The problem of lawlessness can be solved by the rule of law. Now, “rule of law” seems redundant, since laws are a kind of rule. But the point is that the “rule of law” is juxtaposed against “rule of men,” in which the judgements of the judge, and the privileges of the disputants, determine the outcome. Sir Edward Coke famously said, “Magna Charta is such a fellow, that he will have no “Sovereign” in debate in the House of Commons in 1628. The point being that even the king is bound by the law, rather than the king having sole discretion to decide what the law says.
Edward Coke and Magna Carta
I know that prerogative is part of the law, but “Sovereign Power” is no parliamentary word. In my opinion it weakens Magna Charta, and all the statutes; for they are absolute, without any saving of “Sovereign Power”; and should we now add it, we shall weaken the foundation of law, and then the building must needs fall. Take we heed what we yield unto: Magna Charta is such a fellow, that he will have no “Sovereign.” I wonder this “Sovereign” was not in Magna Charta, or in the confirmations of it. If we grant this, by implication we give a “Sovereign Power” above all laws. (Debate in the House of Commons, May 17, 1628)
The advantages of “rule of law” are obvious: the rules are consistently applied and enforced, without privilege or exemption. As F.A. Hayek put it, the purpose of the rule of law,
But note that there is an implicit assumption (even Hayek does it, in the quote above) that the rule of law involves a monopoly, single body of law, provided by a monopoly, single entity, the state. The rationale is the Hobbesian-Weberian story that the state is violence, and violence is required to enforce contracts. As Hobbes put it, in Book II of Leviathan:
Defenders of liberty often want to define anything private as “voluntary” and anything done by the state as “coercive.” But that’s not right; violence or coercion in support of promises (“covenants”) we want to agree to is not only useful, but actually essential to being able to make enforceable agreements. Market entities and other private associations require recourse to coercion, so long as the terms under which coercion is employed are voluntarily agreed upon in advance. The problem is not violence; the problem is monopoly!
The key distinction, and the necessary condition for liberalism to work, then, should be made between artificial monopoly and negotiated, free-entry competition for controlling coercion. Allowing people to cooperate in many different ways, and encouraging the creation of alternative forms of adjudication of disputes over breach of agreements, and imposition of damages for failure to keep promises solves the Hobbesian problem, and treats all of us as equals before the law. The Hobbesian solution was more plausible in a world where there were prohibitive costs of keeping track of identity and reputation, and the ex ante contracting costs of anticipating ways of resolving disputes.
It is no longer necessary to create a vast monopoly entity capable of unanswerable violence; all that is necessary is that citizens adopt a set of institutions that instantiate a presumption that we are all equal before the law. Some libertarians (including John Hasnas) have claimed that the “rule of law,” at least in terms of a coherent, stable political law, is nonsense. What Hasnas wants people to recognize is that for liberalism to be an actual alternative to the Hobbesian model that concludes state monopoly contract enforcement, liberalism has to accept the logic of its own position: people must be able to negotiate rules of laws, for their own agreements. The relevant equality is not that we all are the same before “The Law” (singlular, one size fits all, spoken of with reverence), but that we all have an equal opportunity to negotiate the laws.
The alternative solution to the problem of Hobbesian “war of all against all,” then, is “common law liberalism.” As John Hasnas has pointed out, in an argument many people might find shocking, the key distinction is not “markets=liberty” and “state=coercion.” In fact, there is (and should be!) coercion in all systems. The ability to coerce a contract partner to carry out their promises is a key aspect of liberty, without which contracts would be unenforceable. As Hasnas puts it:
The state suffers from not only incentive problems but also a knowledge problem. One system of law cannot possibly answer the needs of all persons, in all settings. Nevertheless, it is at least possible to begin to address this problem by having multiple competing systems of “law,” or traditions of dispute resolution and contract enforcement, and to allow the selection of adjudication and enforcement regimes to be negotiated along with the other terms of contracts. Price, delivery date, and the flavor of enforcement protocol we agree on are all parts of our voluntarily negotiated deal, and all are enforceable for that reason. The “rules of laws” requires that individuals be able to act on their perceptions that different systems of law and different arrangements of adjudication of disputes can be desirable.
