David R. Henderson  

Must a Business Serve the Whole Public?

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Former New Mexico governor Gary Johnson, running for the Presidential nomination of the Libertarian Party, wrote on Facebook:

In a nationally-televised debate among three of the Libertarian candidates for President (A debate that should, by the way, have been more inclusive of all the candidates.), a highly unlikely hypothetical question was raised about whether a Jewish baker has the right to refuse to serve a Nazi sympathizer asking for a "Nazi cake". I responded to that question in the legal context of whether a public business has the right to refuse to serve a member of the public, as distasteful as it might be.

The simple answer to that question is, whether all like it or not, U.S. law has recognized the principle of public accommodation for more than 100 years: The principle that, when a business opens its doors to the public, that business enters into an implied contract to serve ALL of the public. Further, when that business voluntarily opens its doors, the owners voluntarily agree to adhere to applicable laws and regulations -- whether they like those laws or not.


I have dealt with this issue on this blog before, but perhaps it's worth restating.

First, where does Johnson come up with the implied contract? I don't see it. Couldn't it just as easily be that there's no implied contract.

Second, and more important, let's say there is an implied contract. It is implied only if the business does not address the issue. That is, the only way to conclude that there is an implied contract is if the business does not specifically say that it will refuse to serve certain people. If the business makes that statement, one can hardly imply a contract that contradicts that statement.

As I wrote when I challenged economist Michael Munger's similar claim about public accommodation:

On the other hand, there is a way out of the apparent "implied contract." That way is to make the implied contract the default. That is, unless the business states differently, there is an implied contract. I don't think that's as good as my solution of complete freedom of association, but it's not terrible. Then a business can say, "We reserve the right not to deal with heterosexuals" or "we reserve the right not to deal with homosexuals" or "we reserve the right not to deal with black people" or "we reserve the right not to deal with people who hate black people." That business would then take the risk of losing customers who disagree. And so be it.

By the way, a lively debate, and one of the better ones on this blog, ensued.

So my question to Gary Johnson is this:
My solution seems to accommodate your idea of an implied contract while still protecting the rights of people who feel strongly about whom they want to do business with. What do you think of it?

Johnson also raises a new issue at the end of the quoted comment, one that is much broader than the issue of freedom of association. Recall that he writes:

Further, when that business voluntarily opens its doors, the owners voluntarily agree to adhere to applicable laws and regulations -- whether they like those laws or not.

I don't get the "voluntarily agree" part. When a business opens its doors, it has to adhere to applicable laws and regulations. I get that. But "voluntarily agree?" Where does that come from?

Notice also what his reasoning would imply about a different era. In many parts of the South, before the Civil Rights Act, businesses were forced to discriminate on racial grounds. Streetcar companies were a famous example. In South Africa during Apartheid, the government made it difficult for mining companies to hire black people. Were Johnson to follow his own reasoning, he would need to claim that businesses in the South and mining companies in South Africa "voluntarily agreed" to discriminate. Would Johnson follow his own reasoning?


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CATEGORIES: Regulation




COMMENTS (19 to date)
Jon Murphy writes:

"Would Johnson follow his own reasoning?"

I think Gary Johnson would respond something along the lines of: "In order to operate, those firms must obey the legislation governing their respective areas, whether they like it or not. However, that doesn't mean we shouldn't work to change the legislation."

I agree with your objection 100% about the "voluntarily agree" part, but I think his broader point is generally correct: to open a business, you must obey the rules until we can change them.

Tom West writes:

I'm fairly certain that the "voluntarily agree" is short hand for "you are voluntarily opening a business which must agree to follow certain rules."

This is different in most minds from simply existing under a set of rules, in which you take no voluntary action to make you subject to those rules.

Like most short-hands, it loses a little, but I think most people would understand the gist of the point.

James Hanley writes:

I agree, but I think this is not the issue libertarians should have at the top of their list of concerns. I think there are far more severe issues that we should prioritize.

