With the idea of “consumer sovereignty,” standard economics may seem to claim or to assume that the utility of consumers is more important than the utility of producers. Notwithstanding the impossibility of scientific interpersonal comparisons of utility, one objection is that this hierarchy is arbitrary, normatively if not also positively. Since any working person and any rentier is both a consumer and a producer, the utility of one is indistinguishable from the utility of the other. Moreover, many socialists and many traditional conservatives have argued (against classical liberals) that it is in his role as a producer that an individual’s life is significant. Thus, the objection goes, an economic system based on the sovereignty of the producer would be as efficient as, if not more efficient than, one mistakenly founded on consumer sovereignty.
Due perhaps to the influence of Marxism (and other post-Enlightenment philosophies such as Hegelianism) during the last two centuries, these ideas have gained some intellectual respectability. Frank Fukuyama’s recent book Liberalism and Its Discontents provides an illustration. There is no reason, he explains, “why economic efficiency needs to trump all other social values.” Are human beings “consuming animals” or “producing animals”? he asks. “This a choice that has not been offered to voters under the hegemony of neoliberal ideas.” As I note in my forthcoming review of this book in the Fall issue of Regulation, the absurdity of putting such a choice before voters can be seen by imagining a referendum that would ask “the people”: “What animal do you want to be, a consuming animal or a producing animal?”
After a victory of the producing-animal campaign, an injunction would probably follow from whoever believes he represents the collective: Now, get back to work!
More fundamentally, I think the answer to the question of the primacy of the consumer or the producer is the following. If it is the producer who strives to satisfy the consumer, he will automatically strive to satisfy his own preferences because he gets income to the very extent that he satisfies the consumer. If it were instead the consumer who endeavored to satisfy the producer—by letting the latter have the easiest working conditions and generally deferring to him—he would not simultaneously maximize the satisfaction of his own preferences, quite the contrary: producers would have no incentives to produce as much as possible for consumers. Therefore, the individual, who is both producer and consumer, would have less to consume. Looked at from another viewpoint, an individual who, did not as a producer work for consumers, nor as a consumer try to get as much as possible from his suppliers, would not go far in maximizing his utility. (Recall that maximizing one’s utility simply means getting in one’s most preferred situation.)
If we assume that an individual usually wants to maximize his utility, he will naturally adopt a commanding posture before his suppliers and a service mentality toward his customers. There is thus a good positive reason for assuming that, in a context of individual liberty, most individuals will adopt the behavior just described. And if we make the normative judgement that the welfare of individuals as natural equals (to use a classical liberal expression) is what counts, we will favor a political-economic regime of consumer sovereignty, not of producer sovereignty: only in the former, where the self-interests of consumers and producers are well coordinated without coercion, can we hope to have an equal liberty and an good chance of prosperity for all. Such is the main argument in favor of consumer sovereignty as opposed to producer sovereignty.
The political word of “sovereignty” can be misleading in this context. Consumers are not sovereign over producers in a coercive sense. Every producer is also a consumer. Moreover, production often has a consumption or pleasurable (even if stressful or even anguished) component: think of artistic work as the paradigmatic case. And in a free society, although we expect the typical individual to produce in order to consume and not the other way around, eccentricity is not forbidden nor is affection or charity (producing for the benefit of somebody else) banned. What is pretty clear is that a regime of generalized producer sovereignty is at best meaningless.
READER COMMENTS
vince
Jul 24 2022 at 10:46pm
Producers have sovereignty. Here’s my proof: “You’re call is very important to us, but due to higher than normal call volume, your wait time is 2 hours.”
Pierre Lemieux
Jul 25 2022 at 10:43am
Vince: Nothing is perfect. Airlines send limousines to pickup economy-class travelers at home, but the waiting time is infinite. And I’ve found another proof (or confirmation) of your theorem: Observe all these consumers advertising everywhere: “Please sell to me! 10% premium if you sell to me before midnight today.” 🙂
Matthias
Jul 25 2022 at 8:44pm
The absence of these ads might have more to do with transaction costs?
You can pay more to get faster service in many situations.
Pierre Lemieux
Jul 26 2022 at 11:49am
Matthias: Your second point is an important one.
Don Boudreaux
Jul 25 2022 at 2:10pm
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.
