Читать книгу Social Contract, Free Ride - Anthony de Jasay - Страница 10
ОглавлениеPromise, Performance, and Enforcement
Unless there is specific occasion for proceeding otherwise, I shall argue as if all contracts were bilateral, two-sided. (Lawyers sometimes call a contract “bilateral” only if it still involves two unexecuted performances, or duties, in satisfaction of two promises, or rights; while if one has been already executed, leaving only one outstanding, they call it “unilateral.” This usage is misleading and should, I think, be avoided.) Although there may be several persons to a side, for the moment it will do to suppose one person or “party” on either side. The essential elements of bilateral contracts are:
1. two promises; each party is both promisor and promisee;
2. two sets of performances, one by each promisor. They have two configurations:
(a) one performance set is contingent on the other;
(b) the two performances or performance-sets are mutually contingent.
The decisive dimension of the structure is the timing of its elements relative to each other. Following Hobbes,1 one can distinguish three timing patterns. A given pattern must first and above all be looked at to see whether fulfilling its terms represents an “equilibrium-point”2 in the sense that, faced with the choice between “perform” and “default,” each party will prefer to perform unless the other party defaults first. A contract having such an equilibrium-point is self-enforcing. Non-self-enforcing contracts pose various enforcement problems.
1. The spot contract. Two actions are promised and performed with little or no time elapsing between promise and performance, and with the two performances being for all practical purposes simulta neous. An ordinary exchange is the standard case, where an offer and its acceptance constitute the two promises, delivering against the agreed consideration the two performances. The element of recipro cal promise may even be lost sight of if it is literally simultaneous with execution. However, the delivery of X against Y is logically always pos terior to an exchange of promises to give X for Kand Yfor X, respec tively, even if in a functioning market, with goods on offer at given prices, promises to buy and sell, and their executions, are instanta neous and merge into each other.
A spot contract is intrinsically self-enforcing since, by the definition of a contract, neither party values what he has to give up by performing more highly than what he stands to get by inciting the other party to perform his half of the bargain.
2. The half-spot, half-forward (also known as part-executed) contract.Two promises are made, as for a spot contract. However, they are not to be executed simultaneously. The second or forward performance is contingent on the first or spot one, but not, as in the spot contract, vice versa. The second performance is typically deferred consider ation, e.g., the repayment of a debt resulting from a first performance such as a loan or the delivery of goods on credit.
A half-spot, half-forward contract is intrinsically not self-enforcing, for once the promised first act has been performed its desirability no longer provides the incentive to perform the second act—though there may well be other incentives, such as keeping one’s good name and credit intact for other contracts. However, they are external to the contract in hand.
3. The forward (also known as wholly executory) contract. Two simul taneous deferred performances are promised, i.e., two parties commit themselves to execute a “spot” exchange at a future date. As the two performances are mutually contingent, this contract has some tendency to enforce itself without being intrinsically self-enforcing. For what is the parties’purpose in committing themselves today to a future exchange of performances, instead of biding their time?
3.1 The classic reason is a divergence of expectations; the two parties both believe they can get better terms from each other today than at the future date foreseen for the actual exchange, and indeed better than at any future date between then and now, working backwards from the date of exchange towards today. Each party, in other words, expects the available terms of exchange to be moving against him over this period. But if this expectation turns out to be true for one party, it must prove to have been false for the other. When the date set for the actual performance comes round, the party whose expectation was proved false would be better off if he had not made the contractual commitment and may have an incentive to default.
3.2 A less classic and less clear-cut reason for contracting forward has to do with the possible value (convenience, assurance, complementarity with some other contract) attaching to the perfect foreknowledge of the terms on which a future exchange will be carried out. This value, if there is one, is eroded over time at a rate which reduces it to zero on the day the exchange is to take place. If on this day the terms that happen to be available for the exchange in question differ from the ones that had earlier been contractually fixed, one of the parties will have a definite incentive to default even if no specific expectation of his has been falsified by events.
