The New Year’s rush was given a scientific assessment: what would economists and philosophers say?

Holidays are one of the best times for trading. In the modern world, the need for capital to expand markets means that we must constantly buy more if we want the economic system to survive. Culturally, businesses and consumers co-create systems over which they feel little personal control as more and more needs are created and satisfied through interactions in the marketplace. But many have wondered what economists such as Adam Smith or Hermann Gossen would say about these models.

Even during the crisis and the rising cost of living, with high interest rates and inflation, it is estimated that the average cost per person for Christmas 2023 in the UK was as much as £974. Retailers, advertisers and holiday traditions continue to push people to consume more and more.

Scientists have suggested how some of history’s great economists might make sense of the modern Christmas rush.

Needs or wants

The frantic shopping spree for gifts, food and decorations would probably have earned the scorn of Scottish economist and philosopher Adam Smith. He would, no doubt, consider some of the things that we consider necessary for ourselves to be worthless, “frivolous and useless.”

Smith had no budget for consumption that did not satisfy any real physical needs such as plumbing or heating. At the core of consumption theory in economics is the concept of “utility,” which has been variously interpreted as something that contributes to happiness, satisfaction, or well-being. For Smith, utility was derived from the satisfaction of genuine physical needs.

With consumption well beyond this level, the satisfaction we tend to strive for at Christmas may be more in line with the view of the English philosopher John Stuart Mill. He espoused a more hedonistic concept of utility, following that of his godfather Jeremy Bentham. Their point of view was that utility stems, among other things, from the pleasure we experience from consumption.

But if the three above-mentioned economists had discussed this issue together, Mill and Bentham would probably have agreed that the utility derived from pleasure becomes increasingly important only when the fundamental needs of the majority of people are satisfied. This means that higher levels of utility can only be experienced by the rich who have the means to get what they want.

Diminishing returns

American economist and critic of capitalism Thorstein Veblen was concerned with another kind of utility that is an iconic aspect of modern Christmas celebrations: “conspicuous consumption.” Large trees, lavish decorations and expensive gifts can all be part of holiday spending aimed at impressing others or demonstrating status.

Excessive consumption – and giving the same opportunity to your guests – Veblen would regard as evidence of the generosity and wealth of the host. But this doesn’t have to apply only to invited guests. Eye-catching Christmas lights are also popular with passersby, making them a seasonal display of prosperity for the entire area.

And then, there’s the Christmas treat itself, which illustrates another view of utility that may sound familiar.

Because when you eat and drink (perhaps more than usual), you may well encounter the idea of ​​”diminishing marginal utility.” Simply put, it is the theory that every additional unit of something you consume adds less and less to your overall satisfaction.

For example, at the Christmas table, the pleasure of the first delicious piece of turkey (or roast with nuts) is not fully repeated on the second, third or 20th “eating session”. As you become fuller and your taste buds less stimulated, the enjoyment of each subsequent bite decreases.

This idea of ​​diminishing marginal utility from consumption did not become part of mainstream economic theory until the 1870s, when it was rediscovered by Carl Menger and Leon Walras. But it’s now affecting everything from retail prices to how governments decide on income tax rates.

While Bentham and many other economists wrestled with the difficulties of comparing magnitudes of utility across types and individuals, there is little discussion about the usefulness of comparing marginal utilities.

No regrets

So how should we strive to maximize our utility – or satisfaction, or well-being – at Christmas? The German economist Hermann Gossen might suggest that to maximize utility we need to diversify and do all these things. But he assumed that each action lasts only until we receive a certain satisfaction.

For example, we should eat turkey pieces only when each one is as enjoyable as the previous one. If the “degree” of pleasure decreases, it’s time to move on to dessert.

This may be one of the ways to avoid excessive consumption, because remembering true pleasure and its gradation, we can stop in time.

And regret brought on by the Ghost of Christmas Past, as in Charles Dickens’ A Christmas Carol, should be avoided. Our “spirits of great economists” would probably all agree with this.