Download Consumer Sovereignty and Government Enterprise

Consumer Sovereignty and Government Enterprise
By
Sam Magee
Austrian Economics
Dr. Herbener
May 3, 2006
The term “Consumer Sovereignty” has been used by many economists, including
some Austrians, to state the fact that all production in the market, to be sustainable, must
serve the ends of consumers. Mises supported the use of the term to explain that
production in the free market was not merely subject to the whims of the capitalists.
Rothbard improved upon the conception by reintroducing it as self-sovereignty. The
existence of public enterprise and government management as is common in our world
today serves only to deteriorate this optimal state of affairs in the free market, by
impoverishing the consumer through unresponsive services and restricted choice.
According to Mises in his treatise Human Action, “the direction of all economic
affairs is in the market society a task of the entrepreneurs.” (Mises HA 270) This is a
fact of life that is immediately obvious to people with little experience with economic
theory. They know that they are responsible to follow the orders of the boss, the
entrepreneur, and it is these entrepreneurs who decide which production lines are
undertaken and how they are undertaken. What is not immediately obvious, which Mises
aims to point out is that the entrepreneur, the boss of any productive enterprise, must also
answer to someone for his production. The entrepreneur is not free to run his enterprise
any way he likes, if he intends to stay in business. He must produce according to the
demands and desires of consumers to do that.
Mises employs the analogy of a sailing ship to display the true nature of
entrepreneurship. He claims that while at times it may seem as though the entrepreneur is
the true boss and is free to sail whatever he wants, this is not the case. According to
Mises’ analogy the entrepreneur does in fact steer the ship, but not to serve his personal
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desires. He is merely a steersman, “bound to obey unconditionally the captain’s orders.”
(Mises 1983, 23) According to Mises, “the captain is the consumer.” (Mises 1983, 23)
The consumers in a free market are “sovereign” over the production through their
actions. Their activities of buying what they want are what constitute their control over
the market. They buy the goods and services that serve their ends, at the best price they
can obtain. Their efforts to economize may cause them to frequently change the firms
who they purchase from. Mises claims these choices that consumers make everyday have
very far reaching consequences for the structure of the market. Mises states, “Their
buying and abstention from buying decides who should own and run the plants and the
land.” (Mises 1949, 270) Similarly their decisions about their purchases will determine
who becomes rich and who becomes poor. Entrepreneurs in the free market will only
have an opportunity to earn their wealth “by filling best the orders of the consumers.”
(Mises 1949, 271)
Mises strongly states the control that consumers have over the production of the
market through the use of repeated metaphors. Not only are the entrepreneurs merely the
steersmen of a ship, but they also “have their hands tied.” (Mises 1949, 271) Mises uses
this metaphor to state that the class of entrepreneurs is “bound to comply in their
operations with the orders of the buying public.” (Mises 1949, 271) Mises explains that
according to this theory of the entrepreneurial action, any deviation from the will of
consumers for whatever reason will result in reduced profits.
A large degree of the argument concerning consumer sovereignty was intended
to show that it is the class of consumers, even the most common people, who affect the
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production in a capitalist society. Instead of being decided merely at the whims of the
rich, Mises shows that instead, the rich only become this way by serving the ends of
consumers most satisfactorily, and with the least waste of resources. A cursory view of
the actions occurring in the market could have led observers to believe that the capitalists
and entrepreneurs could produce whatever they want, how they wanted to. Some might
have seen it as the market analog of aristocracy, with other systems such as socialism
more in line with democratic sensibilities.
However, Mises’ description of consumer sovereignty would seem to place the
market more in line with democracy. But Mises is not content with this description.