3.3 Lastly, there are reasons for forward contracts derived from transactions costs in a wide sense. It may pay, in terms of search, information, and negotiating costs, to hire a man for a whole month rather than to hire one (even if he were the same man) by the day every working day of the month. Likewise it may (but probably does not) pay to own a motor car instead of forever calling taxis. “Vertical integration” instead of ad hoc recourse to bought goods and services, a household’s installed equipment, a firm’s owned and leased factors of production, are explained in these terms. Contracts concluded to economize search and bargaining costs tend to provide not for two mutually contingent discrete performances in the future but more typically for two mutually contingent streams of performances (e.g., work, and wage payments in return for work) running concurrently.
Thanks to simultaneity, they have a strong tendency to enforce themselves, yet remain vulnerable to a marked deviation between newly available terms of exchange and the terms that had been originally contracted for—a deviation which makes default attractive to one of the parties.
In sum, no forward, wholly executory contract is intrinsically self-enforcing. Item 3.1 has some bias to default, 3.2 may go either way, while 3.3 appears strongly biased towards self-enforcement. However, whether every forward contract is tendentially self-enforcing or not cannot be readily detected from its form—the configuration in time of promises and performances that it stipulates—but depends on the parties’motives relative to the facts of the case.
It is now readily apparent that “default” means two radically different events. Default in the half-spot, half-forward contract configuration means that performance by one party is not reciprocated by performance by the other. The first performer has made an unrequited delivery. He parted with the “consideration” (promise fulfilled, service rendered, goods handed over). By the default of the second performer, he loses both the consideration and the advantage he expected to derive from the execution of the contract (the surplus good, the “gains from trade"). In the fully forward configuration, the contract (or in the case of performance-streams, the part of the contract left to run, i.e., that is still to be fulfilled) remains “wholly executory.” There is no first and second performer. Neither party gives up any consideration without simultaneously receiving its counterpart in discrete “lumps” or in a continuous flow, lump matching lump, flow matching counter-flow. One’s loss if the other defaults is limited to the expected “gains from trade” that he forgoes, or, if he had discounted them, that he must surrender.
The difference between the two kinds of default is fundamental, so much so that one wishes separate words existed to denote each. As the next-best thing, I will refer to default involving loss of the consideration by the first performer as “first-degree default,” while calling that involving solely the loss of contractually secured expectations of advantage “second-degree default.” The particularity of the half-spot, half-forward contract is that it carries risk of a greater order—for it is open to first-degree default—and a higher probability of the risk turning into actual loss—for the contract is intrinsically non-self-enforcing.
Hobbes calls half-spot, half-forward contracts “pacts” or “covenants,” referring to wholly forward contracts as “covenants of mutual trust.” His main interest is in the latter, where two continuing streams of mutually contingent performances are promised—"I promise to keep the peace as long as you keep your promise to do likewise"—the very contract configuration which, next only to the spot contract, has the best chance of enforcing itself. Strangely enough, Hobbes seems relatively unworried about the intrinsic risk of first-degree default in mere “pacts,” yet he is deeply concerned about the much more conjectural risk of second-degree default in “covenants of mutual trust”3 so much so that he deduces the rationale of the social contract from it. It is because he conceives of covenants of mutual trust, i.e., forward contracts, as intrinsically non-self-enforcing in the state of nature that he can represent the surrender of arms to the contract-enforcing sovereign, and willing obedience to him, as the sole rational and moral solution to human coexistence.
It would be fascinating to speculate about the shape Hobbes’s theory, and subsequent contractarian arguments, might have assumed had he not confounded the two types of default risk and the intrinsic tendencies of two distinct types of contract to be, or not to be, self-enforcing. We will revert to a somewhat different form of much the same question in Chapter 4.
