Consumer Sovereignty

“Consumer demands are the optimal drivers of production, distribution, prices, and allocation of resources, so long as they are not hindered by the external intervention of laws, public authority measures, or cartel agreements.”

The only reason that economic actors produce in exchange is for the sake of ultimately consuming. This places the consumer in a position of relative importance compared to other actors in the system. All economic activity is directed toward the satisfaction of consumer wants.

Mises used the term consumer sovereignty to describe the importance of the consumer in the processes of production and exchange. Rothbard objected to the term sovereignty, because he thought it gave more political authority to consumers than they actually have. Although I tend to agree with Rothbard, I find no fault in using the term consumer sovereignty to give emphasis to the importance of the consumer in economic activity.

When it comes to market intervention — although in general not a good idea — government should always error on the side of protecting consumers. Although workers also become consumers, in any particular business or industry there exists more consumers than producers. The best public policy, therefore, should favor consumers over producers.