However if we're going to have such laws, I think we ought to insist that they apply equally to everyone. No minority, women only, or specific-religion only organizations. If eliminating the no-private-discrimination laws are our goal, the best political (as separate from legal) approach is to make current supporters of the law uncomfortable with its effects.

ThaomasH writes:

There is no getting around that "public accommodation laws or certain kinds of anti-discrimination laws infringe on choice. As a practical matter, I'd like to make an exception small bore personal preferences. A "small" baker should not have to bake cakes for people he does not like -- for whatever reason. "Public accommodation laws that restrict firm's choices are justified in trying to break a "discriminating equilibrium" in which the expectation is that everyone discriminates to one in which no one does.

Phil writes:

The implied contract exists at the intersection of the Fourteenth Amendment and the Commerce Clause of the Constitution.

See Heart of Atlanta Motel, Inc. v. United States 379 US 241 (1964).

This will make your head spin: I think the baker could refuse to make the Nazi cake -- a political party is not a protected class under the public accommodations laws. But a Nazi baker may be forced to bake the cake with a Star of David because that would be discrimination on religious grounds.

Phil writes:

The implied contract exists at the intersection of the Fourteenth Amendment and the Commerce Clause of the Constitution. See Heart of Atlanta Motel v. United States.

Now, the Jewish baker could refuse to make the cake depicting a swastika, because a political party is not a protected class under public accommodation law. But a Nazi baker could not refuse to make a cake with a Star of David, because discrimination on religious grounds is protected.

LK Beland writes:

Phil

Great comment.

Michael writes:

A governmental law requiring public accommodation is not an implied contract with businesses that form. It is an imposition.

Steve Brecher writes:

I have many times seen signs saying "We refuse the right to refuse service to anyone" in businesses.

I can't recall seeing such a sign recently, however.

Steve Brecher writes:

"'We refuse the right'" should of course be "'We reserve the right'" in my previous.

Mark Bahner writes:

Hi,

First, let's clear something up. In my opinion, Gary Johnson is so much better a candidate for president than Donald Trump or Hillary Clinton that it isn't even close.

But having gotten that out of the way, he's clearly wrong on this issue. (Although I'm sure that Hillary Clinton, at least, would be equally wrong on this issue.)

There's nothing in the Constitution that authorizes the federal government the power to force a private citizen to provide services to another private citizen. The Heart of Atlanta Motel ruling was no different than PGA Tour, Inc. vs Martin, or any other of a host of rulings wherein the Supreme Court attempted to do the "right thing," rather than to follow the Constitution as it is clearly written.

The Commerce Clause says nothing about private citizens (let alone bakers and potential customers). The Commerce Clause is about "commerce among the Several States." It's about attempting to remedy the problem that existed under the Articles of Confederation wherein states erected trade barriers with other states. It can easily be seen that the Founders had no intention for the federal government to get involved in commerce between private citizens within the states. For example, there is Hamilton's description of the intent of the Commerce Clause in the Federalist Papers:

An unrestrained intercourse between the States themselves will advance the trade of each by an interchange of their respective productions, not only for the supply of reciprocal wants at home, but for exportation to foreign markets. The veins of commerce in every part will be replenished and will acquire additional motion and vigor from a free circulation of the commodities of every part. Commercial enterprise will have much greater scope from the diversity in the productions of different States.

It's a pity that Gary Johnson seems unfamiliar with how abominably the Commerce Clause has been stretched--broken, in fact--to fit the desire for federal power beyond the now-completely-imaginary "chains of the Constitution."

P.S. Again, however, he's almost certainly not worse than Hillary Clinton on this issue, and he's so much better than Hillary Clinton and Donald Trump on most other issues that there's really no comparison.

Mr. Econotarian writes:

I would like to put forward a theory where occasional government "nudges" are important in shifting a sticky non-optimal social equilibrium to a more optimal one.

