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Kinsella on Liberty Podcast: Episode 020.
This is lecture 3 (of 6) of my 2011 Mises Academy course “Libertarian Legal Theory: Property, Conflict, and Society.” The remaining lectures follow in subsequent podcast episodes.
Video, Transcript and Slides below.
This lecture’s topic is “Applications I: Legal Systems, Contract, Fraud,” and discusses:
- Legislation and Law
- The significance of Roman Law
- Contract Theory
- “written” agreements
- Breach of contract
- Debtor’s Prison
For slides for all six lectures, plus extensive hyperlinked suggested reading material, see this Libertarian Standard post. For a listing of the syllabus and topics covered in each lecture, see this Mises Academy Course Page (archived).
For more information, see my Mises Daily article “Introduction to Libertarian Legal Theory,” and Danny Sanchez’s post Study Libertarian Legal Theory Online with Stephan Kinsella.)
The videos of all six lectures are also available on this playlist.
Libertarian Legal Theory: Property, Conflict, and Society, Lecture 3: Applications I: Legal Systems, Contract, Fraud
Mises Academy, Feb. 14, 2011
STEPHAN KINSELLA: Yeah, Hoppe’s t-shirt is good. I have Hazlitt and two or three others. They’re really great. So happy Valentine’s Day, everybody for whom it’s still that day. We have 26 people online, about, I think, one-third or maybe one-fourth of the course actually. I guess 27 now. I guess a lot of people are going to catch this after. Okay, so we’re about to start. So tonight we’re going to have some applications of the principles we’ve developed so far, and we’re going to focus on legal systems and contract and fraud. And just a quick point. So this is week three, so later this week we will post the mid-term exam, and the weighting will be 40% of the total score. That’s right. Everyone else is married.
So 40% of the score will be this test and 60% the final, and as I mentioned in the first class, the course is based upon what I say here in the course and the office hours, so you should listen to the office hours and the suggested reading material, not the optional, and all these slides here because the slides have some reading material that I do not read everything in them. But the optional reading material, I will not test for the main credit based on those. Well, it depends on when we put it up, Trina. We’ll put the exam later this week, and we’ll probably give you seven days to complete it, so we’ll let you know when we post it.
Okay, now where did we leave off? We left off last time on – we talked about property rights and scarcity and then punishment and restitution and various sort of applications to that like threats and stalking and Rothbard on air pollution and torts and restitution versus punishment, etc. We also talked regarding legal theory about legal positivism and logical positivism. And I will say that I think that part of the talk is particularly interesting because you will almost never hear anyone discuss those two things together, although, as we discussed last time, you can definitely see some connections. And I think pretty much only an Austrian can appreciate those connections, and I don’t claim to flesh them all out, but something really worth thinking about and to explore.
And we also talked about some of the ways in which anarcho-capitalism or anarcho-libertarianism could work, whether we can punish outlaws who are not members of any agency, how restitution would work, punishment and ostracism and things like that, so that’s where we left off. So now let’s continue. Now, I will say that the first two lectures were very crammed. I really think this is more of a seven or eight-lecture course, so the first two had a lot of stuff crammed in.
But luckily, I could spill over some of the questions to the office hours because I’m holding this, this time for the first time, and that’s working out well. I do think for the next four courses – four lectures, they probably won’t last as long. So hopefully tonight we can finish in about one hour with the main lecture, maybe a little bit over, and then have time for Q&A. But let’s just wait and see. If we have to go 90 minutes, we can. It won’t be a problem because we are covering about three separate topics tonight, each of which will take a different amount of time. Let me close this door here so the noise is down. Excuse me.
Did everyone lose me? Am I back now? I’m not sure what happened there. So we’re going to discuss different aspects of the legal system of a libertarian world, contract theory, and then why fraud is aggression. Contract theory is a pretty big topic. The first topic is pretty big. Fraud is a more narrow area, so hopefully we can fit all three of these in.
Okay, so for the first topic, let’s talk about law. I’m just going to do a little bit of background. This may be somewhat basic for some of you, although I suspect not for many of you except for maybe some historians, even law students. I studied a lot of this in law school only because I went to a civil law law school, but I forgot most of it, or didn’t appreciate the importance of it at the time. So I sort of relearned this in the meantime on my own, and it’s pretty fascinating to just think about the overall structure of the world’s major legal systems just to get an idea of the context of where we are, what we can draw on, and what our system is being contrasted to.
So I would say the oldest and most advanced and the most important body of law in a way is the Roman law, about 1000-year, well-developed period of law from about 439 B.C. to about 535 A.D. It culminated in what’s called the Corpus Juris Civilis. This is the body of the civil law in Rome, which was done under the orders of the emperor, Justinian. So in a way, I know he was an emperor and not very libertarian, but he’s one of the most important figures of all history in a sense because he preserved – the Roman law would have been lost without his codifying it and preserving it.
So the Corpus Juris Civilis consisted of three major parts. Number one was the code, which was like a collection of the imperial enactments, decrees over the centuries of the emperors. The two main parts that were most important for our purposes is the digest, the Digest of Justinian. This was sort of an encyclopedia and a collection of the writings of the Roman jurists including Papinian whose picture adorns the advertisement for this course, and Ulpian, another very famous Roman jurist.
I mean these guys were just brilliant. And then there was the institutes, which is sort of like a textbook, which sort of summarized the digest and the code’s teachings, and it’s good that that was preserved because it helps fill in the gaps for where the others have gaps. And all three of these together had the force of law in Rome. So the Roman law is basically this thousand-year period of very developed law. It was a decentralized legal system, much like the common law in England. That is [no audio_00:07:02].
Am I back? I’m sorry. Don’t know what happened here. Okay, what I – let me ask a question. When this happens, do I – does the audio drop out or just the video? Okay. All right, I’m not sure. So what I was saying was – let me just recap then. So the Roman law major system has three main parts: the code, the digest, and the institutes. Right, okay. So it was a decentralized system of law in that the collection – the legal rules developed as the result of actual cases like in the common law in England, or sometimes they would – legal scholars would take up a hypothetical case. Like they would say if someone has a dispute with the following parameters, what would the right result be? So they would take up these hypothetical disputes, and these also added to the body of law, quite an interesting thing.1
Now, sort of a – the modern descendent of the Roman law is the modern civil law or continental law it’s sometimes called. This is the law in place in almost all of the world that’s the western world outside of the common law and the commonwealth countries. So England, the US, most of Canada, Australia are common law countries, but other than that, European countries and the west typically have one type of civil law or another. These are code-based systems. Modern civil codes they’re called, which are basically modern codifications of the ancient Roman law principles and other principles too.
Anyway, I’ll get to that in a minute. However, let me give an example. One of the most famous – actually, I’m not sure what they have in China. I think it’s a weird hybrid of this communist stuff and Asian law, but I’m actually not sure. I think it’s a mess, same thing in Russia, I think. I think it’s a mess. But there’s one thing to note about these things. The Code Napoleon or the Napoleonic Code, the French civil code is one of the most famous of the early codifications. So that was another great thing another sort of emperor did. Napoleon codified the existing European law, which was largely based on Roman law in 1804.
Now, France and Spain were trading Louisiana, which is one of the 50 United States, back and forth at that time. Louisiana enacted its own civil code in 1808, largely modeled after the French civil code. Now, these codes are very elegant if you read them, very elegant restatements of very elegant bodies of law developed in Rome – excuse me – and in Europe. But one thing about them is, unlike the early Roman law, they enshrine legal positivism. Like the first or second or third articles of these codes say that the primary source of law is the legislature and the code itself. So it sort of gets this attitude among the legal profession and the people. When you want to know what the law is, you look at the code first.
And whatever the code is, whatever the legislature says, is the law. Now, it so happens that the substantive principles in these codes were modeled after principles developed in a decentralized legal system, so they’re actually pretty good, at least at first. The same thing is true to an extent of the American Constitution, which is – in a way, it’s a general code. But it’s based upon a lot of principles developed over time in England and – England primarily.
Now, the other major system would be the common law. So that was in England, let’s say, around 1154 or so to the present, and that’s another decentralized legal system. So in a way, the common law and Roman law are similar. They are both ancient, old, well-developed, and decentralized legal systems. When I say decentralized, they were not primarily legislation-based. They primarily developed their legal principles gradually over time as a result of actual disputes between parties, although, as I said, in the Roman law, sometimes you would have hypothetical disputes.
