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The Benefits of a Contract Free Society

The Benefits of a Contract Free Society

Posted by Daniel Larimer on .

The Benefits of a Contract Free Society

Posted by Daniel Larimer on .

Most libertarians think about contracts as the fundamental building block of a free society. I take a relatively unique position that contracts as we know them are the Achilles heel of attempts to form a libertarian society. I go so far as to suggest that we need a contract-free society because enforcement of contracts presents a significant challenge to the Golden Principle upon which my entire world view is based.

What is a Contract?

Pardon me as I quote wikipedia:

In common law legal systems, a contract (or informally known as an agreement in some jurisdictions) is 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.

According to

A legal obligation or duty is enforced by a court of law, it can be a debt and the legal responsibility to carry out what the law asks.

The very term contract, as commonly understood, is an intent of two or more parties to submit to a government that will interpret and enforce the contract as it sees fit. Note the requirement for the contract to have a lawful object or purpose. If you attempt to construct a contract to insure against getting caught violating the law, then you can bet the government will not enforce the terms of that contract and therefore, by definition, it is not a contract.

Contracts & The Golden Principle

For those of you who have not read my article on “The Golden Principle”, I will summarize it here:

“Do not do unto others what you do not want others doing unto you.“

You don’t want to be imprisoned even if guilty of a crime. If you steal something from someone, you don’t want them using force or trickery to steal it back from you. If you really think about it you don’t want to give up your free will under any circumstances, even if you had previously promised something to someone.

This is a real challenging stance to take and one that will cause many of you to abandon me to my wishful thinking. So I am going to ask you to reserve your judgement and avoid jumping to conclusions until you have had a chance to fully hear me out.

Murray N. Rothbard in chapter 19 of his book “The Ethics of Liberty” outlined the foundation of valid contracts in a way that would be difficult for me to replicate. I am going to quote liberally from his book and comment as I go.

The right of property implies the right to make contracts about that property: to give it away or to exchange titles of ownership for the property of another person. Unfortunately, many libertarians, devoted to the right to make contracts, hold the contract itself to be an absolute, and therefore maintain that any voluntary contract whatever must be legally enforceable in the free society.

Their error is a failure to realize that the right to contract is strictly derivable from the right of private property, and therefore that the only enforceable contracts (i.e., those backed by the sanction of legal coercion) should be those where the failure of one party to abide by the contract implies the theft of property from the other party.

These two paragraphs lay the foundation for a contract free society with the exception of the part regarding “backed by the sanction of legal coercion”. Blockchain technology can entirely automate the management and enforcement of property rights in a non violent manner, but it cannot compel enforcement of promises. There is no need to use legal coercion to compel anyone to do anything. So for now I will simply ask that you assume there exists a non-violent (aka non coercive) means of motivating individuals to fulfill the terms of a contract.

A contract should only be enforceable when the failure to fulfill it is an implicit theft of property.

If Alice lends money to Bob under the condition that it be repaid in a year, then the contract stipulates a transfer of title to the money in one year. Bob has already transferred title of the funds to payoff the loan one year in advance. If the loan is not repaid then that is theft.

Existing law would contend that Bob had “promised to pay” and thus set up the “expectation” of Alice that she would receive money. As we can see such rationale breaks down if applied consistently to all promises and expectations when it comes to enforceability of a contract.

Suppose that Bob promised to marry Alice in one year in a written contract. If Bob jilts Alice, does Alice have the legal right to compel Bob to marry Alice? Under the promise theory of contracts this would be the logical conclusion. Our current legal system even enforces a mild version of this by forcing one party to pay damages to the other for losses incurred due to breaking the promise. While forcing one party to pay damages may be less objectionable, it is derived from the same invalid principle.

Lets return to Rothbard:

Let us pursue more deeply our argument that mere promises or expectations should not be enforceable. The basic reason is that the only valid transfer of title of ownership in the free society is the case where the property is, in fact and in the nature of man, alienable by man. All physical property owned by a person is alienable, i.e., in natural fact it can be given or transferred to the ownership and control of another party. I can give away or sell to another person my shoes, my house, my car, my money, etc. But there are certain vital things which, in natural fact and in the nature of man, are inalienable, i.e., they cannot in fact be alienated, even voluntarily.

Specifically, a person cannot alienate his will, more particularly his control over his own mind and body. Each man has control over his own mind and body. Each man has control over his own will and person, and he is, if you wish, “stuck” with that inherent and inalienable ownership. Since his will and control over his own person are inalienable, then so also are his rights to control that person and will.

This gets to the crux of the matter, you cannot surrender your will and any attempt to use force to compel you to act against your will is almost by definition something you don’t want others to do to you and therefore a violation of the Golden Principle.

