Consumer Sovereignty
Consumer Sovereignty
“Consumer sovereignty” is one of those concepts that flourish and are widely influential long before they are explicitly recognized and named. (Their belated recognition is often concomitant with their decline.) Much of the substance of consumer sovereignty is implied in Adam Smith. The focus of subsequent classical economics on cost of production as the basic determinant of market decisions temporarily sidetracked this emphasis. It returned more strongly with the Austrian school of Wieser and Menger, and in the work of Jevons, Pareto, Marshall, Pigou, and Wicksell. In 1936 W. H. Hutt in Economists and the Public coined the term to refer to a common fundamental presupposition in all these works.
Consumer sovereignty has been used in both a descriptive and a normative form. In the first form, the term simply means that all economic processes are ultimately focused toward satisfying the wants of the final consumer. Production, exchange, and distribution are all means; consumption is the end. Moreover, in a free market system, market performance is in fact responsive to the specific wants of the consumers within the system. The question of how responsive leads to the normative form. As a normative principle, consumer sovereignty asserts that the performance of any economy ought to be evaluated in terms of how well it fulfills the wants of its consumers. Performance will be affected by the structural characteristics of the economy, by public policy, by behavior of participants that is not uniquely determined by structure and public policy, and by certain external circumstances. Our discussion will center on the normative form of the concept, since this will automatically illuminate both forms.
Association with a free market economy
Consumer sovereignty has been frequently associated closely—but misleadingly—with a free market economy. Since it can help to isolate the boundaries of the principle, we shall examine the alleged association. It comprises the following four steps:
(1) Knowledge of consumer wants. No one knows what a consumer wants as well as he does himself. Consequently, his wants will be best reflected in his market demand for commodities.
(2) Expression of wants. Consumer demand is best expressed in terms of actual choices made by consumers in the market—in terms of market transactions—since, being rational, consumers will adequately inform themselves of how best to realize their wants in the presence of given opportunities.
(3) Responsiveness of production to wants. Free enterprise, directed by the profit motive and intense competition in all markets, brings about the best possible adaptation of resources to meet consumer market demands, given the available resources and state of technology. “Best” is defined as a set of outcomes such that, whichever one of these obtains, no feasible alteration can bring about an alternative outcome in which any individual is made better off without at least one individual being made worse off.
(4) Laissez-faire. So long as the conditions for a free competitive market system obtain, a laissez-faire public policy will lead to a maximum degree of consumer sovereignty.
The emphases in this version are on individualism, on free competitive markets, and on laissezfaire. “Wants” are the wants of individual consumers; individual consumers know their own wants; they are self-motivated to become informed about the real alternatives available to them; and competition both protects them against exploitation and guarantees appropriate responsiveness in the use of resources to meet their expressed wants. Thus, governmental interference is at best superfluous and, more likely, destructive of consumer sovereignty. Finally, the very criterion by which the appropriateness of market response is evaluated is one that refuses to sacrifice any one consumer's well-being to that of others.
This version of the principle has sometimes been advanced as its true, or official, version. This is incorrect. The position just described is not in fact simply an interpretation of consumer sovereignty. It is a complex of at least three distinct normative principles: consumer sovereignty, freedom of choice, and Pareto optimality. Freedom of choice asserts that every economic unit should be permitted to make and implement all decisions bearing upon its own welfare. Pareto optimality asserts that when comparing any pair of social outcomes, one state can be declared superior to the other state if, and only if, at least one individual is better off and no individual worse off in the first state than in the second state.
Relation to freedom of choice
Comparing consumer sovereignty with freedom of choice, the first refers to the ends of economic activity and the second to the means by which these or other ends can be attained. Concretely, freedom of choice refers to the administrative procedure of allowing economic units to use their own property to make whatever voluntary trades they wish in the market (Lange 1938; Bergson 1948). While an administrative procedure—a means—can become valued as an end in itself, this is not the same end as envisaged under consumer sovereignty. Either of these principles can be supported without the other. We may have a system adhering to consumer sovereignty without freedom of choice where a central authority uses nonmarket means to discover what consumers' commodity preferences are (for example, by questionnaires, votes, or psychological projective tests) and then channels resources to meet them. Freedom of choice can be supported without consumer sovereignty where a central authority itself decides what the basic goals should be, independently of what it thinks consumers want, then employs resources to produce in accordance with its own goals, but allows the output to be distributed by means of market choices on the part of consumers, setting prices so that all markets clear. As another example of this last, consumers might be permitted to trade in free, perfectly responsive markets, yet, in a sense to be examined below, might not really know what they truly want and as a result make deluded choices.
