We are all in the theatre. Our homes are our stage, and their design is as revealing of our psychology as any dramatic soliloquy. But "why do we decorate?" is a question rarely asked, perhaps because the answer reveals so many anxieties buried beneath the shiny surface of consumer culture. As soon as any economy rises beyond subsistence and purchases become discretionary rather than matters of survival, everything we buy and use acquires meaning. Possessions become weapons in the battle of social competition. And something that has meaning can be interpreted. Whether a fetid student bedsit or a cute starter home with boxrooms and panelled doors and an Astra in the drive, whether an Islington town house, a Knightsbridge flat for an itinerant Russian mobster, an Altrincham villa or an architecturally self-conscious conceit designed for photographic reproduction, your home is not a machine for living in. It is a text that can be read like a play.
The experimental theatre company Signal to Noise realises exactly this in its new Edinburgh Fringe production. Homemade explores "the effect of decor on a house's inhabitants" - and is performed in audience members' homes. Props, script, stage and actors blend into real-life fittings, furnishings, families and flatmates: a heightened version of the domestic dramas we all play out every day.
Precisely because of its universality, interior design fascinates us all. Its promotion to a belief system - through magazines, books, television - is one of the most compelling cultural phenomena of our age. A globe-trotting English lord told me an illustrative story. On his first visit to New York in the 1960s, a hostess would say: "I want you to meet so-and-so; he's a senator/novelist/artist/ judge/neurosurgeon." By the 1970s, the same hostess was saying: "I want you to meet so-and-so. He makes curtains." But it was more than curtains. At about the same time, articles on lofts began appearing in glossy magazines. A typical photograph caption would read: "Jake - an advertising executive - and his partner Clayton - a photographer - with their Jack Russell terrier, Cameron. Their new apartment is on the top floor of an old glove factory in the Garment District. 'We have a feeling of Tantric intimacy here,' Jake says." In one of those consumerist inversions that populate the history of taste - for instance, pacifists wearing "combat pants", or sophisticated people choosing peasant food - a new professional class, with money to spend and nowhere to live, had started moving in to derelict industrial buildings.
The original architectural language of the New York loft circa 1978 has now bled into the mainstream of interior design: the stainless or galvanised finishes, exposed brickwork, ducting, heavy-duty lighting, six-burner stoves and metal painted in bright colours that appear in every newspaper supplement are the legacy of Jake and Clayton. It is a nice irony that very rich bankers live comfortably in premises once occupied by 300 toiling and sweating lithographic operators, tea-packers or glove-makers. But has the classic life a-loft ever been anything other than an estate agent's cliche? Look at the property ads and ask if anyone has ever come home to a cavernous, echoing interior, flopped into a Corbusier Grand Confort, punched the zapper, slipped off the Tod's loafers, drunk a margarita, chilled to a prog-rock CD or a DVD on the plasma-screen television and taken a brisk walk to the island kitchen for stir-fry before scrambling up the Kee Klamp mezzanine to a futon with a view of Canary Wharf and the prospect of safe sex. Theatre is, after all, fiction.
The absurdities of interior design were recognised long ago. In his Hints on Household Taste (1868), Charles Eastlake wrote: "I have never met a class of men who were so hopelessly confirmed in artistic error." Decorators were called into existence to create comforting fantasies for the insecure. The writer and publisher Edmond de Goncourt said: "If I were not a man of letters, if I had not got money, my chosen profession would have been to invent interiors for rich people." The terrible truth about interior design is that it is not about basic functionality, nor even frivolous style. It is all about creating a fiction of social status and always has been. It is just that our view of status changes with time.
The interior-design craze was fuelled by the publication of The Decoration of Houses, by Edith Wharton and Ogden Codman, in 1897. The book was a significant influence on Elsie de Wolfe, the inventor of the modern profession. A social-climbing lesbian, she is the spiritual ancestor of Laurence Llewelyn-Bowen. With her cheerful motto "plenty of optimism and white paint", de Wolfe introduced new American money to old French furniture when, one day in 1913, she unloaded $3m-worth of cabriole-legged stuff on to Henry Clay Frick. For years afterwards, possession of French furniture was a token of status. In her novel The Custom of the Country (1913), Wharton parodied this affected Francophilia and coined the useful term "Looey". As late as 1950 - when, remember, the abstract expressionists were already at work - the decorator Billy Baldwin was still telling students at the Parsons School of Design in New York that all they really needed was a perfect pair of "Looey XVI" console tables and life, hitherto unsatisfactory, would be complete.
Elements of the belief that French furniture offers guaranteed access to the social elite survive in the bastard styles irreverently known as Louis Farouk or Jewish Renaissance. For the past 40 years, however, there has been a modern option. Modern design might have been a mid-1920s invention of central European Bolsheviks and doctrinaire Swiss architects, of massage freaks, vegetarians, concrete entrepreneurs and gymnasts, but for British consumers it became a shopping possibility when Terence Conran opened his first branch of Habitat in Chelsea in 1964. John Betjeman had moaned about the possibility of an "England . . . all council houses and trunk roads and steel and glass factory blocks". By 1964 the country was certainly going that way and Conran was there to supply the furniture and fittings.
Status and psychology were at work here, too. Conran's interior demons gave him a pressing need for simplification: to improve the theatre of life with props characterised by clean shapes and bright colours. Conran came from a class and generation that had grown up amid florid carpets, Dresden candelabra, gilt tables, salmon-pink damask, wainscoting, dark varnish and oval picture frames - and he wanted to get rid of them. He once explained that the inspiration for Habitat came from a nasty cumulation of visits to old department stores where oceans of dark brown furniture were displayed under bleak lighting. Conran still looks at a pendant ceiling light and, I think quite rightly, calls it "sad". For those of a certain psychology, a modern interior has a purifying effect. Especially if it has flush-fitting downlighters. And there was a social purpose, too: the art dealer John Kasmin, a friend of Conran's, said that "the trouble with Terence is he wants everybody to have a better salad bowl".
Most of us who want one now have that better salad bowl. The question remains where to put it. A single rule of design, or taste, call it what you will, has been blown apart. No one any longer believes in formulae. Your salad bowl can be in a dramatic urban loft, a nightmare semi-detached made over by a ninny posturing on telly, or a patiently fabricated environment of overstuffed Labradors and damp, smelly sofas designed to follow Nancy Mitford's conviction that "all nice rooms are a bit shabby". Well, maybe, but you still cannot hide behind your shabby sofa, Corbu chaise or Philippe Starck lemon squeezer. They betray you. Every single artefact writes a line about its owner. And when all those artefacts are aggregated into a whole interior, the lines begin to tell a story. Nostalgia, desire, aspiration, social competition: the story of all our lives. That story is the play we perform every day in the theatre of our home. Refreshing to think that you can re-arrange the furniture and change the plot.
Stephen Bayley is a writer and design consultant. His next book, on designing the self, will be published in 2006
Homemade plays at the Edinburgh Fringe Festival from 18 to 28 August. Tickets are available on 07914 629 851