Michael Munger teaches at Duke University and is Director of the interdisciplinary program in Philosophy, Politics, and Economics (PPE) at Duke University. He is a frequent guest on EconTalk.
Read more of Michael Munger’s writing at Archive.
READER COMMENTS
Phil H
Dec 14 2021 at 10:20am
“Price, delivery date, and the flavor of enforcement protocol we agree on are all parts of our voluntarily negotiated deal, and all are enforceable for that reason.”
I don’t think this makes sense, does it? Enforcement is the rules on what happens if one party defaults on the contract. It can’t be part of the contract, because then what would happen if one party chooses to default on the enforcement part?
Another way of looking at this is the voluntary nature of the contract. If you build in an enforcement method, that cannot be voluntary, and that would make it no longer a contract.
Jon Murphy
Dec 14 2021 at 11:01am
Enforcement are vital portion of any contract. Just about any contract you get has a clause or three on enforcement of said contract. Heck, just look at the informal contract about how comments are processed here. There’s a rather detailed enforcement policy.
You argue that enforcement cannot be part of the contract. As a matter of fact, enforcement is a crucial part of any contract.
Ryan M
Dec 14 2021 at 4:29pm
I think what he means is that enforcement cannot be meaningfully accounted for in a contract absent some sort of state mechanism for enforcement. Yes, of course it is regularly included in contracts, but the appeal is always to a court of law. That is why we call them “binding” contracts – because they can be enforced in law. A non-binding contract may very well include provisions for enforcement, but if they are not recognized by some sort of court, they cannot actually be enforced.
Jon Murphy
Dec 14 2021 at 5:15pm
I don’t think that’s a reasonable interpretation. I mean, Phil literally said “[Enforcement] can’t be part of the contract…”. How can something both be part of a contract (your statement) and not part of a contract (the literal meaning of Phil’s words).
And he made no claim of state. Part of the whole point of the post is you do not necessarily need the state to enforce contracts.
Fairly few contracts I’ve been a part of have an appeal to a court of law. Some do. Most don’t. But I am just a single person.
And again, I point to the informal contract of this site.
Ryan M
Dec 15 2021 at 3:05pm
Your contract does not have to directly reference a court of law for it to be enforceable in court. In your experience with these contracts you’re talking about, what is the remedy if a party defaults?
Jon Murphy
Dec 16 2021 at 7:39am
Agreed, but from that it does not follow that the contract can only be enforced by a state court.
You usually some version of “get out and don’t come back.” Violation of the rules at my local gun club results in lost privileges. My grad school funding contract would require me to essentially get booted out if I renege. My church could excommunicate me (though that hasn’t happened in a very long time). That sort of thing.
KevinDC
Dec 15 2021 at 9:49am
The same thing that currently happens – the previously agreed upon enforcement stipulated in the contract will be carried out anyway, coercively if necessary.
I think you’re mixing up the levels here about what’s voluntary and what’s not. When we speak about “the voluntary nature of the contract,” what we mean is that entering into the contract is voluntary – you are free to refuse to agree to any contract you don’t like, and nobody can force you to agree to a contract with terms you reject. However, once the contract has been agreed upon and entered into, fulfilling that contract is no longer voluntary. If I want to lease a car, and part of the lease says I’ll pay X dollars per month or else the car will be forcibly repossessed, that stipulation doesn’t somehow “make it no longer a contract.” I can voluntarily choose to accept the terms, or not. If I choose not to accept them, there isn’t a thing the car company can do about it. However, once I enter the contract, fulfilling the terms are not voluntary. If I stop making payments, and someone shows up to repossess the car, I can’t respond by saying “Well, just like I defaulted on paying according to the contract, I’m also going to default on repossession of the car in the contract too – hahaha, you can’t take the car now!” Well, I guess I can say that if I want to, but they’ll just look at me funny and take the car anyway. Nothing about them doing so violates the “voluntary nature of the contract,” because it’s agreeing to the contract that’s voluntary, not fulfilling it.
