There was a time when the advocates of socialism argued that it would lead man to material abundance, whereas free-market capitalism would lead only to increasing misery and would ultimately collapse under its own internal stresses. You don’t hear that too much these days, and for good reason. A century of empirical evidence has shown the contrary—that the free market leads to increasing wealth and material freedom, while socialism leads us only to poverty, state supremacy, and ultimately, mass murder.
These days the attack has shifted. Capitalism does not lead us to poverty; it leads us to too much wealth. This makes us “greedy” and “materialistic.” It leads us to excessive “consumerism.”
Indeed, there has been a recent resurgence of academic critiques and self-help literature lamenting excessive “materialism” and “consumerism,” much of which lays the blame squarely at the feet of free-market capitalism and its lifeblood, money. But does having more money really lead us to a narrow concern with material possessions? Does it lead us to an excessive desire for material wealth? Does it lead us to these things at the cost of spiritual impoverishment and the sacrifice of other concerns?
Alienable and Inalienable Goods
There are a great many nonmaterial goods that are of value to people, and for good reason. We value such things as dancing, singing, learning to play the piano, or watching a beautiful sunset. We value time to relax, a friendship, a romance, or any other positive personal relationship. We value our knowledge, our health, our physique, and many other personal characteristics. These all have the potential to have a valuable effect on our life. All are “goods” in the economic sense, and all may be rationally pursued to satisfy our desires and live a good, full life.
Some things of value are alienable goods: they can be transferred to others. So, for example, we can give a gold watch or a pair of shoes to another person. We can teach a person to play the piano or supply them with a cruise on a ship. But some things are inalienable goods: they cannot be transferred to others. We cannot transfer our time, our knowledge, our health, or our physique to another person. They must acquire these things on their own, by their own effort. And of course, some goods exist only as the inalienable possessions of others. Our friendships exist in the thoughts and experiences of our friends and ourselves. Our romances exist in the desires and life experience of our mate and in our own desires and experiences.
Although inalienable goods cannot be transferred to others, this does not mean that they are innate. Some inalienable goods require effort and time to acquire, as with knowledge, education, and other personal achievements. These goods must be weighed off against other goods that require time and effort to acquire, including many alienable goods. Thus, although we cannot acquire inalienable goods by trading away alienable goods in the market, we nonetheless make choices between these goods in the time and effort we allocate to their acquisition.
For this reason, the analysis of inalienable nonmaterial goods is well within the province of economics and does not present any particular problem for economic analysis. For, as Rothbard observes,
Economics … is not a science that deals particularly with “material goods” or “material welfare.” It deals in general with the action of men to satisfy their desires, and, specifically, with the process of exchange of goods as a means for each individual to “produce” satisfactions for his desires.1
In fact, as we have seen, economics deals also with the process of “exchange” within ourselves, through the allocation of time and effort to competing desires.
Money and Alienable Goods
Alienable goods, by definition, can be transferred to others, and can therefore be exchanged with others for some other alienable good. In particular, alienable goods can, in principle, be exchanged for money—that is, they can be bought and sold. Of course, this presumes a willing buyer and seller, and in many cases these will be absent. But notwithstanding this fact, it is generally the case that, absent legal restriction or widespread social repugnance, any alienable good may be bought or sold, if the price is right.
Thus, when one acquires money, one is essentially acquiring the ability to acquire alienable goods. Money is a surrogate for alienable goods. Presuming that the money in question is sufficiently sound to be of value to others,1 one can acquire money, safe in the knowledge that this can be exchanged for whatever alienable goods are desired.
By contrast, inalienable goods cannot be sold, since, by their nature, they cannot be transferred from the seller to the buyer. Hence, one cannot buy good health from another person, though one can buy fresh fruit, vitamins, an exercise bike, or a session in the gymnasium with a personal trainer.
If all goods were alienable, such that all could be bought or sold, then we could rationally be concerned solely with the acquisition of money as a surrogate for the acquisition of these goods. Thus, if a person were entirely uninterested in any inalienable goods of any kind, then he would indeed be the most extreme caricature of the “vulgar materialist.” He would work almost to the point of exhaustion, desiring his health and energy only to the extent that they would allow him to continue his work and to consume the goods that his money buys. He would give charity only if he could somehow gain a collateral advantage to get more money. He would desire friendships and other personal relationships only to the extent that they could make him more money.
Preferences between Alienable and Inalienable Goods
Of course, there are none who desire only alienable goods and hence none who act in this absurd manner. Rather, we rationally weigh alienable and inalienable goods against one another, according to our particular preferences and with a view to achieving the greatest possible happiness over the course of our lives. As Rothbard observes,
no one denies that there are nonmarketable, nonexchangeable goods (such as friendship, love, and religion) and that many men value these goods very highly. They must constantly choose how to allocate their resources between exchangeable and nonexchangeable goods.3
So how do we allocate our resources between alienable material goods and inalienable nonmaterial goods? And does the acquisition of money doom us to a life of barren materialism? Does our wealthy shopping-center society lead us to greater and greater material consumption and less and less inner fulfillment?