The relationship can be more complicated, so that, despite appearances, one principle may be present without the other. In purchasing medical services from a physician, the patient seems to be sacrificing his sovereignty, since the doctor makes all decisions of importance about treatment. Yet, in effect, the patient delegates the doctor to decide for him: the goal of treatment is the patient's best interests. On the other hand, a television viewer may believe that he votes for programming because he is free to choose what to watch; yet the sponsor's programming decisions are responses to viewers' purchases of his product, not necessarily to their viewing decisions. It is only a precarious and variable association between viewing programs and being responsive to the sponsor's commercials—at least insofar as any such association is believed by the sponsor to exist—that preserves the viewer's illusion of influencing program content. His influence is actually far less direct and decisive than he may believe.
Notwithstanding these examples showing the logical independence of consumer sovereignty from freedom of choice, there is, of course, a strong empirical affinity between them. The individual consumer's wants can, in a wide variety of situations, be accurately reflected in his overt choices. Moreover, the alternative of indirect nonmarket inquiry is considerably more expensive for discovering wants that can be so reflected. Thus, as an empirical generalization, to satisfy freedom of choice in the context of responsive markets is also to satisfy consumer sovereignty to a first approximation; further, to want to satisfy consumer sovereignty is to be willing to see freedom of choice satisfied to a first approximation as well. In practical circumstances these first approximations may actually involve considerable and important divergences from the respective principles. We shall consider this below.
Relation to Pareto optimality
The relationship between consumer sovereignty and Pareto optimality is significant just because it is not as close as is sometimes thought. It is sometimes believed that the former implies the latter. This is incorrect. What does consumer sovereignty imply about the relative evaluation of alternative outcomes? The problem is that different individuals have different wants (expressed as implicit preferences). Any pair of outcomes is therefore likely to affect different individuals differently, so that in the preponderant number of cases some individuals will be better off with one alternative, while others are better off with the other. The principle of consumer sovereignty would seem to imply that an improvement in any individual's position, all others remaining the same, represents a net social improvement. It has, for example, been used this way in Arrow's influential work in welfare economics (1951) and in the resultant literature. (For a bibliography, see Rothenberg 1961.) But it has nothing specific to say about aggregating some individuals' gains against others' losses. It neither specifies a particular method of aggregation, nor precludes the possibility of such specification. Thus, while it is not inferable from it, it is also not inconsistent with consumer sovereignty to judge that a social change that makes 100 million people significantly better off (“significantly,” in terms of their own well-being), while making one person slightly worse off (“slightly,” in terms of his well-being), represents social improvement. To do so formally would simply require supplementing consumer sovereignty with a particular normative criterion from which this assertion is inferable.
On the other hand, Pareto optimality, while going at least as far as consumer sovereignty, goes beyond this and forecloses the meaningfulness of any such aggregation, where contrary changes occur for different persons. It is inconsistent with Pareto optimality to hold that a social improvement occurred where ten million gained while one person lost. Thus, consumer sovereignty is a less complete criterion than Pareto optimality for judging aggregate social changes. On the other hand, it is also less restrictive because, needing to be supplemented by additional normative criteria, it can be adjoined to any of a number of different criteria. Pareto optimality represents only one such possible combination—consistent with, but not exhaustive of, consumer sovereignty. It is neither the exclusive, nor even the most appropriate, combination, remembering our example of near, but not complete, unanimity improvement. The whole family of normative criteria with the property that non-contrary improvements to any individual register as social improvements qualify as potential supplements, regardless of how variously they formulate interpersonal comparisons of welfare change.
The distinctiveness of the three principles signifies that consumer sovereignty, while not inconsistent with, is not uniquely to be associated with, an individualistic, laissez-faire, free market orientation. A proper appreciation of its scope therefore requires deeper examination of the concept itself.
