A Century of Discounting

The other day I was in Macy’s. Wherever I turned, there were signs promoting 20%, 40%, 50% off. Everything, it seemed, was on sale.

My shopping trip reminded me of a centennial that we all forgot to celebrate. One hundred holiday seasons have passed since America’s leading consumer advocate startled the country with an outspoken attack on a great evil of the day – discounting.

That advocate was Louis D. Brandeis. A Boston attorney and a graduate of Harvard Law School, Brandeis won fame at the turn of the twentieth century for standing up for the average citizen. He attacked abusive bankers and life insurers, convinced the U.S. Supreme Court to allow limits on women’s work hours, advocated for a minimum wage, and endorsed cooperatives and credit unions. The idea that our Constitution creates a right to privacy goes back to Brandeis as well.

But Brandeis had a peculiar blind spot when it came to the average citizen’s welfare. He did not think consumers benefited from saving money at the store.

Between 1908 and 1913, three Supreme Court decisions held that manufacturers could not dictate retail prices of their products; once a retailer had taken ownership, it could set the consumer price as it pleased. Wholesalers and small retailers saw this as an authorization for chain stores to cut prices and drive mom-and-pop retailers out of business, and Brandeis was on their side.

In November 1913, Brandeis used the pages of Harper’s Weekly, an influential magazine, to launch an assault against discounting. “When a trade-marked article is advertised to be sold at less than the standard price, it is generally done to attract persons to the particular store by the offer of an obviously extraordinary bargain,” he wrote. “It is a bait—called by the dealers a ‘leader.’ But the cut-price article would more appropriately be termed a ‘mis-leader’; because ordinarily the very purpose of the cut-price is to create a false impression.” The shopper would become confused as to the true value of the item, Brandeis warned. “[A] single prominent price-cutter can ruin a market for both the producer and the regular retailer,” he asserted. “And the loss to the retailer is serious. On the other hand, the consumer’s gain from price-cutting is only sporadic and temporary.” Eventually, manufacturers would have to cheapen their products so retailers could sell them profitably at discounted prices, and consumers would suffer from being unable to buy the goods they wanted.

In other words, Brandeis, perhaps the first nationally prominent advocate of consumer interests, thought shoppers were better off paying more for their purchases rather than less. Today, most economists would find this an odd form of consumerism, but Brandeis was sincere. If he’d had his way, we wouldn’t be trawling for sale merchandise one hundred Christmases later. 

 

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