Question

Economist John Kenneth Galbraith identifies two different concepts that help to explain control and power within capitalist economic systems. One is consumer sovereignty and other is producer sovereignty. In your response, explain what Galbraith means by each of these terms. Which of the two does Galbraith believe to be a “myth” and which one is the reality? Why does he make this claim? What are the implications of this argument?

Answer 1

Definition of consumer sovereignty :

The ability and freedom of consumers to choose from a range of different goods and services. It means that ultimately it is consumers who will decide what is produced and how scarce resources are allocated.

Definition of producer sovereignty :

This is when firms have the power and ability to influence consumer decisions. For example, in a monopoly consumers have no choice and have to pay the price and buy the goods offered by firms. Producer sovereignty means that it is firms who will decide what to do. For example, some argue persuasive advertising techniques mean consumers will buy what firms wish to sell.

Consumers sovereignty is a fiction than the fact.

Galbraith claims that advertising distorts consumers' preferences,[5] so consumers' revealed preferences actually represent what is good for the advertisers and not what is good for consumers themselves.