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Thursday, March 14, 2024

Velour Drapes and the Wisdom of Mises

Economic principles are operating all around us—if we know where to look.

Image Credit: Ian S | CC BY-SA 2.0 DEED

The best money I ever spent was on pink velour drapes. It was 2003, and I was studying abroad in England with very little spending power and poor preparation for my time overseas. When I arrived in the UK, with two other classmates, I did so with no real guarantee of a place to sleep, but when you are young, you feel you can figure anything out.

I had previously dismissed the only option I received for on-campus housing since the cost seemed too high, and I thought I could do better on my own—and I had convinced the two other students to trust me. After a rather daunting arrival and a lot of scrambling around, we were able to secure a flat and saved a significant amount of money upfront for doing so. However, other costs would be incurred because of our decision, like paying for public transport given the distance we were from campus.

Being on the outskirts of town was one reason our rent was so low, but another reason was that the flat came with nothing—no television, no Internet, no dishwasher, no washing machine, and only a few pieces of furniture. It also lacked any basic needs that on-campus housing would have provided, such as bedding.

This brings me to the pink curtains. The nights were frigid, but I couldn’t bring myself to spend money on a new comforter that I wouldn’t be able to keep after my trip due to limited suitcase space. Anything I bought had to be functional but also disposable. So, rather than just looking for bedding, I looked for anything that could simply keep me warm. I focused on the utility—what it needed to do, not on what it was. Anyone who has seen the movie Titanic knows that Kate Winslet’s character wasn’t saved by a lifeboat; she was saved by a door—she just needed something that could float.

When our purchasing power is strong, we often spend more according to our wants, style, and status. However, when money is tight, we often focus on core needs, and that can be a good thing! When buying for function, we’re more resourceful, less wasteful, and truly strategic with our spending and savings.

For the price of 4 pounds (roughly $4), I was able to buy the warmest covering ever: thick, pink, velour drapes from a local thrift shop. And although it cost a few more pounds to wash them at a laundromat, I was thrilled with my purchase. It was cheap, it got the job done, and it was a quirky solution to those shivering nights.

Now, whenever I need to think outside of the box regarding big purchases, I think about those drapes. And it has served me well, which is perhaps not surprising, given that my money-saving strategies are in line with Carl Menger’s Austrian teachings and Ludwig von Mises’s application of praxeology.

So, what are the takeaways which can be found in the Austrian school of thought? Here are some of the fundamental ideas:

  1. The economic value of goods and services is subjective—I valued the curtains because of their warmth and weight, not because they could hang over a window.
  2. Opportunity costs matter—while I didn’t value spending a significant sum on being comfortable in my flat, I did value spending most of my money taking excursions and exploring Europe. By saving on living expenses, I could spend more on touring around.
  3. Resource scarcity can spark creativity—if my flat came fully furnished and fulfilled all my needs, I wouldn’t have had to think outside of the box.

The market is truly an entrepreneurial process—a view held by many an Austrian economist—and we are entrepreneurial beings. Never settle when options are obvious or limited. If I had opted for on-campus housing, I would have missed out on so many great memories and character-building experiences (like learning to wash my clothes in a bathtub, or how not to get lost when forced to walk after a tram breaks down, or how to appreciate great conversations in place of watching TV shows).

At the end of the day, value can vary, but you’ll never regret a purchase that truly meets a need, and it is up to the consumer to judge when a need has been met. The consumer is truly sovereign under a capitalist system, and this was aptly depicted by Mises in his 1944 publication Bureaucracy:

The real bosses, in the capitalist system of market economy, are the consumers. They, by their buying and by their abstention from buying, decide who should own the capital and run the plants. They determine what should be produced and in what quantity and quality. Their attitudes result either in profit or in loss for the enterpriser. They make poor men rich and rich men poor.

The consumers are merciless. They never buy in order to benefit a less efficient producer and to protect him against the consequences of his failure to manage better. They want to be served as well as possible. And the working of the capitalist system forces the entrepreneur to obey the orders issued by the consumers.

The consumers are no easy bosses. They are full of whims and fancies, changeable and unpredictable. They do not care a whit for past merit. As soon as something is offered to them that they like better or that is cheaper, they desert their old purveyors. With them nothing counts more than their own satisfaction. They bother neither about the vested interests of capitalists nor about the fate of the workers who lose their jobs if as consumers they no longer buy what they used to buy.

It’s fascinating how much these themes show up in everyday life. Economics really is all around us.