Academic journal article Review of Social Economy

The Doctrine of Consumers' Sovereignty

Academic journal article Review of Social Economy

The Doctrine of Consumers' Sovereignty

Article excerpt

Originally published in 1960, Knox's article examines at length consumer sovereignty, a doctrine widely proclaimed by mainstream economists, no less today than it was more than forty years ago In this article Knox states that consumer sovereignty rests on the value judgment that consumers should control economic affairs and on the assumption that consumer behavior is maximizing. That assumption, Knox asserts, raises serious difficulties. One of those difficulties is that the theory of consumer behavior has no predictive power. Knox then turns his attention to seven major criticisms of the theory of consumer behavior including these four: consumer behavior is not entirely rational, is not always autonomous, has external economies and diseconomies, and is influenced by producer behavior. In the end, Know casts a critical eye on Lionel Robbins' proposition that there is a clear line of demarcation between economics and other studies, that consumer preferences are to be taken as data, and that satisfying human wants is an end that is value-free, making it more scientific than other ends that are value-laden.

Keywords: consumer sovereignty, producer sovereignty, welfare economics, maximizing behavior, consumer wants, economic man

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Keynes remarked in his critique of what he termed "classical economics" in his General Theory of Employment, Interest and Money that one of the main difficulties was in finding a comprehensive formulation of the classical doctrines. A similar difficulty attends the discussion of the concept of consumers' sovereignty. Probably few economists would take as extreme a view as Ludwig von Mises, who states:

   In the economic order based on private ownership in the means of
   production no special institutions, such as political democracy has
   created for itself, are needed to achieve corresponding success. All
   production must bend to the consumers' will. From the moment it
   fails to conform to the consumers' demands it becomes unprofitable.
   Thus free competition compels the obedience of the producer to the
   consumers' will and also, in case of need, the transfer of the means
   of production from the hands of those unwilling or unable to achieve
   what the consumer demands into the hands of those better able to
   direct production. The lord of production is the consumer. From this
   point of view the capitalist society is a democracy in which every
   penny represents a ballot paper. It is a democracy with an
   imperative and immediately revocable mandate to its deputies
   (Mises 1936: 443).

In less dogmatic form this principle is to be found in most Anglo-Saxon introductory texts on economics. How important its proponents would hold it to be in dealing with a specific practical problem is highly uncertain; nevertheless, it is believed that some of the points emerging from the present discussion may be of more than purely pedagogic significance.

Like many of the propositions of welfare economics, the doctrine rests on a value judgment--that it is desirable that consumers should control the economic system--and also on a factual assertion, that in the absence of governmental or other intervention, they did in fact so control it through the price mechanism. The latter, positive, part of the doctrine rests on two assumptions, widely used in economic theory as the bases respectively of the theory of the firm and the theory of consumers" behavior; that producers try to maximize their profits and consumers their satisfactions from a given money outlay. The methodological foundation of these two premises is variously interpreted by different writers. As regards the theory of the firm, much depends on the period of time over which the entrepreneur is held to maximize his profits: the relevance of the maximum profits assumption to large-scale corporate enterprise, as opposed to the typical nineteenth century Schumpeterian capitalist owner-managed enterprise has also been questioned. …

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