It is the nature of things that the items which are most important to us are often the least appreciated. Of course, this is partly because they seem so dull in most circumstances. After all, being so important, they are ubiquitous, and that familiarity makes them seem rather pedestrian, to the point where we find speaking of their significance almost comical. Yet once we experience their absence, suddenly we learn how much they matter.

For example, no one writes long poems in praise of air or breathing¹. Yet spend two minutes or more under water and you will quickly realize just how much praise air deserves. Similarly, looking at them from our comfortable position in the present, with many of our freedoms intact, we tend to think of the Founders in terms of grand principles, in terms of "liberty" and "justice". However, in their day, while discussing the big, general issues, they also fought for very specific, very small issues, issues we now find a bit embarrassing, and thus tend to gloss over. Issues such as taxation, the quartering of troops, the failure to call legislative assemblies, and so on. It is not accidental that the Declaration of Independence contains a long list of particulars, yet oddly, moderns seem to do their best to ignore it, as the specific abuses seem somehow petty, we prefer to think they fought entirely for great, abstract causes, rather than for small, specific freedoms. Yet, as with air, it is the small, specific freedoms which matter most, and whose loss renders them so very significant.

All of which is a rather lengthy justification of my decision to write a detailed examination of the right to contract. It is a topic of great significance, yet one rarely covered, and for obvious reasons. Just the mention of contracts tends to guarantee that a significant percentage of your audience will begin to fall asleep. No one voluntarily rushes out to attend talks of contracts. No one (excepting your humble author) attends law school crowing about their dreams of settling contractual disputes². Yet, despite the lack of praises, the right to contract is an unappreciated cornerstone of freedom.

And those who would change society often recognize this. Look at how often movements begin with an assault on the right to contract. To take a recent example, the first act in the changes that have taken place in torts were all made to erode the private right of contract. Since contracts could prevent cases from ever seeing trial, could assign liability, and otherwise prevent the lawyers from getting their chance to befuddle a jury, the first step in their campaign was to destroy certain private contractual rights, most notably the right to assign or waive liability. Similarly, unions, workplace safety and a host of other labor regulations were introduced largely through similar means. Where employment contracts once controlled, now the government could become involved, placing its own clauses into contracts, forcing the parties to agree to specific clauses and preventing them from including others. Of course there was more to it than simple contractual interference, but a large part of these interventions were accomplished through nothing more than violating parts of the right to contract.

It only makes sense that attacks on freedom would take on the right to contract. The right to contract is, in essence, the purest form of freedom. It allows two free individuals to form their own private law, binding between them without governmental involvement. The ability to form such consensual associations is the very essence of freedom, and at the root of a free economy. And so, inevitably, it is also the aspect of our society most ardently attacked by those seeking to reduce freedom. (Sadly, it is also one of the most weakly defended of our rights. Though so essential to freedom, it is sadly quite under-appreciated.)

Contracts are the source of all our economic rights, all our social rights, everything that makes up civil society outside of the government protection of citizens from force and fraud. Beyond the criminal law, almost everything is contracts. Contracts allow us to assume obligations to others, and to have others enter into promises which we can then rely upon being fulfilled. Contracts create regular, orderly and predictable interactions between people, which are essential to economic and social stability.

Let us look at a very simple transaction. Suppose I am ill and want medicine. You have that medicine, but want me to understand that you are not certain it will work, and do know there are side effects. Despite that, I still want the medicine, as I am certain it will cure me. And so, after some negotiations, we draw up a contract. You agree to deliver a quantity of medicine in exchange for  a fixed payment. I agree that the medicine may or may not be effective, and also agree to waive any liability claims against you for side effects. Because I can draw up such a contract, we can conclude an agree we both find pleasing, and both of us can end up in a better situation than we began.

Of course, we can see the problems caused by removing some of these rights to contract, mostly because we lack those rights today. For instance, I can't agree to accept the risk that medicine may not work. The government has decreed that they alone will decide which risks I may and may not assume, and so I am denied the opportunity to make my own choice in this matter³. Thus, if there is a medicine which I and my doctor agree may work, but the government thinks is "too risky", I am denied the right to assume the risk and contract anyway.

Similarly, thanks to the tort lawyers, I can no longer assign liability. Oh, legally I have every right to add clauses doing so, but everyone knows the court will happily find reasons to ignore them no matter how airtight the verbiage. Ever since the "tort revolution" the assignment of liability, though it continues as a formality in contracts, has been pointless. And, as a result, I have been unable to accept risks. This one is actually worse than the first in one way. In the first case, some will argue that I "should" be prevented from buying "quack cures" by those who know better, as it is harmful to me. But in this case, we are talking about drugs, and any other product of any kind, that is known to be effective, but has the possibility of somehow figuring in a situation where someone may be hurt. For instance, batting helmets. As most head injuries in baseball occur when someone is wearing a batting helmet, the manufacturers of those helmets, far from praise for helping to prevent injuries, tend to draw fire for not being bale to prevent every injury. As a result, for any good which might be involved in a suit, as I cannot waive liability (and as liability extends to those not party to the contract⁴), sellers will either refuse to sell or will charge premiums to compensate for the implicit insurance they are forced to sell.

But this is not a problem specific to drugs or liability or medicine, contracts touch every part of life. As  wrote in "Hope You Like Unpaid Internships", suppose you want an entry level job. You know your skills are very weak, that is why you want the job. A boss would happily pay you $3 an hour for your skills, and you would take it, as that seems fair given your low level of skills. But, can you two enter into this agreement for what amounts to a paid internship? No. (Or not unless you fall under some specific government exemption.) He must either pay minimum wage, or you must agree to an unpaid internship, as any payment level between the two, no matter how agreeable to both of you, is not allowed by the state. Thus, I can either not get training and remain unemployable thanks to minimum wage ("Bad Economics Part 14"), or I can take a job for free that you would happily pay $3/hour and for which I would gladly accept that pay. All because the government wants to protect me.