The aggregation problem
Assuming that consumer wants are to be fulfilled, there are two major problems to be considered in giving this operational significance. The first we have already touched on. How does one evaluate the extent to which different situations fulfill wants, when “wants” refers to the typically heterogeneous collection of a whole population? Assuming scarcity to be a universal condition, an economy can meet consumer wants only by compromising between the consumers' ends and the particular constraints imposed by the resources and state of technology available. Each pair of alternative compromises will typically have disparate effects on different members of the population. A complete criterion for comparing degree of fulfillment must make provision for aggregating gains and losses across individuals. Consumer sovereignty does not itself do this; it must be supplemented by additional normative assumptions. Such supplementation is by no means easy. Indeed, the search for a highly consensual formulation has monopolized much of the attention of welfare economics in the past twenty years (Kaldor 1939; Hicks 1939; Bergson 1938; Samuelson 1947, chapter 8; Arrow 1951; Boulding 1952; Rothenberg 1961). The upshot is that a supplemented consumer sovereignty criterion can take many forms. Its character will depend greatly on the specific supplementation. No particular supplementation has succeeded in commanding a consensus among economists.
The identification problem
The problem of aggregating wants assumes at best that each of the elements to be aggregated is the appropriate one. Such an assumption begs a critical question. Does consumer sovereignty contain clear guidelines for identifying the relevant individual ends to be fulfilled?
A reasonable model of consumer wants may be as follows. Consumers have directional strivings known as wants. These are operationally reflected in preferences toward different commodities. These preferences can be elicited by a variety of means, the most common being simply to observe actual market choices (under freedom of choice). The translation of wants into market choices involves an intermediate step of becoming informed about alternative trading opportunities. For our present purposes, the information involved concerns the prices and qualities of the respective commodities.
Applied to a model like this, the spirit of consumer sovereignty begs for consideration of two major types of qualifications on elicited preferences. One type concerns the concordance between choice and underlying wants—supportive qualifications. The other concerns qualifications designed to “correct” attitudes lying below the level of choice, on grounds of a deeper contradiction among wants —corrective qualifications. There exists a mid-region where the two types are difficult, if not impossible, to distinguish.
Supportive qualifications
Suppose individual consumers know ultimately what kinds of commodities they want. Given the constraint of purchasing power, the factor that mediates between this knowledge and the satisfaction of their wants is the availability of information about the specific commodity opportunities open to them. In the naive form of the consumer sovereignty principle, which combines freedom of choice and is popularly reflected in the motto Caveat emptor (“Let the buyer beware”), this information is largely integrated within the principle itself. Information is itself a scarce commodity, in that scarce resources (e.g., time and effort) must be expended to obtain it. Thus, it is not rational for a consumer to seek exhaustive information about every commodity he consumes. He will, if left to his own devices, choose just that amount of information which the particularity of each commodity and the cost of information together warrant. More information will be sought for commodities where information makes a big difference than where it does not, more where its acquisition cost is low than where it is high. Thus, the consumer will allocate his limited budget on an optimal combination not only of commodities but of information as well. The buyer must be responsible for decisions about information—that is, he must “beware”—just as he must be responsible for decisions about other commodities.
This version of the principle depends for its persuasiveness on low acquisition costs for “adequate” information, a high degree of market competitiveness, and only slight damage to be suffered by consumers for making an erroneous choice. If the consumer needs to know only very little, if competition in the market is so great that inferior brands will be quickly submerged by superior alternatives, and if an occasional error by him on the way to becoming experienced does not do great harm, then each consumer can be counted on to adjust efficiently to a long-run equilibrium without requiring any outside aid or interference on his behalf.
Unfortunately, the real world of choice for the consumer violates these conditions in important ways. The massive differentiation of products and the profuse flow of extremely complicated new commodities resulting from innovation have immeasurably increased the amount and subtlety (and thus the cost) of information needed by the consumer. Moreover, they have done so in commodities that matter greatly to the consumer— foods, drugs, and durables. There are a number of important markets where consumer ignorance is substantial and persistent. One manifestation of such ignorance is the magnitude and persistence of fraud. In markets where frequent repeat sales are not important, competitive forces may actually engender depreciation, rather than appreciation, of quality. Finally, there are many instances where single transactions have substantial, even vital, impact on the consumer, either in terms of his wealth or health or perhaps even his life itself. Purchase of a house, of ownership in a corporation, of a dangerous surgical operation, are examples. In these cases, errors on the way to informedness may be disastrous.
Under these circumstances, the individual consumer may either rationally or inadvertently remain very poorly informed; thus, the risk that his choices will lead to very unfortunate surprises is substantial. One may seriously question whether in such circumstances the consumer's externally unencumbered choices are really accurately directed toward fulfilling his wants.