If your concern is that enforcement methods like repossessing cars or whatever can’t reliably be carried out via contract in the absence of some ultimate state authority to enforce things, you can put that concern to rest. It’s almost a law of physics that when someone says “X can’t possibly happen in the absence of some kind of state enforcement mechanism,” both history and the modern world will be filled with examples of exactly that happening and it working out just fine. This is one of the things that made the work of Elinor and Vincent Ostrom so powerful. While academics would sit at the blackboard and insist “X can’t happen with private arrangements because of such and such,” the Ostroms decided to step away from the blackboard and look around the real world to see if that was actually true. Spoiler alert – basically everything the blackboard theorists say can’t possibly happen through voluntary arrangements and therefore needs the state, regularly happens through voluntary arrangements without needing the state. If someone’s theory of government says otherwise, their theory is simply wrong.
Jon Murphy
Dec 15 2021 at 10:26am
The Ostroms’ work is a great example. Two more:
-The Lex Mercatoria (indeed, the Lex operated outside, and often against, formalized State law. Oftentimes, individuals would turn to the Merchant Courts for justice rather than the Crown).
-The formation of the “Wild” West. Terry Anderson and PJ Hill have an excellent book on the formation and enforcement of law in the West (“The Not So Wild Wild West”).
Phil H
Dec 15 2021 at 10:35am
Thanks, Kevin. This is why I posed it as a question, because I’m genuinely not sure.
On the voluntary nature of the contract: It’s a little bit more than just voluntary entry into a contract. There’s also the matter of not being able to apply punitive damages for ending a contract. I’ve only learned a bit of English common law, so I’m not sure about other legal systems, but it’s not quite as simple as you’re making out.
The problem with the system you’re suggesting is this: “Well, I guess I can say that if I want to, but they’ll just look at me funny and take the car anyway.” There has to be some common acceptance that “they” (forcibly) “taking” a car is OK. If someone tries to take my car illegitimately, I can use force to stop them or call the police. If someone tries to take my car legitimately, I can’t. And there has to be a way of deciding which is which. The fact that I entered into a car purchase agreement is not, in the current understanding of contracts, an agreement to submit to forcible removal of my property by the counterparty. The authority for that comes from somewhere else entirely. (Currently, from the law and the state.)
Now, it seems plausible that we could still have that role, only carried out by private contractors. If I sign a contract enforcible by arbitrator X, that would also mean that I submit to arbitrator X’s forcible enforcement. And I think that for the vast majority of small contracts, that would work. For large contracts, I think it might not. The incentives to try to hop jurisdictions and break jurisdiction would become intense (because there would be more jurisdictions), and it seems likely to me that many intractable disputes would ensue. Honestly, I can’t tell if that would be better or worse than intractable disputes between states.
On the Ostroms – yeah, I take the point. But the kinds of mechanisms they recorded happened within communities. One of the most salient features of the economy today is that we use the law to contract with people who are not in our community. It’s not obvious to me that Ostrom-style mechanisms can handle those relationships. But maybe international trade arbitration shows that they can! I dunno, I’ll think about that…
Jon Murphy
Dec 15 2021 at 10:40am
Well, it is an agreement to remove the property (as an important matter: the leased car is not your property). That’s the point. There is a clause in the contract that states what happens if you don’t abide by the terms. The authority comes from the formation of the contract (not to mention the broader norms of society. To this point, I highly recommend Bart Wilson’s book The Property Species).
KevinDC
Dec 15 2021 at 11:50am
Yes, this is basically what I was gesturing at in my previous comment – and it comes with a significant advantage over the current system of calling the police, in that both parties would have to agree over which organization will be providing the forcible enforcement. Scott Alexander had an amusing line in one of his posts describing how overly aggressive police in America can be:
If you live in an area where cops tend to react this way, you might be worried about the idea of those cops being your one and only option as enforcers for contract disputes. An alternate system, where both parties to the contract have to agree on enforcement, provides better incentives all around. If the car lease contract says “If payments are not made, repossession will be carried out by the Blackwater mercenary team that was operating at Nisour Square in Iraq,” and I look them up and see that they tend to enforce their contracts in a way similar to the police describe above, I will decline the hell out of that contract. If I counter-propose that we use the Ned Flanders Organization, which has a history of giving up on enforcing contracts the instant someone raises an eyebrow at them, the car company will decline that one too. Enforcement organizations would have incentives to resolve disputes in the way most acceptable to both parties – not too aggressive but not too passive. And every enforcement agency will be competing with every other agency to strike that balance even better, because nobody has to use them.