Now, other major legal systems that are very important, which we can learn from, would be the Lex Mercatoria, or the Law Merchant, which was prevalent in European countries in the Middle Ages, say, from around the 5th to the 15th century, which is actually based a lot on Roman law. Canon law, which is the Roman Catholic law – it’s a very advanced legal system, which was also based in part on Roman law not surprisingly. And finally, Jewish law, which is a very – another ancient legal system from – I think it started developing. There’s lots of phases of Jewish law. It’s very complicated and scattered. But there’s a lot – Maimonides is a famous Jewish scholar, jurist, I think around 11 or 1200.
Anyway, someone asked a question. Jock: Is the difference between the common and civil thing about what is not forbidden is permitted versus only what is expressly permitted? I wouldn’t – there’s a lot of different opinions among legal philosophers or legal scholars about what are the main differences between them. The first difference people would say is that the civil law is more based upon the Roman law, and the common law is based upon English law. But as I mentioned, the true difference is that the modern civil law is rooted is legislative supremacy. That is the primary difference, and I’ll get to this in a little bit, but I might as well go to some of it now. But I don’t think that in either system – they’re both fairly liberal systems in the sense of freedom of contract, etc.
I don’t think in either system there is a presumption that everything that is permitted – that is not permitted is forbidden, although that tendency can be a little bit more pronounced in the civil law systems because of legal positivism. But it’s not so bad as in, say, Russia – Soviet or communist countries, etc. There is a fair amount of liberalism and freedom of contract in property rights and personal autonomy in both systems.
Here’s what I will say about this. The difference between the civil law and the common law has been made more murky in, say, the last century because what has happened is this. In the common law, which used to be a system where you have judge-made law, and the difference is one of attitude among lawyers and scholars. Like if you ask a common law lawyer what’s the law, they want to look for a case and find it, and they actually feel nervous until they find a case even when there’s a statute that covers this area. They want to find a case that validates their interpretation, and this is because the common law is a precedent-based system or stare decisis, which means the ruling of a previous court on the same or similar factual issue is binding upon future courts unless they expressly overturn it.
The ruling in the civil law is not the same because the primary source of law is the code, so the civil law lawyer and the jurist, the judge, first looks at the code and tries to find the answer even if the answer – even if this case has been answered many times before by other courts in the same way. So they first look to the code, so it’s an attitudinal-based thing. Now, this causes a difference in the way legislation is passed in these countries.
So, for example, in the civil law country, they’re used to legislation, primarily in elegant code, but legislation in general, being the primary source of law. So if the legislature wants to pass a new statute, they just pass it, and then the lawyers and the judges will look to that to find out what the law is. Now, it might not be as elegant as the civil code. It might be an infringement on the civil code, but it’s still a body of the primary source of law, which is a legislature’s will.
In the common law, the judges are – they’re said to be jealous of their jurisdiction of being the primary makers of the law. So whenever you make a common law statute or at least originally, let’s say, 100 years ago, 200 years ago, it was sort of like an encroachment upon the primary domain of law, which was the courts. So the legislature had to be very specific because otherwise the judges would find a way around it. That’s one reason you see the original English statutes are much more wordy and particular.
And they’ll use five or six synonyms in a row to make sure they’re covering all their bases, whereas the civil law countries tend to have more elegant statutes because they’re just announcing general principles, and they expect the judges to go to the statutes first to try to figure out what the law should – what the consequence or the application should be in a particular case. But over time what’s happened is we have become more of a legal-positivistic world, and legislation has come to dominate, as I’ll discuss in more detail later in a few slides.
But what that has done is it has made the systems become more similar, so for example, in the civil law countries, the civil code is still there, but even they have become a little bit corrupted. But more importantly, outside of them, there’s a whole body of legislation that has arisen around the civil code, making it less important. Okay, by the way, I mentioned stare decisis earlier. That is the principle in the common law where the precedent of a previous case is binding on future courts.
In the civil law, as I mentioned, the primary source of law is the civil code or the statutes that are relevant. But there’s something called jurisprudence constante, and I’ll have that spelled in a minute on a slide. That is the idea that if there’s a long series of the same judgments issued by courts, they have a lot of persuasive weight. Let me see if Andy sent me a note here. Okay. So that’s the two differences: stare decisis in the common law, jurisprudence constante in the civil law, and I’ll have that spelled out in a second.
Someone asks the difference – how are judges bold enough to challenge precedents in common law? Well, so it’s basically – think of it like a threshold or a burden of proof. So a court can be persuaded to overturn previous precedent if it’s persuaded that there was a mistake. But usually they’ll do it explicitly, sometimes implicitly. But the thing is, you can’t do it unless you are the same level of court or higher, so a lower court can’t overturn the precedent of a higher court. So they do it if they think it’s bad enough. The earlier decision has been clearly been shown to have been poorly reasoned or bad enough, and they have enough courage to change it. So you can change stare decisis, but it’s just a really high burden. Just think of it as a high threshold you have to cross, higher than it would be in the civil law countries.
In the civil law, if you could make a good argument that this code article applies in this way to this case, the judge will apply it even if another judge applied the same code article to a similar case previously. They’re not as reluctant to apply the code article. By the way, there’s an interesting thing in the civil law theory. The civil code is said – the civil code articles are said to be floating in a plasma of law. That’s an interesting expression, a plasma. So the idea is that there’s an organic, coherent unity of this hypothetical body of legal principles and justice and that the code articles that we found so far are little data points of that that are kind of peeking out like islands peeking out, so that if we have a case that is not exactly covered by one of the code articles, it is – you can analogize in between data points things that it’s similar to.
You can interpolate, so to speak. And the only reason you can do that is because you assume there’s a cohesiveness and there’s a uniformity in the law, and there’s a hidden order, a plasma, whereas in the common law, you can’t assume that as much because – or at least that’s what the civil law lawyers would say because it’s not planned. It’s just these sort of decentralized body of legal rules that developed all over the country in different courts. So there could be inconsistencies, so it would make no sense to interpolate between them. You could get whatever results you want.
Does the civil law usually make decisions based on the letter or the spirit of the law? Well, I would say if it’s a code case they would tend to go with – well, they would go with the letter of the law if it’s covered by a code article. But they believe more in the spirit of the law because they assume there’s a unity of the law, which is this plasma idea.
Okay, let’s go head on. I’ve jumped ahead a little bit, but that will just save time for later, so we’ll go on to slide seven now. Okay, so I already mentioned some of this. The civil codes of the civil law system have been gradually reduced in importance with other statutes that have risen to the fore, and not elegant code-based statutes but all these things like the Americans with Disabilities Act, although that’s an American law. But you know what I’m talking about, all the particularistic legislation the legislatures come up with now.
Modern common law has been gradually codified with things like the UCC, the Uniform Commercial Code, which was the brainchild of Karl Llewellyn, a German-American legal scholar, and it’s been largely supplanted with a flood of legislation. Patrick: Yes. I don’t know the particular situation of Brazil, but it is true. As I mentioned, like in the US, our Constitution is like a civil code, and it’s very much more like the civilian systems because it is very short, compact, and elegant in general and abstract statement of legal principles, more like a civil code than the modern legislation we see now or a court-based system.
And here’s where I mentioned under the modern common law point. I mentioned the – let me get my laser pointer out here. I mentioned jurisprudence constante, which is the French or the civilian idea that a long series of decisions in the civil law can be very persuasive or influential to a judge, but it’s not the same thing as precedent in the common law. Now, as for other modern systems of law – so in the ancient systems of law, I mentioned Roman and common law and also Lex Mercatoria, Jewish law, canon law, etc.
In the modern systems of law, we have civil law and modern common law, both of which, as I said, are kind of converging towards each other. They’re both very legislation-based, and they are both increasingly governed by either constitutions or by treaties, international treaties that the countries have agreed to. And by the way, we won’t get to international law very much in this course, so let me mention an interesting – I’ll try to mention some interesting terminology every now and then that is used by lawyers in a confusing way that, if you just knew the codes, a lot of things would become clear.
So in law, there’s a word called municipal. So municipal law is a term that means the national law of a given country, and the word for country in the international law is state. So there’s 180-something states in the world, and every state has its own municipal law. So in America, that would be our Constitution, our federal law, our federal statutes, and the state laws. In Brazil, it would be their own. So that’s municipal law. It doesn’t sound like what municipal law would be, but just to let you know.
And then in international law, you have public international law, which is the rules that govern international relationships. And you have international commercial law, which is sort of the more individual-based law that governs transactions and commerce between companies and people of different countries. So the modern systems of law would include also civil law, modern common law, and of course Islamic law, which I don’t know much about, and I’m not going to go into here.
But international commercial law and arbitration, which is sort of a successor to the Law Merchant actually, which I mentioned earlier, and public international law, which the main organ of which is the United Nations and various networks of treaties around the world. Okay, so that’s sort of an overview of the major legal systems of the world.
