Those Merciless, Greedy Consumers Run The Show

The consumers are merciless. They never buy in order to benefit a less efficient producer and to protect him against the consequence of his failure to manage better. They want to be served as well as possible. And the working of the capitalist system forces the entrepreneur to obey the orders issued by these consumers.

~Ludwig von Mises from "Bureaucracy" (via today's The Gartman Letter)

Here's a dirty little secret about capitalism: consumers, not corporations, run the show. If you find something about the marketplace objectionable, it would be more appropriate to blame those who actually call the shots: the ruthless, cutthroat, and disloyal American consumers.

Consumers are the kings and queens of the market economy, and ultimately they reign supreme over corporations and their employees. When corporations make mistakes and introduce products that consumers don't want, which happens frequently, you can count on consumers voicing their opinions forcefully and immediately by their lack of spending.

In a market economy, it is consumers, not businesses, who ultimately make all of the decisions. When they vote in the marketplace with their dollars, consumers decide which products, businesses, and industries survive—and which ones fail (see chart above of the 1.5 million business bankruptcy filings since 1980). It is therefore consumers who indirectly but ultimately make the hiring and firing decisions, not corporations. After all, corporations can make no money, hire no people, and pay no taxes unless somebody, sooner or later, buys their products.

What consumer sovereignty in a free marketplace translates into is each person husbanding his resources for the greatest benefit to himself and his family, which in turn translates into the greatest efficiency in the consumption of the world's scarce resources. If you don't like the message of the marketplace, don't assume that corporations and greed are to blame while consumer behavior and consumer greed play no role in the outcome. We should be thankful, in fact, that the marketplace puts consumers on such a powerful pedestal.

~From my 2002 article "Consumer, Not Corporate, "Greed" Is Ultimately Behind Layoffs"