Advertising in a Free Society Advertising in a Free Society RALPH HARRIS ARTHUR SELDON with an introduction by CHRISTOPHER SNOWDON The Institute of Economic Affairs First published in Great Britain in 1959 and this edition published in Great Britain in 2014 by The Institute of Economic Affairs 2 Lord North Street Westminster London SW1P 3LB in association with London Publishing Partnership Ltd www.londonpublishingpartnership.co.uk The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. Copyright © The Institute of Economic Affairs 2014 The moral right of the author has been asserted. All rights reserved. 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Typeset in Kepler by T&T Productions Ltd www.tandtproductions.com Originally printed in Great Britain by The Stellar Press Ltd This edition printed and bound in Great Britain by Page Bros CONTENTS The author ix Foreword x Summary xiii Part 1 1 Introduction to Advertising in a Free Society 1 Christopher Snowdon 1 Background 3 2 The economic evidence 6 Economic evidence: the consumer 6 Economic evidence: the producer 8 3 Does advertising create monopolies? 12 Advertising and market power 12 Widening the extent of the market 16 4 Brand loyalty, added value and manipulation 18 Added value and brand loyalty 18 The manipulation of consumers? 23 v Contents 5 Does nanny know best? 30 Social criticisms of advertising 30 Advertising and single issue campaigners 39 Advertising, smoking, drinking and public health 40 The ‘tyranny’ of choice 44 Truth in advertising 45 References 51 Part 2 57 Advertising in a Free Society: The Condensed Version 57 Ralph Harris and Arthur Seldon About the condensed version 59 What they have said 62 Original acknowledgement 67 Introduction 69 1 The need for advertising 71 Costs of marketing 73 The mass market 76 A national press 78 Branded goods 80 Revolution in retailing 82 Early examples and excesses 84 Advertising arrives 88 vi Contents 2 The critics 91 The classical critics 92 The left-wing critics 94 Retailer domination 96 The criticism examined: information or persuasion? 97 New wants 99 How much information? 101 Oligopoly: who dominates whom? 104 Long-term competition 107 Innovation 109 Freedom of choice 112 3 The claims 114 Reducing costs 115 Alternative methods 117 Stimulating demand 120 Reducing fluctuations 123 Competition and choice 124 Too much innovation? 126 A guarantee of quality and value? 127 Advertising as an incentive 129 Worlds to conquer 131 4 Sovereign or puppet? 135 Sovereignty in theory 137 Sovereignty in practice: consumer and citizen 140 Satisfaction for consumers 143 Let the advertiser beware 147 The role of the consumer 150 Let the buyer beware 154 vii Contents Appendix A: The detergent halo 157 Appendix B: ‘Hidden persuasion’ 166 Appendix C: Political advertising 170 Appeals to hope 171 Appeals to fear 172 The 1956 version of truth in Labour propaganda 173 Appendix D: A subsidised press? 176 Appendix E: Restrictive practices in printing and their effects on advertising costs 178 Appendix F: The battle for commercial television – who was right? 182 Forecasts 182 Results 182 References 184 About the IEA 188 viii THE AUTHOR Christopher Snowdon is director of lifestyle economics at the Institute of Economic Affairs. His research focuses on lifestyle freedoms, prohibition and policy-based evidence. He is an occasional contributor to City AM and Spiked, and regularly appears on TV and radio discussing social and economic issues. Snowdon’s work encompasses a diverse range of topics including ‘sin taxes’, state funding of charities, happiness economics, ‘public health’ regulation, gambling and the black market. He is also the author of The Art of Suppres- sion: Pleasure, Panic and Prohibition since 1800 (2011), The Spirit Level Delusion (2010) and Velvet Glove, Iron Fist: A His- tory of Anti-Smoking (2009). ix FOREWORD It is a pleasure to see the Institute of Economic Affairs re- publish an abridged version of a pioneering work that may have been the first principled explanation of the role of ad- vertising in a free society. In the late 1950s, Ralph Harris and Arthur Seldon – the founders of the IEA – were concerned about the attacks on advertising, especially influential critiques by Amer- ican writers Vance Packard and John Kenneth Galbraith. As students of free markets, Harris and Seldon knew that advertising was simply an element of a functioning mar- ket system. It didn’t need condemnation – or glorification. Rather, it had a valuable role in serving consumers as well as