It struck me watching Mad Men, when Bertram Cooper sees an African American at the reception desk of his advertising firm and says he's “all for the national advancement of colored people, but [does] not believe they should advance all the way to the front of this office".

The implication is that while he himself may not care if an African American is at the front desk, he fears that his (more racist) clients might find it offensive.

Anti-discrimination laws attempt to normalize non-discriminary behavior. They are a great excuse by the less racist not to discriminate ("Sorry, it is against the law for me to not let in blacks"), and through the (acknowledgedly limited) moral power of law, they turn racist discriminators into "law breakers" who are outside of the norm.

The common free-market view is that racism is a competitive disadvantage because it restricts the potential labor pool for the discriminator. But if enough vocal customers prefer a single-race restaurant, for example, it may not be a competitive disadvantage.

We've seen that racial discrimination in the US has, in a very short time (30 years from 1960-1990) been moved from an equilibrium point of "generally OK" to "not OK at all".

Part of the equilibrium change is just forcing people into non-segregated environments, and allowing (mild) racists to discover it is not as bad as they may have thought.

I think this is a parallel to eminent domain. There is a coordination challenge in purchasing a large number of tracts of land, and there is a coordination challenge in moving a discriminatory society to be non-discriminatory.

Certainly government can always go too far (as it has occasionally with eminent domain), but despite my general libertarian tendencies, I really can't deny the tremendous society-wide benefits from anti-discrimination laws.

Alexandre Padilla writes:

William Shugart II has also addressed this question and the point about public accommodation here: http://blog.independent.org/2016/04/15/private-businesses-are-not-public-accommodations/

Another point he addresses that it is worth mentioning is that the government engages in discrimination more often private businesses and there is evidence in history of the government forcing private business to engage in discrimination (I consider immigration laws a form of government-enforced discrimination). A reason is, contrary to businesses, when the government engages in discrimination, it won't lead to loss of profits. While it is not systematically the case, more often than less, when businesses discriminate, "the market" will "punish" them in the form of loss of profits. [it should be noted that there are forms of discrimination that are more difficult to eliminate or mitigate than others. Discrimination by customers or discrimination by coworkers are more difficult to mitigate.]

Thomas B writes:

So... will Johnson be accused of being a Libertarian In Name Only, or LINO?

Phil writes:

First, my apologies for the duplicate posting, above.

@ Mark Bahner - you wrote, "rather than to follow the Constitution as it is clearly written". Please clearly explain what the commerce clause says Congress is permitted to do.

What does "commerce" mean? Is it only the exchange of goods? Does it include distribution of goods? Manufacture of goods? Finished goods only or raw materials? Must there be goods or does it also include services?

You say the clause does not mention private citizens - so does it "clearly" only apply to transactions between state governments? Or does it only apply to state actions, such as trade barriers? Does it apply to corporations, which are state-created entities?

What does regulate mean? It is used only twice in the constitution- to regulate commerce and to regulate the value of money. Are the uses synonymous?

What does "among" mean? Can Congress only regulate commerce that crosses a border, but cannot regulate an identical transaction that is intrastate? If the former, what are limits of that -- for instance, if I buy a car intrastate from a dealer, but the car was manufactured in a different state, is that something that can be regulated?

It hardly seems clearly written at all.

Mark Bahner writes:
@ Mark Bahner - you wrote, "rather than to follow the Constitution as it is clearly written". Please clearly explain what the commerce clause says Congress is permitted to do.

I'll be happy to do that. But I think that first it's more appropriate to agree on what the commerce clause does not give Congress the power to do. I think it's clear that the commerce clause does not give Congress the power to command a Jewish baker to make cakes with Nazi swastikas on them. (Or conversely, to command a neo-Nazi baker to bake cakes with a Star of David on them.) Do you agree?

