Does capitalism "create" demand?

You may have heard this one before. At the end of an interesting BBC programme this evening (The Foods That Make Billions) a commentator suggested that the problem with modern capitalism is that it sustains itself by creating desires in consumers, instead of simply satisfying desires they already have.

Is this true, and if so is it a bad thing?

Certainly our preferences are not simple, static attributes, waiting in the back of our heads to be satisfied by the products we buy. Preferences - insofar as they even exist - are formed dynamically, influenced by biology, cognition, the environment and the social groups we are in. Would it be surprising if they were also influenced by people who sell products?

To understand if that's a good thing, let's think through some of the things that happen in a consumer's mind. Not the rational consumer which generates stable continuous utility from consumption, but a real consumer with the cognitive patterns we see in actual people. The key insight here is the idea of hedonic adaptation.

Typically, enjoyment comes from satisfying a preference that was not previously satisfied. Think of the feeling you have when you've been hungry and you eat something, or you're tired and you get to go to bed. Or if you've had a headache and it goes away...what joy.

In comparison, it's very hard to maintain any level of continuous enjoyment from a preference that is satisfied permanently. If you are never hungry, you won't enjoy food so much. And if you never had the headache, you don't take any delight in your lack of pain.

In this relatively wealthy world where our basic material needs (in the rich countries at least) are pretty much fulfilled, there's little enjoyment to be had from satisfying those fundamental preferences. So it could be argued that consumers are actually better off having an unfulfilled desire artificially created, giving them a feeling of joy when it is ultimately satisfied. Not only does the consumer gain utility from satisfying the preference itself, but the process of working towards it and the sense of achievement from gaining their goal can add to that. It may be that the secret to achieving the most enjoyable life is to repeatedly depart from a basic state of neutral comfort by discovering a new unfulfilled desire, satisfy it to return to your comfortable state, and then after a pause, set out to find another new desire.

In fact, if new, volatile preferences are going to be constructed on the fly, it may be better to have it done by someone who has an interest in making sure the consumers can actually satisfy their constructed desires. Companies benefit from creating a want and giving consumers the means to fulfil it; consumers do too. This cooperative dance of imagination, communication, influence and commerce could be the best possible world for us all to live in.

I'm not necessary fully convinced by this argument. I set it out to illustrate that it might be in a consumer's interest to be manipulated by advertisers and salespeople. Presumably there are times when this goes too far and the consumer's interests are damaged. But in principle, there's nothing wrong with a system in which companies artificially create desires in their customers. It is in the best tradition of commerce and perhaps there's a good reason that consumers, and voters, have gone along with it for all this time.