The scope of consumer sovereignty therefore makes the degree of informedness a relevant qualification of free choice. It is an ambiguous qualification, however. How much informedness is enough? There is ample room for divergent views within the context of fulfillment of wants. Consideration of this qualification in practical affairs has had two major effects. First, it has rationalized direct government intervention in the market to regulate, control, and forbid certain production and marketing practices. Second, it has led the government to require specific levels of private information disclosure and to disseminate information on its own. Both effects will be discussed below.
In sum, actual market choices may reflect varying degrees of uninformedness. Application of the criterion of consumer sovereignty requires evaluating such choices in terms of their appositeness to underlying wants. These judgments, and any public intervention in the market taken to increase informedness, are to be interpreted as qualifications designed to improve the congruence between choices and the underlying wants that engender them: they support, rather than compete with, the satisfaction of these wants.
Corrective qualifications
Another set of qualifications that is integral to consumer sovereignty is aimed not at correcting means to consumer-recognized ends but at the ends themselves. There are two forms of such corrective qualifications: the first is intrapersonal, the second interpersonal.
Intrapersonal. The basic argument is that some individuals do not know what they truly want. Consumers have a hierarchy, rather than simply a collection, of wants. Just as some commodities are improper means for achieving certain ends, so some more proximate ends are less important than, and are inefficiently addressed to attaining, more ultimate ends.
Thus, children are deemed not really “to know what is good for them”—what they “really” want. An “improved” set of ends is externally substituted for their own perceived ends, whether in the form of actual interference with their choices or simply in how close an outsider judges their choices to reflect their “best interests.” Much the same procedure is involved with respect to the psychotic and even the neurotic. In these latter categories it is not immaturity but internal conflict of goals or impaired introspection that makes a “corrective” qualification of free choice consistent with consumer sovereignty.
The category can be extended. Drug addicts are deemed not to be able to act in their own best interests. They may know in some sense that their overriding want is inconsistent with the fundamental pattern of their system of ends, yet be unable to control themselves. The same type of conflict may well exist in less dramatic form in many normal persons, in whom no physical addiction is present. The discipline of psychotherapy is substantially grounded on the assumption that conscious and unconscious conflicts of ends are pervasive. Thus, the degree to which given choices fulfill the “real” wants or interests of the choosers is clearly a question of some profundity—a question open to a whole spectrum of interpretations consistent with the emphasis of consumer sovereignty.
One final extremity of this category can be mentioned. An influential position in behavioristic ethics holds that all humans are subject to important uniformities in basic needs. Codes of social norms come into being as formulas by which individuals can efficiently realize these needs in a social setting. Thus, behavior that violates these codes—“immoral” behavior—really represents “unwise” behavior, behavior that is poorly aimed to meet the actor's own abiding ends. While the source of the adverse judgment seems to come from outside the individual and be at odds with him, the logic of the approach stresses that the ends, in terms of which the judgment is made, are the individual's own.
Thus, immaturity, internal conflict, and even “immorality” provide criteria that can be used in evaluating the accuracy of free choice. Each of these dimensions provides grounds for asserting that a given actor may not know what he truly wants.
The set of intrapersonal corrective qualifications has an important similarity to the previous set of supportive qualifications. Both involve individual responses to new information. It is not only decisions about means that are affected by new information; ends are affected as well. Accumulating experience with commodities influences specific and even general preferences: it influences wants. The three grounds for corrective criteria—immaturity, internal conflict, and immorality—are all subject to the accumulating experience of the individual, the first almost by definition. Thus, the problem of “incorrect ends” is partly a problem of uninformedness. A distinction remains, however, in that uninformedness about means enables us to specify far more accurately both the relevant missing information and the effect on choice of supplying it. We know far less about dependably inducing desired changes in values.
The practical difficulty of distinguishing between the learning components of means and ends is suggested by a brief look at advertising. Existing ostensibly to inform, advertising in fact attempts to persuade as well. The dividing line between the two is almost nonexistent. How, for example, is one to interpret the sheer repetition of advertising content, or simply of brand name, except as persuasion? The implications of advertising for consumer sovereignty are serious and perplexing. Do buyer responses to advertising represent a correction of means or of ends? In other words, when there is a divergence between the arrow and the target, does advertising have the pure information-feedback effect of getting the arrow to move or the persuasive effect of getting the target to move? Insofar as it is the latter, and the latter is a significant and pervasive impact, the whole force of the doctrine of consumer sovereignty (especially when joined to freedom of choice) diminishes appreciably. If wants are mercurial, trivial, easily manipulable from without, there ceases to be much justification in orienting the whole engine of production and distribution to their precise satisfaction. Resources might then more efficiently be used to produce what can be produced cheaply and then to persuade consumers that this is exactly what they want.
