Over at EconLog, Pierre Lemieux has an excellent post on the importance of consumer (vs. producer) sovereignty. And here’s my own slightly amended comment on Pierre’s post:
Pierre:
You’re correct that in an economy in which people in their roles as consumers are expected – or, worse, coerced – to give priority to the preferences of people in their roles as producers would be an economy far less efficient and productive than is an economy in which there reigns consumer sovereignty. And the reason you offer for the superiority of consumer sovereignty over producer sovereignty (or some hybrid of the two) is creative, valid, and important.
But I believe that there’s an even more fundamental justification for consumer sovereignty. This more fundamental justification for consumer sovereignty is grounded in this reality: To produce is necessarily to assist in the satisfaction of consumption desires. Rearranging physical matter is productive only if and insofar as the result of the rearrangement is an improved ability of people to consume.
Judging whether or not rearrangements of physical matter are truly productive requires some reliable test of whether or not these rearrangements increase people’s ability to consume. A crucial feature of any such test is allowing income earners (or wealth holders) to spend their own (and only their own) money as they choose. Another crucial feature of this test is allowing people in their roles as producers to offer their own particular rearrangements of physical matter for sale to people in their roles as consumers. These two features combine to reveal, as best as is possible in our imperfect vale, what are the most productive uses of scarce resources, including labor.
Put differently, while production precedes consumption chronologically, consumption precedes production logically – in the sense of consumption being the goal and production being the means of satisfying that goal.
Put in yet a somewhat different way, while consumption desires can exist independently of any production that occurs to satisfy those desires, genuine production cannot exist independently of consumption desires. Production must be aimed at satisfying consumption desires; efforts at rearranging physical matter become productive only if and insofar as these efforts satisfy consumption desires. Thus we have the fundamental justification for an economy in which people in their roles as consumers, not people in their roles as producers, are sovereign.
