Libertarian Answer Man: Service-Only Contracts and Exchanges

Q: Re page 424 at the top [“Against Intellectual Property After Twenty Years: Looking Back and Looking Forward,” in Legal Foundations of a Free Society], was the topic of exchanging a tangible for a service. This got me to thinking: how about service-only trades? I haven’t seen this covered, perhaps it falls outside libertarian legal framework.

How would we categorize an agreement whereby the parties exchange only their services (actions), AND make no provision for non-performance … therefore, no tangible resources are involved at all? An example: I’ll help set up for your party; you wash my car; and we don’t discuss what happens if one of us reneges.

Is it even a contract (there’s no title transfer)? It’s purely our inducement to get the other to perform actions.

The consequences of non-performance are not damaging enough to warrant arbitration. Wouldn’t we simply chalk it up to experience? Learn that the non-performer is less reliable that we thought; maybe a bit of social sanction by sharing the experience.

I’m more curious if this category of agreement even falls under the term “contract”; if so, why? If not, is there a term for it?

KINSELLA:

You are on the right track. the Rothbardian-Kinsella title-transfer theory of contract views contracts differently than the positive law does. As pointed out in various places, e.g. the contracts chapter. Also the “Against IP After Twenty Years” chapter, see p. 423 and n. 67. Also Libertarian Answer Man: Self-ownership for slaves and Crusoe; and Yiannopoulos on Accurate Analysis and the term “Property”; Mises distinguishing between juristic and economic categories of “ownership”.

This is similar to Mises’s distinction between juristic and economic categories of ownership. The same applies to the notion of exchange. We have the economic concept of exchange, and the legal one. As I explain there.

That is why I try to explain that some contracts involve only one title transfer, even though there is a bilateral and mutual “exchange” in the economic sense. As I point out in cases where you pay someone a service there is an economic exchange but not a legal exchange since there is only one title transfer (to the money). It’s still a contract though because we have a conditional transfer of title to an owned resource. Ultimately in the Rothbard TTTC contract is just the exercise by the owner of a resource, of his right to permit others to use it–either contemporaneous (now; in the present) or in the future; either limited or unlimited; either temporary or permanent. In the trivial sense, if I allow you to kiss me it is a contract since I have allowed you to use my owned resource. But usually we are talking about some temporary or permanent alienation of control–so I lease you my car for a week; or I sell it to you forever. This can be unconditional or conditional, but usually it’s the latter–the condition being another transfer of title from you to me (of money, payment) or some service (an action).

This implies what you are sensing: that if there are no title transfers to owned resources, but only two service exchanges–I scratch your back and you scratch mine–then there is an exchange in economic terms (meaning: describing this interaction as “exchange” is a way of explaining each actor’s motivations, his means-ends framework: why did A scratch B’s back? To induce B to scratch his. And vice versa). But this is purely economic. In conventional contract law this would be a contract. Because it is two mutually related promises that the other “relies on” blah blah blah. In the TTTC, there is no contract at all here–at least, not in the simpliciter case you describe.

Now in conventional contract law it’s viewed as binding obligations resulting from promises with certain formalities. Thus if you “breach” a contract there must be “damages.” But because of the leeriness of courts to order specific performance they just order payment of money damages–which is ultimately a transfer of title to an owned thing. But in this case an economic exchange of services could give rise to a legal exchange too since contracts are viewed as binding promises to do things [see ch. 9, Part I.B of LFFS]. In the TTTC there is no such thing as breach of contract because there are no obligations at all; there is no such thing even as “damages.” There is only transfers of title as agreed upon–either explicitly or implicitly.

This is similar in a way to confusion about “restitution.” Some libertarians think “restitution” is the only real standard of justice, and they shun retribution (punishment). But it’s the other way around. Real restitution is impossible because the goal of restitution is to make the victim whole–but the only way to do this is to undo the crime but that is impossible. So instead, as in my ch. 5, the primary right of a victim is to do whatever he is entitled to, to the aggressor, and to use this right as he sees fit: for vengeance ,for forgiveness, or to bargain for some service or payment. We can call this bargained-for-payment “restitution” but you can see it’s not primary, it is dependent. It flows from the right to punish. [On restitution, see LFFS, pp. 243–244, 249–252, 527–529.]

