Advertising in a Free Society (Critical)

Ralph Harris, Arthur Seldon, Christopher Snowdon

• Publisher: London Publishing Partnership
• Year: 2014
• eBook ISBN: 9780255366687
• Edition: 1

This new version of 'Advertising in a Free Society' is valuable reminder of the fundamental role advertising plays in society. Although the criticisms aimed towards it, which Ralph Harris and Arthur Seldon aimed to dispel over half a century ago, continue to gain support, policy makers and campaigners risk undermining our freedom if they continue this crusade against the advertising industry. We should celebrate the fact that advertising empowers the everyday shopper, rather than undermining both businesses and consumers through constraining the industry.

Part 1

Introduction to
Advertising in a Free Society

Christopher Snowdon

1. Background

Written by Ralph Harris and Arthur Seldon, Advertising in a Free Society was first published in 1959, two years after Vance Packard’s best-selling exposé of motivational research in advertising, The Hidden Persuaders, and one year after J. K. Galbraith portrayed advertising as the driver of needless consumption in The Affluent Society. In Britain, rationing had finally come to an end five years earlier and it was two years since Harold Macmillan had announced that ‘most of our people have never had it so good’. The first television commercial (for ‘tingling fresh’ toothpaste) had been broadcast just four years earlier, on 2 September 1955. In the US, the advertising industry was firmly in its Mad Men era, the first series of which is set in 1960, but even the marketing executives of Madison Avenue and Soho, so skilled at putting their clients’ products in the best light, seemed unable to lift the reputation of their own industry.

Advertising was widely seen as trivial, repetitive and dishonest. It was disparaged by conservatives for being economically wasteful and despised by many socialists for being the garish face of capitalism. It was rarely defended, except – grudgingly – as a necessary evil that helped subsidise the media. Today, as in 1959, advertising continues to attract what Harris and Seldon described as ‘many weighty criticisms’. For those who view it as capitalist propaganda, advertising bears the brunt of attacks that might more openly be made against the free market. For those who object to consumerism, marketing is held responsible for manipulating the public into buying products they neither want nor need. For those who reject the concept of consumer sovereignty, advertisers ‘use every possible trick and tactic to catch us hapless flies in their profit-driven webs’ (Hastings 2013: 151).

In Advertising in a Free Society, Harris and Seldon undertook a thorough review of what was then a subject largely ignored by economists. Empirical research into the economic effects of advertising was in its infancy and the authors lamented in the preface that there were ‘not many economist writers on advertising whom we found directly helpful’. Since advertising was considered a rather grubby part of the economic landscape, what little academic attention it received tended to come from critics. Harris and Seldon divided advertising’s opponents into the ‘classical critics’, such as the renowned economist Alfred Marshall, and the ‘left-wing critics’, notably Nicholas Kaldor, whose 1950 study The Economics of Advertising continues to be widely cited in the academic literature today. They also addressed the social critics, notably John Kenneth Galbraith, whose then recently published book The Affluent Society had been an instant commercial success.

Looking back, it is remarkable how little the arguments against advertising have changed. Empirical research has taken the wind out of many of the economic objections, but aside from a greater focus on the alleged environmental impact of mass consumption, the social criticisms remain much the same (and, as Harris and Seldon point out, they were far from new even in the 1950s).

In addition to reviewing the economic literature, Harris and Seldon carried out detailed research into the marketing plans of many British industries from banking and brewing to hair perms and pet food. Despite a number of criticisms and caveats, they concluded that advertising was not a necessary evil but a necessary good that was beneficial to both the consumer and the producer. It greased the wheels of capitalism, opened the eyes of consumers and led to greater efficiency in markets. Contrary to the classical and left-wing critics, Harris and Seldon argued that advertising ‘has helped to keep markets competitive, tumbled oligopolists and monopolists, kept prices down, and in the long run made the economic system bow to the consumer’s will’. If, as some critics complained, advertising created new desires, that was to be celebrated, not condemned.

In this introduction, we shall examine how well Harris and Seldon’s arguments stand up half a century later.

2. The economic evidence

Economic evidence: the consumer

In the decades since Advertising in a Free Society was first published, a large amount of empirical evidence has been produced that generally, albeit sometimes tentatively, supports Harris and Seldon’s view of advertising as being economically beneficial. The key economic questions raised by the classical and left-wing critics were whether advertising raised prices, created barriers to entry or was an inefficient use of a firm’s money. Left-wing critics were particularly concerned that advertising allowed companies to benefit from the mass market without passing on the savings to the consumer. Classical critics, on the other hand, were concerned that branding and marketing made demand less elastic and therefore made competition more imperfect. Both sets of critics feared that ‘combative’ advertising, in which companies battle for a share of a static market, was economically wasteful and therefore likely to lead to higher prices.

