Lesson 6: Serving the Consumer
Reading assignment: “Mises on Serving the Consumer.” Download here. [download id=”52269″]
Adam Smith wrote this:
In civilized society he stands at all times in need of the cooperation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons. In almost every other race of animals each individual, when it is grown up to maturity, is entirely independent, and in its natural state has occasion for the assistance of no other living creature. But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. Nobody but a beggar chuses to depend chiefly upon the benevolence of his fellow-citizens. Even a beggar does not depend upon it entirely. The charity of well-disposed people, indeed, supplies him with the whole fund of his subsistence. But though this principle ultimately provides him with all the necessaries of life which he has occasion for, it neither does nor can provide him with them as he has occasion for them. The greater part of his occasional wants are supplied in the same manner as those of other people, by treaty, by barter, and by purchase. With the money which one man gives him he purchases food. The old cloaths which another bestows upon him he exchanges for other old cloaths which suit him better, or for lodging, or for food, or for money, with which he can buy either food, cloaths, or lodging, as he has occasion. [Adam Smith, Wealth of Nations(1776), Book I, Ch. II.]
Wikipedia article: “Customer Sovereignty.”
In economics, consumer sovereignty is the assertion that consumer preferences determine the production of goods and services. The term was coined by William Harold Hutt in his book Economists and the Public (1936).In a market economy, purchases of goods and services are evidence that demand for those items exists among those with liquid wealth. If potential sellers infer from these transactions that such demand will persist, then they may be motivated to provide the same goods in the future and to compete for future sales by attempting to offer such goods at competitive prices.
Some economists believe that consumer sovereignty rarely occurs, because these conditions[clarification needed] are rarely met. Rarely do consumers get what they want; consumers get what they are offered. On the other hand, some economists believe that consumer sovereignty would be realized in a free market economy without interference from government or other non-market institutions.
Hutt’s insight is central to Mises’ discussion of the free market Human Action.
But why is the customer dominant in the market? Because he possesses money. Money is the most marketable commodity. Everyone offering anything for sale wants money.