Demand-Side Self-Interest, Part 1

 

This often-quoted, more-often-paraphrased passage toward the beginning of The Wealth of Nations is the stuff of legends. Many of today’s self-proclaimed capitalists combine it with the idea that the pursuit of self-interest leads individuals to “promote an end which was no part of [their] intention” as if by an “invisible hand” [Book 4, Chapter 2], making it a package of ideas that points to how we’re all benefitting from businesses chasing revenue and profit in the modern corporate commercial sphere. 

 

Some even say businesses are at their best when they don’t consider anything except for how they can bring in the most cash. Others go further with a sentiment smugness and contempt toward consumer activism, or those protesting or organizing against corporations that are large pillars of the current economic order: If only those complainers could see the bigger picture and understood that these businesses aren’t merely selling things, they’re leaving people better off than they once were! Leave them alone, appreciate the wonders of capitalism, and let the invisible hand do its work!

 

In this way, it often seems those promoting the virtues of self-interest in trade and exchange are doing so with a pro-business flavor—a supply-side bias, if you will. Yet, it’s only by appreciating both the supply and demand side of self-interest that you end up with a pro-free market flavor. Indeed, just as a seller pursuing their narrower self-interest can contribute to an end greater than merely the supplying of a good or service, multitudes of consumers following their self-interest act as if led by an invisible hand—promoting ends which are no part of their intention. Often these are very beneficial ends for the general health and smooth workings of markets overall. 

 

If I order a product from a large company, and the product was poor,there are many ways my acting in a self-interested manner to rectify the situation benefits not only myself, but could also “promote an end which was no part of [my] intention.” Perhaps I call the company with the sole purpose of getting a refund or replacement, escalate my complaint beyond the not-blameworthy folks at the initial help call center, and get high enough into the corporate hierarchy to cause some headaches. Because of this, a certain practice might change, or the company might be more careful with some level of quality control—that is, if it’s truly in the company’s self-interest to change these practices, lessen this kind of dissatisfaction, serve their customers, and ultimately make more money. In this scenario, known to me is my quest for a refund. Unbeknown to me is how the feedback I provide and the grief I cause perhaps improves outcomes for other customers. I am not a consumer protection agency, but I might have a similar effect.

 

Of course, a multi-billion-dollar company is unlikely to change anything based on one complaint. But, say I took my dissatisfaction to the internet instead. I tell my friends about my bad experience. I leave negative reviews on the company’s site. I make videos presenting my opinion and post them to different platforms. I report my experience to a consumer news website. I connect with others to see who else is upset in online communities, and so on. In all of this, let’s also say enough attention (and fear) is raised on the supplier’s side so they promise to do better in the future, and actually change some practices and rectify the situation. Again, here I will have benefited other consumers in perhaps more ways than I will know. In these sorts of ways, many consumers contribute to ends they had no intention of necessarily achieving. Companies keep an eye on these kinds of currents and take them seriously if they reach a certain threshold. 

 

Another important—some might say more important—contribution of these kinds of actions is making more information available. The more of other people’s experiences and thoughts consumers have to consider for their own self-interested processes of evaluation and opinion formulation, the more thought-out their purchase decisions and behavior are. The technology review and discussion communities—where consumers and enthusiasts are ultimately talking to each other—are great examples of rich sources of market information. 

 

If we were being naive, we could say consumers voicing their opinions and grievances are motivated only by a noble altruism that pushes them to warn others of negative experiences—they make noise against certain companies for the good of all future purchasers, and so on. While it is true that a broader concern for others could be in play, it’s usually a supplement to self-interested motivations. Indeed, most of us know that what’s really happening at the very core of many of these actions is the motivation to “get back” at those companies. And, this “getting back” at someone—or a company—should not be understood as being flippantly vindictive or sadistic. Rather, it’s motivation to seek the rectification of a perceived injustice, and to garner some sympathy, attention, and vindication from others. Consumers informing others and policing the market with their feedback and information can also satisfy their self-interest in other ways —it’s worth emphasizing that, for one example, many tech reviewers and content creators are monetizing their videos with ads.

 

Now, many self-proclaimed capitalists with a pro-business tilt would say nothing too objectionable has been outlined so far. They may even praise it as an obvious part of a competitive enterprise system. If one likens one consumer or another’s purchase to a metaphorical “vote,” those dissatisfied with certain purchases might go “vote” for other ones. If enough folks switch their votes, that’s a signal to suppliers that demanders are dissatisfied with a product or service, and so goes capitalism. However, this acknowledgement of the benefits of some consumer activity is rather narrow, and only partly down the road to fully appreciating the overall function and workings of self-interest on the demand side of markets. One must take an even broader look at the workings of demand.

Check out Part 2 for how demand balances out the equation.