Adam Smith on Prodigality

Someone on Grad Student Madness HERE writes:

“Aristotle and Prodigality

In fact, we’re often told that the overall economy cannot function if thrift is too widespread. This is not a recent argument. Adam Smith, in fact, says as much at one point: thrift is good for the individual, but it’s disastrous for the economy. A consumer economy needs consumers, not tightwads. A more recent argument has been that the economy will not return to full health until consumer spending returns to what it was before- that is spending into individual debt. Conversely, these record levels of debt will make a lot of us into swine herders.

All of this is to say that industrial consumer capitalism is only a few centuries old and thus at odds with many of the traditional values of western civilization. A system that requires spending instead of thrift in order to satisfy manufactured needs in perpetuity; and which makes those fleeting desires, and therefore the individual will, the sole measure of our behavior, will therefore always be somewhat at odds with traditional ethical systems, which generally seek to limit the behavior of the individual vis-à-vis the family, the community, or the godhead. Moderation is good for the individual, but of ambivalent, if not negative value for the economy.

Of course, Aristotle and Aquinas don’t want us to live as ascetics either. (At least, not Aristotle) It is theoretically possible to reconcile the view of prodigality as a sin and the consumer capitalist economy if we agree that liberality is a virtue. One could spend a reasonable amount of their income, and give a reasonable amount to others; and satisfy both Aristotle and the chamber of commerce. The problem is that if a great number of us did this, the economy would have to seriously shrink. And so, the key to getting the western economies out of recession is promoting prodigality in a time of thrift. That is, promoting vice in a time of increasing virtue. Strength through shopping.

If I have to choose though, I’m going with Aristotle over Adam Smith.”

Comment
I am trying to find where Adam Smith said this:

“Adam Smith, in fact, says as much at one point: thrift is good for the individual, but it’s disastrous for the economy.”

It may have something to do with Smith’s point that the purpose production is consumption, not the interests of producers. But that idea is tenuously linked to Smith’s explanation of the ‘Great Wheel of Circulation’, which depends on the supply of productive capital, which is undermined by prodigal spending.

Thrift, or frugality, supplies the savings that when combined with fixed capital and the expense of productive labour causes commodities to be sold to consumers, preferably for a profit. From the profit, the entrepreneurs or undertakers are able to hire new rounds of productive labour, which when combined with fixed capitals (which do not leave the possession of the undertakers), produce further supplies of consumables. These are the source of economic growth in Smith’s view.

The author of the ‘grad’ essay is aptly regarded as ‘mad’ for his attributions. On his mental state, I could not possibly comment. May be a very clever philosophy student. ‘Too clever by far’ is probably more appropriate.