Now, what has happened is ever since we’ve had – say, in the last 150-200 years, we have had a rise of legislation as the dominant form of law to such an extent where even libertarians now are not always opposed to legislation as the form of making law. Now, they might have an opinion on what it should consist of, but they think of law as what the government says the law is, what they decree, not just judges of the state’s legal system coming up with decisions, which might be actually just or more or less just because in a court-based system, you have a judge who is trying to do justice based upon two contestants before him who each have claims to a certain thing. And he takes into account all of the facts, all of the context, and he tries to come up with a rule based upon rules he’s aware of that other judges have tried, and do justice.
This is why the common law and the Roman law tended to be more compatible with libertarianism because it’s the outcome of more or less an attempt to do justice. Legislation is just a decree of a body of men who say what the law is, and of course, that’s subject to all of the whim, but even if they had the best intentions, they’re not deciding a dispute between two real people. So you have a law like the Americans with Disabilities Act, the ADA in the United States passed 15 or 20 years ago. So it’s got a phrase in there like every employer must make reasonable accommodation of a handicapped person, but they don’t define what that means.
Now, the reason is the statute is a result of a compromise between the left and the right, and they just make up these vague terms, and they assume the judges will interpret them. And the judges will do their best, but they’re not interpreting – they’re not trying to do justice between two parties based upon the actual facts and based upon principles of justice that have been developed and known for a long time. They’re just trying to interpret words that a committee of people wrote down on paper. There’s no reason to believe that these words and the principles in this statute would be self-consistent or consistent with justice or even be coherent or non-ambiguous. So what is reasonable accommodation now? I don’t know. It’s anybody’s guess. Gradually, a body of case law develops, but it’s not the same as regular case law. It’s just something the courts settle on as a compromised way to try to interpret these vague words that these legislators come out with.
So a famous Italian legal theorist, Bruno Leoni, who, by the way, is said to have been murdered by a client sadly in his 40s I think, he was a brilliant man. He wrote Freedom and the Law, and I think that book is online for free, and if it’s not, you should buy it. It’s a fantastic book. And one of his fellow lawyers – I don’t know if I quote him here – Giovanni Sartori – he’s fantastic. He’s also really good, Giovanni Sartori. Anyway, so what Leoni pointed out was when you have legislation becoming the dominant form of law, number one, it reduces the amount of legal certainty in society. So this is one problem of having a legislation-based system. Why is there less certainty? Because the legislature has the authority to just change the law from day to day.
Now, we see this right now in the current financial crisis when no one knows what the government is going to do, let’s say, in the US case about mortgages and the interest rate and the bailouts and whether banks can foreclose on mortgages and what changes they’re going to – what the tax law is going to be next year. Whenever you have uncertainty, and you have uncertainty just because there’s a dictatorial agency that has the discretion to change their mind.
In a common law system, they couldn’t do that. It evolves more slowly and gradually, and there’s no sort of single body that decides to change the law. It’s just a response to conditions. So whenever there’s a legislature, you can’t be sure what rules will apply tomorrow, so that increases uncertainty. And as he points out, there are three things about judges that make them different systematically from legislators. Number one, they can only make a decision when they’re asked to do so by the parties. They can’t just go to court one day and make a decision. They have to have a dispute.
Number two, the judge’s decision is not that far reaching. It only affects those parties and maybe occasionally third parties. And third, his discretion is limited because he has to refer to precedent, similar precedent, so he can’t deviate from precedents too much. If a judge were to hear a case between [no audio_00:30:40].
Sorry, am I back now? Okay, sorry. What I was saying is if a judge were to try to – in a decision between two parties with a concrete dispute, let’s say they’re both claiming a sum of money because one damaged the other or they had a contract dispute. If the judge just decreed one of these crazy statutory schemes, it would be what’s called dicta, D-I-C-T-A, dicta. And what that means is it’s something that’s not necessary for his decision beyond his authority to make, and other judges would ignore it. It’s not part of precedent or case law.
Okay, so this is why judges cannot do the same thing that legislatures can do. Now, if you have a legislature, you have – and by the way, you might have seen this poster before or this little bumper sticker that when the legislature is session, no man’s life, liberty, or property is safe. Well, that’s the same idea that the legislature is kind of unpredictable what they’re going to do, and they have a lot of authority. So there is more legal certainty in a decentralized legal system like Roman law or customary law or common law.
Now, what are some of the effects of this? I’ll just go through them quickly. When you have more uncertainty in society, so for example, you can’t be as sure that your agreements will be enforced because the legislation might come in and change the law and say that these types of agreements can’t be enforced. For example, as we have right now with mortgages, I mean the reason you give a mortgage to secure a loan is because you have collateral to back up your loan. But if you think the government is going to come in and freeze all the mortgages because of concern for homeowners out a desire to pander to homeowners to get votes, well, then you’re going to have less loans being granted because you can’t be secure in your collateral, same idea. So you have more costly alternatives being developed if you can’t rely on contracts as much.
Also, when you have increased uncertainty, time preference is increased, and time preference is a very important thing in economics and libertarian theory. The idea is that the higher time preference is – or the lower time preference is, the better off we are because people are willing to invest more for the future. They’re willing to wait longer to be gratified and to have longer-term projects. When you can have longer-term projects, you can have bigger projects and more returns. If you’re living hand to mouth because you have high time preference, you save less and you produce less, and we live a more squalid lifestyle. So the point is that legislation leads to uncertainty, which leads to negative effects like more cost and higher time preference, which leads to lower production and impoverishment of everybody. I’m having a little coffee, or maybe there’s bourbon in there.
So another negative effect of uncertainty, and if you will read one of Hoppe’s articles on – it’s on hanshoppe.com on his publications page. It’s on time preference I believe. He’s got a good extended discussion about – and I think I cite this in my legislation article that I have on the course page. But there’s an extended article I think by E.D. Bonson or someone. “The Heavenly City” I think it’s called, or it’s a book, I think. It’s a study about how, when you have more – a higher time preference, this leads to increased time because people become more present-oriented. And this pushes people right on the margin, people that would be criminal but they’re not quite, in a certain society, into criminality if time preference increases. So there’s a bunch of negative effects of legislation and the uncertainty that it engenders.
Another one is this. As you have more and more laws, and the idea that law is what the government says, then you have more special interest groups arising. And then other special interest groups arise to defend themselves from the laws or to get their slice of the pie. So this makes it more of like a war of all against all. So then we’re all fighting and conflicting over what laws should be there and getting our slice of the pie and hurting the other groups and having laws that harm our competition, etc. instead of cooperating and just minding our own business.
Another problem with this is when you have so many laws, we are pretty much all law breakers. There’s almost always some law you can find that someone has violated, especially given the perverse rule in most legal systems that ignorance of the law is no excuse. Now, when you have a legal system like a libertarian legal system, which is based upon what we say natural law or law that’s common sense or law that’s written on our hearts, engraved on our hearts, then you can say ignorance of the law is no excuse because we all know the law. The law is don’t hurt each other. Respect each other’s rights. Everyone knows this.
But when you have legislation coming and law can be just made arbitrarily and you have literally hundreds of thousands of laws buried in books and regulations, which amount to laws, it is literally impossible to know all these laws. So to have a rule that ignorance of the law is no excuse is perverse, but in any case, what this does is it gives the government the authority to have discretion about who they’re going to single out. So they can always make you a law breaker if they want to. So what this does is it does tend to make you more like the society of, say, a communist country where everything that’s not permitted is forbidden because you’re probably breaking the law at any point in time.
Let’s go to slide 13. Oh, here’s Giovanni Sartori. So I’m on slide 13. What I’m saying is Sartori who is sort of a colleague or a fellow Italian legal theorist of Bruno Leoni pointed out when legislation is thought of as the primary source of law, which is how everyone thinks of the law now. In fact, even libertarians think like this way now. They’ll say, well, that’s – they’ll say that you have these income tax nuts in America. They’ll say, well, it’s not illegal to not pay income tax because it’s not the law. It’s not on the lawbooks. So they think of what’s in the law books, what’s written down in black and white is what the law is instead of justice and legal principles developed based on justice. They start thinking of law as whatever has been decreed by the legislature.
So as Sartori pointed out, when everyone starts thinking that law is whatever the government says, when legislation is the primary source of law, citizens become more accustomed to following orders, so they become more docile, more servile, and less independent, and then the government can become more tyrannical.