Why Materialism Diminishes as We Gain More Wealth
If we suppose that both alienable and inalienable goods are subject to diminishing marginal returns, it follows that, ceteris paribus, an increase in one kind of good will lead us to shift effort and time to the acquisition of the other kinds of goods. Thus, if we have more money, so that we can acquire additional alienable goods, then we will derive less marginal satisfaction from further additional alienable goods than we otherwise would. In this case, we will shift some of our effort and time away from acquiring alienable goods and towards acquiring inalienable goods.
This is indeed what happens in a free-market economy when people rationally pursue their desires. Rothbard observes that
It is nonsense to place the blame on “money” for the tendencies of some people to value exchangeable [alienable] goods highly as compared to some nonexchangeable [inalienable] goods. There is no force in the existence of the money economy that compels men to make such choices; money simply enables men to expand enormously their acquisition of exchangeable goods….
As a matter of fact, the existence of the money economy has the reverse effect…. The very fact that exchangeable consumers’ goods are more abundant enables each individual to enjoy more of the nonexchangeable ones.4
He further observes that
an advancing market economy satisfies more and more of people’s desires for exchangeable goods. As a result, the marginal utility of exchangeable goods tends to decline over time, while the marginal utility of nonexchangeable goods increases. In short, the greater satisfaction of “exchangeable” values confers a much greater marginal significance on the “nonexchangeable” values. Rather than foster “material” values, then, advancing capitalism does just the opposite.5
From this analysis, we see that the increase in wealth that obtains in the free market leads to a greater diversion of effort to nonmaterial concerns. Thus we see that capitalism, and the gain of material goods it engenders, leads to less “materialism” and “consumerism”—in terms of effort and time—rather than more.
An Objection—That Money Is Desired for Status as Well as for Consumption
Some critics may object to this analysis, pointing to the fact that money and material wealth are acquired for reasons of social status as well as for consumption. In this observation they are undoubtedly correct, though this does not change our economic analysis one iota. For the level of social status derived from wealth and the satisfaction derived from this social status are themselves subject to diminishing marginal returns.
A man who owns a Ferrari may indeed be motivated, inter alia, by a desire to show off his material success. He may indeed derive satisfaction from his view that this car shows that he has “made it.” In comparison to the person with no car at all, we may indeed suspect him of greater success—in finding a good career, fulfilling his desires, or whatever. But consider the additional status derived from buying a second Ferrari. Surely, this is of less marginal relevance than the first. After all, it is already clear that this guy is rich. A second Ferrari shows us that, yeah, he is definitely rich.
Indeed, the diminishing marginal perception of status with wealth is evident in the fact that most people regard billionaires as having essentially the same social status, regardless of how many billions these people have. Bill Gates is rich. Rupert Murdock is also rich. One more so than the other, but hey, they are both very rich. Both have the “social status” that one gets when one is rich and there is very little marginal difference between the two.
In fact it does not matter why we gain satisfaction from material goods. It does not matter whether this is from to actual consumption, social status, or any other reason. All that matters is that our satisfaction is subject to diminishing marginal returns.
Another Objection—That Money Is Addictive
Another possible objection is the allegation that, although money is indeed subject to diminishing marginal returns—or even diminishing absolute returns—people will nonetheless become addicted to wealth and will therefore pursue it to their detriment.
Critics of the alleged excesses of capitalism and the acquisition of money observe the fact that wealthy people have an appetite for more wealth and more goods, despite their large existing wealth. They observe the fact that many wealthy people spend vast amounts on ostentatious and unnecessary goods that do little to satisfy their desires. Whereas a poor worker will save his earnings for several years to purchase some modest but crucial accommodation, a very wealthy person might spend the same amount of money—or even more—on a piece of jewelry or redecorating the bedroom.
From this observation some have incorrectly concluded that wealth is addictive—that it begets only greater desire rather than greater satisfaction, leading to a hollow existence of “materialism” and “consumerism,” devoid of psychic fulfillment. This is an ancient observation. It is expressed in the second part of the dictum of Socrates that “contentment is natural wealth; luxury, artificial poverty,”6 and more recently by the anticapitalist social critic John Ruskin, that “every increased possession loads us with a new weariness.”
But in truth, this behavior is nothing more than a manifestation of diminishing marginal returns. The highly wealthy person desires these more opulent goods only because his desire for basic accommodation and other more fundamental goods is already satisfied.
While the acquisition of additional money and additional material goods is made at the expense of effort and time that could be directed to other nonmaterial pursuits, this does not imply that the wealthier man is any less fulfilled than the poorer man. For the very fact that greater wealth is available with less effort means that more effort can be directed towards nonmaterial inalienable goods.
