to buy clothes , we spend so little time comparing the warmth and ity of the materials , and so much time on the finer details of how it looks ?

De est leads the neoclassical analysis to conclude simply that these are the elements which provide the most utility , leaving the critical thinker to ask well , why are these the major elements of utility ?

Naturally , to argue that we prefer the things that give us utility , and the things that give us utility are the things we prefer , is little more than an exercise in circular reasoning after all . jettisoning the overly constricting assumption of de est allows us to move on to an institutional analysis and with that analysis we can begin to answer the really interesting . Once we accept that humans are naturally , inherently social creatures , and that a society evolve over time , we can begin to understand how consumption patterns reflect partly the needs and desire of individuals , but also in part the received habits of thought of the societies these individuals were born into . We can develop plausible explanations , like conspicuous consumption , for why consumers appear to be purchasing things for their disutility or their wastefulness . These theories , in turn , bring to light new questions . For instance , what is the relationship between the producers of consumer goods and the desires of consumers if not simply for the former to cater to the latter ?

What is the nature of the Self , how is that constrained by a culture of consumerism , and how might it break free of those constraints ?

These may be difficult questions to answer within the standard framework of neoclassical economics . Because of this , heterodox economics often turn to an institutional analysis instead . WHO ARE WE AND WHAT DO WE WANT ?

Certainly , the basic purpose of this textbook is to introduce the student to how economists explain the way our economy works . But it worth pausing for a moment to on the following question are you , the student , being trained in something more than theories that explain the consumption , production , and distribution of goods and services ?

Does it go deeper than that ?

In a recent interview , linguist was asked if he agreed with the View that bedrock human nature indicated that we , as people , are selfish and really seeking material comfort that We can never get away from what We are . response was that such a view was a product of the last century of advertising , rather than any scientific study of actual human nature . The natural thing for humans , argued , is to want to be independent , creative

276 DEAN , JUSTIN , MITCH GREEN , BENJAMIN WILSON , AND SEBASTIAN BERGER graffiti in , Norway . user . People , I think , want dignity and a sense of , and a sense of creating and doing something that important What we are . I think its taken huge efforts , enormous huge part of the economy is devoted to trying to drive these things out of peoples heads , to make you think that all you want is more commodities It is worth considering Where an introductory economics class ( and textbook ) fits into the broader culture in which we live . While economists surely strive to be objective social scientists , it is impossible for us to completely divorce ourselves from the societies in which we were brought up . Is it possible , therefore , that the stories we tell about , for instance , con choices have embedded in them certain assumptions about what it is to be human ?

And , furthermore , is it possible that those assumptions are in part a reflection of the very societies were trying to understand ?

As this chapter has demon , regardless of your personal beliefs about human nature , asking these questions is important if We to properly understand our economy as it evolves through time .