Why Property Rights Are Absolute, But Contracts Are Not
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.
In short, a contract should only be enforceable when the failure to fulfill it is an implicit theft of property. But this can only be true if we hold that validly enforceable contracts only exist where title to property has already been transferred, and therefore where the failure to abide by the contract means that the other party’s property is retained by the delinquent party, without the consent of the former (implicit theft). Hence, this proper libertarian theory of enforceable contracts has been termed the “title-transfer” theory of contracts.1
Let us illustrate this point. Suppose that Smith and Jones make a contract, Smith giving $1000 to Jones at the present moment, in exchange for an IOU of Jones, agreeing to pay Smith $1100 one year from now. This is a typical debt contract. What has happened is that Smith has transferred his title to ownership of $1000 at present in exchange for Jones agreeing now to transfer title to Smith of $1100 one year from now. Suppose that, when the appointed date arrives one year later, Jones refuses to pay. Why should this payment now be enforceable at libertarian law? Existing law (which will be dealt with in greater detail below) largely contends that Jones must pay $1100 because he has “promised” to pay, and that this promise set up in Smith’s mind the “expectation” that he would receive the money.
Our contention here is that mere promises are not a transfer of property title; that while it may well be the moral thing to keep one’s promises, that it is not and cannot be the function of law (i.e., legal violence) in a libertarian system to enforce morality (in this case the keeping of promises). Our contention here is that Jones must pay Smith $1100 because he had already agreed to transfer title, and that nonpayment means that Jones is a thief, that he has stolen the property of Smith. In short, Smith’s original transfer of the $1000 was not absolute, but conditional, conditional on Jones paying the $1100 in a year, and that, therefore, the failure to pay is an implicit theft of Smith’s rightful property.
Let us examine, on the other hand, the implications of the now prevalent “promise” or “expectations” theory of contracts. Suppose that A promises to marry B; B proceeds to make wedding plans, incurring costs of preparing for the wedding. At the last minute, A changes his or her mind, thereby violating this alleged “contract.” What should be the role of a legal enforcing agency in the libertarian society? Logically, the strict believer in the “promise” theory of contracts would have to reason as follows: A voluntarily promised B that he or she would marry the other, this set up the expectation of marriage in the other’s mind; therefore this contract must be enforced. A must be forced to marry B.
As far as we know, no one has pushed the promise theory this far. Compulsory marriage is such a clear and evident form of involuntary slavery that no theorist, let alone any libertarian, has pushed the logic to this point. Clearly, liberty and compulsory slavery are totally incompatible, indeed are diametric opposites. But why not, if all promises must be enforceable contracts?
A milder form of enforcing such marriage promises has, however, been employed, let alone advocated, in our legal system. The old “breach of promise” suit forced the violator of his promise to pay damages to the promisee, to pay the expenses undergone because of the expectations incurred. But while this does not go as far as compulsory slavery, it is equally invalid. For there can be no property in someone’s promises or expectations; these are only subjective states of mind, which do not involve trans
Article from Mises Wire