This is not to deny that some people act irrationally, pursuing material goods that do not make them happy. Some may indeed be imbued with an irrational desire for material goods, which leads them to disappointment rather than satisfaction, though this is not inherent in the free market. But the mere fact that decreasing marginal satisfaction is derived from further acquisitions of wealth is no evidence of the “addictive” properties of material goods. It is evidence only of a logical preference ranking of material goods, with the most important goods being purchased first, and less important goods being forgone unless and until additional wealth is acquired.
Why Sensitivity to Materialism Exists Mainly among the Wealthy
What is more important than comparing expenditure habits between the wealthy and the poor is looking at the amount of time and effort that is expended on the acquisition of alienable material goods and of inalienable nonmaterial goods. For if our marginal-utility analysis is correct, it predicts that, as wealth increases, this will cause time and effort to be redirected away from the acquisition of alienable goods and towards the acquisition of inalienable goods. And in fact, this is exactly what occurs.
Observe that it is the impoverished people of backward economies who devote more of their time and effort to the acquisition of material goods than the wealthy inhabitants of advanced economies. It is not the poor who so fervently profess their desire for greater “spiritual fulfillment” and decry the evils of “materialism” and “consumerism.” They do not pursue nonmaterial goods with the same fervor. They do not take classes in French poetry just for fun—even if this is within their means. They do not read New Age literature or practice yoga.
Sensitivity to “consumerism” is an affectation that is largely present in wealthy western countries. This is partly because there is more material wealth and consumption in these countries. But even within western countries, apprehension about “materialism” and “consumerism” is more prevalent among the relatively affluent intelligentsia than among the poor or the middle class.
Moreover, this same phenomenon can be seen on a larger scale historically, with the rise of antimaterialism accompanying the age of classical liberalism. Mises has observed the fallacy of criticisms of “materialism” that arose during this period:
It is a purposeful distortion of facts to blame the age of [classical] liberalism for an alleged materialism. The nineteenth century was not only a century of unprecedented improvement in technical methods of production and in the material well-being of the masses. It did much more than extend the average length of human life. Its scientific and artistic accomplishments are imperishable. It was an age of immortal musicians, writers, poets, painters, and sculptors; it revolutionized philosophy, economics, mathematics, physics, chemistry, and biology. And, for the first time in history, it made the great works and the great thought accessible to the common man.7
Indeed, the 19th century was an age of musicians, writers, poets, painters, and sculptors precisely because it was an age of large advances in freedom and wealth. Poets and painters who chose to exercise their creative drive—even where their talents would not lead them to fortune—did so because it made them happier than if they had not. And it made them happier, precisely because the alternative—of effort and time employed for greater material wealth—was of less importance than it would have been under the poor conditions that existed centuries earlier.
This sensitivity to “materialism” and “consumerism” among the wealthy intelligentsia is not surprising. For as we have shown, it is perfectly rational for wealthier people to devote more of their time and effort to nonmaterial concerns.8 This is because, given their existing wealth, the material concerns still available to them are of diminished importance compared to the material concerns of the poor.
Indeed, the wealthy elite who wax lyrical about their disdain for “materialism” and “consumerism” are perfectly genuine. In the context of their own situation, they do indeed prefer to focus their effort on the attainment of nonmaterial, inalienable goods. But of course, their preference, usually in the context of relatively large amounts of existing wealth, should hardly be imposed on others, many of whom are in a far different situation.
Capitalism and Money Do Not Lead To Materialism or Consumerism
There is no force operating in the free market that requires the intense pursuit of material possessions, unless this is our preference. As usual, critics of free-market capitalism who fear that it will lead to “materialism” and “consumerism” underestimate the ability of individuals to rationally make decisions for their own happiness.
Many rational individuals have followed the dictum of the great English dramatist Christopher Marlow, who wrote, “Money can’t buy love, but it improves your bargaining position.”
Indeed, this is true in a stronger sense than he intended. For if we rationally pursue our happiness, and if we respect our desire for both material and nonmaterial goods and our preferences between them, then having an abundance of money and other material goods will give us greater freedom and greater inclination to pursue nonmaterial goods.
Thus, as we satisfy our desires for material comforts we naturally put greater effort towards the pursuit of other goals, be they knowledge, family, friendships, or love. Free-market capitalism and the abundance of wealth that it produces therefore lead us to both material abundance and nonmaterial satisfaction.
Originally published September 10, 2007.
1. a. b. See Rothbard, M. (2004) Man, Economy, and State with Power and Market: Scholar’s Edition. Ludwig von Mises Institute: Alabama, p. 162.
3. Ibid, p. 1350.
4. Ibid, p. 214. Emphasis in original.
5. Ibid, p. 1324.
6. The first part of which, I agree with.
7. Mises, L. Human Action: A Treatise on Economics, 1st ed. (Auburn, Ala.: Ludwig von Mises Institute,  1999, p. 155.
8. The concentration of antimaterialist sentiment among the intelligentsia is also due to the fact that the fundamental characteristics of the intelligentsia—knowledge, formal education, literary prowess, etc.—are themselves nonmaterial goods, ensuring that this group is naturally inclined towards the acquisition of nonmaterial goods.