Caveat Venditor

Originally published November 16, 1981

THE NEW Chairman of the Federal Trade Commission, James C. Miller III, must be surprised at the initial flak he has had to fly through for proposing that the FTC drop its programs (such as they are) protecting consumers against fake advertising claims and defective products. “Consumers are not as gullible as most regulators think they are,” he remarks, almost plaintively. He need not worry. He is in the mainline of the ideology of this most ideological of administrations; he is saying nothing that has not already been said by Virginia  Knauer, the President’s consumer affairs adviser. The President himself is understood to want to scrap the Consumer Product Safety Commission in the interest of balancing the budget. The commission is in for $33 million a year, while the deficit is feared likely to run perhaps 2,000 times that; so the effect would be petty, but at least it would show he’s trying.

Such a move would also fulfill a campaign promise, and we all know it’s good to keep a promise-even a stupid one. President Reagan has in fact kept a high percentage of his campaign promises- up to a point, anyway-and a high percentage of them have proved stupid. Wall Street and Main Street (not to mention Broadway) were mobilized to lobby for the new tax law, and now they’re unhappy with the result. Everyone else figured out that if you cut taxes more than you cut spending, you increase the deficit, but brokers and bankers  and businessmen couldn’t see that far ahead. It would be a Laugher if we weren’t all liable to be hurt.

The same sort of thing will happen with the demise of Federal consumer protection, though it’s possible that in this case most businessmen won’t even finally recognize that they have managed to hit themselves in the solar plexus. Herbert Stein, Nixon’s Chairman of the Council of Economic Advisers, once made a widely retailed mot to the effect that people of liberal mind trust anyone over 18 to vote for President of the United States (billed as the most powerful office in the world), but don’t think the common man or woman capable of buying a bicycle without do-gooding governmental protection. Caveat emptor, says Professor Stein (like me, he had five years of Latin).

To gain a little perspective on the question, let us turn caveat emptor around. A purchase, after all, is not a one-way transaction; I don’t get a bicycle for nothing. When I buy one from Professor Stein for $99.99, I give him a $100 bill and he gives me a penny and the bike. Stein says that I, the emptor, should make myself a self-reliant expert on bicycles before I trade in his shop; if what he sells me proves dangerous or shoddy, it’s my fault, not his.  Now, my question is, Why shouldn’t caveat emptor be balanced by caveat venditor? If he can (unintentionally or maybe not) sell me a dangerous or poorly made bicycle at my peril, why can’t I pay him with a counterfeit $100 bill at his peril? Or a rubber check? Or a credit card I happened to pick up on the street? Why shouldn’t he be required to make himself a self-reliant expert on these matters, and not be allowed to go running to the sheriff for help? It is no answer to say that counterfeiting is against the law. That law can be repealed, just as the Consumer Product Safety Commission can be abolished.

It is no answer either to say that check bouncing is cheating, and therefore immoral and bad for the soul. The same can be said for selling dangerous bicycles. Nor is it any answer that government regulations impose an intolerable burden of paperwork on the bicycle business. The legal requirement that I have enough money in my account to cover my checks means I must balance my checkbook, and I find this chore an intolerable burden of paperwork.

These matters have a long history, going back at least to Lydia in Asia Minor in the seventh century BC, when government coinage was invented. For the next 2,500 years princes and principalities and powers struggled with the problems of coinage: how to get away with debasement on the one side and prevent clipping on the other. Then there came the nagging problems with counterfeiters of paper money (a collateral forebear of mine was so good at it that the entire note issue of a Connecticut bank had to be withdrawn a couple of hundred years back). Only in the past 50-60 years have checking accounts been widely used, while credit cards are a mere 30 years old.

All of these inventions-coined money, paper money, personal checks, credit cards-have been good for business. They make business easier to transact. Neither  seller nor buyer now needs to wear out his teeth biting coins. Within very broad limits we can trust what is proffered. We can trust because this is in general a trustworthy society. And it is a trustworthy society in part because the sanctions of the criminal law enforce the trust.

