Social Contract, Free Ride. Anthony de Jasay

is logically prior to the other. Perhaps such causal relation as there is between them is diffuse and roundabout. The more general approach, for which the present book is groping, allows us to stay uncommitted as to the priority, in history and in logic, of contract or society, the chicken or the egg.

Grounds for Enforcement

      What reason is there for fulfilling non-self-enforcing contracts? If it is wrong to lie, it must also be wrong to lie about our future conduct, though the wrong is possibly lessened by the lapse of time between the contractual undertaking to perform an action and the failure to honor the undertaking. If I say “I will do X” have I made a promise or a forecast? And if I do not in fact do X, have I lied, have I broken my promise, or has my forecast about the future conduct of the person “I” was going to become, and about the circumstances “I” was going to face, turned out to be mistaken? When did my statement about the future become a promise, and when did my promise become a contract or, more precisely, a half of one? The analogy between two formally not dissimilar requirements—that a statement be true and that a promise be kept—is not complete. If there are white lies, are there harmless breaches of promise? And can a promissory obligation be justified on other than consequential grounds? Or is the only ethical reason why a promise is binding the difference it makes to others if it is not honored? A different question, straddling ethics and social theory, that is of obvious practical import is as follows. What reason is there, apart from the price he may be willing to pay for justice, for assisting a promisee to obtain the performance due to him from the promisor? More stringently, are there good arguments that he is in fact entitled to assistance without having to pay whatever it takes to call it forth—that it is incumbent upon certain or all others not party to his contract to see that it is fulfilled?

      Under enforcement by self-help and bought help, and albeit much less clearly under mutual aid, the reason for enforcing can be reduced to some sort of probabilistic cost-benefit calculus, involving the chances of successful action, its costs, and the benefits of reparation. The question whether the contract ought to be enforced, and the validity of the ground on which a particular promissory obligation can be justified, need not arise. When, however, help in enforcement is requested from some putatively impartial institution, other grounds than the promisee’s own interest, and his resulting capacity and willingness to pay for help, become relevant to the response.

      There are then basically only two jurisprudential alternatives. Greatly simplified, one leads to pure rule-application, the other to discretion. The former, sometimes called Formalism and congenial to “classical” liberalism, is content with adequate evidence that a contract of stated terms has come into being. Free of duress and misrepresentation, a contract that is recognized to exist is eo ipso binding and entitles the promisee to enforcement,⁴ almost entirely regardless of its substantive content; the sale of children and slaves, Shylock’s “pound of flesh,” and Faust’s contract with Mephisto are some of the few culturally bound exceptions.

      The contrary doctrine, sometimes called Realism, once a rival of, but for the last half-century the clear victor over, Formalism,⁵ rejects the claim that promises, however reciprocal, are capable of creating enforceable promissory obligations without being supported by the merits of the case which alone can earn them the socially bestowed rank of enforceability.

      “Merits,” in turn, can be more general or more specific, both requiring validation but capable of being validated by different routes. Two routes admit a general presumption in favor of enforceability; the third is rigorously ad hoc, taking notice of specific merits only.

      1. Hume formulated a sort of aggregate social cost-benefit view of the presumption in favor of enforcing contracts. Since the ability to rely on such agreements is convenient for society,⁶ it makes good sense for it to help out with enforcement. Rule-utilitarianism has, of course, found this idea thoroughly to its taste. The point of the argument is not that a promisee should be able to get a contract enforced because it constitutes an obligation of the promisor, nor that all formally valid contracts constitute an entitlement to enforcement. Strictly what the argument implies is that it is rational for society to balance the incremental utility of greater respect for contracts against the incremental cost of more perfect enforcement. A sterner attitude to obligations should then be taken if greater strictness has “net marginal social utility” or some equivalent index of what we should want to maximize. Not altogether unrelated to this way of justifying public enforcement is the “efficiency” theory. For the contemporary American “law and economics” school, in particular, the merit of a contract is proportional to the contribution its observance makes to some maximand of an economic nature, such as Pareto-optimal resource allocation, the gains from exchange, or (in bold contempt of the surrounding conceptual minefield where angels fear to tread) “wealth.”

      2. The other way of making a presumptive case for enforcement out of the merits of contracts in general, is deceptively like Formalism while being poles apart from it. There is in this approach some limited recognition of the power of contracting parties to create enforceable obligations by their mere intent. In its boldest version, the promise to perform specific acts, expressed in contract X, signifies adherence to an implicit and more general contract Y always to perform as promised, always to keep one’s word. Contract Y standing behind contract X is “a convention whose function it is to give grounds . .. for another to expect the promised performance.”⁷ Contract Y, however, is in no better shape than was contract X to constitute an enforceable obligation; if X needed a more general Y to back it up, Y needs an even more general Z, and so forth. What constitutes a satisfactory stopping-point behind which we need not go in order to establish that promises of a certain form and context are morally binding can perhaps be made a matter of metaphysical agreement. However, agreement to regard the rath back-up contract-to-respect-contracts as the ultimate, irreducible source of the obligation does not really meet the question why “society” should use force to ensure conformity to it.

      In place of a regress of implicit secondary, tertiary, etc. contracts, cut off somewhere by agreement, one can proceed by putting a different construction on what being a party to the primary, overt contract X signifies. Respect for contracts in general is conducive to the public good of safe reliance on them; respect is produced by enforcement. Anyone becoming party to a contract benefits from the public good. By accepting the benefit, he effectively incurs a liability8 to contribute to its production. Consequently, not only must he recognize the binding character of his promise and if need be submit to its enforcement, but he must also do his best to help enforce the contracts of others. All doing their bit, e.g., by paying taxes to finance it, adds up easily enough to public enforcement by “society.”

      This doctrine declares the inadmissibility of free riding. There are places in the subsequent argument of this book where this question plays a more central part; I will not pursue it here. Suffice it to note in passing that whatever the weight of the anti-free-rider argument in the case made for contract enforcement, it amounts to little as a reason for indiscriminately enforcing all formally valid contracts regardless of the substantive merits of each. If a particular party to a particular contract derives little or no benefit from the social institution of contracts, he should, on grounds of the fairness principle, neither have to submit nor be asked to contribute to maintaining the public enforcement apparatus. The working class is presumably a massive case in point. Marxist thought would seem to lead to the claim that while it is a party to the wage contract, the proletariat derives no benefits from bourgeois law in general and from the enforceability of contracts in particular; it is not a free rider on the social co-operation practiced in capitalist society, it should not submit to enforcement, and still less should it be required to contribute to it. The very imperfect enforceability of labor contracts and the legal immunities of trade unions, though usually supported by other types of arguments, square well with such a principle of fairness, as does the reluctance of the courts to order poor tenants to be evicted. The anti-free-rider principle of fairness cannot be applied without answering questions of fact about the limited capacity of a perhaps helpless, plodding pedestrian—if not positively downtrodden—contracting party to free-ride on the