Non-self-enforcing contracts “need enforcement” in two senses. In the first, the defaulter must be forced to fulfil his promise by specific performance, repair the harmful consequences of his nonperformance, or possibly both, depending on circumstances. In the second sense, there must be some general presumption in favor of keeping promises as a matter of prudential policy on the part of promisors. Enforcement of some random sample of contracts is a prudential argument against default in all others, for it lengthens the odds, if only subjectively, against being able to default with impunity. The mere probability of successful enforcement, and the ensuing liabilities, will act as a general deterrent to default and contribute to a climate of respect for contractual obligations. This deterrent is an “externality.” It is generated by one’s contribution (effort, trouble, cost) devoted to the enforcement of certain contracts, while the benefit accrues both to the contributor and to others, in that all default becomes a little less likely and reliance on contracts more acceptable to everyone. Reliance on the “practice” of contracting is a classic case of public good created for all by the contributions of some.
Enforcement is a blanket term, standing for a wide spectrum of alternative means, of varying efficiency and cost. At one end of the continuum, there is basic self-help ("If you break your word, I and my friends will make you regret it") and the help of bystanders who are not directly concerned with the contract in hand, but who have a general interest in discouraging default ("If you break your word, the people of goodwill who know of your promise will make you regret it"). Beyond this, there is enforcement by systematic, at least tacitly pre-arranged mutual aid; a perhaps quite small and informal coalition can advance its specific interest in the reliability of contracts in some field by acts of solidarity against promise-breakers. It can contribute to a precedent-based local climate of respect for promises, where a would-be defaulter must take some account of the probability of sanctions ("If you break your word, you will come to regret it, as did X"). Contract law and tort law are, of course, in this manner jointly enforced by the same powers, applied in response to the same incentives. “Enforced” in its second sense, as an externality, must be understood throughout as a matter of degree, as an increased probability of defaults being sanctioned, specific performances extracted from the defaulters, and torts repaired.
A special case of self-help is bought help, the purchase from specialized providers of protection against default and torts; debt-collectors, insurance adjusters, guard services fulfil some of these functions. More special still, protection rackets not only protect their clients’selected property and contracts (notably labor contracts and loans) in exchange for ransom, but they also try to suppress the “externality,” the free-rider benefit non-payers of ransom derive from the ransom-financed activity of the racketeer when he discourages interloper banditry, theft, arson, default on debts, and strikes. The protection racketeer will actually attack the non-client, burn him out, organize a strike by his employees, etc., to induce him to become his client by denying him the free-rider benefit.
Self-help, bought help, and mutual aid involve being judge and judgment-enforcer in one’s own cause, or, in the cause of a member of one’s coalition, vis-à-vis a non-member. This is generally condemned, though often it is a lesser evil or simply unavoidable. Manorial jurisdiction in matters between the lord and his serfs, and royal and republican jurisdiction in matters between the state and its subjects, have throughout history seldom produced quite the monstrously unjust results a priori reasoning would lead one to expect. The judge’s temptation to find merit in his own cause is generally tempered by the risks of abusive behavior. High-handedness always involves a danger, whether or not accurately gauged, of provoking tit-for-tat retaliation, hostile coalition-forming, and disproportionate reactions, from hayrick-burning and sabotage to “exit” (the flight of serfs, the emigration of taxable subjects) damaging to the abusive judge, and possibly even to revolt, though the latter raises special problems.
Further along the range of what one might call private, decentralized or micro-means of enforcement there is, at least conceptually, some room for institutions that are recognizedly not the instruments of one party, but are meant to stand between litigants. A neutral stance lends them some authority, hence they regain, or more than regain, in efficiency of enforcement what they lost in motivation, in incentive to enforce. History has in fact had a large place for such institutions, from councils of elders to parish priests, until they were gradually undercut and pushed aside by the agencies of the sovereign state. In many parts of pre-feudal Europe there were peasant guilds which impartially assumed their members’ duty of revenge against other members in cases of homicide, mutilation, or harm to livestock, awarded damages, and sanctioned tricky dealings. Where, as in the core area of post-Carolingian Europe, feudalism had a chance to develop properly and its justice superseded the co-operative justice of the peasantry, the lord was technically neutral when dealing with disputes among tenants, though of course he was judge and party in matters affecting manorial rights. In enforcing the basic medieval contract of service tenure, however, feudal justice was bound by the “custom of the manor” which the unjust lord could not transgress without some peril to his own interests. In commerce, fair courts and staple courts stood between the parties, settling disputes and enforcing bargains with a power and efficiency we moderns are surprised to find in non-sovereign, co-operative institutions.