Now, let me mention quickly here, the idea of a private system law is that in a common law system, you would have a role for codification, but it would not be legislated. So there would be a role for commentators and codes, so you would have these – excuse me – decentralized bodies of law like in the Roman law. And then some legal scholars or companies or arbitration agencies or whatever would come in and try to come up with codifications of the law, clean up some messy edges, and suggest improvements. But they would codify the law. There would be a market for that and a need for that like what’s done in the past with Justinian’s code – I’m sorry, the digest, sorry, and as was done by, say, Coke, the English legal theorist or Blackstone, another English legal jurist, or as is done now by the American Law Institute restatements or even the uniform commercial code, which is adopted by some legislatures but is a code that was drafted by an institute.
Okay, so let’s go to slide 14. Am I still there? No freezing. Good. So as I mentioned before, here’s where I have the municipal law thing I mentioned earlier. In a legal system of a libertarian world, let’s think about international law versus municipal law. So right now, we have state-based or country-based legal systems, which is a municipal law, and international law. The municipal systems have become largely legislation based, so they’re very positivist in the legal positivism sense. So if you’re convicted of doing drugs or accused of doing drugs, it’s not a very good defense to say it’s unjust because the only question before the court is did you violate the terms of what’s written down here in this statute whether or not it’s just?
Now, sometimes you can try to appeal. If there’s wiggle room, you can appeal to the Constitution, but even the Constitution allows taxation. The Constitution allows drug laws. The Constitution used to allow slavery in America I’m talking about. So even the Constitution can’t be assumed to have been just, so people are only appealing to compliance with a given written-down, arbitrary standard of law decreed by a group of government bureaucrats. There’s no reason to think that would be just.
International law, by contrast, as much as some libertarians and conservatives have distrusted world government centralization and the United Nations, it doesn’t look to me like there’s any great danger that the United Nations is going to take over. If anything, the great danger is the United States and maybe some of its main allies or co-conspirator countries would and do dominate the United Nations and use that to cover their global hegemony. So I’m not so concerned that the United Nations – now, they are somewhat socialistic in some of their laws, but they don’t have much enforcement power.
So the one good thing about international law, and I’m talking public international law when states make arguments before neutral forums and tribunals when they have disputes with each other, or when countries have – when companies have arguments with another state or with each other in an international setting, there’s a little bit more wiggle room and leeway to make normative arguments and to bring in, say, libertarian principles or justice principles because the law is not legislated as much.
And there’s more of a general-principles-of-law-basis of international law, so it makes more sense to tell the jurist this is what the just solution would be because they’re not so bound by the straight jacket of a legislative scheme and what they can do. So in a way, international law, I think – international law itself, and Jock says about ACTA. Well, that’s a treaty that is sort of like private law between countries, so I think that’s just as bad, of course, as municipal and state law. And that is corrupting international law to some degree too. I’m talking primarily about public international law, which is governed by so-called principles of international law, which is primarily contracts should be respected, and countries should not attack each other for no reason. So it’s roughly compatible with libertarianism. Respect contracts, and don’t commit aggression.
Now, as we talked about in the last class, the legal system of the libertarian world would probably be restitution based, although it could be based theoretically upon a right to punish. But it would probably be predominated by restitution and practice. And then so I don’t get too far behind here, and we may not have much time for Q&A today, so we may have to kick it to next time, but anyway, there is sometimes a dispute among libertarians about, in a private legal system, in an anarchist system, would criminal law disappear, and would there only be property law?
Would one devolve into the other? And the thinking is that criminal law, at least in our statist system, is not really libertarian because there’s no victim. The state claims to be the victim. So think of the OJ murder case. The state prosecuted OJ and lost because they had a higher burden of proof, and then the victims sued OJ for a tort in a civil case for restitution basically and won. Now, in a private system, you think that would be the only – there would only be one suit by the victim against OJ.
Now, maybe it would be criminal, but the result would still be restitution. There is still good reason to believe that in a private legal order, even if criminal and tort and civil law devolve into each other, you would of course still have – you would have specialized types of courts, say, for contract cases, for successions like when you have a death and you have to decide who gets to inherit the property, for marital disputes, divorces, child custody, civil cases, and crimes and torts. So you would have specialized courts, but they’re all applying the same basic property rights principles, just to different situations.
Now, there is something that libertarians are prone to, and that is what some of us call armchair theorizing. And we see it here in this course. People say if you have this kind of case, what’s the right result? I think we need to have a little bit of humility about our ability to come up with answers. And if you reflect about how the common law and the Roman law systems did things, which are more compatible with our ideal system, they came up with the disputes only in response to a detailed, factual accounting of a context.
So the person who came up with the legal decision or determination knows a lot of details about the parties, the dispute, and tries to come up with an answer. Usually in these hypothetical questions, it’s pretty general. If you shout fire in a crowded theater, are you guilty? If you incite a mob to riot, are you guilty? Well, that’s not enough of a decision to go on, so we have to sort of be careful about how much we can come up with from our armchairs. I think libertarians have to come up with general principles, and we have to rely upon them being eked out and developed and applied in concrete ways by courts and by arbitration agencies, by insurance companies, by contractual regimes, by customs, and see how they develop.
Now, Randy Barnett, who is an important libertarian legal theorist, in one of his books, which I discuss in my article, which I have hyperlinked here, the “Knowledge, Calculation, Conflict, and Law” article right here. He says we should distinguish between abstract rights and legal precepts. By abstract rights, he means basically what our general rights are. Legal precepts he means more concrete applications of these to given situations or areas of law.
So of course, Julia, I think you’re right. I think that what you could expect would be to see arbitration agencies, insurance companies, private justice agencies gradually coming up with contracts and regimes and basically treaties. And you would have legal precepts develop as well, and we could model a lot of these after what the civil codes and the common law and the Roman law have done, but we have to be aware that these were kind of quasi-statist systems, overly statist systems. And we have to take everything they did with a grain of salt and at least examine them to make sure that they weren’t based upon some un-libertarian abstract principles.
Let’s go to slide 16 now. Excuse me. So I have some examples, just examples here. I don’t want to go through them in detail because we’re running behind. Just here are some examples that you really – it’s hard to do armchair theorizing with a lot of these whether a promise is always or is never a contractual title transfer, whether – like I said, whether incitement can be a crime or is a crime. What counts as a threat? When you go to your neighbor’s door to borrow a cup of sugar, are you committing trespass, or did you have an implicit invitation to use their property to knock on their door? If you kiss a girl on a date, is it a type of sexual assault, or did you have implicit permission given the context?
And then there’s caveat emptor, which is the buyer beware. Was he defrauded, or did he – should he have known better? And then Walter Block and Murray Rothbard’s idea where they say, well, there should always be the two-teeth-for-a-teeth punishment rule. I mean I understand the sympathy there and the reasoning, but it seems to me a little mechanical and a little bit armchair. We can’t say it would be exactly two teeth for a tooth.
Okay, so we’re making good progress here. I am going quickly here, but – that’s interesting, Patrick. I’ve been trying to think of some more courses, so if you guys have ideas, let me know. Okay, so we’re kind of done with libertarian legal theory. We can take questions later. I’d like to move on to contract theory now. And fraud is not going to take long. Contract theory is going to take at least 20 minutes. Great. I am squeezing a lot in here guys, and I know a lot of you are not legal experts, so you’re really keeping up nicely. And I hope I’m not going too fast, but I really want to cover as much as I can.
Okay, contract theory. Now, step back and think about this, and I hope I’m not being too elementary. When I talk about these things, I’m a lawyer, practicing lawyer. I’ve read a lot of stuff. I’ve been thinking about this stuff for 20 years, and even I still think about it in somewhat elementary terms to just step back and sort it out. So sometimes it seems basic to me, but I think it’s a helpful way to step back and take a fresh look at it because there’s so much baggage out there about how people approach these things. And there’s so much lack of clarity in the legal concepts they use and in the assumptions that they have. They just assume way too many things.
They assume way too many things, and it leads to erroneous assumptions or people just making crazy statements and assumptions. So let’s step back and think for a second. People commonly say, including libertarians, they just take for granted the ability to contractually bind yourself or to obligate yourself. And what they think of is the modern concept of contract as a binding promise. That is, you make a promise in a certain way that gives rise to a legal obligation to perform.
Now, what does that mean? Most systems don’t have what’s called specific performance. That is, if you refuse to do what you promised to do, the judge will almost never make you do it except maybe sell a piece of real estate, but that’s not really making you do anything. You’re just transferring ownership of it. He won’t tell you, if you don’t sing at that birthday party, I’m going to put you in jail. He might issue a contempt order if you refuse to do something – if you do something you refuse not to do, like if you can just abstain from doing it.
