This essay is about contracts and such.
As usual we will depend on Wikipedia for a general consensus definition and explanation of the meanings of crucial terms. They may not be entirely correct on details, but the Wikipedia definitions should reflect what most people think those terms mean. I can always add some feature or aspect if the definition seems to me to be inappropriate for our purposes. Wikipedia defines a contract as QUOTE “… an agreement having a lawful object entered into voluntarily by two or more parties, each of whom intends to create one or more legal obligations between them.” UNQUOTE. Wikipedia goes on to provide context for this agreement situation as follows, QUOTE “The elements of a contract are ‘offer’ and ‘acceptance’ by ‘competent persons’ having legal capacity who exchange ‘consideration’ to create ‘mutuality of obligation.’” UNQUOTE. Contacts may be in writing, oral, or by simple conduct. A contract is QUOTE “a legally enforceable promise or undertaking that something will or will not occur.” UNQUOTE.
As you already know, contracts have a long history and have a large body of legal jargon that applies to them. Fortunately, nothing that I intend to discuss will require any knowledge or understanding of that jargon, although some of the ideas I present may be more precisely or more accurately described by such jargon.
The basic idea of a contract is that two or more parties will cooperate in some way through their interaction. For example, you may contract to purchase a parcel of land from Jones in exchange for several cows. The cooperative agreement is that you may use the land as you see fit within the law, and Jones will not object or attempt to prevent that use. Jones, on the other hand, accepts custody of and responsibility for the cows in question. Jones may do with the cows as he sees fit. This exchange of goods is considered to benefit both you and Jones. Each of the parties is describing the behavior involved on their part in the cooperation described in the contract.
As you can see, such statements of intent and agreements to accomplish certain tasks, make things more easily predictable for all parties to the contract. It is frightening to imagine what life would be like with no agreements to cooperate existing within a society. On the level of the individual, one would not know what to expect from anyone. Is that guy behind the counter at Starbucks going to serve me, or is he stealing coffee, or is he lost and looking for his map? Will my boss pay me for last week’s work or not? By making human interaction far more predictable, contracts make human cooperation infinitely more productive, efficient, and profitable. So it’s small wonder that contracts of one sort or another have existed for many thousands of years in human societies.
Some of the earliest contracts would have been agreements to meet at a certain place and at a certain time to exchange goods. In some cases, this may have been an occasion to pay off debts. Of more formal a nature and more important to the participants, marriage contracts have been employed in a very wide variety of societies and economies. This was true because the family was the main place where production took place. Each family had a farm, shop, or herd. If something was a consumer good or service the odds were great that it was made in the context of a family as a part of a family business. True there were massive government projects like building the pyramids or irrigation but most things were made by families. So a marriage contract would obligate the families of the marrying persons with transfers of wealth and trade agreements. Bride prices and dowries are features of such contracts.
In hunting-and-gathering economies the dependence on trade is far less than in an agricultural economy, and enormously less dependent on trade than is the average person in an industrial economy. As one would expect given that fact, contracts have become more important as the economies of societies went from hunting-and-gathering to agricultural to industrial. But because contracts have become far more common, they have also grown far less important as individual contracts. If your life is dominated by the marriage contract signed by your father and your father-in-law then that contract might be celebrated by your community and blessed by the church. On the other hand, if you have hundreds of contractual obligations what’s the importance of any one of them in the big picture? Most of us download software and agree to a contract which we don’t read. Most of us pay for meals using credit cards in which cases we sign a contract to pay for the meal.
These many contracts become important to us industrial economy folks only when something goes wrong with the contracting process. When someone steals your identity, for example, and collects an income tax refund as you.