Guild, town, and merchant jurisdictions spread the general benefit of an increased probability of contract enforcement and hence of observance; in this they acted as providers of a public good. In addition, they were selling the private good of justice in civil cases to individual litigants, the profits of the latter helping to “finance” the emergent general benefits of the former. It was above all the revenue derived from selling justice in matters of property, source of the fattest fees, both in the narrow field of contracts and in unrequited transfers by marriage and inheritance, that most excited the competition between rival communal, ecclesiastical, manorial, and royal jurisdictions, and whose end-result was the emergence of the near universal monopoly of a single public, sovereign agency of law-enforcement. Within this trend there was, at least in England from the fourteenth century onwards, a secondary but none the less portentous development, namely the rise in importance of Chancery as opposed to the common-law courts—a development which, through a few ups and downs, has continued to this day on both sides of the Atlantic, and is giving us the benefits of social policy-making by judicial discretion.
One should perhaps tentatively set down a few markers at this point. The more “micro,” decentralized, and private is contract enforcement:
1. the greater is the share of the total cost of enforcement contributed by those for whom it is a private good, paid for in proportion to their recourse to it;
2. the smaller is the unrequited benefit non-contributing free riders derive from enforceability, hence, from the public good of safe reliance on contracts in general.
The polar case of privateness is that where the seller of enforcement succeeds in completely shutting out non-contributors from the benefits of safe reliance on contracts. The labor racketeer who makes sure that an employer who does not pay him ransom will have his plant struck can be said to accomplish this to the full; he ensures that only those promises are kept whose promisee has paid enforcement costs.
The opposite extreme is purely public enforcement, where recourse to it is costless to the litigant and every promisee benefits from the general reliability of contracts as a free ride.
Generalizing the concept of enforcement over a range from the wholly private to the purely public, involving an unspecified variety of means and practices, a variable dose of externality, and no doubt a varying degree of imperfection and injustice, is perhaps unusual and calls for an apology. The object is to dissipate two facile notions that seem to pervade all discussion of these matters.
One is that contracts are either enforceable or not, instead of enforceability and reliance being stochastic, more or less probable. The other is that only the sovereign state is capable of enforcing contracts. The same unproven and gratuitous supposition underlies the idea of the rule of law being a necessary condition of a “market order.” If this were the case, the political authority would be logically prior to the institution of contract. It would then be difficult, to put it no higher, to view contract as one of the two elementary building-blocks of social co-operation. But perhaps neither 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.
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 enforceability of contracts; general in intention, it ends up dealing with cases on their merits.
3. The legal doctrine which avowedly treats each case on its merits is guided by the requirement of upholding one of a number of other fairness principles, each more private than Hart’s general anti-free-riding, public-goods type of fairness. Contracts must be enforced if, but only to the extent that, default by the promisor gives him an unfair advantage or constitutes unfair treatment of the promisee. This is the case in two kinds of circumstances.
Under the circumstances of what I propose to call first-degree default, the unfairness is “benefit-based.” To be complete, the relevant fairness principle must posit a theory of consideration. The formal requirement that “a bargain must have two sides,” that there is no due performance without consideration, and neither party stands to get something for nothing, is an insufficient test of fairness. It must be shown, in addition, that in terms of the theory the consideration was adequate, that it provided full justification of the performance called for under the contract. It is unfair to the promisee to receive unrequited benefit from him by defaulting. Yet the promisor’s obligation goes no further than the “real” benefits conferred by the consideration—whatever else the contract may say. Whether the consideration is a fair match for the performance is a matter of separate judgment on merits and not an analytic consequence of the agreement of the parties to the terms of the contract. The terms are enforceable if they were fair, equal, and not contrary to public policy. It is obvious enough that in becoming subject to judgments of this nature contract enforcement ceases to be a relatively straightforward, invariant practice of rule-application. It passes into the realm of judicial discretion and becomes in fact a motive force in the expansion of this realm.
