Denis Diderot was a French philosopher, art critic, and writer who was a prominent figure during the Enlightenment.
What an apt name for that period, because he’s definitely enlightened me. And I believe he can enlighten you, too.
See, Diderot lived most of his life in poverty, despite the fact that he was actually a well-known figure in his own time. He was even the co-founder, chief editor, and contributor to the Encyclopédie.
But becoming a philosopher isn’t exactly a path to great wealth. Even being a writer isn’t a great path. Trust me, I’d know.
Well, Diderot’s poverty came to a head in 1765. His daughter was set to be married. However, Diderot had no dowry to offer.
Catherine the Great, upon hearing of his dire financial situation, offered to buy his library and appoint him caretaker of it until his death. She even paid him 25 years of salary in advance.
Diderot was no longer a poor man.
Shortly after this, Diderot came into possession of a new scarlet dressing gown to replace his old gown.
And that’s when the wheels came off…
The Diderot Effect
How and why the wheels came off is described best by Diderot himself.
He shared his reflections on the downward spiral via his essay: Regrets for my Old Dressing Gown.
The dressing gown was, perhaps, an innocuous purchase in and of itself. But its innocence was quickly tainted.
As Diderot puts it:
I was the absolute master of my old robe. I have become the slave of the new one.
The dressing gown was apparently impressive and beautiful. So beautiful, in fact, that Diderot quickly became aware, by virtue of comparison, how old and relatively shabby the rest of his possessions were.
In fact, he started to refer to his existing possessions as “old rags”.
And they simply didn’t match his new dressing gown:
All is now discordant. No more coordination, no more unity, no more beauty.
So the purchase of this one dressing gown led to a cascading series of purchases across the rest of his life so that the rest of his material possessions could match the impressiveness, newness, and beauty of his dressing gown. He sought that coordination, unity, and uniform beauty.
In the process, he ran himself right into debt.
What we can learn from this episode is this: a purchase is rarely singular in nature. A purchase is almost never a singular event. It’s almost always part of a plurality.
It’s just like how a new dress might inspire the purchase of a matching pair of shoes and handbag.
This forms the basis behind the Diderot Effect.
The Diderot Effect explains how a purchase or gift creates dissatisfaction with existing possessions and environment. This potentially leads to additional consumption that can quickly spiral out of control.
Essentially, we’re talking about lifestyle inflation here.
Using This To Our Advantage
The Diderot Effect is a bit of a bummer. It’s basically human nature.
But I believe we can use the Diderot Effect to our advantage.
At its surface, the idea of being aware of this psychological phenomenon and using it to your advantage might be as simple as being content with what you already have. Don’t buy new things that make your old/existing things look worse off. Don’t buy stuff that requires the purchasing of other/additional stuff.
At the very least, recognize the potential for a downward spiral with every new purchase and defend yourself against it to the best of your ability.
However, I think we can do way better than that.
I believe we can actually flip the Diderot Effect upside down.
In fact, that’s basically what I’ve done. I’ve experienced this in my own life.
And I’ll share with you readers how that works through a two-pronged approach.
The Less You Have, The Less You Want
The first prong is minimalism.
What I’ve personally experienced over the years, as I’ve gone about downsizing and simplifying my life, is this: the less I have, the less I want.
It’s the Diderot Effect. Except it’s in reverse.
If you buy a newer, bigger house, you suddenly feel compelled to fill the empty space with newer, larger furniture. We don’t need Diderot to clue us into that one.
However, if you cut your housing in half, you suddenly feel just as compelled to get rid of the stuff that no longer fits. Otherwise, it’s ridiculous.
You right-size things as you go. its part of our psychology. And that scales up and down.
Once you start getting rid of things, it’s a chain reaction. It’s a domino effect. You feel happier and lighter with less stuff, which promotes more paring down. So on and so forth.
Furthermore, getting rid of one piece makes complementary/related accouterments unnecessary, begetting more downsizing.
I’m now down to what can fit inside of just two bags.
That’s all I brought with me when I indefinitely relocated abroad to Thailand to live out my early retirement dreams. To this day, I own no more than what can fit inside of two bags. And it’s unlikely I’ll ever own more (or less) than this because I’ve reached a harmonious balance between minimal stuff and maximum utility/happiness.
This didn’t happen overnight, of course. It was a process, just the same as Diderot went about slowly acquiring new possessions. But it’s a process that can work to your benefit, instead of your detriment.
For instance, if I were to suddenly buy a new suit (the modern-day version of Diderot’s gown), the rest of my life would suddenly look quite weird/shabby by comparison.
And I’d no doubt be looking at add-on accouterments to make sense of this one thing. A nice watch. A pocket square. The right hangar. Mothballs. New shoes and socks for sure.
I also couldn’t see myself eating at Thai markets, sitting on plastic stools, while wearing a suit. Upscale joints would obviously follow.
In fact, to the extreme end of things, I might even look to relocate to a city where wearing a suit is more commonplace and befitting. Certainly not Chiang Mai. Maybe Bangkok.
My life would have to be tailored to fit this suit, instead of the suit being tailored to fit me. It’s a case where the more things you own, the more things own you.
As Diderot put it, I’d be the slave to the object. The downward spiral would be evident and disastrous. And that’s just one purchase.
But it’s worked in reverse for me as I’ve taken advantage of the Diderot Effect.