And if you look at restrictions on contracts, almost all are of this nature. The few sensible contractual restrictions entered the common law during the reign of the Tudors or earlier. Contracts to commit crimes are unenforceable. Contracts in which something is not given by both sides are unenforceable. Contracts entered into by force are unenforceable. Beyond those one does not need to limit contracts.

Why not? Because contracts are the ultimate expression of freedom. Despite the Snidley Whiplash caricatures of daughters tied to tracks and stealing the family farm, the reality is most people are well aware of what they contract, they may not like it later when they have to perform, but they know what they signed. (And if they didn't, then that sort of stupidity is not to be rewarded and encouraged -- "Subsidizing Irresponsibility and Poor Planning" -- do we want to ensure that no one ever learns to read a contract? Or seek advice if they don't understand it?)

The truth of contracts is that they allow two free people to give legal force to a private agreement, to basically create their own private law between them. This allows all private agreements to be enforced, bringing security and regularity to commerce. Just imagine the alternative. If you lived in some sort of post-apocalyptic wasteland, the sort shown in all those Italian Road Warrior clones. If you wanted to trade, you would need to be sure you got what you demanded, so every transaction would have to be immediate and hand to hand. Any deferred payment would just invite theft. Likewise, both parties would need to bring sufficient private force to ensure the terms were met even then. It is only when we bring the force of the state in to enforce contracts that we can do away with private enforcement, and the violence that entails⁵, as well as allow for contracts which cover any time frame longer than the immediate moment. Without contracts, any sort of planning or deferring of satisfaction is simply impossible.

I feel I have not done contracts justice, and yet I have gone on too long. Contracts, for the little attention or praise they receive, lie at the heart of most of what is best in modern society. The peaceful, orderly nature of social existence, the predictability of future events, the great wealth and tremendous variety of goods and services available, all are due to contracts.

And that is why, exciting or not, we need to start becoming more aware of the many assaults on the right to contract, and start trying to turn the tide, if only a little bit. The unrestricted right to contract, unexciting as it sounds, is actually the cure to many of the ills we now suffer. Tort reform, for example, would not be anywhere near as urgent were liability still assignable by contract. Likewise, without government interference in labor, or in many other areas of commerce, a lot of reforms would be unnecessary. Not to mention that many government interventions would become impossible. It would not a panacea, there would still be areas needing improvement, but the right to contract would put us a lot closer to true freedom than many other issues (eg. tax reform) which receive a lot more attention.

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1. The only exceptions I have found, of great art praising the mundane but important were Goethe's praise of double entry accounting, a true example of praising something truly useful yet unappreciated, and the georgic poets' praise of agriculture, though they often praised more the beauty of pastoral life than the utility of farming, so even there it was mostly not praising the correct aspects. Still, it comes closer to praising something useful rather than dramatic than most poetry and fiction. Actually, to be fair, Goethe was given to praising many useful but seemingly boring activities. After all, who else has praised not only bookkeeping but land reclamation as majestic accomplishments. He may have been led astray at times by the usual Romantic nonsense (see The Sorrows of Young Werther), but overall Goethe was an unusually practical man for a writer and poet.

2. I know it is convenient for this essay, but it happens to be true. When I first attended law school my ambition was to be one of those non-trial lawyers who pore over lengthy contracts trying to figure out what problems might lurk in a given clause. (Or, in the alternative, the guy who hid those problems in various clauses.) Later, just before I dropped out, my criminal law professor asked me to be his teaching assistant the following year, and I started to consider criminal law, but even then the amount of politics involved in the area of prosecution made that unappealing, and my father's career as a cop, and my personal beliefs, made defense impossible, so even then contracts still seemed a more likely career path. Of course, as I dropped out after my first year this is all moot.

3. I know this argument has been offered by sellers of quack cures, but that does not mean it is not true. In any decisions, someone must decide what risks are acceptable. The current solution argues that government employed physicians are the best choice for everyone. I would argue that each individual, consulting with whomever he sees fit, is the one who should decide about his own fate. You can find my rationale in  "Medical Regulations", "Medical Regulation II", "The Right Way", "The Inherent Disappointment of Authoritarianism", "Utopianism and Disaster" and "Who Will Decide". Actually, in many ways, the logic is identical to that offered in "The Danger Inherent in Banning "Bad Ideas"", though obviously the specifics differ. (I discussed a similar topic recently, and provided even more links, in my post ""Best Practices"".)

4.This was one of the many reasons that liability only existed between the buyer and seller. If the seller resold, he could be held liable to the new buyer, but not the original seller, as no contractual obligation existed. The reasoning had many arguments, such as the reseller could have altered the product, but one of the main arguments was that extending liability to later purchasers created a long chain of involuntary sales of insurance and an unpredictable liability burden that would make selling an unduly risky venture. As we see today.

5. The best example of how a lack of enforceable contracts causes violence is the liquor industry. Today they settle billing disputes in court. In the 1920's, lacking enforceable contracts, they did it with guns. Similarly, drug disputes today must all be settled privately, which, even were the groups involved not prone to violence, would result in a pretty high incidence of murder as contractual disputes were ironed out. Whether or not this is an argument for decriminalization, I leave for the reader to decide -- "Drug Legalization" -- but it does show what can happen without the ability to rely on an impartial arbitrator and enforcer.

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POSTSCRIPT

Yes, I know my "Tudor" line above is an exaggeration. At that point we were still dealing with "trespass upon the case" and contracts did not even exist. However, the exaggeration does make my point that the few needed restrictions were part of contracts from the beginning, and did not need to be added by later, and pointless, "reforms".