Under the circumstances of second-degree default, the “benefits-based” doctrine of fairness might well point to unenforceability, for if no consideration changed hands there was no unrequited benefit. However, an unconsummated, wholly “forward” contract can nevertheless give rise to unfairness under the “reliance-based” doctrine of fairness if one party has effectively discounted in advance the anticipated performance of the other party and suffered actual demonstrable damage as a result of the latter’s default. Once again, by the recourse to fairness, a field is opened up to judgments of merits and to the application of discretion. It is perfectly possible to hold that discretion offers a greater likelihood of attaining just judgments than do blind rules; it is not unreasonable to believe the contrary. Our concern is not to weigh such beliefs against one another but to deduce, if we can, the influence of alternative doctrines and practices of contract-enforcement upon the social structure.
Modern legal theory takes the view that if pure Formalism in contract law ever existed (which is doubtful, for if common law leaned to Formalism it was always and everywhere checked in its leanings by the competing royal justice in Equity and by the natural-law doctrines of the Church), it is gone for good and cannot be brought back due to its own inherent weaknesses, which, now that we know better, we could not tolerate. Those who call for indiscriminating enforcement of formally valid contracts betray their incomprehension of what good law should be like and could do. “To a lawyer acquainted with the difference between expectation, reliance and restitution damages,”9 the very meaning of redress for default in a wholly executory forward contract can be puzzling. Where neither party has performed and neither has suffered from reliance on the other’s expected performance, where is the basis for prescribing a remedy?
To a layman observing what changes in legal doctrine do to the way society functions, this sort of argument merits little patience. Lawyers, modern or ancient, have never been long at a loss to specify remedies in civil law when it suited them to do so, however problematical the basis for it may have been. A more effective reason cited by certain authors for being at a loss to find a basis to repair default in forward contracts is their intrinsic bias. This type of contract, being a device for risk-redistribution, favors the shrewd, the strong, the clever at predicting the future—hence its enforcement would be anti-egalitarian.10
Once again, the point with which my argument takes issue is not how justice is best served. It is perhaps pertinent to say all the same that if the equal distribution of income, wealth, or anything else that is both desirable and transferable is to be the set objective, there must be more direct ways of achieving it than by indifference to the observance of contracts that are thought to favor the rich—however laudable a by-product of modern contract law it may be to make them poorer. Regardless of this by-product, however, how should we assess the doctrine on the merits of its main bias? It may be unjust to a class of contract parties who fail to get the performance that was agreed to be due to them. With this aspect we are not concerned. It may also little by little distort, if not undermine, the institution of contract, the manner in which it helps promote social co-operation. In particular, contract law and its application are bound to affect the “dynamics” of the balance between contract and command. This is very much our concern here.
Why is the contract-command balance what it is at any time? At least for Western civilizations, there has for long been a pat answer. The origins very likely go back to the dissolution of the polis, the Aegean city-state which introduced the clear division of human affairs into a private and a public sphere. It comes to us directly from Roman law, under which there is a manifest frontier, contract belonging to civil, and command to public life and public law. However, to escape the evident danger of circularity, such an answer needs definitions of private and public life which are themselves independent of the manner, contractual or coercive, in which social co-operation is cemented. Otherwise we would be asserting that the proper place of command is in public affairs, and public affairs are those ruled by command.