When a contract is breached something has gone wrong. At least one of the parties to the contract has failed to provide the promised actions. This is where the law and the lawyers come in. The reason that contracts are so complicated and have an extensive jargon is that over the many centuries that contracts have been in use, people have failed to live up to their agreements innumerable times. Such breaches of the contracts have frequently been quite expensive for the other party or parties. To prevent civil disorder and citizens “taking the law into their own hands” with the resultant violence that was likely to follow, the civil authorities established courts and assigned penalties of various kinds. The result is that thousands of lawyers have been at work trying to attack and defend millions of contracts. The convoluted and exception-ridden laws and legal decisions have made for many lucrative legal careers and for many courses on contracts in law schools around the world. As usual, big money tends to win. The law is not the impartial instrument of order and justice one would like to have. The law has been shaped by big money interests for their own benefit. Thus the poor party to a lawsuit not only has the problem of an inferior lawyer but also has to fight the far greater resources of the big money opponent and the laws designed to protect those big money interests. This is true almost without exception across the world.
So when the rich and powerful breach a contract they almost always get away with it. When the poor and weak breach a contract they are in trouble. Why do contracts continue to operate to protect the general public and make a major contribution to keeping our societies and economies going, stable (sort of) and productive? Because of the expectation built into people’s minds that if something is written down, and lots of other people have accepted the contract, then that contract is all right. Millions have discovered that health insurance companies, for example, despite their thousands of contracts, often breach those contracts with impunity. Sure what they are doing could get them into trouble if everyone who was so cheated were to file lawsuits at the same time. But most victims don’t do so. It’s expensive to go to court. Being pressed and deeply in debt for medical bills hardly gives one the resources to hire good lawyers. And health insurance is just one of numerous corporate types that make contracts they don’t live up to. Even the large corporations spend a fortune suing each other over breaches of contract.
But doesn’t this failure to live up to contractual obligations harm the economy? Doesn’t it make things unpredictable? Well, yes and no. It does harm millions of people. But the harm they suffer is the normal way business has operated for hundreds of years. It’s part of what we expect. Banks would not be so profitable if they had to live up to their contracts. And I don’t even want to think about used car dealers. So because it’s the usual thing and because the deck has been stacked against the poor and the foolish for so long, we get along with a high rate of contracts being breached. In fact, most marriage contracts are breached. Spouses are often unfaithful. They often abuse their marriage partners. The vows taken at the wedding ceremonies sound wonderful and are a form of contract but how many people actually live up to those vows? Yet we don’t really expect those vows to be honored and respected in actual marriages. The behavioral norms for married couples as opposed to the verbal norms in which the contracts are expressed are quite different.
If you were to guess what proportion of contracts were breached with a legal remedy following, the figure would be quite small. Of the many breaches that occur, only a small fraction go to court. Our courts would be overwhelmed if that were not the case. Of those that go to court only a fraction find for the plaintiff with many being settled out of court: The threat of having to pay for legal representation in court stops both breaches and attempts to gain a legal remedy. It is only when the damages can be very high as in personal injury cases that the injured parties find it worthwhile to go to court. But personal injury cases are usually not breaches of contract.
We find that most contracts are only approximately followed with some breaching on the part of most of the parties involved. Much of what is done in contractual arrangements is actually an expression of the good faith of the contracting parties. If I have work done on my home by a plumber, for instance, and the plumber does not do a good job, my likely response is to call a different plumber next time. So to keep my business (and everybody needs a plumber from time to time) a smart plumber will strive to do a good job and maintain a friendly relationship. It is this kind of politeness, courtesy, and consideration that makes the contract unnecessary in most cases. But, of course, the plumber has to insist on the contract so that he does not get sued and does get paid. And the customer should also insist on a contract because the same contract that protects the plumber also protects the customer. Though contracts are biased and do favor the rich and powerful they are not completely useless to the poor and weak.
Without contracts the relationship between the powerful and the weak would be even more exploitative than it is with contracts. (I know you find that hard to believe but remember your history of the Dark Ages and the situation of the serfs. They were, in effect, slaves tied to the land. You will also note that the slaves in the U.S. in the 17 and 1800s had no contracts with their owners. The owners had no obligation whatsoever to the slaves in that relationship because there was no contract with the slave. I doubt that slaves were considered to be able to form contracts even though they, as property, were the subject of contracts.) So just because I disparage the fairness of contracts as we know them today don’t think that I oppose the idea of contracts nor that I oppose the idea of contracts being enforced even though enforcement is also significantly biased in the favor of the rich and powerful. Without that possibility of enforcement one drifts quickly toward a contractless relationship.