Instead he argues that while it might seem that every penny is similar to a ballot that is
cast in a political election, the market is much more dynamic in the way it treats
spending. If the market followed the paradigm of democracy, only items the majority
approved would be produced. But this is not what happens at all, since goods are
produced for people of all different types of preferences since “every penny has the
power to work upon the production process.” (Mises 1949, 271) Citizens of capitalist
countries are fortunate in fact that the system of consumer sovereignty is not completely
analogous to a democracy. If that was the case, the market might find its production to
be very unsatisfactory from a standpoint of diversity of goods and services. One example
that Mises cites is that entrepreneurs serve the demands of people in the minority such as
consumers of lyrical poetry, just as they serve the larger masses who read detective
stories. (Mises 1949, 271)
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Mises doesn’t stop there in his descriptive and heavily metaphorical account of
the sovereignty of consumers. He claims that consumers are not merely the ultimate
controllers of production, rewarders of successful entrepreneurs, and determiners of
incomes across the economy. They are also “merciless egotistical bosses, full of whims
and fancies, changeable and unpredictable.” Mises explains that they make all of their
consumptive decisions in the present, with no regard for past habits or loyalties.
Therefore, Mises makes his point that while our initial perception may be that
entrepreneurs and capitalist are arbitrary rulers, it is much closer to the truth that the
consumers are the arbitrary and “stony-hearted” (Mises 1949, 271) actors behind the
production in a free market.
Murray Rothbard was much more careful in his use of terminology on the topic of
so-called “consumer sovereignty.” He begins his discussion with an affirmative defense,
although much less emphatic than Mises, of the fact that producers “tend to produce
those goods most demanded by consumers.” (Rothbard 560) However, Rothbard is
quick to point out a key difference in emphasis in his theory. While Mises felt
comfortable with the term “consumer sovereignty” as originally termed by W. H. Hutt,
Rothbard calls this “ a typical example of the abuse, in economics, of a term
(“sovereignty”) appropriate only to the political realm and is thus an illustration of the
dangers of the application of metaphors taken from other disciplines.” (Rothbard 561)
Rothbard explained his issue with Mises and Hutt’s terminology by stating that in
the free market, no individual is compelled to produce that which consumers desire most.
It is a completely voluntary decision on their part to do such a thing. They simply often
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choose to produce in those lines of consumer goods which reward them most heavily, but
they could also not do so. There is no actual “law” in a political sense, or punishment for
not doing so. Rothbard states that for instance, people may be working in an area of
production that may not give them the highest monetary return and be content in doing so
because of the existence of what he terms psychic income. People seek to maximize their
overall utility, in satisfying their ends, and sometimes people gain satisfaction from
certain psychic factors, such as enjoying the company of others, better working
conditions, or a feeling of satisfaction that comes with working for a cause one believes
in. Or a person who is capable of producing a valuable good or service that consumers
demand, may simply choose to be idle, and not produce at all. These would all be
examples of activities that enter into the decisions of where people choose to work, and
whether they choose to work every day. Because of this it is misleading to state the case
of consumer sovereignty as strongly and metaphorically as Mises did.
People are under no compulsion to follow the highest monetary returns in serving
consumers. However, this does not change the fact that in order “To earn a monetary
return, the individual producer must satisfy consumer demand.” (Rothbard MES 561)
Producers still must serve the consumers if they have any hope of gaining profits.
Because of this, entrepreneurs in the market will still serve consumers, as they are either
investing their own capital or capital entrusted to them, with the purpose of gaining
profit. Over time, the best entrepreneurs, as the directors of capital will emerge in the
market, as those who consistently earn profits by serving the needs and desires of
consumers. This is because of the fact that entrepreneurs who consistently squander
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valuable resources, or produce in lines not valuable enough to consumers to cover the
costs of production, will eventually deteriorate their capital stock to the point where they
are unable to continue directing the use of the capital. If the capital is their own, and they
have proven themselves deficient in their abilities to serve the consumer, they will lose
all their capital. If the capital to direct is entrusted to them, they will see their
opportunities of such employment rapidly diminish after repeated losses.
Rothbard made a suggestion for an alternative concept to replace the flawed
description of consumer sovereignty. He preferred the term “self-sovereignty” or the
“sovereignty of the individual.” (Rothbard 562) He believed this term is a more relevant
way to describe how in the free market, each person owns his own labor and his property
from his labor. Therefore, he is under no compulsion to produce for any man. Yet at the
same time he has no way to earn profits except through voluntary exchange. He has no
claim to another’s person and property, so he must produce those goods and services that
are valued enough by his fellow man to create a voluntary exchange that earns him
profits.
