Consumer Soveriegnty; B. B. Greaves

222 Consumer Sovereignty by Bettina Bien Greaves F rom time to time, insightful economists have describedthe operations of a market economy. Many have noted that no central planner is needed to tell producers what to pro duce, when to produce, how much to produce, and what quality to produce. Adam Smith, often called the "first economist," pointed out in 1776that the butcher, the baker, and the brewer are guided as if by "an invisible hand." Frederic Bastiat remarked in 1845 that Parisians need not fear starving the next day, but could sleep peacefully in their beds, confident that the city would be provisioned dur ing the night. However, it was only with the development of the subjective, marginal utility theory of value by the Austrian school that economists explainedwhy the market needed no central planner, why no one needed to direct the butcher, the baker, the brewer, or to plan the provisioning of Paris. It was Ludwig von Mises (1881-1973), leading spokesman for decades of the Austrian school, who clearly demonstrated the consumer's crucial role in pro duction.

Every one of us has personal, subjective values, the Austrian economists point out. Each of us acts in response to our respective values. When as con sumers we buy,or refuse to buy,we send a message to the entrepreneurs who guide production. Entrepreneurs "are at the helm and steer the ship," Professor Mises noted. "But they are not free to shape its course. They are not supreme, Mrs. Greaves is a member of the senior staff of The Foundation for Economic Education. From 1951 to 1969 she was a regularparticipant in Ludwig von Mises' graduate seminar in economic theory at New York Uni versity. they are steersmen only, bound to obey uncondi tionally the captain's orders. The captain is the consumer." Let's see how Captain Consumer directs production. Recent accounts of economic conditions in the U.S.S.R. tell of serious shortages-of soap, for instance. Why? It is said there are bottlenecks in the production of paraffin needed for producing sulphanol, an ingredient used in making soap; hence the production of soap is held up. It is charged that the responsibility for soap-making is dispersed among several governmental depart ments, each with other more urgent responsibili ties; hence soap production is neglected. But the real reason for the shortage of soap is the lack of opportunity for entrepreneurs to respond to the wants and wishes of consumers.

A widespread shortage of soap would never exist in a country with freedom of opportunity and respect for private property. At the first sign of demand for soap over and above available sup plies, some entrepreneur, hoping for profit, would try to fill the gap, by starting a small soap-making operation of his own, or by shipping soap from where it was more abundant. The demands of con sumers would guide him. Given the lack of soap in Russian stores, why doesn't someone there start to make soap at home? Soap isn't very difficult to make and the ingredients· aren't expensive. Many of our grand mothers and great-grandmothers used to make soap. Old cookbooks give recipes. It can be made from readily available raw materials: wood ashes, fat, lye, and salt. Let's assume for a moment that an enterprising Russian housewife and her children weren't Ludwigvon Mises deterred by the threat of government regulation and decided to make soap on their own. Wood ash es they would have aplenty. Also fats left over from cooking. By pouring water over the ashes and letting it stand, they could leach out a form of lye. This they would then mix with the fats, add salt, and heat until a crude kind of soap began to form. Not a very fancy soap, to be sure, but a usable soap, which in view of the shortage in Rus sia, consumers would undoubtedly welcome.

Each Russian consumer who chose to spend money for this new soap, instead of something else such as cigarettes, would vote his personal values, transferring rubles to these enterprising soap makers while, at the same time, sending fewer rubles to the producers of cigarettes. As consumers purchased soap in preference to cigarettes, they would be giving the venturesome soap-makers more and more rubles, providing them with a prof it, and encouraging them to continue production. Freedomto Choose Consumer sovereignty is consumers making choices one by one, consumers buying one thing 223 and not another, consumers transferring their money to some producers and not to others. The process isn't invisible; it isn't miraculous; it only seems miraculous in that it directs production without a central authority having to plan or give orders. If consumers still clamored for more soap after the first batch was gone, the enterprising soap makers would expand production, in response to consumer sovereignty. As more and more con sumers bought their soap, the soap-makers would profit. And their success would induce others to start producing soap, perhaps an improved variety, this too in response to consumer sovereignty. As sales grew, the soap-makers would have to look farther afield for supplies of wood ashes and left over cooking fats. Consumer sovereignty would o soon impact on suppliers of these raw materials ~ ~ too, affecting the prices they asked and could ~ receive for raw materials, persuading them to sell JJ ~ to the soap-makers, and perhaps even to expand their production. In short order, as consumers assumed control, the production of soap in Russia would rise and the shortage would disappear.

Consumer sovereignty is manifested by con sumer purchases and refusals to purchase. As long as customers continued to buy soap, they would keep on transferring money from other segments of the market to pay for their purchases. In the process, they would help to make those soap-pro ducers who responded to their wishes richer. In the final analysis, it is the consumers, as Mises has written, who "make poor people rich and rich people poor. They determine precisely what should be produced, in what quality, and in what quantities. " Russian consumers lack soap and many other goods because potential entrepreneurs have little freedom to go into business, to invest, to experi ment' and to try to respond to the wishes of con sumers. In Russia, there is a shortage of soap because consumers aren't free to make some entrepreneurs richer by buying their products and others poorer by refusing to buy theirs. In Russia, there is a shortage of soap because the consumer is prevented from expressing his sovereignty on the market. In Russia, central planners, not con sumers, are sovereign. D 224 Solidarity and Labor Law Reform in the 1990s by Charles W. Baird A t its 18th biennial convention, held in Washington, D.C., last November, the A.F.L.-C.I.O. again called for major reform of U.S. labor law along the lines of the failed labor law reform bill of 1978. That bill would have made it much more difficult for employers to compete with unions during certifi cation election campaigns and would have greatly increased the penalties imposed on employers found to be in violation of the pro-union rules. It would have made it much more difficult for nonunion workers to remain union free.