We will now consider the nature of money in its physical object or POM form and its effects on contracts. It is a rare contract which does not involve POM in some way if only that the penalty for breaching the contract if taken to court may be some sort of monetary restitution. Certainly taking any breach of contract to court will involve money for court costs and legal fees. So let’s take it from the top beginning with the fact that POM can be taken from its owner against that owner’s will. Contracts can be used to take money from others. There are many frauds which involve contracts and so-called “fine print” is notorious for ensnaring the unwary. This abuse of the contract as an agreement would not be possible if POM could not be taken from its owner against that owner’s will.
Next we have the fact that POM is amoral. It can be used for any purpose whether good or bad which means that contracts can be used for any purpose whether good or bad. Just because contracts are essential to an orderly POM economy does not mean that they are used only for good purposes. On the other hand (I’m beginning to sound like an economist), on the other hand, just because contracts are sometimes used for bad purposes and are a tool of the rich and powerful does not mean that they are just bad since they also have many good aspects.
POM falsely simulates a zero-sum game relationship in monetary transactions which means that those contracts which involve POM in some way – as almost all do – take on the character of agreements between competitors, rivals, opponents, or enemies. Each party has to suspect and expect that the other parties to the contract are attempting to use the contract to take advantage of them. One has to read the fine print expecting some dastardly plot on the part of the party providing the contract. This is one of many reasons why it is important to have legal counsel when one is signing an important contract. After all, the party who provides the contract probably had legal advice in the writing of that contract. Remember those cell phone contracts you have signed in the past? In whose favor were those contracts inclined? So contracts involving POM make the parties feel as if they were dealing with opponents. Asking a friend to sign a contract when you loan them something even if that something isn’t money seems rather unfriendly, as if the friend could not be trusted.
POM also is a two-party interaction tool. That is, when POM is used in a transaction the transaction is a two-party transaction. POM can go only from one party to another party when it changes in ownership even if each party is composed of several or many people. Two-party interaction is inherently unstable. Thus, one or the other party will tend to gain power in the relationship over time, since the party with a power advantage can use that advantage to gain still more power. So when contracts are employed the interaction of which they are a part is likely to be unstable because of this two-party nature of POM.
What we need is some way to keep the good aspects of contracts and eliminate the bad uses of contracts. That’s easy to say, but has proven impossible to do despite the efforts of millions of lawyers, judges, legislators, and dictators. We all want the predictability and cooperation which contracts can provide but we don’t want all the ills that go with contracts in every POM economy.
One way of reducing the ills of contracts is to reduce the use of contracts. But if we are to retain liberty, freedom, and the rights of each person as a human being we cannot use the hierarchical, totalitarian, master/slave sort of economy and society to eliminate the need for and possibility of contracts. So that avenue to eliminating bad contracts is the equivalent of “throwing out the baby with the bath water” as the old saying goes. Merely reducing the use of contracts does not replace their functionality in a complex, industrialized, or information society. We really need the good those contracts provide. We have far greater need for predictable human interaction since we are much more dependent on so many more people with our huge division of labor into many thousands of essential jobs. Look at how many people must cooperate to get you a slice of bread to eat even if you slice the bread yourself. (Does anyone still slice their own bread these days?) That cooperation is based on contracts. Contracts provide the predictable nature of all those relationships among the thousands of people who had a hand in providing that bread.
Would it be possible to teach people to be honest and dependable and responsible so that the need for enforcement of contracts and the abuses of contracts would be greatly reduced? That seems to be unlikely. Every economy and society and almost all families have been attempting to get people to be honest, dependable, and responsible for thousands of years. It hasn’t worked yet. There’s always that minority of people who seek to gain by being dishonest, and others who are irresponsible and undependable. The consequence is that contracts are as they are in economies around the world. So perfecting people isn’t the answer.