In the free market, entrepreneurs engage in economic calculation to determine whether
they are earning profits. The existence of such profits would also tell them that they are
producing a good or service that is sufficiently valued by other self-sovereign individuals
in society to permit revenues from their sale to exceed the costs of the factors used in
their production. Thus we know that all production must aim at the satisfaction of
consumptive ends, and at the same time sufficiently high satisfaction to cover the costs of
the use of scarce resources. This is a more refined concept of consumer sovereignty than
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Mises’ loose metaphor, however it strikes at the same point, that entrepreneurs are not at
all the market equivalent of political aristocracy. They cannot simply use resources in
any way they choose. If they did act this way, with little concern for the desires and
demands of consumers, their capital stock would quickly be exhausted. Instead,
entrepreneurs are the dynamic directors of the capital stock, and if they wish to earn
profits or remain at their post, they must use superior foresight to produce that which
satisfies consumer preferences.
While in the Free Market, entrepreneurs must necessarily serve the desires of
consumers sufficiently to earn revenues greater than their costs, Governments do not
operate on the same principle. Government enterprises do not exist to earn profits, and
they have the ability to survive without them. This necessarily means that they need not
provide consumers with the goods they desire without wasting resources as private
business must do.
Instead, Government enterprises exist to provide a given service to certain citizens
according to a law or decree. Most importantly, they are supported by a tool that is not
allowed to the entrepreneur in the Free Market. Governments have the power to use
violence to forcibly collect taxes from their citizens. If private businesses attempted to
do such a thing, it would be called theft. However, taxation is employed for the state, and
the gains from this practice support many government enterprises.
Under such an arrangement, it is impossible to determine if a government
enterprise is truly benefiting society, and significant reasons to believe they are not. The
most important of these reasons is the fact that governments do not operate under the
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same rules as entrepreneurs. If an entrepreneur is wasteful in his investment and resource
allocation, either through inefficient methods, or in providing a good or service that
consumers do not sufficiently demand, he will earn losses. These losses will eat into his
available capital stock, and if they are sustained, he will be left with no further resources
to invest. He will thus be ushered out of his resource directing station in the market.
Conversely, those entrepreneurs who succeed in forecasting the demands of consumers,
and satisfy those demands while not wasting resources, will be rewarded for their risk
and efforts with profits. This system gives us reason to believe that the free market
favors good directors of capital and removes bad ones.
The direction of resources by government bureaucrats does occur under such a
strict check. Because of this fact, governments often arrange their services in ways that
would never be sustainable on the market. For instance, it is very common for a
government to provide a good or service to its citizens for free or a drastically sub-market
rate. If a private firm were to do such a thing, they would almost certainly be plunged
into bankruptcy within a very short time. It is of course the fact that government
enterprises tend to be forcibly financed in advance, through the use of their powers of
taxation that government enterprises do not have similar fears. It is also this fact that
explains why we should be less than enthusiastic about such a proposition. The good that
is being provided by the government for no additional marginal cost is not at all free.
The government did not conquer scarcity, they simply collected the price from citizens
with or without their consent in the form of taxation.
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Deviation from the system of voluntary exchange to allow for state run and
financed enterprises presents many complications and negative effects. The most
significant of these is that government enterprises, as not subject to the risks and rewards
of the profit and loss system cannot at all be expected to be able to rationally allocate
resources.
The entrepreneur has the benefit of economic calculation as he attempts to
decide upon products to produce, and available means to produce a good or service. He
uses his foresight to weigh expect gains from production against expected costs of
production. He is free to serve any number of consumer desires and has incentive to
choose those lines which reward him most in the form of profits.
