Books / Digital Text

10. Monopoly and Competition > 1. The Concept of Consumers' Sovereignty

1. Consumers' Sovereignty versus Individual Sovereignty

WE HAVE SEEN THAT IN the free market economy people will tend to produce those goods most demanded by the consumers.1 Some economists have termed this system “consumers’ sovereignty.” Yet there is no compulsion about this. The choice is purely an independent one by the producer; his dependence on the consumer is purely voluntary, the result of his own choice for the “maximization” of utility, and it is a choice that he is free to revoke at any time. We have stressed many times that the pursuit of monetary return (the consequence of consumer demand) is engaged in by each individual only to the extent that other things are equal. These other things are the individual producer's psychic valuations, and they may counteract monetary influences. An example is a laborer or other factor-owner engaged in a certain line of work at less monetary return than elsewhere. He does this because of his enjoyment of the particular line of work and product and/or his distaste for other alternatives. Rather than “consumers’ sovereignty,” it would be more accurate to state that in the free market there is sovereignty of the individual: the individual is sovereign over his own person and actions and over his own property.2 This may be termed individual self-sovereignty. To earn a monetary return, the individual producer must satisfy consumer demand, but the extent to which he obeys this expected monetary return, and the extent to which he pursues other, nonmonetary factors, is entirely a matter of his own free choice.

The term “consumers’ sovereignty” is a typical example of the abuse, in economics, of a term (“sovereignty”) appropriate only to the political realm and is thus an illustration of the dangers of the application of metaphors taken from other disciplines. “Sovereignty” is the quality of ultimate political power; it is the power resting on the use of violence. In a purely free society, each individual is sovereign over his own person and property, and it is therefore this self-sovereignty which obtains on the free market. No one is “sovereign” over anyone else's actions or exchanges. Since the consumers do not have the power to coerce producers into various occupations and work, the former are not “sovereign” over the latter.

  • 1. This applies not only to specific types of goods, but also to the allocation between present and future goods, in accordance with the time preferences of the consumers.
  • 2. Of course, we may formally salvage the concept of “consumers’ sovereignty” by asserting that all these psychic elements and evaluations constitute “consumption” and that the concept therefore still has validity. However, it would seem to be more appropriate in the catallactic context of the market (which is the area here under discussion) to reserve “consumption” to mean the enjoyment of xchangeable goods. Naturally, in the final sense, everyone is an ultimate consumer—both of exchangeable and of nonexchangeable goods. However, the market deals only in exchangeable goods (by definition), and when we separate the consumer and the producer in terms of the market, we distinguish the demanding, as compared to the supplying, of exchangeable goods. It is more appropriate, then, not to consider a nonexchangeable good as an object of consumption in this particular context. This is important in order to discuss the contention that individual producers are somehow subject to the sovereign rule of other individuals—the “consumers.”