producers; if it hadn’t, it would have disappeared. Yet the reigning economists of the day, in both the United States and Great Britain, eschewed objective ana- lysis of advertising. Instead, they treated it as a deceptive add-on to more acceptable economic functions such as production and distribution. So, with little support from the academy, these two young men took up the challenge of explaining the role of advertising. And, unlike academic economists, they did so in a very public way. There was no hiding behind academic tomes or journals! Publication of this book required some courage. x Foreword While the message of the book stands just as tall today as it did then, Christopher Snowdon, the editor of the cur- rent volume, has made the book particularly relevant. He has written a magisterial introduction and has seamlessly edited out discussions of Harris and Seldon’s original text that would sound too dated or narrow. He retains, how- ever, some of the historical character of the work, such as the rather charming appendix on the subject of detergent advertising. Amusing though such controversy may seem now, the apparent triviality and repetitiveness of detergent advertising had become something of a cause célèbre and a focus for anti-advertising harangues. I had the opportunity to meet both Ralph Harris and Arthur Seldon in the 1980s and had the privilege of getting to know Arthur and his wife, Marjorie (who, I discovered, had written a beautiful memoir, Poppies and Roses). My husband, Richard Stroup, is an economist and was a co-founder of the Property and Environment Research Center (PERC) in Bozeman, Montana. PERC was one of a growing number of institutes applying classical liberal scholarship to issues of the day – to such fields as the en- vironment, education, tax policy, etc. Arthur respected Richard as one of the younger econo- mists who were no longer in thrall to Keynesianism. We, of course, recognised Arthur’s critical role in bringing back free-market ideas to Great Britain through the Institute of Economic Affairs. At that time, the IEA’s impact on Prime Minister Margaret Thatcher’s thinking about policy had become well known, and the IEA was viewed as a model for the increasing number of ‘think tanks’ in the United States. xi Foreword The defence of free markets is a job that is never fin- ished. That is why this book, in its new form, will be a valu- able reference for responding to present and future attacks against advertising. By laying out the arguments against advertising and steadfastly responding with temperate analysis, Ralph Harris and Arthur Seldon, aided now by Christopher Snowdon, set a high standard for explaining the benefits of free enterprise. This book will be another reminder of why markets are the best way for a society to organise and why we are all fortunate when they are allowed to operate with a mini- mum of coercive control. I’m honoured to have the oppor- tunity to welcome Advertising in a Free Society. Jane S. Shaw President John W. Pope Center for Higher Education Policy Raleigh, North Carolina, USA July 2014 The views expressed in this monograph are, as in all IEA publications, those of the author and not those of the Insti- tute (which has no corporate view), its managing trustees, Academic Advisory Council members or senior staff. With some exceptions, such as with the publication of lectures, all IEA monographs are blind peer-reviewed by at least two academics or researchers who are experts in the field. xii SUMMARY • In practice it is impossible to distinguish between advertising that is intended to be persuasive and advertising that is intended to be informative. Persuasive advertising normally has information content and even basic information provided by a company about its products will normally be intended to make consumers more interested in the product. • Advertising is more likely to reduce, rather than increase, costs and prices. Advertising increases the extent of the markets in which companies are able to operate, therefore leading to greater economies of scale. This is confirmed by the empirical evidence. • Advertising effectively subsidises the press and broadcast media. • It is a mistake to regard advertising as a waste of resources which, if it were regulated, could be eliminated. Businesses have to transmit information about products in one way or another. If they did not advertise, they would have to find other – probably more expensive – ways to do this. • There is no evidence that advertising creates monopolies.