In contrast, the state bureaucrat is largely able to ignore the particular preferences
of consumers in his decisions. He is not risking his own investment, and he seeks no
personal monetary reward. In fact, if he did seek monetary profit from his direction of
state resources, this would be considered a serious legal and ethical infraction. For these
reasons Rothbard explains that it would be impossible to run a government enterprise in
completely the same way that private businesses do. This is because true
entrepreneurship involves both the risk of resources as well as the response to consumer
demands. (Rothbard 822) Government enterprises provide neither incentive to the
bureaucrat. Furthermore, Rothbard explains that even if it were possible to completely
incentivize the management profit in a way that the free market does, the entire endeavor
would be tainted by the fact that “the initial launching of the firm is made with
government money, and therefore by coercive levy.” (Rothbard 823) Whereas
entrepreneurial decisions about whether or not to engage in a project are based on the
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cost of the necessary capital investment provided on a voluntary basis for a given return,
governments do not have this initial check on their investment projects.
Because of the fact that bureaucrats do not and cannot operate government
enterprises in a profit-maximizing way, the ability of the consumer to affect investment
and product decisions is largely eliminated. It was the voluntary expressions of values
that led Mises to state that consumers were sovereign over production. According to his
analogy, they were the captain of the ship while the entrepreneur was merely the
steersmen. However, when the government is involved in the production process,
financed by taxes, and incapable of making efficient allocations based on profit and loss,
the consumer takes a backseat.
Not only are the bureaucrats capable of remaining at their post despite systematic
misallocation and waste of resources, what they do choose to produce, cannot satisfy all
consumers. The differing preferences of consumers for the production means that some
will be satisfied and others will not be. Thus although the governmental production is
often called for on the basis of the idea that they are goods and services that we can all
share in, it can never compete with the vast diversity of goods and services in the open
market, each of which are finely tailored to serve a particular part of the populace.
Rothbard explains that government production will tend toward uniformity and that
“Artificially standardized services of poorer quality- fit to governmental taste or
convenience- will hold sway, in contrast to the diversified services of higher quality
which the free market supplies to fit the tastes of a multitude of individuals.” (Rothbard
826)
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Rothbard used the examples of public schools to display the often arbitrary nature
of government production decisions, in contrast with the orderly satisfaction of
consumers’ most urgent desires on the free market. Public schools in the US and many
other countries are funded by coercive levies and simultaneously offered “free” of charge
to specific citizens. The creation of schools in particular is subject to an extremely high
number of investment and production decisions. Schools could come in many types,
large or small, highly technical or classical, religious or secular, relatively high quality or
low quality, homogenous or diverse. Additionally, all of the specific smaller decisions
that make up the rules, curriculum, and the overall budget would need to be answered in a
rational fashion.
Entrepreneurs on the free market would attempt to solve each of these important
questions by examining the effect of the available choices on the bottom line, the amount
of revenue that a particular solution would bring in relative to the costs associated with it.
The wise entrepreneur would not decide the important questions for the school on an
arbitrary basis, or even on the basis of his own beliefs or preferences. Instead, the
entrepreneur would use economic calculation to decide upon what the consumers value
most in their education. If there were two schools in a region and one served many
parents demands well by providing a high quality education evidenced by high test
scores, whereas the second school was lagging behind in all indicators of their
accomplishment, one could expect parents to bid up the price of the successful school and
discontinue their purchase of the educational services of the lesser school. The result
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would be increased tuitions and profits to the superior educator as judged by the parents,
and as a result expanded services both from that school and other educators who enter the
market following the model of the successful educator. Because of this market
mechanism, entrepreneurs in the educational fields would be able to objectively respond
to consumer demands by producing that which they desired most urgently for their
childrens’ education.
Different entrepreneurs would answer the critical questions of the educational
process in different ways. Because of this, the free market would provide a diverse
number of educational choices, giving consumers in society a vast number of different
schools to choose from. Parents’ free and voluntary decisions on where to send their
children would reward those entrepreneurs who provided a valuable service to parents
hoping to educate their children according to their particular preferences and values. It
need not be said that all parents would necessarily prefer every particular program or
policy of a school. However, if the exchange for the services of the educator was
voluntary it can be said that the parents preferred the service of the educator to the
amount of money they surrendered as the purchase price. In this way, parents need not
decide each policy against an ideal, but merely evaluate the educational service as a
product with a price and attempt to satisfy their preferences while economizing resources.