In desperation we might consider eliminating POM since that appears to be the motive and provide the means for the lamentable abuses of contracts we find in modern society. How would that work? With non-POM there is no law and no law enforcement. As we noted earlier, a lack of enforcement of contractual obligations would appear to bring about a situation in which there were no contracts at all, in which all the predictability and cooperation which contracts make possible would gradually cease as people breached without consequence any contracts they found inconvenient or expensive. But is there a lack of enforcement of contracts with non-POM? There may be no law enforcement but would there be adverse consequences for breaching a contract in a non-POM economy?
Let’s consider. Non-POM is acquired or earned as a result of the net benefits consequent to each individual’s actions. Net benefits would be benefits achieved minus any harm done. If a breach of contract in a non-POM economy resulted in harm, waste, loss of production or actual physical or emotional injury to persons then that would reduce the future income of the party in breach of that contract. If that breach of contract increased the benefits and/or decreased the harms then the breach would generate more income. So in the normal functioning of non-POM, good contracts would be enforced by a loss of future income for those in breach and those who supported them. On the other hand, bad contracts would be ignored or ended as harmful. Good contracts would be supported and bad contracts stopped. That appears to be what we wanted to do, in order to keep the good aspects of contracts and eliminate the negative side of contracts.
While stopping a contract after it has proven bad is a good thing, preventing a bad contract in the first place is even better. Do you think non-POM has any effects in that regard? Remember that one of the most useful things one can do in a non-POM economy is to maintain the reputations of people in an easily available way for everyone in the economy. Sort of like credit ratings but much more detailed, elaborate, and accurate. In other words, if you are considering whether to work with someone it would be quite easy with non-POM to discover honest and forthright details regarding what other people who worked with that person in the past thought of him as a co-worker. If they found him to be irresponsible, undependable, a liar, incompetent, or whatever… that information, checked for accuracy (sort of like Wikipedia in that regard only better), would be available to the general public no matter where that person went. Thus to breach a good contract would be to tell the world that you could not be trusted to live up to your word. To drop a bad contract would be just common sense. The harm done by a bad contract is quickly obvious in a non-POM economy.
Sometimes the breaching of a contract is involuntary. In those circumstances, the harm is minimized by warning of the impending breach, by arranging for other parties to provide the required goods or services, by assisting in the reduction of harm or the repairing of harm, and by suggesting alternatives for the goods or services that cannot be provided. In this way the breaching party can prevent much reduction of future income and can maintain a good reputation or even improve the party’s reputation.
Contracts in a POM economy exist in a very complicated context in that the laws regarding contracts and their enforcement are very complicated due to the adversarial nature of the law and its enforcement. With POM, contracts are agreements hedged about by protections in case one or the other of the parties attempts to take advantage of the other parties to the contract. They are complicated because they need to prevent harm in relations between enemies or competitors. If money is involved and it almost always is, POM makes the relationship simulate a zero-sum game rather than making it obvious that the parties are mutually interdependent like non-POM does.
Contracts with non-POM are relatively simple. All the parties are very likely to act in good faith to protect their reputations and to enable the other parties to maximize the benefits generated which will maximize the earnings for all parties involved. Note that there is no need for a non-POM contract to do more than specify what actions the various parties expect to take. They may include lists of materials and services and specifications and alternatives and timetables/delivery schedules and the breakdown of roles in the provision of services. They will probably include a clear description of the benefits expected and how those benefits will be generated. No one can benefit from disorganized, chaotic confusion or lack of understanding on the part of the other persons involved. As a matter of fact, that is the surest route to reduction of one’s future pay; as such a scenario is likely to result in injuries or poor-quality work. Also, if circumstances change in an unexpected way, the terms of the contract can and will be quickly and easily altered in light of that change: After all, the participants all stand to gain or lose together, so they have a mutual interest in getting it right.