But these courts don’t want to get involved in supervising whether you did the job right and all this kind of stuff. So they almost never issue specific performance, it’s called, specific performance. What they do is they just award damages, so they’ll say if you promise to sing at someone’s party and you don’t, well, you’ve got to pay them $5,000 of damages. So it always comes down to a title transfer if you think about it. It’s not put that way because people think of things as binding promises. They call them binding promises, but they’re not really binding. All they mean by that is that there’s a consequence if you don’t do it. And the consequence is almost always a transfer of title to money or property in terms of damages.
So basically what the legal systems really are is title transfer system. Things you do can cause title to be transferred, usually money. So the libertarian system that is propounded by Murray Rothbard is explicitly this: a title-transfer theory of contract. They say, look. Let’s just go ahead and go right – let’s cut right to the chase. Let’s call it what it is. And by the way, one alternative theory that’s a libertarian theory of contract is Randy Barnett’s consent theory of contract. I think it’s a little bit more like the conventional theory. I prefer Rothbard’s theory, but you might find Randy Barnett’s theory of interest. I have it on the optional readings section for this course, for this lecture.
So let’s go on. Let’s talk about Rothbard’s and Evers’ theory. So what happened was this. Until recently, I actually would call it the Evers-Rothbard theory because Williamson Evers, who is a scholar, still living, published an article in 1977 in the Journal of Libertarian Studies on his contract theory. Murray Rothbard then built on this theory and summarized it and extended it a little bit in his 1982 book, The Ethics of Liberty.
But I recently realized that in a 1974 article, Rothbard kind of anticipated Evers’ theory in an article he did, and David Gordon posted on the Mises blog recently about how – or actually the Mises email list, sorry. Anyway, that he had actually asked Evers the other day where the title-transfer theory came from, and he said he got it from Rothbard. So basically what I think happened was Rothbard got there because of his Austrian theories and his libertarian theories. And then Evers took off from that, and then Rothbard built on that, so this is still the Rothbard-Evers theory. Basically, the idea is that the right to contract is just a consequence of property rights. So if you own a piece of property, then you have the right to sell it to someone else.
Now, I’m going to revisit this when it comes to the inalienability issue because I actually don’t think that’s an automatic assumption. This is the mistake that’s made when it comes to your body, but it is true, I believe, when it comes to property that you own. The reason is—I’ll go ahead and anticipate the argument—when you have property that is outside your body, something that you own, you own it because you came to own it. You came to own it because you homesteaded it. It used to be an unowned thing, and then you homesteaded it from the state of nature, or you acquired it from someone else who did that.
But the point is, this is a thing that at some point no one owned, and at some point, you didn’t own, but then you came to acquire it. You’re now the owner of this object or this thing. You’re the owner because you’re not merely possessing it. You’re owning it with the intent to own it. That’s an important part of ownership. Ownership is the right to possess or the right to control something. It’s not merely actual control or possession. It’s the right. And to own something, you have to intend to own it. I mean if I grab a stick off the ground in the middle of the wilderness just to strike a tree with it and drop it, I never really did intend to homestead that. Or you could say I homesteaded it, and right away I abandoned it, but the point is my intent to own is an important part of maintaining ownership of something.
This is why it’s possible to – we’ll have to get to that in a minute, Atchafalaya, but that’s the inalienability issue. I’m talking about things that you homestead because think about it. You’re homesteading it. You are a homesteader. You are someone with a body, having a body, so the ownership or control of your body is already presupposed as part of what a homesteader is. So that’s sort of a given. You don’t homestead your body in the same way that you, as a body owner you can say, homesteads other things. By your intentional action, you acquire something and you homestead it.
That means that if you lose the intent to own it, you don’t own it anymore. So that means you have the ability to abandon these things. Now, this seems elementary, but I think it’s very important. This is, I think, why you have the right to sell things that you own. You just abandon them in favor of a given person basically. You give it to someone else and say I now relinquish my title to it, and then they’re holding it so they can re-homestead it, for example. That’s one way to think about it.
The reason this is important is because ownership, as I mentioned, is the right to control. Now, the right to control does not imply automatically the right to get rid of the right to control. It means that you’re the one who gets the right to decide who can use this. So how would the right to control imply you have the right to sell it? Because that means you would lose the right to control. So I think the way – the reason you can sell it is because, when it comes to something that you acquire, you can un-acquire it. You can abandon it. If you can abandon it, then your ownership of it means you can evaporate that ownership. That’s why you can sell these things. So it’s a consequence of the combination of the right to control, the importance of intent to own, and the fact that you acquired it is the reason why you can sell an acquired external object.
Now, this actually does not apply to one’s body because you never did acquire your body in the same way. It’s not like you are a disembodied spirit lurking around and you homesteaded a body. You might have religious beliefs like that, but it’s still not the same thing. You weren’t a homesteader. You weren’t an agent, an actor in the world, walking around with already having a body and homesteading your body. It makes no sense. Anyway, Patrick, I’m not sure who you’re asking a question of or what your question is, but…
Okay, so I’ve already touched on this a little bit. By the way, it’s 9:02 right now. Why don’t we take a seven-minute break, and then we’ll continue? And I think I may go most of the rest of the class with the lecture. And we won’t have much time for Q&A, but we can go longer if you guys want, and then we can do more questions on the office hours on Wednesday. So it’s 9:03 now. Why don’t we come back at 10 past the hour? Is that okay with everybody, 10 past the hour?
Okay. So now let’s talk about breach of contract. Now, in conventional theory, breach of contract, as I mentioned earlier – I touched on this already. Can everyone hear me? I’m back okay? Okay, so the conventional view is that – okay, bye, Erika. The conventional view is that if you have a contract, it’s an enforceable promise, and if you breach it, there’s damages. So the libertarian view, according to the title-transfer theory, is that there really is no such thing as breach of contract.
Now, there is a theory in sort of law and economics – excuse me – and it’s called the efficient breach theory, which comes close to what our view is or what my view is or what Rothbard and Evers and my view is. Efficient breach theory is that you should be permitted to breach a contract if you have a better opportunity to do something else with your property or your time as long as you can pay off the original party. Of course, that’s the consequence of a title-transfer theory is that in your contract, it is viewed as a set of conditional title transfers between parties.
Now, I’ve already touched actually on this part here. Oh, I’m sorry. I thought you meant got to go, Erika. Sorry. Now, I’ve already touched on this issue. Does ownership automatically include the right to sell? In my view, it does not. There is actually an international law issue, which is relevant here, and a state law issue. It’s called parliamentary or legislative sovereignty. So the question is can a legislature bind themselves now not to do something in the future? Like could Congress pass a law saying we cannot – here’s the minimum wage. It’s $10 an hour, and we cannot ever lower it. They actually can’t do that because next Congress could just change their mind. Even if they put it in the Constitution, the Constitution can still be amended because nothing requires unanimity, and even if it did, you could finally have unanimity.
The same thing is true with countries. So you’ve had some of these famous international arbitrations in the ‘70s in the Middle East oil dispute cases like Aramco and Saudi Arabia and all these kind of things, Exxon and these companies. They had concessions, which are international agreements or treaties between companies and countries, and these are given international force. And so basically, it’s like a property right given by a country to a separate country’s national company – not national company, but a national, meaning a citizen of that country.
And that agreement, if you breach it, it’s like breaching a treaty. So you had these countries like Saudi Arabia, etc. They would nationalize the oil concessions of Exxon or whatever, and then even though they had promised they would never do that, and then they would say that, well, we have the right to change our mind because of sovereignty. And basically the international arbitration tribunals had to make a decision. When a country makes a solemn promise that’s binding under international law – and there’s a way to do this. It’s called internationalizing the contract.
This is not really relevant for our course. I’m making an analogy to the personal situation, but the point is, the question before the court is, is it an exercise of sovereignty to bind themselves in the future, or can they always change their mind later? And basically the idea is that, at least for countries, they can bind themselves. At least that means there’s consequences if they breach the agreement. Just like if America – like Congress can change the law. Say Congress can change the copyright law tomorrow because there’s nothing to stop them from doing that inside the American legal system. But if they change the copyright, it could violate the Berne Convention, which is a treaty they entered into, and then they would be in breach of international law, and there would be consequences for that. What they might be is a different question, but there could be consequences, and that’s what law is. Law is a rule, the breach of which gives rise to certain serious consequences.
So the question is, if you own property, that means you have the right to control it. If you have the right to control something, you can see why that doesn’t automatically mean you have the right not to control it. I mean the right to control it – so let’s say I have the right to control this ink pen here. That means I can loan it to you, or I can refuse to loan it to you. Now, let’s say I agree to loan it to you. I say yes, I promise I’ll let you have this pen. I’m going to give this pen to you. Now, you take the pen.