This peaceful and harmonious arrangement of voluntary transactions is quite
different from the public schools’ bureaucratic method of directing the schools, and the
unending and contentious debate that follows questions of school philosophy and policy.
Whenever government bureaucrats attempt to answer the specific questions of school
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administration, they do not have the advantage of economic calculation to aid them in
their decision making. Instead of determining the most socially valuable form of
education for a particular school based on the free expression of values in what
consumers are willing to pay for, the bureaucrats must decide based on some other
criterion. In its best form, it would seem that the bureaucrats would attempt to provide a
form of education that would appeal to the most people. However this is done, it would
still be inferior to the free markets educational solutions which need not cater to the
populace as a whole, but could instead specialize in educating people of distinct
preferences and beliefs. At its worst, the decisions of the bureaucrat in charge of
education could reflect his personal beliefs and preferences, rather than the consumers of
the government service.
A comparison of the mechanisms which govern the production of educational
services in the free market, with the bureaucratic method of government education helps
to clarify the fact that the many common disputes over the method of public education
today are not really the result of the disagreements themselves as much as an inefficient
and unresponsive system to decide policy based on those values. Because of this, debates
over any number of issues such as prayer in school, the inadequacy of school security or
any other issue can now be seen as a necessary result of the fact that government
enterprise can never satisfy every person in a nation. In fact, the same is true of private
businesses as well. The only difference is that if a person is not pleased with a private
service, that person may simply refrain from purchasing it. The use of government
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taxation to fund enterprises such as public schools means that bureaucrats are asked to do
the impossible by creating a school that appeals to everyone and deals with each person’s
requests and complaints. Instead they can only “impose the will of one group by
coercion and leave the others dissatisfied and unhappy.” (Rothbard 827)
Another relevant example of government enterprise impeding consumers’ abilities
to have an impact on the goods and services they enjoy can be found in the modern
nationalized transportation system. In particular the US interstate highway system is an
example of a massive tax financed government service to the populace. As such it faces
the same problems of economic calculation. Since it was financed heavily with federal
coercively gained tax dollars, and since very little of the system charges a voluntary
price, there was no rational way to determine that this massive capital investment would
be profitable, and thus benefit society.
The numbers surrounding the development of the Interstate Highway System are
quite striking. Originally only forecasted to cost $25 billion and take 12 years to build,
the system overran all projections and ended up costing $114 billion just to build over the
course of 35 years. (Topeka) However, the mere fact that the project was drastically
overbudget cannot tell us anything about whether it was genuinely a wise investment or
wasteful of societal resources. It is possible that the federal government has failed to
satisfy all of the consumers demands, and society as a whole would gain from more and
higher quality roads. The point is that, apart from the manifestations of consumer values
that occur everyday in voluntary exchange, there is no rational way that a government
bureaucracy would be able to make its investment and management decisions in an
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efficient way. In fact, apart from the profit and loss orientation of the market, it must be
said that state planners are bound to choose a relatively arbitrary level of government
service. They simply choose a product or service to supply at a given level of quantity
and quality, with no way of basing their decisions on true consumer values.
In the light of these facts surrounding the origins of the highway system, it is
reasonable to believe that a system designed and undertaken by private entrepreneurs
would look significantly different in both its initial development and its day to day
management. One of the most striking aspects of a system which required such a
massive capital investment is the fact that its direct revenue supply is decidedly limited.
For instance, only 2695 miles out of 44,759 total miles of interstate roadway space charge
a toll. (Hakim 1) The ratio of toll roads to free roads in all of the US is even more
striking. Out of roughly 3.8 million miles of roads in the US, only 4,657 charge a fare.
(Hakim 1) This means that less than 3 percent of the roads require any form of a
voluntarily exchanged price for their use.