Interpersonal. An individual's choices may be “wrong” from the point of view of consumer sovereignty, not because they reflect ignorance about means or confusion about ends, but because they have effects that diminish the possibility that other individuals will be able to satisfy their wants. The actions of one individual sometimes spill over to affect other individuals directly, not simply through influencing relative prices on the market. These are so-called external effects. External effects can be adverse or favorable, and both directions raise the possibility of pertinent qualifications on free choice. Actions with adverse reverberations need discouraging; those with favorable reverberations deserve encouraging. Thus, from the point of view of consumer sovereignty—involving consideration of the wants of the entire population—if a certain individual can serve himself equally well by actions A, B, or C, but A has adverse effects on others, B is neutral toward others, and C enhances goal-fulfillment by others, then both A and B are wrong, and only C is the right choice.
Most decisions have spillover effects, but they are generally minor. The issue of corrective qualification is involved only when the external component of the decision is major, as for example, the planting of ragweed, the failure to dispose of garbage, the failure to treat or isolate a contagious disease, the reckless use of an automobile, the use of a ladder to commit burglary, or the use of a gun to hunt the neighbor's children. Nontrivial favorable spillovers are involved in the development of a beautiful garden, the immunization against contagious disease, or the shoveling of snow from the sidewalk in front of one's house. Somewhat more complex cases concern drug addiction, education, and medical care. We have already suggested an intrapersonal qualification for drug addiction. In addition, it often leads to “antisocial” consequences: decreasing the productivity of the afflicted person and therefore of the total resource stock available to the population, increasing crime and “pushing,” adding to the burden of governmental welfare services by requiring care for the person's family. Education has opposite effects of the same sort: it enhances the individual's productivity and therefore the community's total effective resource stock, and it decreases the probability of antisocial behavior and the burdening of the government's welfare load. Medical care decreases direct contagion externalities. It also has a positive effect on human productivity and on independence from government.
In principle, interpersonal corrective qualifications are very difficult to handle, because they force one to confront the problem of interpersonal comparisons of worthwhileness—comparing the gain to some and the loss to others of particular actions having spillover effects. Thus, they are embedded in the very same morass of controversy that we discussed in connection with a criterion of aggregate want satisfaction. In practice, fortunately, the problem has been kept within manageable bounds. For the most part, only actions with substantial aversive spillover effects have been considered. The interpersonal comparison problem is thereby more straightforwardly resolvable on ethical grounds, rather than in terms of any nice balancing of effects under the principle of consumer sovereignty. The ethical principle involved is simply that an individual ought to be prevented from harming others. The exercise of freedom does not consist in allowing anyone to abridge the freedom of others. Thus, we shall see in the next section that this type of qualification has been socially interpreted for the most part as calling for a set of injunctions against harmful acts.
To conclude this section, consumer sovereignty must be spelled out in order to have practical relevance. Externally unencumbered consumer choices do not invariably constitute accurate evidence about the wants they ostensibly serve. Such choices may be critically uninformed about alternative opportunities; they may stem from internal goal conflicts; or, while accurately designed to satisfy the wants of their agent, they may adversely affect the want satisfaction of other consumers. These factors must be considered in judging the degree of want satisfaction that inheres in different social situations and, thus, in judging the consistency of different public policies with consumer sovereignty.
It is one thing to indicate that these factors must be considered; it is quite another to delineate exactly how they should be considered. How much information is necessary for specific choices; how much is inadequate? How does one discover a consumer's—every consumer's—true underlying wants? How does one trace the spillover effects of different actions? It is fortunately beyond the scope of this article to try to answer. But it is instructive of the content of consumer sovereignty to indicate briefly how a relatively free market society like the United States has attempted to spell out these qualifications in public policy.
Institutional qualifications
Dedicated to free markets, to freedom of choice, and to consumer sovereignty simultaneously, American public policy can be interpreted as showing a consensual belief in the respects to which the first two must be compromised in order to be consistent with the third. Clearly, not all public interventions in the market have been motivated by an attempt to improve the degree of consumer sovereignty, but a surprising number fit into the classification of qualifications given above. We shall indicate some of the ways that the American public has been willing to compromise the working of free markets.