Now, if I’m the owner, I have the right to say give me the pen back. The right to control by itself doesn’t automatically imply you can get rid of the right to control. That takes an extra assumption, and as I mentioned earlier, I think that assumption is the nature of the good as being something that was acquired by a homesteading agent. Now, if you acquire – if I acquire this pen, there was a point in time when the pen didn’t exist or I didn’t own it and I come to own it. I can abandon that ownership, and if I abandon it, someone else can re-acquire it. That’s why I can sell it.
Okay, so – but that doesn’t apply, in my view, to the body. Now, the question about inalienability rises. Can you make a contract to sell your body? Now, if you have the promise view of contract, then in a way you could. You could obligate yourself to perform a certain service like be an apprentice or even a slave. But if you didn’t perform it because there’s no specific performance, then there’s just a consequence, like you have to pay damages.
So in the promise-based theory in which there’s no specific performance, it doesn’t really matter whether you say there’s – inalienability is sort of a consequence of that because you still can’t be physically punished and prevented from leaving the plantation if you’re a voluntary slave, let’s say. Under the title-transfer theory, the question arises: Can you transfer title to your body? Now, I think you cannot, and the reason is because this. As I mentioned, the right to own is the right to control and doesn’t automatically imply the right to abandon. It does in the case of acquired things, but in your body, you never acquired it in the same way. I’m going to mention Rothbard’s view of inalienability in a second, Jock. I’m first going to explain where I think it makes sense, and then I’ll contrast to Rothbard.
With your body, you never acquired it, so you really can’t abandon it, so there’s no easy-to-understand way that you can just mouth words that get rid of title to your body. What would that even mean? When you say you have title to your body, a lot of people have a problem with the self-ownership idea. They think it’s inconsistent or contrary or has a religious connotation like they think it implies that you’re saying you’re a soul and you own your body as a soul. I don’t think it implies that. You can have any metaphysical view about religion, and this is still the same idea.
Self-ownership only means for the libertarian it’s a way of describing the fact that you are the one who has the right to say, consent, or permit or not permit people to use and touch yourself, your body. Whether you’re the same as your body or not is not really the issue. The point is you can identify your personality and your identity and your body. Whether they’re the same thing or not is irrelevant, but the point is we can identify these different legal sort of constructs or entities. And we have an answer about who has the right to control your body. It’s you. That’s all self-ownership means.
That doesn’t mean you can – now, think about this. So if contract is not binding promises – so let’s say a boy kisses a girl on a date and she consents to it. Why is that not assault or battery? Well, because she consented to it, even if we say the consent was implicit or contextual by the circumstances. But what if the girl – what if a girl tells her boyfriend you may kiss me tomorrow? Now, tomorrow arrives. Okay, good, right. The kiss is relevant here. So tomorrow arrives. Nothing is said. They’re alone, and the boy leans over and kisses the girl. Now, normally we would say that he believes he has her consent because she told him the day before he could do this.
Okay, so the reason the kiss is consensual is because think about this. This is never emphasized in what I read. There is consent right now. In other words, we are using her words yesterday as evidence of what her current consent is, but it’s always her current consent that matters. It’s not her consent yesterday that matters. It’s her consent now. The reason is because let’s say yesterday she says you can kiss me tomorrow. And they’re sitting on the bed next to each other today, and he looks at her and she sees he wants to try to kiss her, and she says, listen, I’ve changed my mind. I don’t want to do this. Now, is he entitled to kiss her anyway? Well, of course not because she is not consenting to it now, and all that matters is now.
She has the right to change her mind. There’s nothing in libertarian theory that says you can’t change your mind. If I agree to box someone or play a football game with someone, if I step onto the ring or step onto the field and I get hit, I’ve consented to it. But if, at the last minute, I change my mind, then they may not hit me. Then it’s aggression. It’s assault. So this is a fundamental important fact that we have to keep in mind. It’s the consent at the moment of the interaction that matters.
Now, given that fact, so what if a girl promised her boyfriend could kiss her? If he kisses her anyway later on when she says no, he’s committing aggression. The fact that she promised before is irrelevant. The only way he can – now, let’s take it out of the kissing example because this is getting creepy. So let’s take a slave example or a boxing example. Can everyone else hear me? Am I frozen? Okay, so let’s take a boxing example. Well, let’s go ahead and take a slavery example to make it explicit.
Okay, in one week I promise to be your slave. Now, one week comes and I refuse to do it. Now, may the slaveowner, putative slaveowner, use force against me and treat me like a slave? Well, only if it’s not aggression. This is the libertarian touchstone. Is it aggression or not? Now, it’s not aggression if it’s in response to my aggression. But did I commit aggression against him? No, I only uttered words a week before. You can’t say that that was a transfer of title to my body because that is circular reasoning because you’re trying to – in other words, it was a transfer of title to my body if he’s got the right to hit me. That’s a consequence of his rights to hit me or not to hit me, and he doesn’t under libertarian aggression theory because I didn’t commit aggression.
The only reason people get confused is they may this assumption that if you own something, you have the right to sell it. The reason they make that assumption is they are used to thinking of alienable things, and it is true that for alienable things you have the right to sell them. But it’s not because you own them. It’s because you have the right to abandon them because they’re alienable in the first place because you acquired them in the first place.
So in other words, the same concept of ownership, which is the right to control, applies to your body and to things you acquire because they’re both scarce resources, and you have a claim to both. But the claim is different, and the reason you have the right to sell an acquired thing is you just un-acquire it. But your body is not the same thing. When you acquire things, you are already a body owner acquiring things. It doesn’t make any sense to say you abandon your body by merely announcing your change of intent.
So this is my theory. This is my belief. Now, what’s Rothbard’s view? Rothbard had a kind of confused view on this I believe. He had the title-transfer theory of property. Now, he did not want to say that you could sell yourself into slavery. So his argument was that there’s an impossibility involved, that it’s impossible to sell yourself into slavery because you’re always really in control, actual control of your body. Now, I think this argument does not work because sometimes slavery is justified by Rothbard’s and by my views and other libertarians’ views because let’s say someone murders a family member.
Well, you can enslave the guy at least temporarily to kidnap the guy, to punish him, or to incapacitate him or to force him to give you restitution or to defend yourself against him or something, but the point is you are using force against this person’s body against his will. So you have the right, under Rothbardian theory, to use force against an aggressor’s body even though he has the physical control of his body. So it’s not impossible to do that. Impossibility does not prevent having a right to enslave someone in certain cases, so I don’t think that’s a good argument.
There’s another argument that you don’t have the right as a person to commit aggression, so if you’re a slave of a slaveowner, he might order you to commit aggression so he couldn’t be yours. But to me, that’s only a limited attack on slavery. That only says that you can’t – all that means is the slaveowner doesn’t have the right to use his slave to commit aggression, but you don’t have the right to a gun to commit aggression either, but you can own guns in general. So I don’t think that’s an argument either. So I think Rothbard’s argument is not a good argument. I think it’s not impossible to own a slave, which is what Walter Block picks up on. Walter Block says you can sell yourself into slavery because he sees this flaw in Rothbard’s reasoning. I think Rothbard’s reasoning is flawed, but you don’t need to rest on it. All you need to realize is that ownership of property does not automatically give you the right to sell it. That only comes out in the case of acquired goods.
Now, there’s an interesting twist on this. Rothbard has a comment. I think it’s in his contract article about debtors’ prison. And Block buys into this, although I’ve talked to him personally about it, and he goes back and forth on this. The idea is this. Let’s say you borrow money from someone. Let’s say I borrow $1000 from you, and I’m supposed to pay you $1000 plus 5% interest back in one year, so $1050 in one year. Now, if I don’t pay the money back to you in a year – what I was saying was – so I borrow $1000. I’m supposed to pay you back $1050 in a year. If I don’t pay it back because I’m broke, then Rothbard says I could theoretically go to prison because I’m stealing from you.
Now – and he’s right. The only reason I can go to prison is if I’m committing a crime of aggression. If I’m not stealing, then debtors’ prison could not be justified. But what am I stealing? Now, Rothbard says you’re stealing the original $1000. Walter Block sort of goes back and forth and says you’re stealing the $1050. Well, you can’t be stealing the – I can’t be stealing the $1050 because I don’t have it. I don’t own it. I’m broke. There’s no money for me to steal. It doesn’t exist. You can’t steal something that doesn’t exist. So Rothbard says, well, you’re stealing the original $1000. Well, I’m not stealing it. You gave it to me one year ago for me to use. You gave me 100% title to it. If you didn’t, I couldn’t use it for my projects or whatever I wanted to borrow the money for.
