The Free Market 19, no. 11 (November 2001)
“Many foolish things have been said and written about luxury.” --Ludwig von Mises, Liberalism.
There is so much nonsense written about luxury. Yet, Ludwig von Mises has put forth what has to be one of the most cogent, elegant, and sensible theories of luxury ever penned by an economist. It was written more than 70 years ago in his book Liberalism, a timeless exposition of the classical-liberal political philosophy.
Mises says that the inequality in the distribution of wealth and income is the most criticized aspect of the market order. Mises, following the apparent logic of many social reformers, writes, “There are rich and there are poor; there are very rich and very poor. The way out is not far to seek: the equal distribution of all wealth.” But since the number of those of modest means far exceeds the well-heeled, it is obvious that a redistribution of this sort will not add significantly to the standard of living.
Mises emphasizes a more important point, and that is that the amount of such wealth is not independent of the manner in which it is distributed. In other words, the very inequality itself, the fact that one can achieve wealth, provides incentives that stimulate innovation and self-improvement.
Mises then sets the stage for the main thrust in his argument. “Against luxury consumption it has been objected that it is unjust that some should enjoy great abundance while others are in want,” he notes. Therefore, if it can be shown that luxury consumption performs a useful function, then such arguments will be shown to be invalid. Thus, he sets out to show the subtle way in which luxury consumption is beneficial for the masses.
Mises begins with the observation that what is luxurious is highly dependent on time and place. It is essentially a relative concept. Many things that seem like necessities today were once luxuries. Mises writes, “When, in the Middle Ages, an aristocratic Byzantine lady who had married a Venetian doge made use of a golden implement, which could be called the forerunner of the fork as we know it today, instead of her fingers, in eating her meals, the Venetians looked upon this as a godless luxury!” Mises also notes that, “In England, before the turn of the nineteenth century, it was a luxury to have an indoor bathroom. Today [1927], nearly every home has one.” Similarly, the possession of an automobile in late nineteenth-century America was a “sign of a particularly luxurious mode of living.” Now automobiles are widespread.
Perhaps one of the most interesting examples Mises provides was on the luxury of travel. “There was a time when only the rich could afford the luxury of visiting foreign countries,” Mises notes. “Schiller never saw the Swiss mountains, which he celebrated in Wilhelm Tell, although they bordered on his Swabian homeland. Goethe saw neither Paris nor Vienna nor London.” Today, millions travel all across the globe.
These examples set the stage for Mises’s simple but powerful view: namely, that all luxuries begin as the province of a few wealthy people and, over time, many become indispensable goods that are taken for granted by nearly everyone. “Luxury consumption provides industry with the stimulus to discover and introduce new things. It is one of the dynamic factors of our economy. To it we owe the progressive innovations by which the standard of living of all strata of the population has been gradually raised.” This potent conclusion must be placed in the context of Mises’s book, which promotes the ideas of free markets and individual liberty. Without the existence of these conditions, the “stimulus to discover” will be quite muted.
In an essay in Grant’s Interest Rate Observer titled “The Economic Consequences of Air Conditioning,” James Grant gives readers the story of Willis Haviland Carrier and his invention, air conditioning. Carrier’s patent for his invention, an “Apparatus for Treating Air,” was first granted in 1907. It would be many years before residential units came into use and Carrier would not live to see the day. Nonetheless, the story illustrates the progress and transformation, sometimes painfully slow, that a luxury good endures on its way to becoming something much less than a luxury.
The first sales of the air conditioner were to industrial clients. In 1925, an air conditioner cooled the patrons of the Rivoli Theater. Yet, as late as 1947, residential air conditioner sales measured only 40,000 units, less than 2 percent of the industry’s business. By 1950, sales had risen further, but residential air conditioning was still very much a novelty. In 1951, an inexpensive window unit finally hit the market and sales took off. From that point forward, residential air conditioning--once a luxury afforded only by certain industrial companies, enjoyed by patrons of the Rivoli Theater, and treasured by a minority of wealthy Americans, became something for the mass of people, nearly 50 years after its invention.
Sometimes the transformations don’t take nearly so long. Global Positioning Systems, which allow for precise navigation and geographic location via satellite, were only introduced for commercial use in 1983. What was once primarily used for national security purposes can now be purchased at Best Buy or Wal-Mart for as little as $100. The remarkable capabilities of GPS technology are now largely taken for granted.
Luxuries so easily become targets for moralists, social critics, and politicians, all eager to provide some rational basis for their loathing of the rich, for their revulsion toward anything that smacks of “consumerism,” “materialism,” or “commercialism.” Yet these critics all certainly relish their air conditioning on hot summer days.
As the philosopher José Ortega y Gasset has observed, “man wants his motor-car, and enjoys it, but he believes that it is the spontaneous fruit of an Edenic tree.” There is no appreciation for the difficult path of innovation, for the market forces that work sometimes in subtle ways to make things better.
Perhaps such critics are driven by simple envy, what La Rouchefoucauld called that “timid and shamefaced passion we never dare acknowledge--a frenzy that cannot bear anything that belongs to others.” What is always impressive in Mises is his ability to deal with matters in such an even-handed and careful fashion. There is no pedantic moralizing. His writing is remarkably free from emotional rants and economic jargon.
Armed with Mises’s uncomplicated theory, we can appreciate the importance of luxury and its place in a dynamic economy. We are also equipped to deal with those ideas that criticize luxury as superfluous, wasteful, and detrimental.
Christopher Mayer works at Provident Bank (cwmayer@provbank.com).
