Unfair Acts and Practices: An Essay in Reconstruction

Abstract

This article explains why the consumer sovereignty interpretation of the FTC’s unfairness authority should be rejected. It also offers an alternative account to replace it, based on the Progressive Era interpretation of the common law concept of “fair dealing” that led to the creation of the FTC in the first place. Consumer sovereignty is the belief that the best way to organize markets (and perhaps society at large) is to force businesses to compete for consumers’ patronage. Consumers are “sovereign” because the information communicated by their patronage decisions determines how production is organized. At least in the neoclassical economics version of consumer sovereignty, the reason to defer to consumer choice is that it is the best guide to consumer welfare—choice “reveals preferences”. But if consumer protection law has any reason to exist, it must exist at least in part to correct for situations when consumers’ choices do not result in the best outcomes. Hanging on to a commitment to consumer welfare would recommend overriding consumer choice, and deferring to consumers choice would mean giving up on a commitment to consumer welfare. Unless one believes that this tension will somehow always be resolved, one needs a way to manage it. Unfortunately, the leading consumer sovereignty interpretations of the substantial injury test fail even to acknowledge it, resulting in incoherent analyses. Rather than compare actually existing markets to an ideal world in which consumer choice in competitive markets always results in an optimized social welfare function, we ought to understand markets as socio-legally constructed spaces that serve different purposes depending on how they are structured. The purpose of consumer protection law is, in Judge Learned Hand’s formulation, to “discover and make explicit those unexpressed standards of fair dealing which the conscience of the community may progressively develop.” To protect consumers is to ensure that markets are set up to serve the individual and collective interests of end users as best as they can reasonably be expected to in current conditions. These interests are defined objectively, by interpreting a community’s values for why to set up the market in question in the first place and how to make it fit within a broader society, rather than subjectively, by guessing at subjective welfare functions and assuming that payment commensurates them. The moral economy view of consumer protection is better grounded in the reality of markets and makes better sense of the history and purpose of consumer protection (at the FTC and beyond). It also provides a more coherent, useful, and consumer-friendly interpretation of the substantial injury test.