You can’t retroactively make something theft in the past because, at every moment in time, a libertarian theory of property has to specific who owns things so that we can know who owns it so people can know what to do with it. For example, if you loan me $1000 – well, I’m going to get to fraud in a minute because this is another problem with this way of looking at it, Trey. If you loan me $1000, I have to be able to spend it. I can’t spend it if it’s not mine. I can’t pay someone for his supplies that I need to buy. I can’t give him the money. He won’t take it unless I have the authority to give him the full title to it.
So you have to conceive of a loan, for example, as two title transfers. Number one, it’s a present transfer of title to the $1000, 100% transfer, no conditions attached. And there’s another title transfer made. That is, my transfer now of $1050 of my future money, in the future, to you, but because that’s a future-oriented transfer, it’s inherently and necessarily uncertain, and we both know this. Everyone knows this. The future is uncertain. So there’s no fraud. There’s no fraud at all. What’s fraudulent? Someone’s got to tell me what the fraud is.
So here’s the idea. There is no debtors’ prison for failure to pay a debt. There cannot be. And when they say implicit theft, I don’t know what implicit theft is. There’s either theft, or there’s not theft. Theft cannot be implicit, and theft cannot be retroactive. Now, I disagree, Trey. It cannot be loaned on condition of repayment. It was loaned 100%. Title was transferred in exchange for a future title transfer. If you say it was loaned on condition, that means it was loaned on a condition – the question is who had title to the property right after it was handed over? Was it the borrower, me? Or was it the loaner? If it’s conditional, I don’t own it, and I can’t spend it.
Colin says, but the authority was conditional. Well, I don’t know if the authority was conditional. I didn’t break any condition in the present. See, when you loan money to someone, they presumably have some kind of project in mind that they’re going to make the money back and make a profit and be able to repay the loan out of it. This is a risky activity. It’s entrepreneurial. Both sides know this. Well, you can’t have a performance bond because that means insurance, and you cannot insure every entrepreneurial activity because that’s not the nature of insurance. You just can’t do it.
I don’t know – Jock, if you can elaborate. I don’t know what theft by finding is or how it would apply here. You cannot insure loans, Matt, because insurance can only apply to – you have to read some of Hoppe’s and Mises’ stuff on this, but you cannot insure entrepreneurial risk. Well, I would say all loans are bilateral exchanges of property. One, it’s a current, present, unconditional transfer of title to money given to the borrower. And the other is a future transfer of title to property that may or may not exist in the future, so it’s inherently risky. Everyone knows this. All loans are risky. They may not go – the question is whether it’s an act of theft if you don’t repay someone.
Now, I agree that if I have the money on the due date, then some of my money automatically becomes owned by the creditor. So now I’m holding $1050 of his money. If I refuse to turn it over, I’m committing aggression, a type of trespass or theft. But the question is if I’m penniless or bankrupt. Now, clearly, they would have negotiated subsequent title transfers, like I hereby transfer $1050 to you in one year, and if I don’t have the money, then I transfer that amount plus interest in the future if and when I come into that money. So you would have subsequent title, but I may be dead. I may get killed. I may not be able to ever pay you back. Some loans go bad. Just like my business adventure may have gone bad, your loan to me went bad. These are all entrepreneurial activities.
Well, Trey, a mortgage is a secured loan. A secured loan, yes, is secured by a house, but that’s because it’s a particular type of investment that you can do this with. In other words, the bank loans me money to buy a piece of real estate, so that’s an asset that is somewhat comparable in value to the loan value, and they take out a security interest in that, which is a partial ownership interest in that property until I pay the loan off. That’s perfectly fine, but you can’t do that with a business venture, for example. I mean you can have some assets, but the point is, the hypothetical, if you’re totally broke – okay, by the way, let me stop for an administrative matter.
We are – we’re past the time. I am happy to go further if everyone wants to. I think what I’ll want to do is – let me see what the next slides are. I see your slides. Funny, guys. I’m pretty much done with contract theory. The next would be fraud, which you’ve already touched on. What I’ll do is I will touch on fraud in the beginning of the next lecture. So now that we’re done here with the main substance, let’s just talk, whatever you guys want to talk about now about what we’ve talked about tonight. We can talk for the next, say, 15, 20, 25 minutes if you guys want, so ask away.
I’ll try Alex’s question here. Can’t the creditor write into the contract that if the borrower doesn’t repay on the date his future income will be used to repay the debt plus a fine? Yes, because that’s just another title transfer. It’s a transfer of title to property, which is what the title-transfer theory of contract says is that all contracts have to be viewed as either unilateral or bilateral exchanges of property titles.
The libertarian definition of aggression – well, I would say that sort of the intuitive definition is the initiation of force against the person or property of another, that is, the invasion of their property or the borders of their property or the unconsented-to use of their property. These are all synonymous uses, but you can see that that definition turns upon the definition of property, so in a way, I think aggression turns upon property. Property is, in a way, a more primary concept.
We have to define what property is, which means we have to say who the owner is. So, for example, if I take a football from you that you’re holding, it’s aggression if it’s your football. If it’s my football, I’m just taking my football back, and it’s not aggression. So the question of who owns the football determines what is aggression. So aggression is the unconsented-to use of and/or the invasion of the borders of the property or body of another person.
Karl: Tell me about your remedies against the penniless borrower. Well, I think in many cases there would be no remedies. You just write the loan off. You’d just have to write it off. But the question from libertarians is, is one of the remedies to grab him and put him in a work camp and treat him like a slave because he committed aggression and get your money back that way? And I say no, even if he agreed to it, because the agreement to be a slave is an unenforceable attempt to alienate something that’s inalienable. That’s your body and your will. But – and their failure to repay a loan is not aggression, so that doesn’t justify the use of force against his body, so there’s just no way.
So all you can do is just keep garnishing his wages or seizing property from him in the future. Right, he’ll get a bad reputation, etc. Yes, I think if the loan is taken in bad faith, it can be fraudulent, but that’s suffices the hypo. Not every loan that is not repaid was fraudulent or taken in bad faith. I mean loans are inherently risky because they’re future oriented. This is an important Austrian insight. Every future action, every action that’s aimed at the future, and the future is always uncertain to some degree, so there’s always a chance that your projects will not be – come out as expected. That’s what the concept of loss is. The praxeological category of loss means that you don’t succeed in your action, and you might not succeed because you’re not omnipotent, and the future is uncertain.
Well, you know, Trey, I don’t know about – I tend to doubt that contracts would turn upon your hidden intent at the time of signing it. I think that people would prefer certainty, and they would have certain objective things that would go into contracts as they’re done now. Colin says, it might your intent to what you’re going to use the money for, but then you could put that in the contract, like we’re going to loan you money, but we expect you’re going to use it for capital equipment purchases for a certain type of business. And then if you use it for something else, you’re committing a type of theft of the money, let’s say, because you only have permission to use it for certain purposes. But if you put too many strings on the use of the money, then it really can’t be used freely, and it defeats the purpose of making the loan.
Colins says, I’m not sure why it should matter whether you acquired your body or already – always owned it. Well, let me just mention quickly this is my personal view. I don’t know how many people hold it. I don’t want to mischaracterize it as being the standard libertarian view. I do think libertarian views on inalienability are all over the map, and they’re confused. This is my attempt to sort it out. I’m just giving you what my view is, and I go into this in elaborate detail in that contracts article, which is on the recommended readings for this course – for this lecture.
But see, you’re saying if you own it, you should be able to divide it up. I agree that if you actually extract your kidney or chop your arm off, at that point in time, it’s no longer part of your body, but it’s something that you own as a piece of acquired property. So you can do what you want now with this piece of property because for someone to take my severed arm or kidney, it’s not aggression against my body anymore because it’s not part of my body. But as long as it is, then to use force against my body is – has to be consented to by me. See, this is the fundamental question: Did I consent to it? Now, you can say, yes, I consented when I promised to do it, but that assumes that you can’t change your mind.
But what libertarian says that you can’t change your mind? In fact, if you focus on the fact that your current consent to an interaction is what matters, then you will see that that implies you can change your mind. Yeah, you can – Robert, you can donate blood, but can you be forced to donate blood? That’s the question. If I promise you I will come to your blood drive tomorrow, but I don’t come, can you get some goons and grab me and stick a needle in my arm and take the blood from me? I say no. That’s an act of aggression against me. It’s aggression because I’m clearly not consenting to it.
So why is it justified? Normally, libertarians say that the use of force against someone’s body is justified only if they consent to it or if it’s in response to an act of aggression they committed. I didn’t commit aggression by promising to show up for your blood drive or by failing to show up for it. So I don’t think it’s justified. I think it’s just clearly just – it’s still aggression.