For example, when I sold my car and started riding the bus back in 2011, I started getting rid of some of my fancy clothing that looked strange on the bus. I used to wear an assortment of blazers. But I slowly eliminated them from my wardrobe almost solely because I stood out wearing them on the bus in Sarasota, Florida. If I were driving around a nicer, newer car all by myself, it might have been a different story.
Diderot can tell you all about this:
The poor man may take his ease without thinking of appearances, but the rich man is always under a strain.
The less I’ve owned, the more free I’ve felt. And the less I’ve wanted to own as a consequence. It’s a chain of events that you can’t help but participate in once you begin. Getting rid of things begets getting rid of things.
Ownership of less stuff almost reinforces itself through the nature of relativity, which is the same thing that tripped up Diderot (because his other stuff looked relatively shabby next to the new gown).
See, when you own 1,000 things, adding just one more thing to the pile is nothing more than a drop in the ocean. The more stuff you own/buy, the less incrementally noticeable each item is. There’s not much relative change. And the less impact each new item has, too. Less impact on your life/happiness plus less visibility sets you up to repeat this behavior.
However, I now own only a handful of items. Let’s say 30 items. If I add one item, it’s quite a large change in relative terms. That’s additional weight I have to seriously consider because of how much it changes the dynamics of my life. I’ll certainly notice one more item in my life at this stage.
I’m not only more careful to consider the purchase because of how much less free I might be, but I’m also surely going to notice and utilize this item on a regular basis because of how that works. It’s more impact on my life/happiness, and it’s greater visibility, which naturally limits my likelihood to buy things. At the very least, I’m forced to be more cognizant.
The More You Invest, The More You Want To Invest
The second prong is dividend growth investing.
Compounding is this magical, wonderful process where you earn on top of earnings. New earnings are reinvested into old earnings. Compound interest is interest on interest. Instead of linear gains, it’s exponential. And once you see the power of this, you can’t help but be enthralled by it.
Dividend growth investing is arguably the most tangible and powerful way to experience compounding firsthand and achieve FIRE.
What I experienced on my way to FIRE was this: the more I invested, the more I wanted to invest.
It was something where I started to align my whole life around this owner/investor mentality.
And the larger my portfolio grew, the more dividend income I collected, and the greater the effects of compounding became, the more I wanted to accelerate all of this. It was almost addictive. Kind of like how shopping can be for consumers.
Thus, my favorite store in the whole world became the stock market. That’s because my favorite merchandise became dividend growth stocks, which allowed me to build my FIRE Fund into the compounding machine it is.
The more I invested, the more I wanted to invest. And the freer I became, the more free I wanted to become. The more I saw compounding compound, the harder I wanted to push that compounding snowball downhill.
It’s the same psychology that’s at the heart of the Diderot Effect.
And relativity shows up once more.
Indeed, once I bought one new stock for the Fund, the more I saw the appealing nature of a complementary stock that would round it out and improve it.
For example, acquiring shares in The Coca-Cola Co. (KO) way back in the day was great.
Just as well, however, I saw the blatant holes in my exposure to other areas of foods and beverages, which led to a cascade of subsequent acquisitions in companies like Hershey Co. (HSY) and PepsiCo, Inc. (PEP).
My exposure to chocolate (which was zero) looked relatively shabby once I saw my exposure to a beverage powerhouse.
Likewise, acquiring shares in Johnson & Johnson (JNJ) felt amazing back in 2010.
But that also made me see just how lacking I was across the rest of the healthcare space, which eventually led to becoming a shareholder in companies like Abbott Laboratories (ABT) and Medtronic PLC (MDT).
So on and so forth. You see where I’m going here.
Just like how a new dress might inspire the purchase of a complementary pair of shoes and handbag, the purchase of stock in a high-quality business inspires the purchase of stock in a complementary business. It’s a chain reaction. A domino effect. Investing begets investing.
Diderot was obviously a highly intelligent person. But he wasn’t immune to human nature. Nor is anyone else.
I’m sure Diderot wouldn’t be happy about being associated with his namesake effect, but we can recognize human nature for what it is. And we can use the Diderot Effect to our advantage.
The more you buy and own, the more you’ll want to buy and own. If you don’t invest a single dime, it certainly won’t beget more investment. This behavior will keep you chained down, unhappy, and poor.
However, the less you own, the less you’ll want to own. And the more you invest, the more you’ll want to invest. This behavior will allow you to become free, happy, and wealthy.
In the end, Diderot realized what was truly valuable in life and what brought about real happiness:
With time all debts will be paid, remorse will be calmed and I will have pure joy. Don’t fear that the mad desire to stock up beautiful things has taken control of me. The friends I had I sill have, and their number hasn’t grown. I have Lais but Lais doesn’t have me. Happy in her arms, I am ready to cede her to she who I’ll love and who she’ll make happier than me. And I want to tell you a secret: that Lais, who it cost others so much to buy, cost me nothing.
Use the Diderot Effect to your advantage and become happier, richer, and freer for it!
Full disclosure: I’m long all aforementioned stocks.
What do you think? Ever heard of the Diderot Effect? Do you use it to your advantage?
Thanks for reading.
Image courtesy of: Wikimedia Commons.
P.S. If you’d like to use the Diderot Effect and become financially independent, check out some amazing tools and services I personally used on my way to becoming financially free at 33!