NOW: all this said: above I said in the TTTC [ch. 9], there is no contract at all here–at least, not in the simpliciter case you describe. But I do not think this is all to be said of the matter. Just as Rothbard is too mechanistic in saying the word “promise” cannot transfer title—I pointed this out before: contractual title transfers rest on consent of the owner. This presupposes communication. Communication and language always rely on context, custom, default understandings, and so on. And it need not be verbal at all–not written, or spoken. Rothbard is technically correct that “promise” in and of itself is not the basis of binding contracts; and yet, just as nonspoken actions can communicate consent and intent, so can words, even if imprecisely used by laymen. so if I “say” “I promise to give you $1000” then this can mean “I hereby transfer title to $1000 to you in certain conditions.” — depending on the context.

So yes, i think you are right — probably–that in most low-stakes service exchanges, it would not be a contract at all and have no contractual implications, that is, no title-transfer implications, and would rest on reputational effects only. And yet, in some cases, one could see a real contract being formed by the agreement to exchange services, that is, some kind of monetary backup transfer. I suspect that in most cases if it was of major value the parties would communicate this too, if necessary (it might not be if they are relying on local “language” of suppletive law and custom). So for example I get asked: well in your theory if the debtor who can’t pay $1100 to the creditor on the due date is unable to pay, and is not a “thief” (as Rothbard and Block wrongly think he is: “implicit theft” blah blah blah [see LFFS, e.g. pp. 184 n32, ch. 9, Parts III.C, III.D, III.E]) then he gets off “scot-free.” No, not at all. For we can assume every contract to repay a loan has ancillary provisions , either implied or explicitly stated or understood, that “if you can’t repay me $1100 on the due date then you owe me $1100 plus interest in the future when you are able to repay.”

Likewise in your example, setting up a party, and washing a car, might be normally services that have a monetary value in a capitalistic society (unlike two buddies back scratching each other). So it might be implicitly “understood” that “backing up” the “agreement” to economically trade services, by contractual conditional monetary payments. The positive law would call this “damages” for “breach” but in my view, it’s not, it’s just an arrangement. So I do something for you, and you for me; and if you fail to do your part, then you agree to transfer title to me to money equal to the fair market value of my services. Something like this.

Would such an agreement’s scale even matter? E.g., a large-scale service-only agreement, whose parties were too boneheaded to plan for non-performance. An arbiter may only admonish them for not discussing that contingency.

If this happened: now people know what the local law or expectations are–the “language” is defined, the suppletive law. And they will adapt in response. If for example in your situation A plans the party and B doens’t do the car washing, and A sues and the arbitrator says “hey you should have had an explicit contract if you wanted B to pay you money”–then guess what? In the future, people doing such “deals” know the risk they are taking, and if they want assurances they can negotiate explicitly secondary title transfers.

But keep in mind that this is “expensive” just like it would be expensive to insist on every customer of your restaurant to sign a long contract before sitting down–you can do it, but you drive away customers. And so on.

But is it conceivable an arbiter (based on local customs and the particulars) makes an award calling for damages? And if so, does that make the original agreement a contract?

Again, in TTTC land it would not be damages, but sure, the arbitrator could say: given the custom of our land, when you agreed to perform and failed to, you had also agreed to pay some money “damages” back to the other guy to compensate him for his performance, since you didn’t compensate him with your reciprocal performance.”

And if everyone in the community hates this result, guess what, they can contract outside of it: they can say: “hey, we are ‘agreeing’ to ‘trade’ services, but we both hereby agree there will be no title transfers that happen as a consequence of one of us reneging.”

I just think it would work itself out.