Is capitalism supposed to work this way?

Economics Economics Questions
1

Okay - let me set up a semi-hypothetical situation and ask the question that’s really puzzling me, hopefully sidestepping the huge political debate over the Real-World ™ situation that brought it to mind.

Smoking has lots of customers - about 20% of the adult population, and they seem to be a pretty reliable customer base - almost all of them are addicted to nicotine. It is, however, a fairly simple process to extract the nicotine, and put it in minute doses in other products - chewing gum, for example. Someone starts doing exactly that, making pretty good profits - a package of 110 doses has a SRP of about $60US, sidestepping all of the taxes on the version that needs to be ignited and inhaled. Touting their version as a reliable method of stopping the smoking addiction, they get their niche of the market, and profits roll in.

However, there has always been a small but adamant portion of the population that is annoyed by others smoking, and our chewing-gum company sees them as a route to a greater market share. They subsidize groups who advertise, making remarkable claims about the dangers to society of the smoke. This group grows and gets more strident, well-funded by the chewing-gum manufacturer, and smoking becomes a socially-ostracized method of getting one’s nicotine dose, while chewing nicotine gum causes social approval.

Leaving aside the legal bans and taxation issues (I have a pretty good idea of how that part of it’s viewed here), is this a normal, proper method for capitalists, or a misuse of an otherwise benevolent system?

It’s been used before, to some effect - Henry Ford’s scare campaigns about the dangers of steam-powered vehicles, Hearst’s aid in demonizing a different source of paper when he’d just invested heavily in woodpulp farming, etc. Both of those examples devolved into legislation, but had some effect without resorting to government - just swaying public opinion (honestly or otherwise) against alternative suppliers of an economic desire.

I understand that convincing the public that your product is best/healthiest/shiniest is a proper part of the merchandizing that’s an essential part of capitalism, and that some exaggeration is to be expected. Is, however, advertising against alternative sources of desire fulfilment an honorable part of that? Is there a point at which swaying public opinion becomes dishonorable?

Telling the whole truth is, of course, always honorable - but knowing the whole truth is an awful lot of work, telling it even more so, and only telling the parts that you think are relevant/important is understandable, and often honorable. Then again, telling part of the truth is the second-slickest way to lie, and it’s often difficult to prove which is which.

I’m not claiming to be remarkably well-read, but this is something I’ve never seen addressed in any writings on economics, and only rarely addressed in philosophy. Is there a body of work I’ve missed, or is this an unexplored aspect of capitalism?

Danno, more puzzled than usual.

2

First I would rethink the problem by removing government and regulation from the picture. Also consider the liberties of individuals.

Smoke is unhealthy. Anyone smoking will harm those around them. Non-smokers have a right not to be harmed by others who choose to harm themselves. Smoking should not be banned, rather it should have designated areas where smokers can do their thing without harming others. Having said that, the degrading health effects caused by smoking should not financially impact the non-smokers either. Any socialized medicine or health care expenses should not be nationalized so that non-smokers pay for treatment of smokers health problems. Smokers should afford to pay for the treatments of their own self-inflicted diseases or forego treatment.

I guess the next arguement would be what capitalism has to do with selling substances that are addictive. All Capitalism realy does is provide the products / services to the public that demand those products / services. People should be made aware of the addictive nature of substances and whether or not they want to be addicted to it. As for monopoly, if nicotine is a cheap additive then free market competition should be able to provide such addictive products at even cheaper competitive prices. These additives should be disclosed on the package to warn the consumer of the contents and whether or not they want such addiction. If people choose to not have addictions then I believe there would be good healthy market competition to develop competitive products that have similar qualities without the addiction. One example is Decaffeinated Coffee. There is a market for it. It does exist and there’s no monopoly on it or caffeinated coffee. The Decaf coffee certainly doesn’t have the kick to it as regular coffee, but there is demand for it. I drink maybe 3 cups of regular caffinated coffee every day. Am I addicted? Maybe. Do I care? Not as long as I can get it. Could I quit? Yes, but why?

3

Sure, if by ‘designated areas’ you mean private property. That will do the job here, although I suspect the anti-smoking puritans wont like the results.

4

If you’ll note the original post, I did try to remove gov’t and regulation from the question, and the whole ‘politics of smoking’ sidetrack (which I’ll address to you elsewhere - it’s not relevant to this forum, and not what I wanted to discuss).

Can we please not side-track this one - at least, not quite so quickly?

Danno, restraining himself, but not easily.

5

This is a great question and goes to the very heart of the free market. The free market concept is that everyone should be permitted to promote their ideas, products, and services and those most desired by consumers will win out. The alternative is to have someone (such as the government) decide what people can or should buy. I just finished re-reading the book Crypto: How the Code Rebels Beat the Government – Saving Privacy in the Digital Age.

The point is that no one knows ahead of time what products or services will succeed. That’s why it’s so important for every promoter to have an opportunity.

6

I am not really convinced of addiction.

7

Businessmen who use government to their advantage are political entrepreneurs - not market ones.

8

As I tried to explain in the original post, the technique has been used in the market, not just in political venues - so what I hear you saying is “it’s not my problem to deal with, it’s a statist issue” - when statism doesn’t really address the issue at hand. Without government sanctions, does this method fit comfortably within the Austrian/Libertarian view of capitalism?

In the past, when it’s been used, it’s usually led to government-imposed rules and sanctions. Absent that, though, it’s had effect, anyway. If we set aside the “government action is bad” predisposition, is such a tactic evil, or allowable under a NAP?

A much tougher question, I’ll admit.

Danno, wanting to get beyond the avoidable sidetracks.

9

Is it fraudulent? If so it’s punishable by law, as it is theft. If not, there is no problem.

10

The things that you talk about in the OP aren’t aggression, so they can’t be responded to with force. However, I would say (and many would agree) that such tactics are morally reprehensible. What can be done is non-aggressive actions, such as boycotts, ostracism, and education campaigns, that hurt companies that engage in such tactics at the only place it matters: their bottom line. Combine this with the facts that a company’s reputation is essential in a free market and that business practices will probably be more transparent, and businesses will avoid marketing strategies that are widely regarded as unethical.

11

Whether it’s fraudulent or not is a non-trivial question - and was posed as such. As it’s borderline, I was asking for a value judgement - and as it’s not in line with any of the usual party lines, you’d have to think for yourself. Sorry if that was too much to ask.

Danno - somewhat frightened by this.

12

My 2 cents

Of course businesses are going to promote their goods and smash their competition however they can.

Caveat emptor.

13

I have already thought for myself, and there is no “party” line to speak of, and aside from aesthetic dislike. I see no problem with it. Caveat emptor.

14

There is nothing coercive in the use of aggressive promotion as stated above. Don’t assume others share your predilections. Such “Lifeboat Situations” have been used to better effect elsewhere and they are still of dubious value.