Supportive policies
In general, Caveat emptor has been the dominant policy, but with a series of exceptions that have become more important only in recent years. Traditionally the consumer was protected at law, only after the fact, by the common law of fraud, warranty, and negligence. (Much of the material in this section is from Wilcox [1955] 1960, chapters 8, 12.) This essentially meant that consumers could sue for damages actually suffered if due to misrepresentation or negligence. But even early practice recognized an exception. Some transactions could cause massive irreversible damage to life and health. If, in addition, the consumer was technically incapable of judging in advance the quality of the commodity to be obtained, then he needed advance protection. Medical services were clearly a case in point. The solution hit upon was legal licensing, by which acceptable quality standards are guaranteed to the consumer in advance by the conditions that practitioners must meet in order to be granted a license to practice.
Licensing spread to many services that involve personal health and safety, such as nursing, pharmacy, and dentistry. But it also spread considerably beyond, to occupations only remotely, if at all, resembling these. Examples are dry cleaning, barbering, and photography. Since licensing is a method of legally limiting supply, it represents a profitable collusive agreement for insiders and, thus, attractive public policy for them. It is interesting that in some cases of licensing that are inappropriate from the present point of view the same language of public health and safety is nonetheless used to justify its legal status as under the appropriate cases.
The same advance protection was not given consumers for tangible commodities until the federal Pure Food and Drug Act of 1906 and its subsequent amendments. Food and drugs qualify as potential factors in one-shot massive or irreversible damage to life and health. Adulteration and use of toxic ingredients are prohibited. In more recent legislation, the burden of proof of nontoxicity is largely shifted from government to the producer, especially with respect to drugs, and must be satisfied before the commodity can be marketed. Informational requirements are also imposed on sellers of these commodities, in the form of honest and complete labeling. Subsequent legislation, involving the Federal Trade Commission, extends informational constraints to advertising. Thus, for a particular subset of commodities uniquely “affected with the public interest,” the seller is legally required to furnish certain information, and this, as well as information voluntarily advanced, must not be misleading.
Informational constraints have been imposed on other commodities quite remote from this concept of “public interest.” Compulsory labeling exists for commodities made of wool, for example. As with licensing, many of these represent regulations in the interest of collusive competitive advantage for producers, rather than consumer-oriented support. There is a general constraint against misrepresentation in advertising, but this too seems to stem from, and be largely administered in the context of, protection of producer rather than of direct consumer interests. This has focused largely on the protection of sellers from unfair methods of competition.
There is a further class of informational constraints, which is in the spirit of consumer sovereignty. It is in the area of financial securities transactions. Here too the justification for intervention seems to be the possibility of massive single transaction damage; but here the damage is to the wealth position of transactors, rather than to life and health. Elaborate requirements for full and honest disclosure by sellers, as well as behavioral regulations on brokers and organized exchanges themselves, are imposed to prevent fraud.
Supportive qualifications have thus tended to be concentrated on commodities where single transactions could produce important harm to life, health, or wealth. No serious attempt is made to expand information available to consumers on consumption generally. (I neglect specific free information programs by the federal government for child care, agricultural and homemaking techniques, and other miscellany.) A minor attempt is made to control the substance of advertising excess (misrepresentation), but not the deeper problems involved in pervasive persuasion.
This pattern of intervention is not hard to understand. In fact, most public intervention arose not out of theoretical analyses of subtle consumer suboptimization but as a response to concrete national traumas—dramatic scandals concerning damage from specific foods and drugs, scandals concerning massive fraud and irregularity in financial markets, etc. Thus, laissez-faire was cast aside not on theoretical grounds but on the evidence of acute malfunctioning of markets.
Corrective policies
The most widespread form of government intervention against free choice is in the regulation of antisocial externalities. The almost uniform definition of aggression against person or property as crime, and hence illegal, is obvious. But the consensus extends to less obvious forms as well. Thus, government enforces quarantine regulations and sanitary codes for dwellings; it imposes compulsory smallpox immunization; it outlaws transactions in narcotics. At a third level, taxation is sometimes employed with sumptuary goals, for example, the high excises on liquor. (This should not be thought to apply to special excises generally. Gasoline taxes, for example, are typically justified on a modified benefit argument: they are designed to pay for roads and other motorist benefits.)
