Just back from China, where consumption-driven economic strategy is changing the country so quickly that it’s barely recognizable since my last visit just four years ago. Some of this must be due to the Beijing Olympics and the 2010 Expo in Shanghai, but—as the New York Times pointed out a few weeks ago—a lot of it stems from economic policy. After decades of global dominance as a producer of goods, China has become a formidable consumer economy too, producing shock-and-awe-inducing spectacles like this Louis Vuitton flagship store in Shanghai:
These and other impressions of China at the end of the first 21st-century decade called to mind an observation made nearly 200 years ago by—of all people—the Scottish novelist, poet and playwright Sir Walter Scott. Not a guy I would have expected to hold views on things like consumer behavior and investing, but apparently he was a man of many parts! Most significantly, worked for many years as a lawyer, giving him at least a passing interest in things like the legal revival of the corporation in England, through the 1825 repeal of the Bubble Act.
As Scott pointed out, even in the early days of the Industrial Revolution, consumption was at least as important as production as an “engine” of economic development. Not only that, but he argued—in a way that would be at home in many contemporary policy discussions—that consumption was the driver of growth in financial markets. That is, increasing the value of investments depends on consumer behavior.
Even in the infancy of the contemporary global economy, apparently, it was clear to Scott and others that the way to make money was by spending it. The industrial economy, he said, was like a hydraulic engine: it produces water as a byproduct of its operation, but then uses that water as fuel. In the same way, he wrote, joint-stock corporations produce consumer goods, the consumption of which fuels corporations economically. Thus, an investor increases corporate profits when he:
…buys his bread from his own Baking Company, his milk and cheese from his own Dairy Company…drinks an additional bottle of wine for the benefit of the General Wine Importation Company, of which he is himself a member. Every act, which would otherwise be one of mere extravagance, is, to such a person…reconciled to prudence. Even if the price of the article consumed be extravagant, and the quality indifferent, the person, who is in a manner his own customer, is only imposed upon for his own benefit. Nay, if the Joint-stock Company of Undertakers shall unite with the medical faculty…under the firm of Death and the Doctor, the shareholder might contrive to secure his heirs a handsome slice of his own death-bed and funeral expenses.
—from the “Introduction” to The Betrothed, 1825, p. 6
Reading this, I couldn’t help but think of the many ways this spend-money-to-make-money strategy has shaped US political and economic history, including the New Deal and the responses to 9/11. Who could forget the myriad of ways we were urged to rebuild the country through consumption following September 11th, from mass emails that criss-crossed the nation, imploring us to buy stocks as an act of patriotic resistance (Harrington 2008: 201), to former President George W. Bush telling us that “the American people have got to go about their business. We cannot let the terrorists achieve the objective of frightening our nation to the point where we don’t — where we don’t conduct business, where people don’t shop.”
Now this shop-and-spend approach is reshaping China, and through China, the whole distribution of global economic power. The striking and surprising thing, to me, about the Scott quote is how early he spotted what would become the dominant economic policy motif of contemporary capitalism. To his long list of roles and achievements, let us add “economic visionary.”