Commentary
If the term “consumer sovereignty” is unfamiliar to you, don’t feel bad; you have lots of company. Writing seven or eight decades ago, the great Austrian economist Ludwig von Mises (1881–1973) used the phrase “consumer sovereignty” as a synonym for “free enterprise” or “free-market economy.” In some ways, “consumer sovereignty” is superior to its synonyms. It provides a more precise sense of how a market economy works.
Consumer sovereignty means, as the phrase implies, that the consumer is the boss of economic affairs. In a market economy, entrepreneurs and businesses compete with each other to see who can best satisfy consumer demands. The producers who succeed in providing what consumers want at a price that consumers are willing to pay—that is, those who provide the greatest value to consumers—will profit and prosper. Producers who fail to satisfy consumer demands will sustain losses and eventually go out of business. The consumer sits in the catbird seat. He’s at the top of the economic food chain, so to speak. He (that is, all of us, including people who are themselves producers) determines a society’s economic winners and losers on the producer side of the economy. On the consumer side, all are winners, because producers are compelled by the market force of competition to improve the quality and, if possible, to lower the price of what they’re selling….