Consumer Sovereignty

Legislating minimum wages, at any level, is a dumb idea. It fits a pattern of dumb ideas suggested by the interventionists in governments. Many of the critics say that minimum wage laws lead to more unemployment. That statement turns out to be accurate, but I want to begin this discussion on a much more fundamental level.

I want to point out the importance of the consumer in a free market system.

The only purpose for an economic system consists of responding to the desires of consumers. All production and all trade exists for the sole purpose of satisfying consumers. This statement holds true at all levels of production and exchange.

The mining process, which produces one of the highest orders of goods, exists to produce lower-order goods that ultimately turn into consumer goods. Without the need to satisfy consumers, farming, mining, manufacturing, distribution, and retailing would not exist.

Because of the importance of satisfying consumer needs, Ludwig von Mises coined the term “Consumer Sovereignty.” Although that term might seem a little extreme—and it has for some economists – it does, however, emphasize the importance of consumers in the structure of production.

You might ask, isn’t this obvious, or what does this have to do with minimum wage legislation?

First, this article lays the groundwork for understanding the harm caused by many forms of government intervention.

Second, this article sets the stage for understanding that consumers have more influence on wage rates than do employers.

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