“One of the great myths about the capitalist system is that businessmen make profits at the expense of the consumers and workers in society. Nothing could be further from the truth.
In the free market, consumers are the sovereign rulers who determine what gets produced, and with what qualities and features. The sovereign consumers also determine who will be the owners and entrepreneurs of business enterprises.
The “captains of industry” are not the businessmen, but the buying public who steer the directions into which production is taken. Businessmen, to use a metaphor, are more like the first mate aboard a ship who, after being given his orders by Captain Consumer, passes them on to the crew, that is, those employed by the enterprises, companies, and firms, in terms of tasks that will bring the economic ship to where Captain Consumer wants it to go.
Consumers Appoint the Entrepreneurs Who Direct Production
As Ludwig von Mises once explained in his essay on “Profit and Loss” ,
In the capitalist system of society’s economic organization the entrepreneurs determine the course of production. In the performance of this function they are unconditionally and totally subject to the sovereignty of the buying public, the consumers. If they fail to produce in the cheapest and best possible way those commodities which the consumers are asking for most urgently, they suffer losses and are finally eliminated from their entrepreneurial position. Other men who know better how to serve consumers replace them….
The consumers by their buying and abstention from buying elect the entrepreneurs in a daily repeated plebiscite as it were. They determine who shall own [businesses and enterprises] and who shall not, and how much each owner should own…. (Planning for Freedom, [Liberty Fund ed., 2008], pp. 143 & 146)
The British economist William H. Hutt coined the term “consumers’ sovereignty,” in his book Economists and the Public (1936). His point was to emphasize that the essence of the market economy is to be found in the liberty of the individual to make his own choices as both a consumer and a producer.
Austrian Economics & Public Policy, p. 246-247, Richard Ebeling