Contracts depend upon Enforcement

What good is a contract that cannot be enforced? Is it still a contract or is it something else? Without enforcement a contract is nothing more than documentation of an agreement among honorable men. The parties to an agreement understand that the sole purpose for writing the agreement is to help aid them in voluntarily resolving disputes without violence.

At first this might seem like a rather weak foundation upon which to build a free society, but as you will see it is actually the only foundation and much stronger than alternatives at that. You see, Rothbard’s definition of a contract is so narrow and restrictive that it becomes difficult for society to accept. People intuitively feel that promises should be enforced somehow and yet Rothbard’s approach makes that impossible.

The key to enforcing a documented agreement is coordinated voluntary shunning of those who fail to abide by their promises as decided by an independent agency to which an individual has voluntarily consented to judge them. Coordinated shunning is almost like a prison without walls. You become an outcast until you make restitution. The nice thing about coordinated shunning is that it does not use any force or violence against any party and yet has been proven extremely effective at “compelling” an individual to act.

Dropping the Term Contract

The reason I argue for a “contract-free” society is because we live in a society where the government has co-opted the language and defined terms. If you have an informal verbal agreement to meet at a particular time and place for dinner then there is little anyone can do to compel you to attend or punish you for failure to attend. Even if you wrote it down in an email or text message, it is not a “legally enforceable contract” and thus the government has no standing. The reason the government lacks standing is because, despite the agreement, there was not an intent to create a legal obligation.

There are many laws on the book governing contracts and what kind of contracts you may or may not enter into. You cannot sell debt or stock to the public because those contracts are regulated contracts and require SEC approval. You cannot insure against getting caught breaking the law. You cannot contract for certain work unless you have a license.

While you may require a license to contract certain kinds of work, there is no license requirement for performing the work without a contract. If the work performed was a gift then the laws often don’t apply.

So while you may want to argue that I really do support contracts and that all I am doing is changing the enforcement mechanism, there are other reasons for forgoing the term all together. I would argue that the coordinated shunning approach isn’t enforcement at all because it specifically lacks the use of force. The effect is the same, but its nature is completely different.

Blockchain Technology

Rothbard’s definition of valid contracts is actually quite useful. Lets review it one more time:

…the only enforceable contracts … should be those where the failure of one party to abide by the contract implies the theft of property from the other party.

This is where BitShares and distributed ledgers come to play. A distributed ledger is designed to track property rights in clear unambiguous terms. Rothbard’s definition of a contract could be entirely encoded into a block chain because “all legitimate contracts implies theft of property”. It is fairly easy to ascertain whether or not property has been transferred and who owes what when you have a public ledger.

With smart contracts it is also fairly easy to automate the change of ownership in such a way that no one can “enforce” a contract and no one can “fail to enforce” the contract. It doesn’t matter who you coerce, the block chain is going to execute the smart contract and everyone will automatically respect the resulting change in property rights.

You can think of an automated forced transfer of digital assets as a form of coordinated shunning. Everyone refuses to acknowledge the prior purchasing power of one individual and voluntarily honors the purchasing power of a new individual.

Imagine if everybody had a bond and arbitration agent on file with the block chain. Imagine everyone refused to do business with someone who had an unpaid judgement against them because their own bond was at risk if they did.

BitShares is the foundation of a non-violent consensus on property rights that replaces the use of force to physically reallocate property.

The Contract Free Society

In a contract free society agreements are documented but everyone understands that there is no force that can compel any individual to abide by any contract. An arbitration agent is not compelled to make any decision. No one is compelled to act. There is no need to force anyone into court. There is no need for government.

So long as we insist on living in a world of enforceable contracts we will continue to empower the very beast that enslaves us. We are operating on the implicit expectation of the right to use force and in turn manifest a society built on violence and coercion rather than love.

You cannot change others, but you can change yourself. I specifically avoid committing to legally binding contracts whenever possible. It can be very challenging for some people who feel the need to reserve the right to sue you and coerce you into fulfilling your promises. In general these are the type of people we should be shunning. Every time we give business to someone who demands a legal contract we are supporting our own enslavement. So I challenge you to release your need to control others and instead learn how to interact with others entirely without any legal obligations what-so-ever.

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My name is Daniel Larimer and I am the founder of BitShares. My mission in life is to find free market solutions to secure life, liberty, and property for all.

The purpose of this blog is to help create a free society by encouraging people to join our community which is centered around Bitshares, a next generation fully decentralized crypto-currency exchange. I use Austrian Economics to engineer the economic incentives which make freedom and non-violence profitable.

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