Pierre Lemieux
Jul 25 2022 at 5:54pm
Don: You are right that your answer is the fundamental one if we, as economists generally do and should do, define production as the transformation of something into something of higher value or, expressed more simply albeit a bit circularly, as the production of value. I am not sure, however, that this would persuade somebody who (like Marx, Hegel, Fukuyama, Keynes [for whom digging a hole and filling it back could be production], and perhaps even Ayn Rand) believes that individuals define themselves primarily as producers—because, in our terms, they derive more utility from their role as transformers than from their role as consumers. In economic terms again, they believe that transformation (whether it is production of value or not) is the most desirable consumption act.
(This conversation inspires me another question: Is it possible that defining production as the transformation of something into something of more value is based on the axiom of the primacy of consumption. If that is true, it might be useful to offer some argument suggesting that the axiom is indeed self-evident.)
Let me try to reformulate my argument as directed towards people who believe in the primacy of production in the simple sense of transformation. Assume that they are right and let producers and consumers (individuals, in short) do what they want. That would be my test, which is related to the one you propose. Producers would get a lot of utility and consumer only a little, because, by hypothesis, each individual gets more utility in his role as producer, from the very act of transforming things, than he gets as a consumer. Little value would be produced for the market. But some producers will realize that some consumers, including themselves, want more ordinary goods, as opposed to the sentiment of filling glorious holes. Some producers (we need only one to start) begin producing more for consumers, which allows them to consume more themselves. Consumption increases because of more division of labor and because of competition among producers. Except for some poor and happy artists, some ascetics, and some Hegelreaders, nearly all producers come to realize that home appliances and cars and dinners in town are worth more to them than the feeling of doing great things that nobody else wants. Hence, producers will end up doing mostly what consumers want, not the other way around. That’s the positive story I was after.
If our interlocutor says he does not want producers to work for consumers and persuades the state to forbid them to do so, that is, he persuades the state to try to prevent each individual from producing in order to consume instead of the reverse, the result will be a ruling class of producers who, paradoxically, will consume what the otherwise-consumers are now obliged to produce for them. This inversion can be seen in a typical Communist society where the workers end up working to produce what a new dominant class consumes.
Comments welcome.
Bob
Jul 26 2022 at 3:13pm
It seems to me your argument to those people can be simplified: Give people the freedom to choose between producing something for the sake of its production or producing something that others want so they can consume more themselves.
Craig
Jul 26 2022 at 10:40am
The Professor asked me to post my quick tweet in response to his tweet where he commented: “Moreover, many socialists and many traditional conservatives have argued (against classical liberals) that it is in his role as a producer that an individual’s life is significant.” {emphasis supplied}
My comment to that was:
1. “In his role as a producer” — that’s true though. See the surnames inherited Miller, Cooper, Brewer, etc, surnames defining occupations very common. My name is Craig and I am an —- (occupation)
2. Disagree? put up a tinder profile and say you work at McDonalds and see if you can get l{ucky} and I provided a link to a youtube video of a guy who did just that explaining how the women he was courting dropped him once he told them he was working at McDonalds.
3. “There’s little doubt that an individual’s status as a producer strongly defines his social status and sexual market value”
The Professor felt he had an adequate objection to my quips and to post here so that he can discuss further, so naturally I am obliging.
Pierre Lemieux
Jul 26 2022 at 12:11pm
Craig: Thanks for providing us with a further conversation opportunity here instead of on Twitter!
It is the command over resources and consumption possibilities that handicap the burger flipper on the sexual or marriage market, not his production status. Imagine that Elon Musk sells all his assets and buries the resulting $150 billion (it’s irrelevant for my argument, but note that the price of his shares have dropped following his selling spree) literally in cash in hidden disaffected mines in secret places all over the world. He is thus no longer a producer and has no title as such. Do you think his value on the mating market will have decreased? Suppose now that he comes to feel idle and aimless in life as his only activity is to travel to his secret mines in his private planes and helicopters and bring back planeloads of dollar bills, so he decides to get a job at McDonald’s, “just to pass the time.” Do you think this his value on the mating market will drop still more?
Craig
Jul 26 2022 at 12:33pm
For many their command over resources is connected to their status as a producer. Sure there can be somebody whobworks at McDonalds and he wins the lottery giving him access to a pile of resources. In your example Musk’s access to resources is still accumulated because of his previous status as a prolific producer. So, sure, don’t think many will care if he flips some burgers because he might find it cathartic.
nobody.really
Jul 26 2022 at 2:15pm
1: I really enjoyed Fukuyama’s latest book (although I suspect libertarians will not care for his characterization of their views).
