The Consumer as the Deciding Factor in Production

Extract from Socialism: An Economic and Sociological Analysis
By Ludwig von Mises
Chapter 31: Economic Democracy

People sometimes maintain that in guarding their own interests entrepreneurs force production in a direction opposed to the interests of consumers. The entrepreneurs have no scruples about "creating or intensifying the public's need for things which provide for merely sensual gratification but inflict harm on health or spiritual welfare." For instance the fight against alcoholism, the dread menace to national health and welfare, is said to be made more difficult because of the opposition "of the vested interests of alcohol capitalism to all attempts to combat it." The habit of smoking would not be "so widespread and so greatly on the increase among the young if economic interests played no role in promoting it." "Luxury articles, baubles and tinsel of all kinds, trashy and obscene publications" are today "forced upon the public because the producers profit by them or hope to do so."[4] It is common knowledge that the large-scale arming of the Powers and therefore, indirectly, war itself are ascribed to the machinations of "armament-capital."

Entrepreneurs and capitalists in search of investments turn towards those branches of production from which they hope to obtain the greatest profit. They try to fathom the future wants of consumers so as to gain a general survey of demand. As Capitalism is constantly creating new wealth for all and extending the satisfaction of wants, consumers are frequently in the position of being able to satisfy wants which formerly remained unsatisfied. Thus it becomes a special task of the capitalist entrepreneur to find out what formerly unsatisfied wants can now be provided for. This is what people have in mind when they say that Capitalism creates wants in order to satisfy them.

The nature of the things demanded by the consumer does not concern the entrepreneur and the capitalist. They are merely the obedient servants of the consumer and it is not their business to prescribe what the consumer shall enjoy. They give him poison and murderous weapons if he wants them. But nothing could be more erroneous than to suppose that products which serve a bad or harmful purpose bring in more than those which serve a good one. The highest profit is obtained from articles for which there is the most urgent demand. The profit-seeker therefore sets about producing those commodities in which there is the greatest disproportion between supply and demand. Of course, once he has invested his capital, it is to his interest to see that the demand for his product increases. He tries to expand sales. But in the long run he cannot prevail against a change of demand. Neither can he obtain much advantage from growth in the demand for his products, for new enterprises turn their attention to his branch of industry and thereby tend to reduce his profits to the average.

Mankind does not drink alcohol because there are breweries, distilleries, and vineyards; men brew beer, distil spirits, and grow grapes because of the demand for alcoholic drinks. "Alcohol-capital" has not created drinking habits any more than it has created drinking songs. The capitalists who own shares in breweries and distilleries would have preferred shares in publishing firms for devotional books, had the demand been for spiritual and not spirituous substance. "Armament capital" did not create wars; wars created "armament capital." It was not Krupp and Schneider who incited the nations to war, but imperialist writers and politicians.
If a man thinks alcohol and nicotine harmful, let him abstain from them. Let him try, if he will, to convert his fellows to his own views on abstinence. What is certain is that he cannot, in a capitalist society, whose basic principle is the self-determination and self-responsibility of each individual, force them against their will to renounce alcohol and nicotine. If this inability to impose his will on others causes him regret, then at least he can console himself with the thought that neither is he at the mercy of the commands of others.

Some socialists reproach the capitalist social order primarily for the rich variety of its goods. Instead of producing uniform products, which could be brought out on the largest scale, people manufacture hundreds and thousands of types of each commodity, and production is made much more expensive thereby. Socialism would put at the comrades' disposal only uniform goods; it would unify production and thereby raise national productivity. Simultaneously Socialism would dissolve separate family households, and in their place provide communal kitchens and hotel-like dwellings; this, too, would increase social wealth by eliminating the waste of labour power in tiny kitchens which serve only a few consumers. Many socialist writings, above all those of Walter Rathenau, have dealt with these ideas in great detail.[5]

Under Capitalism each buyer has to decide whether he prefers the cheaper uniformity of mass production or the greater expense of articles specially manufactured to suit the taste of the individual or the small group. There is unmistakably a tendency towards progressive uniformity of production and consumption through standardization. Commodities used in the productive process itself are daily becoming more standardized. The shrewd entrepreneur soon discovers the advantage of using the standard type—with its lower purchasing cost, its replaceability and adaptability to other productive processes rather than articles produced by a special process. The movement to standardize the implements of production is impeded today by the fact that numerous enterprises are indirectly or directly socialized. As they are not rationally controlled, no stress is laid on the advantage of using standard types. Army administrations, municipal building departments, State railways, and similar authorities resist, with bureaucratic obstinacy, the adoption of types in universal use. The unification of the production of machines, factory equipment and semi-finished products does not require a change to Socialism. On the contrary, Capitalism does this more quickly of its own accord.

It is otherwise with goods for use and consumption. If a man satifies his special, personal taste in preference to using the uniform products of mass production and believes that his satisfaction balances the extra cost, then one cannot objectively prove him wrong. If my friend prefers to dress, be housed, and eat as it pleases him and not to do as everyone else does, who can blame him? For his happiness lies in the satisfaction of his wishes; he wants to live as he pleases and not as I or others would live were we in his place. It is his valuation that counts, not mine or other people's. I may be able to prove to him that the judgments on which he bases his values are false. For example I may demonstrate that the foods he consumes have a smaller nutritional value than he assumed. But if his values have been built, not on untenable views about the relation of cause and effect, but on subjective sentiments and feelings, my arguments cannot change his mind. If, notwithstanding the advantages claimed for hotel life and communal kitchens, he still prefers a separate household because such sentiments as "own home" and "own hearth" weigh with him more than arguments in favour of unitary organization, then nothing further remains to be said. If he wishes to furnish his dwelling according to his personal taste and not according to the public taste which guides the furniture manufacturer, there are no arguments with which to refute him. If, knowing the effects of alcohol, he still drinks it, because he is prepared to pay even dearly for the pleasure it gives him, I may certainly, from the standpoint of my values, call him unwise, but it is his will, his valuation that will decide. If I, as a dictator, or as a member of a despotically ruling majority, prohibit the drinking of alcohol, I do not thus raise the productivity of social production. Those who condemn alcohol would have avoided it without prohibition. For all others, the prohibition of an enjoyment which they value above anything they can obtain by renouncing it means a falling-off in satisfaction.

The contrast of productivity and profitableness, which, as we see from arguments explained in a previous chapter, is valueless for the understanding of the working of production directed to given ends, must lead definitely to false conclusions if applied to the ends of economic action.[6] In dealing with means to a given end, one may call this process or that the more practical, that is, capable of a higher yield. But when we ask whether this or that means gives a greater direct increase of welfare to the individual, we have no objective standards that will serve. Here the subjective will of man is the deciding factor. A man's preference for water, milk, or wine does not depend on the physiological effects of these drinks, but on his valuation of the effects. If a man drinks wine and not water I cannot say he is acting irrationally. At most I can say that in his place I would not do so. But his pursuit of happiness is his own business, not mine.

If the socialist community does not supply the comrades with the goods which they themselves want to enjoy, but with those which the rules think they ought to enjoy, the sum of satisfactions is not increased, but diminished. One certainly could not call this violation of the individual will "economic democracy."

For it is an essential difference between capitalist and socialist production that under Capitalism men provide for themselves, while under Socialism they are provided for. The socialist wants to feed and house humanity and cover its nakedness. But men prefer to eat, dwell, dress and generally to seek happiness after their own fashion.