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Consumer Sovereignty: A Response to Greg Autry

Summary:
Should public policy favor producers at the expense of consumers? A few days ago, I was involved in a short Twitter conversion with Greg Autry that touched this subject. Professor Autry is the co-author, with Peter Navarro, of Death by China (2011). (A recent article of mine in Regulation says more about this book.) I had mentioned that tariffs hurt the consumers of the country in which they are imposed. The essence of Autry’s response was: You also continue the Keynesian religion of consumption worship. The meaning of life is not getting more cheap stuff. Producers matter at least as much & are screwed out of revenues & value … An economist will find many problems with such statements. First, it is not clear what is “the Keynesian religion of consumption worship.”

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Should public policy favor producers at the expense of consumers? A few days ago, I was involved in a short Twitter conversion with Greg Autry that touched this subject. Professor Autry is the co-author, with Peter Navarro, of Death by China (2011). (A recent article of mine in Regulation says more about this book.)

I had mentioned that tariffs hurt the consumers of the country in which they are imposed. The essence of Autry’s response was:

You also continue the Keynesian religion of consumption worship. The meaning of life is not getting more cheap stuff.

Producers matter at least as much & are screwed out of revenues & value …

An economist will find many problems with such statements.

First, it is not clear what is “the Keynesian religion of consumption worship.” Keynes is that he did not worry about consumption as such, but about aggregate demand. Aggregate demand also includes exports, investment expenditures, and government expenditures. Keynes’s point was that government expenditures have to substitute for consumption expenditures (and investment expenditures) when the latter are not sufficient to purchase all production at the aggregate level. At any rate, Keynes was not as interested in consumption in the way preceding economists (whether classical, neoclassical or Austrian) had been.

Secondly, there are good reasons why economists at least since Adam Smith have generally seen consumption as the goal of economic life. This is how, with few exceptions like the ascetic, individuals see it: they do not consume in order to work, but work in order to consume. That’s a positive observation. Let individuals free, and they will try to work as little as possible for a given level of consumption, or work more only if necessary to maintain or increase their standard of living. As the division of labor and exchange develop, the individual produces what others want. Producers compete to serve consumers; consumers don’t compete in order to please producers. To the extent that he is free, an individual is sovereign in his capacity as a consumer; as a producer, he endeavors to serve consumers (or other producers who serve consumers). We thus obtain the positive notion of “consumer sovereignty,” familiar to economists: consumers govern the allocation of resources.

“Consumer sovereignty” often assumes a second, normative sense when the economist leaves the field of positive science and wanders into normative (moral) issues, which he cannot avoid doing if he gives any policy advice. It is desirable that consumers run the economy because it is the only way to have a prosperous society. Visiting in a shop in a socialist country rapidly teaches the lesson. Please allow me to quote a few lines from my book Who Needs Jobs (Palgrave Macmillan, 2014):

In an interesting book titled In Praise of the Consumer Society and published at a time when a non-socialist French intellectual was considered an oxymoron, philosopher Raymond Ruyer wrote:

“In a market economy, demand is commanding and supply is begging . . . In a planned economy, supply is commanding and demand is begging.”

In a market economy, suppliers beg to sell, while in a socialist economy, customers beg to buy. The real boss in a market economy is the consumer; in a socialist economy, it is the supplier.

This brings me to a third point: Who decides what is “the meaning of life”? Autry’s statement that “The meaning of life is not getting more cheap stuff” is puzzling and, to say the truth, a cliché. It sounds like what socialists have said for a long time—at least if we consider the more authoritarian strands of socialism. Except in the last phase of communism, when scarcity has been vanquished, Marxists might also agree with Mr. Autry. After all, “producers … are screwed out of revenues & value” each time competition obliges them to accept lower prices to attract customers.

Standard normative economics would claim, on the contrary, that the meaning of life is what every individual wants it to be. It may be to consume goods and services, or to enjoy leisure, or to study philosophy, or to worship God or somebody else. But philosophy is difficult without a minimum quantity of goods, as is most leisure and probably most religious activities too.

Of course, producers are humans too and. Indeed, in a free society, they have the choice of where and how to exert their productive activities. In this sense, the contribute, from the supply side, to giving things their value. If Renoir had made fewer paintings, they would be worth more.

One might object that most individuals are both consumers and producers. Indeed, most consumers are also producers, the exceptions being non-working children as well as adults who live off government transfers or private charity. And all producers are consumers; otherwise, they would not survive. A slave is as much of a non-consuming producer as one can think of, but even he has to consume something. So why consider the consumer part of one’s personality as “sovereign” instead of the producer part?

We have already met the counter-arguments. Positively, an individual tries to work as little as he can, given what he wants to consume; and the part of work he likes may be considered a consumption good. Normatively, to say that consumption comes first means that each individual should be free to give to his life the meaning he wants; in other words, consumer sovereignty affirms the value of individual liberty. To say that an individual is first and foremost a producer ultimately amounts to an argument for slavery: if he is not working to consume, somebody else owns his labor and decides what he does with his life.

Incidentally, the opinion of George Fitzhugh, a 19thcentury defender of slavery is noteworthy—even if he was not exactly a high-level theorist. I am of course not implying that Greg Autry would follow Fitzhugh. But there is a deep and troubling consistency in Fitzhugh’s argument for slavery, and against liberty and free exchange. He wrote:

Admit liberty to be a good, and you leave no room to argue that free trade is an evil—because liberty is free trade.

In an unfree society—whether it is corporatist, socialist, crony-capitalist, state capitalist, slave-owner governed, or otherwise collectivist—the producers call the shots and exploit consumers. There are good economic and moral arguments against this kind of regime.

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