Tuesday, March 19, 2013


“The consumer is, so to say, the king (...) each consumer is a elector who uses his vote for it to be done what he wants”. With this expression Paul Samuelson defines the main article of faith in the orthodox economist's creed: the sacred dogma of “consumer’s sovereignty”. Such is the importance of this dogma that, if proved to be false, it would collapse the entire building doctrinal of the Economic Theology. And is that “in a market economy is always given as assumption the consumer sovereignty” (1) because it is only in virtue of this that the economic efficiency leads to increased welfare.

It is assumed that sovereign consumers have different needs and autonomous preferences which they manifest via monetary votes in the purchases made or abstentions on purchases in the market. The entrepreneur will have no choice but to submit to the demands of consumers: nobody is perpetuated in the market if does not satisfy to the consumer, if does not surrender to its sovereignty. Thus the economy fulfills its purpose to efficiently manage the scarce resources to satisfy human needs.

Evidently assume all of this was not as unreasonable in the time of Adam Smith and the classics because the firms were incipient, goods were less abundant and the needs were fundamentally basic. However, “while the world continues to evolve, the conventional wisdom is always in danger of becoming obsolete” (2). With the advent of technological society, the spread of media, development of advertising, sales strategies, the planning system and the predominance of oligopolistic and monopolistic structures of the market the situation changes radically. It would be absurd to think that big companies like Microsoft, General Motors, Nike or Coca Cola are humble servants of the consumer. Only an ignorant would think that the purpose of advertising is to only “informative” when the overwhelming evidence shows that it is essentially “persuasive”.

The mere fact that the needs of consumers are increasingly manipulated and exacerbated by advertising and sales technique shown that their preferences are not entirely autonomous. In this point someone might object that this is not entirely true because any individual is free to escape from the influence of advertising if desired. Somehow he would be right. But we must bear in mind that the manipulation of needs is not directed primarily to the individual but to the entire mass, thus that is not a great loss of sales that a single individual rescue his liberty and autonomy if it has manipulated the majority of individuals.

Precisely this is the primary objective of firms because not only seek profit but also economic security, especially as they get bigger because, besides deciding what consumers need, the firms have to take a series of policies in order that the price the consumers pay for their product to be a price such that enables them to achieve at least the minimum benefits and maintain its position in the market, besides paying to their shareholders, directors, employees and suppliers. So it is that even the monopolies, which have no competition, perform great expenditure in advertising (obviously this throws on the floor the belief that advertising is an exclusive activity of oligopolies).

Thus the economic system ends inverting its rationality because instead of firms produce what we need, they do that we need what they produce. Thus, the “general rule, with less exceptions than we imagine, is that if they produce it we will buy it” (3).

Despite all of this, the perfect competition, the utility theory, the general equilibrium and the consumer sovereignty stays as the supreme in the conventional economic education. This can only be shown by either a “fatal arrogance” that aims to have a solid theory and perfect regardless of changes of reality, or an incurable naivete on the part of economists. Ojala these would be more humble (or less naive?) and take this into account to reformulate economic theory in a way that takes better account of the specific social and economic phenomena, seeing the consumer as what he really is: a being of flesh and blood whose needs are susceptible to manipulation by big business. It is time to leave behind the myth utilitarian on the “isolated individual”.

1. Franklin Fisher, Zvi Griliches, and Carl Kaysen, The costs of automobile model changes since 1949”, The Journal of Political Economy, vol. 70, nº 5, October 1962, p. 434.
2. John Kenneth Galbraith, “The Affluent Society”, Artemis Press, Mexico, 1986, p. 57.
3. Andrew Hacker, A Town Called America Corporated”, New York Times Magazine, July 3, 1966.

You can contact the author of this article in: “Dante Abelardo Urbina Padilla” (Facebook) and dante.urbina1@gmail.com (email)