In the second half of his book The Problem of Political Authority, Michael Huemer lays out a series of arguments for why private organizations have much stronger incentives to come to peaceful and low cost conflict resolution as compared to states. To be fair, this is the part of his book I’m also most skeptical of. He spends the first half defending philosophical anarchism, which is the idea that there is no such thing as “political authority.” But he opens the second half by acknowledging that this in itself is not an argument to eliminate states – states might be necessary even if there is no political authority. If workable alternatives to the state exist, we should use those instead. If not, then states are necessary. He spends the second half defending political anarchism, which is the idea that fully workable alternatives to the state already exist. I was persuaded by the first half but not fully persuaded by the second half. But the case he makes is definitely deserving of consideration.
Jon Murphy
Dec 15 2021 at 11:37am
I think this is an important point. One of the things that was repeatedly emphasized during my PhD at George Mason University was the need to always be looking out the window. It’s easy to pontificate about what can and cannot be. It’s much harder to look and see what is. So many economic theories about what the private sector cannot provide were overturned by simple empirical analysis.
And to be fair, the same is true in reverse. Many theories about what the government can and cannot do efficiently are overturned (which, coincidentally, is why I’m not an anarchist).
Simple checkbox economics doesn’t serve us well. We need to look at what is.
KevinDC
Dec 15 2021 at 12:00pm
I’m reminded of a radio or podcast interview I heard years ago which, I think, featured Mike Munger. (I can’t remember the exact show or time, so consider these recollections to be vague references rather than direct quotes.) If memory serves, the topic was lighthouses, and Munger (or whoever it was!) mentioned how John Stuart Mill had written out a straightforward argument about how lighthouses were public goods, and for all these various reasons private markets couldn’t possibly provide them, so they needed to be operated by government. But at the time Mill wrote this, Britain had plenty of lighthouses, and the vast majority of them were privately owned and operated. There was just this assumption, based on the proverbial blackboard, that people were doomed to keep helplessly crashing their ships into the rocks, and that if government didn’t step in to solve it for them they were trapped in this situation forever. But…people don’t want ships to crash into rocks. So they got together and found ways to solve the collective action problem with private arrangements, no intervention from above needed. If only Mill had looked out the window, he’d have seen that for himself, and he could have improved his theories accordingly.
Jon Murphy
Dec 15 2021 at 12:06pm
If I recall correctly, that’s basically Coase’s whole point in The Lighthouse in Economics.
KevinDC
Dec 15 2021 at 12:18pm
Also, for anyone interested in a fun video describing a system of private contracts which contained their own enforcement mechanisms can check this out. It involves pirates, so that alone kind of makes it worthwhile.
Henri Hein
Dec 15 2021 at 1:28pm
That was indeed worthwhile. I am currently reading Friedman’s “Legal Systems Very Different from Ours.” He has a chapter on pirates that corroborates the video.
Some (all?) the other chapters also reinforce your point. For instance, in 18th century England, there were no police force and no public prosecutors. It was up to victims of crime, and/or their agents, to catch and prosecute criminals. Friedman writes:
KevinDC
Dec 15 2021 at 5:03pm
I need to put that book on my reading list. And I like that quote from Friedman. I used to say things like that (a system of private prosecution, for example) “work in practice even though it fails in theory.” But, I’ve come to realize that phrase muddies the waters. If something works in practice, then it works in theory too – we just haven’t formulated the correct theory yet. Better to say “It works in practice, but I don’t have a theory to explain it yet.” As Eliezer Yudkowsky likes to say, confusion lies in the map, not the territory.
nobody.really
Dec 16 2021 at 4:59pm
Very fun video–but, while the video discussed contract formation, I didn’t see any discussion of enforcement mechanisms.
I’d suspect this would be a common dynamic on a pirate ship: The crew enters into a contract about compensation for damages and sharing of loot. The crew pirates; some/many get killed or maimed; and they end up with a lot of booty. At that point, the remaining crew would have an incentive to kill off their maimed colleagues and keep their share of the booty for themselves. Indeed, once the treasure is on board, ANY powerful faction among the crew would have an incentive to turn on the rest of the crew, kill them off, and split the proceeds among themselves.
