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Recognize that consumers ultimately determine what is produced in a market economy (consumer sovereignty).
is a term which is used in
to refer to the rule or
of purchasers in
as to production of
The term can be used as either a norm (as to what consumers should be permitted) or a description (as to what consumers are permitted).
In unrestricted markets, those with
are able to use their
to motivate producers as to what to produce (and how much).
Customers do not necessarily have to buy and, if dissatisfied, can take their business elsewhere, while the profit-seeking sellers find that they can make the greatest
by trying to provide the best possible products for the price (or the lowest possible price for a given product).
In the language of cliché, "he who pays the piper calls the tune."
defines consumer sovereignty as:
"The power of consumers to determine what goods and services are produced. The theory suggests that consumers, not producers, are the best judge of what products benefit them the most. Due to the fact that consumer markets depend so heavily on demand, producers must monitor the needs of these individuals if they want their products to have any chance at success."
to watch a short video from Youtube, providing an example of how consumer sovereignty works.
Ludwig Von Mises (1881-1973)
Economist, Ludwig Von Mises
Ludwig Von Mises was a theoretical Austrian School economist. Click
to view a full biography of Mises' life from The Mises Institute.
He focused on Praxeology (study of human choice and action).
Mises came to the U.S. in 1940, and his work significantly influenced the libertarian movement, specifically the maximization of autonomy and freedom of choice.
Mises wrote extensively about the crucial role of consumers in production. He believed that every person has a personal and subjective value, and everyone acts in response to their own respective values. These actions are what influence production and ultimately represent consumer sovereignty.
Mises helps to explain this point by
referencing the steering of the ship
. He states that entrepreneurs "are at the helm and steer of the ship, but they are not free to shape its course. They are not supreme, they are steersmen only, bound to obey unconditionally the captain's orders. The captain is the consumer."
To read more on Ludwig's work with consumer sovereignty click
The image to the left is a picture describing the U.S. Free Enterprise System. In this system (just as in this picture), capitalism rests on the pillars of Private Enterprise, Competition, Private Property, Profit Motive, and Consumer Sovereignty.
Standard Oil cartoon with octopus, 1904
Image to the right is a Political cartoon showing a Standard Oil tank as an octopus with many tentacles wrapped around the steel, copper, and shipping industries, as well as a state house, the U.S. Capitol, and one tentacle reaching for the White House.
Critiques of Consumer Sovereignty
, complete consumer sovereignty is an
rather than a
because of the existence -- or even the ubiquity -- of
Some economists of the
see consumer sovereignty as a reality in a
economy without interference from government or other non-market institutions, or anti-market institutions such as
That is, alleged
are seen as being a result of non-market forces. However,
it has also been argued
(e.g., by Goutam U. Jois) that even a "pure" market system violates the consumer sovereignty norm.
to read a critique of Mises' endorsement of consumer sovereignty.
This Seinfeld clip
brilliantly explains the concept of Consumer Sovereignty in a little over 30 seconds.
is a student video from an economics class talking about Consumer Sovereignty
is a Prezi presentation on Consumer Sovereignty
for a JSTOR article that goes over the basic concepts of consumer sovereignty.
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