Considering the massive amount of outlays that the government has invested in
the roads and the also massive maintenance of the same roads, it hardly strands to reason
that such a valuable resource could be offered to consumers for free. Certainly, it seems
this would not occur on the free market. Entrepreneurs would never risk their hard
earned capital in an enterprise that they had no expected revenue streams from.
This case would seem to be the equivalent of charity on the free market. A
philanthropist may seek to provide a service free of charge on the market, however, he is
limited in his charity to the supply of his capital. Projects on this scale, even if the
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philanthropist was able and willing to provide the service free of charge, would quickly
exhaust the supply of capital. But the state is not engaged in any form of charity, since
the system is financed by coercive levies. The federal interstate system in particular
finances its current maintenance and investment projects through the use of taxes on
gasoline. 51.2 percent of the expenses of running the roads were paid through this tax in
2003. (FHWA) Only 4.33 percent was paid through the use of tolls in the same year.
(FHWA)
Although it would seem that a good offered at a sub-market price or no price at all
would be something to celebrate, there are several negative effects of such a policy. First
and foremost, such a policy will inevitably set in place a shortage of the good in question.
This is because at sub-market clearing price, the quantity of any good demanded will be
greater than the quantity supplied. In the case of roadway space, when the price is little
or nothing, we will find that the quantity demanded of this roadway space will be very
high. The government bureaucrats could choose to satisfy all consumer demand at this
price point, but it is much more likely that they will restrain their production to some
arbitrarily determined level of production of roadway space. If this amount is less than
the amount demanded, there will be shortages of available roadway space.
These shortages in the public roads will manifest themselves in the common form
of traffic. This is simply due to the fact that at the very low or non existent marginal
price to use the road, many people will attempt to use it. Since the governmental
production of roadway space is likely to be less than this amount, there will be long lines
to enter the interstates and slow traveling speeds. These poor driving conditions and
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delays constitute costs to the drivers. Time is a valuable resource that must be
economized, and traffic wastes this valuable resource. Additional estimates place the
amount of wasted fuel per year at 4.6 billion gallons. (Samuel 3) However, the current
bureaucratic management of the roads means that consumers have no means by which to
remedy the problem. Many consumers would prefer to pay a much larger sum of money
for clear passage on the road, however the inflexible management and desire to provide
the service for free prevents this solution from happening.
It is important to note that these types of delays and shortages rarely manifest
themselves for long on the market. This is because the price mechanism of the market
helps to direct the entrepreneur’s actions as well as economize the demands of the
consumers. Customers of toll roads in the free market would have a method by which
they could respond to slow travel conditions caused by traffic. The more capable buyers
would bid up the price of the toll road in order to obtain a clear passageway.
Entrepreneurs would simultaneously have the incentive to raise the price of passage to its
profit maximizing point. If it was profitable to do so, the entrepreneur could also respond
by increasing his supply of roadway space. Other entrepreneurs could respond to the
high prices for travel routes by building competing roads.
The current system of roads, supported by taxation, without any risk or incentives,
must be said to decide issues of road policy and regulations arbitrarily. There are many
rules that govern the use of the road, such as speed limits, vehicle inspections, and other
driving regulations. Many of these are intended to provide for the safety of the safety of
travelers on the road. However, to simply implement a few rules citing a customer
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preference for safety fails to consider the marginal unit. The real question concerning
entrepreneurs on the free market, or bureaucrats in public enterprise is not whether or not
to provide a safe system, but rather how much safety do consumers desire, and how much
they are willing to give up to attain it. A very high degree of safety could come at the
expense of time, with a speed limit of 10 miles an hour, however few people who would
say they value “safety” on the roadways would choose this particular level of safety at the
expense of so much time.