When a contract is breached for whatever reason in a non-POM economy there is no need for a lawsuit. The participants cannot recover any monetary damages, and all parties to the contract will suffer for any reduction of benefits or increase in harm done as a result of the breach. This is infinitely more efficient than the POM approach of using courts to punish those who breach contracts. The POM approach is expensive, ineffective, and almost random. The non-POM approach is logical, quick, effective, and is built upon a “how can we make the best of this bad situation?” point of view.
In a non-POM economy, contracts are initiated between partners who formally state how they will cooperate with each other and coordinate their activities for the most effective and efficient operation. They are not at all arranged to protect any of the participants since everyone is already attempting to protect others. In other words the context in which contracts exist in a non-POM economy is completely different from the context currently existing in the POM economies around the world.
With POM there will always be a consideration, something of value given by one party in exchange for something of value given by the other party in any given contract. The *something* may be money or some action, or the forbearance from taking a certain legal action. With non-POM there is no such consideration. A contract in non-POM is no longer a trade or exchange as it was with POM. This is so fundamental that one could rationally declare that non-POM does not have contracts due to the lack of consideration. I think that would be a strange thing to argue but it would be rational. However, if one did make that argument, one would be stating that a contract is between opponents, rivals, competitors, or even enemies.
With non-POM each party is saying “this is how I expect to contribute to our joint efforts.” Each of the other contracting parties will have the same kind of approach. You can readily see that such attitudes and points of view make cooperation and coordination very easy. You can see how this context will make the economy run much more smoothly, efficiently, consistently, and adapt far more rapidly to changes in circumstances whether they are internal or external circumstances.
One major consequence of this difference would be a considerable lack of work for most branches of the legal profession under a non-POM economy. They provide a very useful and needed service with POM contracts, but with non-POM they would simply have nothing to do. Their services would no longer be needed. They would have to find something else to do, as showing up for work would no longer result in a paycheck.
Other differences between POM contracts and non-POM contracts include the following.
With POM, the purpose of the contract must be legal. With non-POM there is no law so that’s irrelevant.
With POM, the form of the contract must be legal. With non-POM the contract can have any form the parties to the contract like. A clear and understandable document in plain, everyday language will be preferred over legalese designed to obfuscate matters and ensure job security for those who can decode it.
With POM the parties must intend to create a legal relationship. With non-POM nobody cares what the law has to say about it because any remaining vestiges of “law” will largely be ignored as petty and pointless.
As you can see, contracts in POM and non-POM really are quite markedly different in several key ways because POM contracts are only enforced by the state whereas non-POM contracts are merely a convenient organizational device for people who are choosing to cooperate voluntarily.
There are those among us who advocate the complete abolition of government. It seems to me that such advocates have the heavy burden of providing some replacement mechanism for the POM contract unless they are advocating a non-POM solution. With POM in use, contracts would not be enforceable by the state if the state were abolished. What agency, organization, or arrangement would enforce POM contracts and see that breaches were appropriately, justly, and uniformly dealt with? How would the contract survive as a social mechanism or tool if POM is retained but the state eliminated? I cannot imagine how contracts could continue to exist with POM in the absence of the state and its power to oppress. The destruction of predictability and cooperation which would be attendant upon the state’s collapse, without contracts, would render such an economy almost unworkable – at least on a large scale such as we need for skyscrapers, airports, bridges and other major undertakings. If you favor anarchy and have some organization which enforces contracts then that organization is a state since it has the ability to use force. Without any contract enforcing agency, what keeps contracts going? Why should anyone powerful bother to live up to a contract? Why should anyone weak think that a contract could protect them? The free market, supposedly a feature of anarchy, certainly will not enforce contracts since POM market participants don’t want a free market.
With non-POM the state is pretty much useless and totally unnecessary except for international relations, so those who advocate anarchy should really consider non-POM as a means to support and achieve their goals.