Mostly, I like Fukuyama’s conceit that liberalism lies at the golden mean between the current push for authoritarianism and the current push of “critical” theorists. He acknowledges the appeals of each of these tendencies—and, in particular, gives a brief and sympathetic summary of critical theory—then uses the countervailing force of each argument to strengthen the claim that liberalism is the best balance we can hope for.
In fairness, Fukuyama frequently resorts to argument that this or that worldview takes liberal ideals “too far,” without articulating a standard for how far to apply those ideals. Advocating “moderation in all things,” while perhaps containing a kernel of wisdom, does little to satisfy the intellect; it reads like a big “Expect Intellectual Development for Next 3 Miles” sign.
2: But I suspect many here would agree with Fukuyama that many of those expressing discontent with liberal government expect too damn much from government. They discount the harms that liberalism suppresses, and accentuate the benefits that they think they could achieve if only liberalism would get out of the way.
3: Regarding “sovereignty” of consumers vs. producers: I sense Lemieux is gradually coming to the view that this phrasing contributes more heat than light. Instead, it makes more sense to say that people strive to maximize their utility. OFTEN they do so in ways that seem designed to meet consumer demands and maximize profit—but not always.
The easy counter-example is the farmer who could “maximize profits” by selling all her output into the wholesale market, but instead retains some of her output for her own consumption (thereby forgoing wholesale revenues, but also avoiding retail costs). She is not irrational; she is still maximizing something—just not “profits.”
The more complicated example involves Barry, a guy who makes a lot of money as a hitman, choosing to forgo those revenues to pursue the less lucrative career as an actor. Less dramatically (ha ha), people choose to work for one employer rather than another, or even choose between employment status and entrepreneurship, based in part on the hedonic (non-financial) qualities of each option. Likewise, various people may take some satisfaction in (and derive a sense of identity and community from) practicing a recognized profession—or avoiding a recognized profession. As Adam Smith observed, “the wages of labour vary with the ease or hardship, the cleanliness or dirtiness, the honourableness or dishonourableness of the employment.” These are all hedonic factors. In short, we don’t act purely as producers or consumers; pretty much always we act as both.
Still more complicated examples involve Southern restaurants who decline to serve willing black diners, Colorado bakers who decline to sell wedding cakes to willing gay couples, and performing artists/golfers who refuse to accept big paydays offered by willing dictators. It appears that making the sale would not generate as much net utility as refusing to make the sale.
As James Suzman argues in Work, the “homo economus” model of classical econ theory leaves much to be explained. Many kinds of animals—including humans—engage in work-like behavior (a/k/a “play” and “hobbies”) without any obvious adaptive result. Often it appears that financial concerns are entirely absent, or very much secondary, sources of motivation. Discussing “going fishing” as illustrating the primacy of production over consumption, or vice versa, seems pointless.
4: That said, the idea of “producer sovereignty” is arguably manifest in work regulation. Does Lemieux recognize the merits of ANY work regulations?
If we don’t recognize the merit of, say, regulating toxic work environments, do we at least recognize the merits of unions to efficiently finance that gathering and dissemination of information to fellow employees/potential employees so that they can make informed choices?
Pierre Lemieux
Jul 26 2022 at 4:54pm
nobody.really: Your comment (much of which I agree with) encompasses a big part of the universe of social/political/economic questions… I can only recommend that you continue reading me and commenting! On Fukuyama, his last book (Liberalism and Its Discontents) is more enlightening than The End of History. I explain this and more in my forthcoming Regulation review. Another point: voluntary associations not engaged in murder, theft, or rent-seeking, if they find members, are certainly useful, and I would defend trade unions that would be this sort of association.
nobody.really
Jul 28 2022 at 10:05am
DAUGHTER: Father, that man’s bad.
MORE: There’s no law against that.
ROBERT: There is. God’s law.
MORE: Then God can arrest him.
WIFE: While you talk he’s gone.
MORE: And go he should, if he were the Devil himself, until he broke the law.
ROBERT: So, now you would give the Devil benefit of law?
MORE: Yes. What would you do, cut a great road through the law to get after the Devil?
ROBERT: Yes, I’d cut down every law in England to do that.
MORE: Oh? And when the last law was down and the Devil turned round on you, where would you hide, Robert, the laws all being flat? This country is planted thick with laws from coast to coast. Man’s laws, not God’s. And if you cut them down – and you’re just the man to do it – do you really think you could stand upright in the winds that would blow then? Yes, I give the Devil benefit of law – for my own safety’s sake.
Sir Thomas More, A Man for All Seasons by Robert Bolt
Pierre Lemieux
Jul 28 2022 at 2:25pm
A remarkable quote.
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