If the merchant who receives a rubber check had to rely on the civil law, he would be faced with endless delays and absurd costs. He would have to spend hundreds or thousands of dollars, plus many hours in court appearances, to try to get what was due him. He couldn’t afford this; so he couldn’t afford to accept checks; so he’d have to restrict himself to a much slower and smaller cash-only business. The threat of criminal penalties, enforced by the state, deters check cheats and makes it possible for merchants to trust the rest of us, to the merchants’ benefit and ours.

What’s sauce for the goose is sauce for the gander. I’ll be readier to buy Professor Stein’s bicycle if I know its safe; and I’ll be surer it’s safe if I know the law will crack down on him in the event that it’s not. I can’t afford to sue him for damages  unless I’ve been catastrophically hurt, which neither of us wants to happen. Since he really does not intend to cheat me, and I really do not intend to cheat him, we’ll both be better off knowing the law will call to account those who do cheat: We’ll both be better able to trust each other.

Ultimately, trust is what economics is all about. The simplest barter is impossible without some measure of it. Among barbarians the trust may be minimal, yet that is what marks them as uncivilized. In civilized society the most suspicious traders, exchanging a bushel of wheat for a pound of meat, can carry their skeptical examinations only so far. Volume and weight can be readily tested, but it is well-nigh impossible to guard against adulteration. The grains of wheat cannot all be microscopically examined, nor the meat be completely dissected, especially if the traders are ever to do anything else.

Besides, the proof of the foods is in the eating-and that must await the consummation of the trade.
So if the traders are to do business, they must trust that there are limits to the deviousness of their trading partners. The greater the trust, the easier the trading; the easier the trading, the more trading can be done in a given period of time; and time is money, especially with the prime rate at 17 or 20 per cent.

PRACTICALLY all business depends on the reliable nosiness of the Bureau of Weights and Measures. The meat industry would go out of its mind if it could not base its pricing on USDA standards and regulations. Lobstermen may grumble, but without regulation they’d fish themselves out of business in short order. Even the stock exchanges provide a dramatic example of the effectiveness of regulation in promoting trade. In the Great Bull Market of blessed memory, the New York Stock Exchange, “self-regulated” as it was, traded roughly 4 million shares a day (and only 16.4 million shares were traded in the frenzy of Black Tuesday). Now, in spite of (really because of) the interference of the SEC, trading is at a 40-50 million share a day clip. The common man can still lose his shirt on Wall Street, but because he is no longer likely to be cheated out of it he is more willing to risk it-to his broker’s profit, and possibly to his own.

It is a notable fact that businessmen with one side of their brains-understand the principle at work here very well. That is why they spend millions to establish brand names, which are a sort of pledge of product quality. Their reasonable expectation is that weary travelers, for example, unable to face the uncertainty of the inspection of local accommodations, will settle for an interchangeable HoJ oMoLo even though they might prefer some variety in their plastic decorations. A recent Holiday Inn advertising campaign labored precisely this point. As with brand recognition, and at less cost, Federal standards instill consumer confidence and thereby increase trade. One of the reasons for the current troubles of the automobile industry is the doggedness of the Big Three in fighting every measure for consumer protection. The understandable inference is that they wouldn’t be making such a fuss unless they intended to put something over on us.

Consumers (that is, all of us) will of course be hurt by the elimination of consumer protection programs. But producers (that is all of us, too) will also be hurt. Although businessmen are no doubt right to protest the onerousness or irrelevance of this regulation or that, it is a fundamental mistake to oppose the whole movement. The truth of the matter is that the consumer movement has been good for business. Ralph’ Nader insists that he’s trying to make the capitalist system work, and the Marxists, clear eyed on this point anyhow, oppose him as wholeheartedly as do the Reaganites.

GEORGE P. BROCKWAY, a past NL contributor,
is the chairman of the board of directors of W. W. Norton & Co.

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