Mises on the consumer as the “captain” of the economic ship (1944)

Found in Bureaucracy

The Austrian economist Ludwig von Mises (1881-1973) noted the importance of the consumer in determining what gets produced and at what price. In other words, in a capitalist economy the consumer is the captain of the economic ship:

The real bosses, in the capitalist system of market economy, are the consumers. They, by their buying and by their abstention from buying, decide who should own the capital and run the plants. They determine what should be produced and in what quantity and quality. Their attitudes result either in profit or in loss for the enterpriser. They make poor men rich and rich men poor. They are no easy bosses. They are full of whims and fancies, changeable and unpredictable. They do not care a whit for past merit. As soon as something is offered to them that they like better or that is cheaper, they desert their old purveyors. With them nothing counts more than their own satisfaction. They bother neither about the vested interests of capitalists nor about the fate of the workers who lose their jobs if as consumers they no longer buy what they used to buy.

Mises wrote these words at a crucial time in the evolution of “capitalism”. In 1944 the “democratic” and “capitalist” west was fighting fascist Germany and had as its main ally communist Russia. Mises noted that there are only two ways in which a society can organise itself economically, either by means of free pricing in a free market system or by means of bureaucratic regulation and control in a statist system. As a result of the demands of fighting in WW2 the west was becoming increasingly “bureaucratised” and was approaching the more fully bureaucratised fascist and communist systems. It seemed at the time time that the entire world was heading down the path to fully fledged Bureaucracy" (which was the name he gave to his book) with dire consequences for prosperity and individual freedom. In the course of this analysis Mises has some very interesting things to say about the role of consumers in driving what gets produced, how it gets produced, and at what price, in the “capitalist” system. He contrasts the “consumer captains” in the free market system with the political bosses and “captains of heavy industry” in the communist and fascist system of economic organisation. His conclusion is that “The real bosses, in the capitalist system of market economy, are the consumers.”