Consumption, in Political Economy, is that department of the subject which treats of the use of wealth. It is the converse of production, which refers to the making or creating of wealth. As production is the first stage in economics, consumption is the last. Consumption is the chief end of industry, for everything that is produced and exchanged is intended in some way to be consumed. Consumption is usually divided into two heads—reproductive and non-reproductive. Wealth consumed in reproduction is simply Capital (q.v.). Wealth consumed as capital, while it is the final stage in one process of industry, becomes an item in a further process of industry. A shopkeeper who, having made a thousand pounds in his business, afterwards uses it in farming, proposes thereby to apply his money to a new kind of reproductive employment. Industry is to a large degree simply a continuation of this process. Wealth which is produced to-day will to-morrow be consumed in fresh production.
But consumption is perhaps more properly regarded as non-reproductive, as that use of wealth which has no fresh production in view, or is simply applied to the satisfaction of human needs. The wants of men, as well as the means of satisfying them, have varied greatly at different periods of history, and do still greatly vary in different countries and different states of society. As regards wealth applied to consumption, we may recognise three stages: (1) Necessaries; (2) comforts; (3) luxuries. The commodities which were once a luxury are now in civilised countries merely a comfort or even a necessity. In the middle ages a linen shirt was a luxury even at royal courts. In fact, nothing perhaps so marks the development of comfort as the general use of underclothing, whether woollen, cotton, or linen. In the economics of all ages the question of luxury has claimed great attention. The extravagance of the wealthy was both in ancient and medieval times considered so dangerous to society, that Sumptuary Laws (q.v.) were passed to repress it, often without the desired effect. On the other hand, the luxury, extravagance, and even prodigality of the rich have been justified on the ground that such expenditure was necessary to provide labour for the industrial classes; but this notion is exploded among competent economists. It should be clearly understood that consumption should be both rational and moral, and that the just and rational needs of men have the first claim on society.
As all wealth is produced in order to be consumed, and as there can be no consumption without production, it will be obvious how the great processes of production and consumption are correlated to each other. If there be insufficient production, consumption is checked and suffering ensues through human wants not being satisfied. On the other hand, over-production frequently tends to bring about commercial crises. When the effective consumption is unable to absorb the mass of commodities, the market becomes overstocked and the industrial process is deranged.