Pricing Laws Violate Free Speech

What the Supreme Court needs to understand.

The comedian Gallagher once joked that customers don't like to hear they're being charged more for using credit cards—they'd rather hear they're getting a "discount for cash." But in New York and some other states, it's not just what customers want to hear. Telling customers there's a surcharge to pay by credit card can actually land business owners in jail. Yet it's perfectly legal to tell them something costs less if they pay cash.

That, at least, is how New York officials enforced the law, which—read literally—actually only prohibits shopkeepers from charging customers different prices depending on how they pay. Passed in the 1980s, the law is supposedly intended to protect consumers from hidden fees. But business owners must pay processing fees that don't apply to cash transactions. Charging customers to pay that fee makes perfect sense. That's why New York officials didn't punish businesses that said they were giving cash customers a discount.

Yet that also means the state was violating the free speech rights of businesses who used the word "surcharge"—which, after all, is the truth. Business owners therefore sued on First Amendment grounds, and the U.S. Supreme Court heard the case last week. The Court has made clear that government can't punish people simply because they express themselves in one way or another. Laws must limit actions, not words.

Yet the law's actual language makes no reference to speech. It just says, "No seller…may impose a surcharge on a [customer] who elects to use a credit card." As Justice Stephen Breyer pointed out at the January 10 hearing, that language doesn't seem like a limit on free speech—it's just a kind of price control. How, he asked, could the law violate the First Amendment if it only limits what store owners do, not what they say?

Business lawyers answered that however the law may read, it's only enforced when shopkeepers call the price difference a "surcharge," rather than a "discount." But there's a deeper sense in which the New York law violates the Constitution: all price restrictions are limits on free speech.

That's because prices are just a way of conveying information. For any product or service on the market, the price is simply a number that represents what the owner is willing to trade for. That number is based on many different factors—how much flour goes into a cake, how much labor goes into a car, how much research goes into a new medical treatment—but ultimately all a price does is convey information about the scarcity of the ingredients that go into that product, and how what other people are willing to give in exchange for that product. As economist Thomas Sowell has put it, "prices are like messengers conveying news."

Laws that ban companies from charging what they want don't make products or services cheaper, any more than the government can simply declare that cakes can be baked without flour or cars made without labor. All that price controls do is ban companies from telling people what the products and services are actually worth. Such laws, writes Sowell, "[do] not change the underlying scarcity in the slightest." Price control laws are like painting over the numbers on your speedometer in order to comply with the speed limit. If companies are punished for charging what something is worth, they will just stop selling it.

Justice Breyer hinted at this fact in a question to the business's lawyer. Recalling the Depression-era Office of Price Administration, he explained, "Ken Galbraith ran it for a while. And they would—what they would do, he said, is they'd go around and they'd smell what the price was," and "you couldn't charge a higher price. Would you have come in and said, Ken Galbraith says you can only charge $13 for this item. It violates our free speech?"

The answer is yes: saying a $50 item only costs $13—or that credit card transactions have no cost—or that there's such a thing as a free lunch—doesn't make it so. Prices can't be "smelled," or dictated, by a government bureaucrat. They can only be truthfully conveyed—or silenced or distorted by the law. Forbidding companies from charging what things actually cost—let alone punishing them if they call it a "surcharge" for cards but not a "discount" for cash—is just censoring what people can hear. And that's what the First Amendment's all about.