What enforcement mechanisms existed to preclude this behavior?
KevinDC
Dec 16 2021 at 8:42pm
From about 1:35 to 1:55 of the video:
And again from about 2:25 to
Granted, the specific enforcement methods used aren’t discussed in great detail (beyond the one image of a pirate getting lashed) but it’s still made clear that the enforcement of the contract is stipulated within the contract itself.
Regarding your second thought, about why don’t the strong and healthy survivors kill all the weak and wounded ones to increase their share of the treasure, a hint of it is found at around the 5:15 mark of the video, where the quartermaster says:
Piracy only existed as an industry because people did not behave in the way you describe. The instant a pirate crew was to do that sort of thing, they would be destroying the basis upon which their own livelihood depends. Asking what enforcement mechanism prevented them from doing that, is a bit like asking what enforcement mechanism prevents me from knowingly killing a goose that lays golden eggs. All you need to avoid that behavior is to not be really really dumb and really really short sighted.
Jon Murphy
Dec 17 2021 at 9:04am
On top of what KevinDC said, I think it’s worth noting that a ship is not a “One-Man” operation. You usually need some minimal level of crew to operate, and there is going to be an optimal level of crew to maximize plunder (profit). Consequently, the incentive to cooperate is great. It’s not a Prisoners’ Dilemma situation that you describe, nobody.really. It’s more of an Ultimatum Game. They cannot maximize their share by killing off the weak. Such an action would likely result in death for everyone. Consequently, there is a strong incentive to cooperate.
nobody.really
Dec 20 2021 at 12:17am
That is some big innovation? Hell, plenty of contracts contain stipulated damages provisions. Yet, oddly, violating parties may not meekly pay up; you still need mechanism to enforce those provisions–and enforcement may ultimately involve a someone backed by force taking possession of property owned by a losing defendant.
I imagine the same thing would occur on a pirate ship–except that instead of a sheriff, you have strong arms answering to the quartermaster. But either way, enforcement relies on FORCE, not on the good will of parties who have consented to some terms. And when it comes down to it, FORCE would be sufficient regardless of whether any parties consented.
Surely you understand that 1) in the fable of the goose that lays golden eggs, the protagonists do indeed kill the goose, and 2) people repeat this fable as an object lesson precisely because this kind of behavior is so common? (I’m reminded of people who argue that homosexuality in purely a new phenomenon because it was banned in ancient times. I must ask why people would feel the need to ban homosexual conduct unless such conduct was, indeed, happening.)
When people voluntarily join together in a business enterprise, would some faction ever conspire against another faction? Yes; there are entire treaties written on the subject. And, bottom line, relief for the oppressed parties comes from appeal to authorities beyond the business enterprise.
So maybe there are some unique dynamics about piracy that made it impervious to this kind of oppression. In that case, piracy may offer no lessons that transcend the world of piracy.
Alternatively, maybe piracy endured as long as it did because of 1) high profits for those who survive, and 2) lack of knowledge about the low odds of survival because (as any Pirate of the Caribbean knows) dead men tell no tales.
I sense Jon Murphy means to suggest that piracy is a repeated game in which parties must rely on their reputations in order to get accepted onto ships. That could well be true. On the other hand, 1) reputation matters for MANY areas of human interaction–yet people often also rely on contracts enforceable by the state; that is, they don’t find threats to reputation to provide a sufficient deterrent for breach of contract. Moreover, to the extent that reputation matters, it’s hard to imagine a context in which it would be harder to get reliable reputation information than piracy in the 1700s. There are no photos, no social security numbers, no credit reports, and everyone involved knows that his life is on the line if he discloses his participation. The film The Princess Bride plays with this idea–observing the importance of having a brand such as “The Dread Pirate Roberts,” yet also observing that ANYONE could pass himself off as The Dread Pirate Roberts.
In short, there’s got to be more to this piracy story than we’ve yet discussed–and I suspect those details would be relevant to understanding contract enforcement.
