Suppose the Franklin Roosevelt administration had enacted a law in the 1930s that required every restaurant customer in America to pay a 15 percent tip to waiters. The argument in favor of such a law would have been twofold: to help the poor and to stimulate the economy by getting more money into circulation. The argument would have dovetailed perfectly with other such arguments that were being used to justify FDR’s New Deal economic revolution.
Now, jump ahead to 2012. Assume that that law is still in existence and that libertarians call for its immediate repeal.
Can you imagine the protests and screams of American statists?
“You libertarians hate the poor and love the rich!”
“Repealing the mandatory tipping law would plunge the economy into unemployment and recession!”
“If the mandatory tipping law is repealed, no one will be willing to work as waiters!”
“I believe in free enterprise but it wouldn’t work with tipping!”
Yet, the fact is that we don’t have tipping laws, either at the state or federal level, mandating that a minimum tip be paid to waiters. In fact, the entire enterprise of tipping demonstrates how people would operate in a totally free society — that is, one in which there are no coercive welfare-state programs.
In the restaurant business, restaurants pay an hourly wage to waiters but it’s minimal. Waiters depend on tips from customers for most of their income.
Tips are voluntary. At the conclusion of the meal, the customer is required to pay the restaurant’s bill for the food but is under no requirement to leave a tip. The choice is entirely up to the customer. He is free to leave the restaurant without tipping and there is nothing the waiter or manager can do about it.
The system obviously works. Most people leave tips and in sufficient amounts to keep waiters in business. Some tips are small and others are large. When I waited tables during my law-school years a long time ago, I was shocked when one day a customer left a $100 tip on the table on a $25 restaurant tab. It was an entirely voluntary act on his part. No one forced him to do it.
Sometimes waiters do get stiffed, which means that they have provided service to the customer for free. Every waiter hopes that every customer will leave a tip but knows that there is no guarantee.
What happens if a waiter encounters an extremely large party of, say, 20 people who are going to take up much of the waiter’s time? To protect the waiter against the possibility of begin stiffed by such a large party, some restaurants mandate, as a policy, that a 15 percent tip will automatically be added to the food bill.
That required-tip policy is stated on the menu. If the customer doesn’t approve, he is free to leave.
In some cases, the restaurant requires a 15 percent tip for everyone, big parties and single customers alike. I’ve seen this with hotel room service. The room-service menu announces that a 15 percent service charge will be added to the bill. Customers are free to add an additional tip if they wish.
But the point is this: It was not necessary to enact laws to protect waiters against the possibility of being stiffed by a customer. The problem has been handled privately and by consensual agreement.
One of the fascinating aspects to tipping is that most people leave a tip at a restaurant even if when they’re traveling and, thus, unlikely to ever visit that restaurant again. Why do they do that? After all, since they won’t be returning to the restaurant, they don’t have to fear receiving poor service in the future.
The answer is that they do it simply because they feel it’s the right thing to do. In a sense, a tip is a voluntary donation, one made after the service in gratitude for the service.
What’s also interesting about the tipping business is that rarely do we ever hear statists calling for state intervention to force people to pay tips to waiters. It’s as though even the statists have faith in this aspect of a free market.
Now, can we discuss Social Security, Medicare, Medicaid, farm subsidies, foreign aid to dictators, and, well, the entire coercive apparatus of the socialistic welfare state?