It is only on the market that these many preferences of consumers can be
effectively balanced. It is impossible to say with any certainty the specifics that would
arise on the free market in the absence of government ownership and management of the
roads, but what can be said is that the result would place more control in the hands of
consumers for the direction of production of roads according to their values. This is
because the entrepreneur would not be able to earn any revenue on the free market in the
absence of voluntary exchange. If a consumer chose not to use the road, he would earn
nothing. If the road was not sufficiently safe, or sufficiently clear, or could not permit
sufficient speeds according to consumer desires, he would not have to pay the
entrepreneur and would seek other modes of transportation. Entrepreneurs who best met
the needs of a particular market would be rewarded with profits, and it is possible that the
free market system would be able to solve the problems of differing preferences, by
creating a diverse choice of roads that catered to particular consumer desires. An
entrepreneur could earn profits on a road by making it according to the highest standards
of safety, while another could choose to sacrifice some safety for the sake of higher
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speeds. Both entrepreneurs would have to satisfy consumers ends sufficiently to cover
the costs of the resources used to have any hope of earning profits.
However, it must be said that the current record of safety under government
ownership is not at all impressive. In the case of government schooling, the
consequences for autonomous direction of the curriculum might only be a curriculum that
doesn’t match parents ideals. But in the case of government production of roadways, we
can see that the stakes are much higher at sixty-five miles an hour. Incompetent
management and an inefficient system cost the lives of up to fifty thousand people yearly.
(Block LNF 1)
Despite the existence of free roads as a form of completely subsidized industry,
many private firms have been able to better serve the needs of consumers and earn profits
through the production of private toll roads. Many of these are still subject to regulation
as well, but have still been able to innovate upon the bureaucratic model and provide a
positive vision for the future. Private firms have been able to overcome the obstacle of
the massive capital investment necessary for the construction of toll roads in the US and
worldwide. Firms in China in particular have invested more in private toll road projects
than either Latin or North America. (Hakim 1) Within the US, several states have
allowed franchising in highway creation and management. (Samuel 10) States such as
California have seen the market solutions that were lacking from bureaucratic
management, such as the “91” which created a free flow of traffic in an express route in
the notoriously congested Los Angeles area. It served consumer desires by solving the
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traffic problems with quicker commutes and safer driving conditions through “the first
full implementation of congestion pricing in the United States.” (Hakim 3)
Also, government planners in Stockholm, Sweden have recently used the
introduction of a few market mechanisms to drastically alter the outcome of their
production. By instituting a system where travelers pay a small fare of about $2.75
during peak hours and no fare outside of peak hours, planners have changed the end
result of the product. The number of vehicles has decreased in peak hours by 22%,
affording significantly decreased travel times. Additionally, the congestion pricing has
served to make an impact on the amount of injuries caused by automobile accidents
(down 5-10%) as well as the amount of smog by decreasing emissions through shorter
travel times. (Abboud, Clevstrom) Although the government of Sweden is hardly a
private enterprise, this case illustrates the significant changes that would take place in a
full market system and the potential profit that could be reached as a result of such
changes.
These are just a few examples of ways the market has been able to better serve
consumer preferences due to true entrepreneurship that responds to monetary incentives.
The fact that any person would be willing to pay for their transportation routes when
others are freely available speaks to the fact that the government has failed to satisfy the
demands and values of consumers. In any case of government enterprise where
bureaucracy is favored over profit and loss directed entrepreneurship, whether in schools
or roadways, the result will be a completely different arrangement of the capital structure.
While this does still leave consumers “sovereign” in the sense that they may still choose
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to consume or not consume the service, they are left relatively helpless without the
market mechanisms necessary to alter the production. This is caused by the autonomy of
the production due to its funding by coercive levy along with the lack of proper
incentives due to lack of private property ownership.
Mises discussed the concept of consumer sovereignty in allegorical terms, to
show that all production must serve consumer ends to earn profits. His discussion of the
theory showed how the market served the interests of the people, rather than merely
being the directed at the whims of the rich. Rothbard’s clarifications of that theory gave
us the concept of self-sovereignty in refined language which demonstrated the voluntary
nature of all entrepreneurial decisions, while retaining the idea that the consumer must be
sufficiently satisfied to earn profits. Government attempts to produce services, whether
in public schools or roadways or in any form, for the populace can never completely
duplicate the consumer serving mechanisms of the market as long as its operations are
outside the realm of voluntary action, and thus violate Rothbard’s conception of selfsovereignty.
Magee 22
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