Fazal Majid
Dec 14 2021 at 10:29am
The Rule of Law also requires an independent judiciary and an executive willing to enforce judgments over the will of the legislature, otherwise the legislature can just make new laws as expedient. There is a reason why the US Constitution forbids bills of attainder.
Ryan M
Dec 14 2021 at 1:42pm
Mike,
As with your last post, it appears as if you are mulling over some ideas in search of a thesis – maybe developing a larger idea for a book or a lengthy article. I think it is very interesting, and of course I will read it (I always enjoy reading/listening to your thoughts on these issues), but as always, the theoretical is amusing until our problem is severe enough that it requires practical solutions.
As an example – I once had an argument with a court commissioner (who ended up being forced into an early retirement, due in part to complaints and appeals that I and others made). I am an attorney arguing against the State, here, and the context is that I represent foster kids and am discussing dependency statutes and placement of these kids.
One week, the department wished to have one of my clients removed from a home because that home was “under investigation.” I was well aware of the situation, and my client (and the foster parents) both desired to maintain placement. I believed that the law was on my side, but the judge determined that, due to the investigation, he was going to remove.
The very next week, I was on the exact opposite side of the same argument. Another kid was placed in a group home that was also “under investigation” (these investigations occur any time there are licensing complaints). The kid really wanted out of the group home, but the department wanted him to remain placed there. The same lawyer for the department made my argument from the previous week, amusingly. She said there were no safety concerns pertaining to this child and that we didn’t yet know the outcome of the investigation, etc… The judge again ruled against me.
I interrupted his ruling and asked to speak – which he allowed, for a short period. I said that he had made the exact opposite ruling the previous week. I said that my job as a lawyer is to determine how the facts fit into the law and to advise my client accordingly – but that this requires consistency (adherence to the “rule of law”) from judges. I said that, at this point, how can I effectively advise my clients when the judge only follows the law when he likes the outcome? He told me to shut up, and I talked over him – I said that, as far as I was aware, in this courtroom, the only “law” that I could rely on is that this judge would rule in favor of the State, because he apparently views himself as an arm of the state. He banged his gavel and told me that if I didn’t shut up I’d be held in contempt and arrested… (and yes, I was angry and had interrupted him).
But he sat for a while in silence before saying “but Mr. M__ is right,” and changed his ruling.
I have been seeing this happen with COVID – judges who have adhered to laws for years, applying them consistently, now seem to believe that those laws no longer say what they say. This past 2 years has seen more judicial inconsistency, more lawlessness; the veritable shredding of the constitution, massive expansion of state powers, virtual elimination of individual rights.
There can be no rule of law when judges are capable of simply declaring: “But this is different. This is more important.”
Phil H
Dec 15 2021 at 10:43am
I just wanted to say congratulations on that little win for reason and consistency. Keep up the good fight.
David Seltzer
Dec 14 2021 at 3:03pm
“There can be no rule of law when judges are capable of simply declaring:” “But this is different. This is more important.” Well stated Ryan. I suspect arbitrary comments like that are a serious a threat to individual liberty. One would almost surely hesitate to act fearing a capricious ruling that could result in serious penalties.
Jens
Dec 18 2021 at 3:27am
The state can determine what use of force is lawful. I think that is also what Weber said. Of course, it can also withdraw this right again, because the possibility to change law is its quintessence.
Therefore it is not wrong to speak of its monopoly of coercion. But it can also delegate this monopoly to private persons or private associations in specific cases. (This is quite important for the specific use of force and should not be completely ignored).
It does not have to be bad to have such a monopoly – not all monopolies are bad. A reasonably useful term for a good monopoly on the definition of lawful use of force is “democracy.”
The problem of different spheres of law lies in demarcation. Typically, law itself sets these demarcations (national boundaries, private versus public law, legal status, property, entitlements, legal norm and subsumption of facts .. or not, etc.) and defining and determining these boundaries is a non-negligible part of the application of law.
In arrangements with little law, it may be quite easy to create and maintain such (new) spheres. But in arrangements with a lot of law, frictions show up and the question arises which entity has to minimize these frictions.
But I like the statement that there is no law without coercion. Arguments about coercion are mostly straw men. The moral question is always only one of minimizing cruelty.
Comments are closed.