Alexis, yes. I think the creditor – well, if he – unless he made a stupid loan and agreed not to go after future income. If he said you owe me $1050 of your future estate on a certain date unless you don’t have it, in which case you don’t owe me anything anymore, but they would never agree to that. So yes, you would have a claim on the future income, but it’s still a claim on property, not on the body. I think you can sell your organs. You just can’t be compelled to sell your organs if you promise to, Atchafalaya. Again, this is my personal view. You guys are free to disagree. I just want you to understand one libertarian perspective on this.
Noam: In libertarianism, can you use violence to force a borrower to repay a loan, threaten to kneecap him? Well, this is exactly what we’ve been discussing. The answer in my view is no because that would all be aggression against someone. Remember, if you use force against someone’s body, it’s got to be either – under libertarianism. This is what the non-aggression principle is about. It has to be either consented to or it has to be in response to aggression. That’s retaliatory.
Now, it’s clearly not consented to. If you kneecap someone, they’re not going to consent to it, and it’s not in response to aggression. He did not commit aggression. See, that’s why Rothbard says that it’s implicit theft because he’s trying to find some act of aggression that would justify a debtor’s prison or some violence against the deadbeat. So he’s trying to say it’s implicit theft, but that argument doesn’t work in my view because he’s not stealing the money that’s owed because it doesn’t exist, and he’s not stealing the money that was loaned to him because that was given to him unconditionally.
It had to be for him to spend it, so there’s no theft. So the only other argument is that, well, you consented to be kneecapped when you made the loan, but you can change in your mind. In other words, you can’t bind yourself to agree to some physical force, just like the girl on the date changing her mind about being kissed. There’s no difference.
Okay, David says, what about when you change your mind about a contract? What are the consequences? Well, a contract is different. A contract – if we assume a contract is an exchange of title to things you own, your mental state has nothing to do with it. You have already done the deed, so on the day – let’s take the loan case. Let’s assume I’m not a deadbeat. Let’s assume I borrow $1000, and on the due date, I have plenty of money. Well, a year ago, I already transferred $1050 of my estate on such and such a date, so on that date, the transfer happens automatically because I already did it. So it doesn’t matter if I change my mind. If I refuse to hand it over, I’m committing aggression by holding someone’s property that I’m just in temporary possession as a guardian of someone else’s property.
So Walter Block – Patrickccg: Walter Block uses a similar example. If you receive money for selling your blood, well, it’s just like a loan. So the money was received. It depends on if it was – I mean if it was given to me in full ownership to spend, then that title transfer has already happened. And it was given in exchange for the hope that I would comply with a certain promised action, a service.
But if I don’t perform the service, then we can assume that there was an implicit contract for me to say, if I don’t give the blood, then I owe you the million dollars you paid me or whatever it was you paid me. But that’s just like a loan. I’m just promising you future money that I may or may not have, and if I don’t have it, it’s not theft if I don’t give it to you because I can’t give you something I don’t own.
Well, estoppel has to do with making a claim that’s inconsistent with something that you have done, an action that you’ve performed, specifically aggression. So if I commit a crime against you, if I commit a violent act of battery, assault and battery and I beat you up, I have acted on the principle that it’s okay for me to use your body against your consent to a certain degree. Therefore, I cannot object if you act on me based upon the same principle that I’ve already shown that I endorse, so that’s the basic idea of estoppel.
I don’t see how you can apply that to the deadbeat lender case because when I borrow money, I’m taking present money that you give to me unconditionally. And I mean what am I estopped from? I mean I never did commit – see, you have to use actually force against my body in the future to be able to enforce this against me as an act of theft or something. But I never did use force against your body. I never did do anything against your property without your consent, so I don’t see how that would apply.
How do you impel a borrower to repay? Well, you may not be able to. I mean some loans go bad. Loans are risky. Fractional reserve bankers don’t like to hear this, but they are. That’s why you get interest because you’re taking a risk. Sometimes they go bad. Sometimes you have to write it off.
If I give an engagement ring – oh, Robert, I was – oh, contemplating a marriage and she changes her mind, I cannot get the ring back. Okay, now here’s where armchair libertarian theorizing would come in. I mean I don’t think I can say from an armchair what the answer is. It depends upon what the basic contract was, and that depends upon social customs and context. Now, why does that matter? It matters because, as the owner of a thing, you have the right to abandon it. You abandon it by manifesting your intent in a sufficiently public or social way and let people know what your intent is.
What’s that? That’s a type of communication. So all this has to do with communication, but communication is a language thing. A language thing is a community thing. It’s very contextual related. So if you have a neighbor in a certain neighborhood and it’s understood by everyone—it’s customary—that you can walk up to their door if they have a doorknocker or a doorbell and knock on it to ask for something innocuous like to borrow a cup of sugar, then we assume that that’s an implied invitation, permission, or license for your neighbors to use your property for that limited purpose.
Otherwise, it would be trespass because you’re clearly using their property. So just because of the existence of certain community customs and assumptions, there’s a communicatory aspect to things you do like having a doorknob on your house or a doorknocker, sorry, or an open sidewalk, open to the street that doesn’t have a locked fence on it or something like that. You don’t have a no posted sign out. So these things have a communicatory function. Likewise, if you give your fiancé a ring, it depends upon what’s understood.
I mean if the understanding in that culture is that you’re giving her the complete ownership of the ring or if you’re giving it to her conditionally upon – or you’re loaning it to her basically pending marriage, I mean it depends. And if you know what the custom and the default presumption is in an area, if you want to change that, you have to make it clear. Like you have to give your girlfriend a ring and say, listen. I know that the presumption in our area is that this is an unconditional gift, but it’s not unconditional for me.
This cost me $10,000, and if you don’t go through with the wedding, I want it back, or it’s just a loan. Actually, you don’t own it until we get married. I mean if you want to change the situation, go ahead and do it. That’s fine. But it’s just a communication issue, so I can’t answer it. But I can tell you, I think the law is that it’s – actually, I forgot what the law is. There is an answer in the law, but I forget what the answer is. I think the bride is supposed to give it back, to be honest, but I’m not sure.
This places – Jonathan: This places a responsibility on the creditor to make sure the borrower is not a deadbeat. Of course. Of course. You should be careful when you make a loan to someone. Trey – and that’s where reputation comes in. Evaluate his project. Trey: I think where I’m hanging up is the difference between having a claim against someone and using force to enforce the claim. Well, see, having a claim is the language of promise. I would say you don’t really have a claim against someone. You only have a potential property right, so you have to think of contracts as just webs of exchanges of title to alienable things that people own.
So the loan is just I grant you some future property that I might have. Look, maybe we should not make it bilateral like this. Let’s just make it unilateral because there’s no reason you have to have consideration for this or have it be an exchange. Let’s say I tell my grandson I will give you $1000 tomorrow if it rains. Okay, now I have transferred title to future property to him conditionally.
So if it rains tomorrow and if I have money, $1000 of it transfers to his ownership. I mean it just happens automatically because I’ve already done it, and then we have to wait and see if the condition is fulfilled. So that’s all the other side of the loan is. It’s just a conditional future transfer of property. It’s conditional because I might not own the money. In other words, the implicit condition is I hereby transfer $1050 to you in one year if I have it. That has to be an understood condition because the future is uncertain. Whether we say it or not, that’s a condition of the loan. Yes, you enforce a claim by taking his money. That’s right, Alexis, not by forcing him to do something.
This is a cool thing. I mean I’m glad you guys find this adventurous because I think it’s very interesting. I go into it in detail in my contract article, and we can only discuss it so much here, so if you’re interested in it, read that further and see what you think.
… if he has it in his possession. So then [no audio_01:40:44] property in a sense. He has to turn it over. If he doesn’t, he’s the one that’s being an aggressor. So taking it from him by force is not aggressive. It’s just the new owner of the money taking what belongs to him.
David: Money is fungible. What about a bailment of a specific object? Well, you’d have to elaborate exactly – give me a clear example, but if it’s bailment, I would say the money is – the title is held by the owner if I understand bailment correctly. So let’s say I put money in a safety deposit box in a bank. I retain title to that. The bank cannot loan it to someone else. Same thing if it’s mixed with other people’s money in a fungible way, but it’s considered to be a loan of -Jesús Huerta de Soto goes into this in his book on banking.
Look, I think people are starting to leave. We better – Jock, I don’t remember what Chosen Action is. I’ve read that too, and I’m not sure the relevance here. I’m glad you guys enjoyed it, but we better stop here because people are leaving now. I don’t want to go on in an unfair way. So why don’t we do this? Feel free to email me questions or put them on the course page or save them for Wednesday’s class, and I’ll be happy to address them there or between now and then. And you guys have a really good week, and I will talk [no audio_01:42:27].