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What Is Consumer Sovereignty?

A monument honoring Adam Smith, a proponent of consumer sovereignty.
John Maynard Keynes.
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  • Written By: Jan Fletcher
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  • Last Modified Date: 17 March 2014
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Consumer sovereignty is one of several economic theories that attempt to explain the dynamics driving the relationship between buyer and seller. Economists who advocate the theory of consumer sovereignty claim the element driving both manufacturing and consumption is the consumer. A keystone of this theory rests in the belief that consumers will consistently act in a rational manner.

Adherents to this theory typically believe that rational consumer behavior will collectively resolve inequities in the system. As a result, these advocates say a rising tide occurs. Over time this tide will lift the population as a whole to a higher standard of living. This theory argues that collectively, a population will produce a positive macroeconomic outcome through individual consumption decisions.

On the other side of the argument are those who say there is a weakness inherent in this theory. These critics point to advertising and marketing efforts that artificially manufacture desires in consumers. This is referred to as manufactured demand.

As a result of manufactured demand, critics say, the system does not produce rational decisions among consumers. Critics claim the idea of the rational consumer merely reflects the desires of producers to sell more goods. Some environmental advocates claim this economic system produces destructive effects by encouraging overconsumption.

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Advocates of this theory say a consumer-driven economy will eventually work out inequities, lifting up all citizens in a rising tide. Others disagree that consumers are consistently rational. These people say suppliers have the power to create desires through marketing. In this viewpoint, these artificial desires leave the consumer with an artificially created need. The influence of advertising in the theory of consumer sovereignty is a point of debate among economists.

John Kenneth Galbraith, a proponent of Keynesian economics, took issue with a central tenet of consumer sovereignty theory. This tenet claimed economics could be distilled into economic laws. Galbraith disagreed, saying the interactions between consumers and suppliers involve cultural beliefs and elements. He argued against claims that consumer sovereignty functioned equitably without governmental influence. As a result, some Keynesian theory proponents say consumer sovereignty, in practice, creates undesirable macroeconomic effects.

Consumer sovereignty has its roots in neoclassical economic theory, which arose in the late 19th century. Preceding the development of neoclassical economic theory was classical economic theory in the 18th century. Adam Smith was a proponent of this theory, which argues that the driver of the economy is the value of the produced goods as they relate to underlying costs.

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Discuss this Article

ysmina
Post 4

@turkay1-- I think that's called "dollar votes" in consumer sovereignty economics, right?

Is there any definitive studies about how advertising impacts consumer sovereignty?

I think that advertising is influential on what consumers buy because if it wasn't, companies wouldn't spend millions of dollars every year to advertise their products. But many economists seem to be saying that advertising has little to no effect on consumer sovereignty.

Which do you think is closer to reality?

candyquilt
Post 3

@turquoise-- I think that you just supported the idea of consumer sovereignty with your example.

If I were to define consumer sovereignty, I would say that consumers decide which goods are to be produced and what their prices will be simply through their buying power.

This is exactly what you and I are doing everyday! By purchasing organic goods, you are telling manufacturers to produce organic products at those prices. By buying things, we are continuously telling manufacturers that this is what we want and how much we're willing to pay for it.

Manufacturers don't give us choices, we ask for them! This is called consumer sovereignty!

turquoise
Post 2

@EdRick-- I've never studied economic theory either, but from my personal experiences as a consumer, I agree with Galbraith that consumers don't always act in a 'rational' and predictable way.

I'm not sure what exactly economists mean by rational, but I'm assuming that it's the desire to purchase what is produced. While that may be true, I think that the consumer sovereignty theory has forgotten that people don't only act due to desires and needs but also based on beliefs and ideologies.

I've personally experienced this. I used to purchase all kinds of produce before without thinking about what is natural or organic. After taking a class on food science and organic versus inorganic produce, I've become an advocate of organic and all natural foods. Since then, I only purchase organic goods.

So, culture definitely has to do with what consumers buy. Consumers are not going to automatically pick up whatever manufacturers decide to produce. If we are given options, we can act 'irrationally.'

EdRick
Post 1

I'm no economics expert, but hasn't there been study after study proving that consumers are anything but rational?

For instance, people consistently spend more money when they use credit card than when they use cash. If their spending was entirely rational, they would recognize that the credit card is still their money and would spend precisely the same. But it doesn't "feel" like real money the same way that bills and coins do, so people spend more.

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