Caveat Emptor is the latin phrase meaning ‘buyer beware’. It is supposed to somehow be crucial for a free and open market to exist. All it means is that deception is allowed in market transactions, and it is the buyer’s responsibility to ferret it out and then make transactions based on valid information. It may have been very well suited to the early market economies of Adam Smith’s time, but perhaps it is not very well suited for our times.
In olden times, there wasn’t much that could be done, other than warn buyers by having them repeat this mantra. In some cases of deliberate fraud, blatant and obvious, some council of respected individuals might do something against the dishonest seller, if he/she had not already left the market and disappeared. On the other hand, they might just look at the seller and repeat: ‘Caveat emptor’, meaning it was his fault for not verifying the claims of the seller.
For most transactions, there was little option for dishonesty. A bag of corn could be weighed, so that the weight could not be faked. The corn itself could be inspected for spoilage. What else could go wrong? There were some transactions on olden days that might be counterfeited, such as coins. A scrupulous buyer might insist on a density check for gold or silver. Sometimes these checks might not be available.
Animals which were sick could be inspected, or left in a pasture for a day or so to observe their behavior. Pots could be tapped to search for imperfections. Fabric can be laid out in the sun to see its size and quality. Caveat emptor actually worked fairly well in these situations.
Services were usually done by local people, whose workmanship was known widely. It may have been excellent or mediocre, but asking others in the neighborhood about the workman involved would tell you which of these you might be getting. When ancient economists started theorizing about trade and the improvement of efficiency that arises from the specialization of labor, they were living in times or not long after times when these processes worked well. Thus, the very simple theories that were proposed were accurate for the times they were embedded in.
Skip forward to modern times. There is a weird tradition in English jurisprudence that says that precedent is everything. It’s not a common practice in most other countries, but in the English colonies it holds forth. Perhaps that tradition spills over into other areas. Economic theories that were appropriate for times centuries ago are still looked on as having validity in the extremely different world we live in. Why would that be? Perhaps the explanation is as much psychological as theoretical. A number of explanations can be hypothesized, such as each generation learning these theories from the prior generation, who held respected positions. No questioning was permitted. Thus, from one generation to the next, theories from long ago are memorized and accepted, and the task for economists is to justify them. Certainly, other hypotheses as to why antique economic theories are still propounded today, almost without dissection, can be postulated. It doesn’t matter what the justification for these theories is, only that they might no longer have any shred of utility or validity.
In today’s markets, various items are bought to complete each individual’s or each household’s quorum of things to own. Everybody has a residence, which has to have various components, such as a place to cook, a toilet, a place to clean oneself, and others. Everybody has a mode of transportation, such as a car or a bicycle. Everybody has a communication device, such as a telephone. Each of these things has various grades, and individuals and households work or do other actions to try and maintain their items or to upgrade them. Individuals and households in declining situations have to figure out how to cope with their decline as they slip down in the gradation of items owned or rented.
There are strong laws in some jurisdictions relating to transactions with these items, but the regulations for this are far from uniform, either geographically or by category of item. Take for example, residences. For purchased residences, there might be laws stating exactly what information about a residence has to be provided to the purchaser, and by exclusion, what does not have to be. There are other sets of regulations about the condition of the residence in order for it to be allowed to be sold. As an example of the former, information about property lines and easements has to be provided, and if they are not or are provided with errors, the sale can be rendered void and all monies returned to the proposed purchaser. Different jurisdictions might require other information to be provided related to the condition of the property. As an example of the latter, houses cannot be sold for occupancy if they are in unsanitary condition, contain dangerous elements in the electrical parts, and so on. It may well be that many places have neither of this type of requirement, but for the purpose of this discussion, residence transfers of ownership provide an example where such regulations and laws can play a role.
This is the opposite of caveat emptor. The owner is forced to inform the proposed purchaser of some conditions and details about the property, and to put it into some passable condition before the sale goes through. It may also be that the jurisdiction gives the proposed purchaser the right of inspection by experts, which is again not something that necessarily existed centuries ago.
So, in the modern era, what might be the best set of regulations for the purchase of items, not just residences, but items of transportation, communication, hygiene, or anything else? Consider the background story first. The economy of today in industrialized countries has taken advantage of the specialization of labor concept in the fullest extent, so that items manufactured are often made by giant corporations, who mass produce items for a wide market. On the other side of the transaction are individuals and households who purchase these items. There is such an immense disparity between buyer and producer/seller that the antique theories of caveat emptor are almost laughable.
In the market today, many items that are sold come with some specifications. The specifications assist a buyer to know if the item meets his needs. They often come with a warranty, meaning that a period of time has been designated during which the producer/seller still has obligations to the buyer, such as to replace the item if it fails for some limited list of reasons. But there are few regulations concerning how warranties should or must be written, nor for how long. Neither are there regulations concerning what must be included in the specifications. They can be as complete as the seller wishes to make them, and if they are only partial, the buyer can refuse the transaction.
One could say that caveat emptor has been translated into specifications and warranties. The other piece of the ancient market, where the buyer can find out the reputation of the seller or the experiences of others with whatever the seller is providing, translates today into reviews. But reviews are not mandatory and are virtually unregulated.
Why are there not clear and efficient regulations describing what sort of specifications must be provided, what type of warranty must be provided, and what types of reviews need to be accomplished before any sales of a new item are permitted? The knowledge of exactly what type of warranty were required by regulation, for example, would tend toward efficiency in the market, as everyone would know what warranty existed, how to apply for it, what costs were involved, what delays were allowable, and any other details. Having a uniform warranty for all manufactured goods would simplify manufacturing as well, as there would be clear information as to what targets to set for reliability and the various failures of reliability, such as burn-in problems, wear problems, and manufacturing faults. It might even drive more research into the problems of manufacturing items, especially newly designed items, so that they would have the required reliability and therefore only rarely invoke the warranty clauses.
It would also simplify warranty claims, as the regulations concerning them would be clear, and violations of the standardized procedures might be subject to some fine or other response to a failure to live up to the regulatory standards. Perhaps an industry would arise to handle warranty claims, as they would be much more uniform and therefore able to be processed by specialist organizations or agencies. It would also make the selection of items easier, as the longevity of any item would be that which was standardized. Reliability would no longer be a separate factor in making product comparisons.
Other aspects of the purchase of items would be similarly simplified if caveat emptor were completely relegated to the past, and a more appropriate model for sales standardized. Every simplification of life in a complex world has its own benefits, beyond the intrinsic benefits, as too much complexity is a burden for individuals to deal with. Exactly how to implement such standardization remains to be figured out.