Freeman

THE CALLING

Capitalism as Art

Value and meaning.

JUNE 09, 2011 by STEVEN HORWITZ

Filed Under : Capitalism

One criticism raised against capitalism is that it turns us all into pale imitations of real human beings by taking all the creativity and individuality out of life. This criticism usually focuses on how capitalism creates standardized, “processed,” and inferior products that we gladly consume (think of McDonald’s as the archetype here). The act of production is seen as rote and mechanical, perhaps indirectly due to mainstream economic models that portray the economy as merely an optimization problem lacking any creativity. The result, say the critics, is a bland, gray, highly imitative society.

This perception is misguided. In fact capitalism is fueled by creativity and makes possible a level of individuality never before seen in human history. The anthropologist Grant McCracken recently wrote that “capitalism is art, a transformational exercise that turns meaning into value and value back into meaning.” I think he’s onto something there, and viewing capitalism as creating meaning, like art, is a useful way to respond to the criticism noted above.

Creation of Value

That capitalist production is a “transformational exercise” should be fairly obvious: What entrepreneurs do is to take inputs and attempt to transform them into an output that is valued more highly than the sum of the values of the separate inputs (accounting for the time involved in production as well). A ladder is more valuable than a bunch of wood, some nails or screws, and some tools. Profit is the creation of value.

Note too the idea of “turning meaning into value.” The simplicity of the ladder example might hide it, but the hard part for the entrepreneur is figuring out what people value. One way of expressing this is that producers need to know what has meaning for potential buyers.

The goods and services we purchase are not really the ends we seek in the market — they are means for satisfying our various wants. The challenge for producers is to figure out what those wants are. This requires producers to try to understand the things that have meaning to consumers and then find ways to create them out of available resources. As McCracken says, producers try to transform meaning into value, which requires some elements of art in figuring out what carries meaning and how best to provide people with objects or services that embody it.

On the consumption side, the reverse is true. Capitalism makes it possible for us to better differentiate ourselves from others by providing an enormous variety of goods and services. This variety not only enables us to better fine-tune our purchases to our particular wants — which is itself a way of creating meaning in our lives — but it also lets us create and define who we are by the kinds of products we buy. As entrepreneurs create value by trying to anticipate what we want, we turn that value back into meaning by the patterns of consumption we undertake.

In the West most of us are wealthy enough that our day-to-day needs for food, clothing, and shelter are not pressing concerns. One consequence is that we can afford to make purchases that satisfy not just some particular want, but also the desire to create meaning in our lives. We spend money on our hobbies and interests, no matter how unusual they might be. We buy product lines that say something about who we think we are, or who we want to be, such as Apple products, hybrid cars, all kinds of clothing, and things like tattoos and hairstyles. We are artists creating ourselves through individualized consumption decisions.

Idiosyncratic Tastes

Market economies also produce goods that cater to the most idiosyncratic of tastes. Those with “minority” tastes, such as wearing Hawaiian shirts all the time or ties that look like fish, can find products that satisfy those tastes in the market. Imagine instead that we had to vote on what to produce according to majority rule. Much of what markets now produce to satisfy strange, unusual, or weird wants would never get produced. Markets make possible forms of creative individuality that alternative systems would not, and do not, tolerate.

Consumers take the values that entrepreneurs create and transform those products back into meaning for themselves. In some fundamental sense the creation of value and the creation of meaning are just two ways of looking at the very same process of production and consumption in a market economy. In other words, both entrepreneurship and consumption are acts of creativity, imagination, and art.

ABOUT

STEVEN HORWITZ

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Microfoundations and Macroeconomics: An Austrian Perspective, now in paperback.

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