In describing the phenomenon of “consumer sovereignty” in Human Action, Ludwig Von Mises said that:
The real bosses [under capitalism] 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 is cheaper, they desert their old purveyors.
Last week, in the tweet below, President Trump said the following:
For someone who professes to be a great businessman, this tweet is quite surprising to say the least. But it goes to show that businesses people don’t need to be schooled in any sophisticated economic theory to be highly successful and wealthy.
True that as a result of Amazon, many businesses have either folded up or are having a hard time staying a float due to competition from Amazon. On the surface it might look like Amazon is the one which brought about such results. But on further investigation and looking beyond what is seen and easy to discern, it was consumers who really brought it about.
Amazon, through painstaking work, had to figure out what consumers wanted and had to develop new and novel ways to serve consumers better which never existed before. Amazon went to the market place, tested its hypothesis and had it validated. Consumers liked what Amazon offered and simply abandoned businesses which they might have once had loyalty to.
Lets look at the matter in another way. Think of all the business (easily close to at least 1 billion of them) of all sizes in the last century which began with the intent of driving everyone in their industry out of business but failed. Why did they fail? They failed because they failed to meet consumer needs in ways which were better than the then prevailing state of affairs.
Personally, I use Amazon and I’m an Amazon Prime member. Why do I give up my hard earned money to Amazon and not any other business? Amazon serves me well, is convenient and does not disappoint. Maybe one day if a company comes about which does a better job than Amazon, I might stop using Amazon.
This example does not only apply to Amazon but applies to a wide range of businesses which people are quick to bash and accuse of driving established players out of business. In reality, its consumers which drive them out of business by abstaining from them when they discover new and better products which are offered at superior prices.
As Americans we are used to American business always offering new products at competitive prices and see it as the norm and natural state of affairs. But very few of us, ever give what makes this possible any thought. Part of what makes this possible from year to year and from decade to decade is this process through which more efficient bushiness which better serve consumers take over.