If you do agree to that, then it appears that we both agree that Gary Johnson was wrong to approve of something no President (especially a Libertarian President) should ever approve of...that Congress should act beyond the powers granted to it by the Constitution.

Phil writes:
But I think that first it's more appropriate to agree on what the commerce clause does not give Congress the power to do.

No it's not. Article I, Section 8 of the Constitution, where the commerce clause is found, enumerates the powers Congress has. Article I, Section 9 lists the restrictions on Congress. If the commerce clause was a restriction, then it would be appropriate to discuss what is prohibited.

Returning to the specific issue of the cake, I propose a different starting point that gets at the heart of the dilemma: When in conflict, which constitutional provision is superior, freedom of religion, freedom of association, Congress' power to regulate commerce, or the equal protection clause of the Fourteenth Amendment?

Sleeve writes:

Wouldn't it be fair to say you have to serve anyone, but you do not have to bake a Nazi cake for anyone?

Mark Bahner writes:

I wrote:

But I think that first it's more appropriate to agree on what the commerce clause does not give Congress the power to do.

Phil responds:

No it's not. Article I, Section 8 of the Constitution, where the commerce clause is found, enumerates the powers Congress has. Article I, Section 9 lists the restrictions on Congress. If the commerce clause was a restriction, then it would be appropriate to discuss what is prohibited.

Oh my. I think you're missing my point, which was that I think that any reasonable person would agree that commanding a baker to bake certain types of cakes for a specific customer is so far outside of the limits of what was authorized by the commerce clause that we ought to agree on that, before discussing any closer calls.

But it appears that maybe you don't think that this particular situation is waaayyyyyyy outside the limits of the commerce clause, as I do? OK, then. I'll just have to get over my surprise. :-)

Returning to the specific issue of the cake, I propose a different starting point that gets at the heart of the dilemma: When in conflict, which constitutional provision is superior, freedom of religion, freedom of association, Congress' power to regulate commerce, or the equal protection clause of the Fourteenth Amendment?

Well, I hate to hate to throw a wrench into the works, but I don't see any conflict at all in this case, because I don't think "Congress' power to regulate commerce" ("AMONG the several states"...emphasis added ;-)) comes even close to authorizing Congress to do anything in this matter.

This is a matter between two private citizens. I don't see how it even comes close to what I think the Founders very clearly meant by:

The Congress shall have Power To...regulate Commerce...among the several States...

And when I wrote "very clearly," I meant also taking into account what other things they wrote at the time, and knowing the historical aspects of the problems with the Articles of Confederation.

Basically, under the Articles of Confederation, Congress did NOT have the power to regulate commerce among the several states or with foreign nations. So states set up trade barriers between themselves. Also, individual states would try to set up barriers to trade with foreign countries, but neighboring states would work against those barriers.

Two examples of what the Founders were writing at the time are the example of Hamilton in the Federalist Papers:

An unrestrained intercourse between the States themselves will advance the trade of each by an interchange of their respective productions, not only for the supply of reciprocal wants at home, but for exportation to foreign markets. The veins of commerce in every part will be replenished and will acquire additional motion and vigor from a free circulation of the commodities of every part...

...or Madison writing to Jefferson in 1786:

The States are every day giving proofs that separate regulations are more likely to set them by the ears than to attain the common object. When Massachusetts set on foot a retaliation of the policy of Great Britain, Connecticut declared her ports free. New Jersey served New York in the same way. And Delaware I am told has lately followed the example in opposition to the commercial plans of Pennsylvania. A miscarriage of this attempt to unite the states in some effectual plan will have another effect of a serious nature….I almost despair of success.” 3

It just seems abundantly clear to me that there was no attempt to give Congress the power to "regulate commerce" within individual states.

John Marshall basically said the same thing in Gibbons vs. Ogden (in 1826):

"The enumeration presupposes something not enumerated; and that something, if we regard the language or the subject of the sentence, must be the exclusively internal commerce of a State."
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