Desirable externalities receive government attention as well. The public school system, free medical care for the poor, public housing, social welfare services, and many others can be understood as subsidization of forms of consumption that are believed to have substantial desirable spillover effects. Since most of these represent rectification of dismal alternatives, they can also be seen as measures to prevent certain adverse spillover effects. The difference between the treatment of positive and negative spillovers is that for the latter, injunction generally suffices (plus the deterrent effect of possible punishment), whereas for the former, actual subsidization of consumption is necessary.
Two types of regulation that are on the borderline are censorship and the regulation of “immorality” (in a broad sense, including divorce law and “blue laws”). The illegality of homosexuality and fornication, for example, is sometimes justified in terms of preventing the spread of practices that could undermine fundamental institutions of the society, such as the family. Sometimes, however, it is justified as protecting possible participants from corruption—an example of intrapersonal correction. Similarly, censorship is sometimes justified on the grounds that exposure to censorable materials may provoke crimes of violence. Sometimes it too receives its major justification as protection of the individual from himself.
These borderline cases are significant. Government in the United States undertakes almost no intervention based on intrapersonal correction. This sphere has been left to private responsibility, and governmental concern has typically been treated as unwarranted invasion. One would therefore predict that cases partaking of intrapersonal correction would be controversial. This is exactly so of censorship and immorality regulations. There exists no real consensus supporting them: divorce laws are widely assailed in reputable quarters; blue laws are kept on the books only if they are not seriously enforced; the illegality of sexual “immoralities” is highly controversial; every act of censorship is protested by important segments of the population; and even the illegality of narcotics transactions (insofar as it is designed to protect an addict from himself) is responsibly controversial. One might imagine that heavy taxation of tobacco represented an exception. This is not so. Ironically, the sumptuary background of tobacco taxation stems from the notion that it is a quasi-luxury item. It is taxed as an example of pleasurable, not deleterious, consumption.
A major public action that seems on the surface to fit this category is the government's massive intervention in the market during national emergencies, resulting in price control, rationing, and direct control over the allocation of resources. This would appear to constitute a radical abrogation of consumer sovereignty. In a deeper sense, however, it is not so. It is fruitful to consider the situation as one in which everyone's basic interests in the maintenance of the social pattern require a coordinated mobilization of resources. No one individual or small group can achieve such coordination. Government, as the instrumentality of consensual wants, is required to bring it about. It acts as the agent of each consumer, just as we noted the physician does in the individual case. If the political system is truly representative, the government's coordinative acts can be considered consistent with consumer sovereignty. Thus, this case does not involve any new qualifications on individual choice. It simply represents an unusual instrumentality through which individual choices are realized. A number of other general governmental activities can be similarly interpreted.
In sum, abrogation of free choice for corrective reasons essentially leaves the individual's perception of his own ends sacrosanct; it is only where individual choices have important spillover effects that government intervenes, and here preponderantly to prevent aversive spillovers. The few cases where government seems to be legislating private norms for individuals are cases in which some spill-over elements are present as well, and these cases are highly controversial.
Consumer sovereignty, insisting on the want fulfillment of the ultimate consumer population as the proper end of economic activity, is an influential but ambiguous and incomplete normative principle. It is often incorrectly limited to a version that strongly supports laissez-faire in a free enterprise economy. That version represents a particular composite of one interpretation of consumer sovereignty with other value judgments. Consumer sovereignty can be interpreted in many ways and be joined to many distinctive normative packages (for example, to the goals of a socialist economy), no one of which has earned the consensual support of economists as the authoritative package.
Analysis of the principle itself indicates that neither the wants that are the presumed goals of economic activity nor their reflection in the concrete choices of individuals are unproblematic. The degree of informedness about alternatives, the coherence of the whole structure of individual wants, and the significance of spillover effects on others are all variables relevant to the interpretation of the principle. Moreover, its persuasiveness depends strongly on the stability of wants and on the depth at which they are integrated within the personality of each individual. Extreme suggestibility and volatility of wants seriously undermine the principle's force.
In the American version of a free enterprise society there appears to be a consensus that consumers should be given public protection in the form of regulations about quality and information when making what are potentially momentous market decisions. Public intervention should also be invoked to prevent private actions that have deleterious effects on others. There is no consensus that public power should be used to protect individuals from their own confusions about means and ends. In this interpretation of consumer sovereignty the individual is still free to be his own worst enemy— or his own best friend. The range between them still allows life to be a great adventure.
Jerome Rothenberg
[See alsoAdvertising, article oneconomic aspects; Consumers, article onconsumer behavior; Licensing, occupational; Welfare economics.]
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