Academic discussions of advertising have traditionally made a distinction between the ‘informative’ and the ‘persuasive’. Informative advertising of the sort that might be seen in a newspaper’s small ads was generally considered useful while persuasive advertising, which dwelt on minor differences between brands and sought to sell a product by selling a lifestyle, was considered inefficient and unnecessary. Few denied that consumers benefited from being made aware of a product’s existence, but since the essential information in an advert extends little further than the price, specification and location of the vendor, there was a residual prejudice against the supposedly ‘wasteful’ advertising which hammered home the same old brands.

This argument is still made today, but it received short shrift from Harris and Seldon, who argued that it is impossible to draw a distinction between ‘informative advertising’ and ‘persuasive advertising’ in practice. No matter how much information an advertisement contains, its purpose is to persuade (Harris and Seldon noted that ‘even a railway timetable is meant to encourage travelling by train’). Conversely, a ‘persuasive’ advertisement contains information, even if it is only the name of the brand or the price of the product. The simplest advertisements for well-known brands remind consumers of the product’s existence and make them recall information that they have received in previous advertisements, reviews, personal recommendations or past experience.

Schmalensee (2008) summarises the critics’ position as follows: ‘Buyers are assumed to respond rationally to informative advertisements, while persuasive advertisements are somehow manipulative.’ However, he concludes that ‘this distinction is of little value empirically: few if any advertisements present facts in a neutral fashion with no attempt to persuade, and even those with no obvious factual content signal to consumers that the seller has invested money to get their attention.’ There is no denying that many advertisements lean more heavily on gimmicks, jingles and humour than on hard facts, but this is necessary if the message is to be remembered. Information is no use if it goes unnoticed or is forgotten (Kirzner 1971).

With regards to pricing, there is very little evidence to suggest that advertising raises the cost of products and much to suggest that lower prices are typical. None of the studies which examine places that forbid advertising for certain products find lower prices than in places where advertising is allowed (Benham 1972; Cady 1976; ­Kwoka 1984; Milyo and Waldfogel 1999; Clark 2007). On the contrary, prices in jurisdictions where advertising is allowed tend to be lower. Moreover, it is usually the case that ‘prices of advertised products are lower than those not advertised’ (Schmalensee 2008). Love and Stephen’s review of the literature on the self-regulating professions found that advertising is associated with lower fees (Love and Stephen 1996) and, in a thorough review of the literature, Kyle Bagwell (2007: 51) found ‘substantial evidence that retail advertising leads to lower prices’ in many industries as well as ‘some evidence’ that manufacturer advertising also leads to lower prices.

Economic evidence: the producer

The question of whether advertising is efficient is partly answered by its tendency to make prices lower. The cost of advertising can be recouped with an appropriate return from the greater sales that come from economies of scale and selling over a wider area to a larger customer base. Businesses must believe that advertising is a more efficient way of selling than, for example, employing travelling salesmen or else they would not advertise. They would be victims of an enormous global information failure if they were wrong in this belief. If companies prefer to use advertising, rather than telesales teams or discount coupons, it is a good indication that advertising is more effective and efficient.

But advertising does not necessarily have to lead to more sales for it to be efficient. It merely needs to be cheaper than the alternative. Critics who count advertising spend, which typically represents 1–2 per cent of GDP, as wasteful expenditure appear to forget that companies would need to find other ways to sell in the abse...

Table of contents

• Harris-Seldon-Copyright-Page
• Harris-Seldon-Author
• Harris-Seldon-Foreword
• Harris-Seldon-Summary
• Part 1
• Chapter 1 (Part 1)
• Chapter 2 (Part 1)
• Chapter 3 (Part 1)
• Chapter 4 (Part 1)
• Chapter 5 (Part 1)
• References (Part 1)
• Part 2
• About the Condensed Version
• What They Have Said
• Original Acknowledgement
• Introduction (Part 2)
• Chapter 1 (Part 2)
• Chapter 2 (Part 2)
• Chapter 3 (Part 2)
• Chapter 4 (Part 2)
• Appendix A (Part 2)
• Appendix B (Part 2)
• Appendix C (Part 2)
• Appendix D (Part 2)
• Appendix E (Part 2)
• Appendix F (Part 2)
• References (Part 2)
• About the IEA epub