Whatever else it may be, it is at least not circular to say that the place of contract is in those situations of co-operation which do not require anything stronger for commitment to a common endeavor than the attraction of the surplus expected to be produced and divided. Command comes into its own when this expectation alone is insufficient to call forth the required conduct; when the way the surplus would naturally fall ("the incentive structure” or “payoff structure") or the bargaining problem involved in dividing it differently is such that the threat of coercion is needed. Though these definitions are far from watertight, they are at least independent and do not coincide with the conventional private-public division. There is non-coerced, voluntary co-operation now and then in certain affairs that are indisputably public, and uncontracted-for subordination to command is not altogether unknown in private ones. None the less, the imputation of “private” to “contract,” “public” to “command” has the ring of “simple truths” and is worth pursuing.
Some important types of contracts, as we have seen, are by their structure not self-enforcing. Enforcement in turn is not sui generis public or sui generis private. It can be one or the other and sometimes one may supplement the other. The reasons why one or the other predominates are difficult to state concisely at the best of times, and especially so without a prior base of public goods theory. Some work in that direction will be presented in Part Two of this book. Meanwhile, we may at least note the following. There are two influences arising from the practice of contracting (one primary, the other secondary), tending to make the relative sphere of command grow.
1. The primary influence is the competitive advantage of contract-enforcement by the sovereign political authority over self-help, bought help, or the agency of other non-sovereign institutions.
(a) Appeal. Once a state exists, there are cost-benefit type incentives for the losing party in any action in private non-sovereign enforcement not to submit to his loss. He may have much to gain if he takes his case in appeal to the state, which may choose to assume jurisdiction and, if it does, can override non-sovereign instances. There are incentives for the state to assume jurisdiction. A given non-zero probability that the sovereign will on appeal override the non-sovereign in a random case would engender a given volume of appeals; the greater the probability, the better it pays to appeal. The process can feed on itself and have a debilitating effect on the lower instances. The decline of self-help, communal, ecclesiastical, and professional (peer) jurisdiction and enforcement is not altogether unrelated to this sort of process.
(b) Cost allocation. The civil adjudicating and contract-enforcing functions of the state may obtain a free ride on its functions in defense and public order. If the king has dragoons and gendarmes, the relative authority of royal justice gains from the existence of this back-up force, whose cost is borne by general revenue and need not be borne by individual litigants. Moreover, the cost of enforcing a judgment against a very powerful litigant is the more easily financed the more “averaging” is taking place among cases, which gives an advantage to the large centralized enforcing authority, i.e., in practice the all-inclusive state.
2. The secondary or induced influence erodes the quality and acceptability of non-sovereign enforcement.
(a) From common law to equity. One may assume for simplicity that the authority of non-sovereign, decentralized enforcement, by which I mean the extent to which it can enforce its judgments over and above what could be explained solely by the force at its disposal, is rooted in the regard for the customary law it applies. Customary law offers little scope for discretion. The state acting as sovereign contract-enforcer has important interests flowing from its vastly more substantial role as the tenant of political power, charged with maximizing some definition of the public good. Applying common law is mostly neutral, Equity often useful in furthering these interests. Both by overt legislation and by more surreptitious judicial law-making, the state has “natural” tendencies, explicable in terms of rational choice, to introduce considerations of public policy and social justice into contract law. Rival jurisdictions cannot remain entirely indifferent to these developments; yet as they move away from (or adjust) common law, they lose, and the state gains, relative authority.
(b) Judge in own cause. Suppose, once more for simplicity, that with all other things equal judgments are the easier to enforce the more impartial the judge seemed in the eyes of the parties; his impartiality as presumed by them would increase with his distance from the case. Self-help, bought help, and mutual aid by coalition members would then be regarded as the least impartial, and the agents of the state as the most impartial, of possible judges. The importance of impartiality is obviously the greater the stronger is the element of discretion, or the less automatic is the “formalistic” rule-application associated with customary law. Hence, by causing, in one way and another, Equity to prevail over the common law and discretion over rule-application, the state enhances the weight of its own comparative advantage in impartiality and the disadvantage of those who, in their smaller jurisdictions, are in the nature of things both judge and party.
