According to Rothbard, in a free society mere promises are not enforceable contracts because personal "will" is inalienable. You can't give away or sell your "will" to someone else. Any person who breaks a promise cannot be made to perform.
For example if A promises to marry B, and then backs out, B can't make the wedding take place against A's will, nor even sue for damages. Similarly if A is a building contractor and agrees to build B a house, B can't force A to build the house even if he has advanced A some money. A is only obligated to return the money, not build the house, since this is the only exchange of property that has taken place. The only enforceable contracts, then, are ones which involve an exchange of alienable property.
Futures contracts are obligations to buy a commodity from a producer, or sell a commodity to a consumer, for a specified price at a specified time in the future. Since futures contracts are simply promises to perform and no exchange of property takes place until the futures date, it would seem to me that futures contracts are not enforceable in a free society.
Options contracts are a little trickier. An options contract gives the owner of the option the right, but not the obligation, to buy or sell an underlying security at a specified price (the strike price). Options contracts are issued by options writers who recieve a sum of money for the option. The holder of an option can exercise the option by making the options writer sell to him, or buy from him, (depending on the nature of the option) the underlying security at the strike price.
In effect the options writer is selling his promise to perform when he issues the option. In today's market an optons writer is obligated to perform, and is fully liable if he doesn't, but it would seem to me that in a free society, he would only be obligated to return the original amount of money paid for the option. This would be similar to the situation with the building contractor above.
What do you think?
Having thought about this some more, I think it all depends on when the transfer of title to the underlying commodity takes place; in other words whether these contracts involve a transfer of title to the property now or whether the contract is simply a promise to transfer title in the future. If the transfer of title occurs now, when I enter into the contract, then I think it is enforceable.
For example if I enter into a futures contract to buy 1000 bushels of wheat in six months time, does the contract convey to me title to that future wheat now, or am I simply promising to take title later? If I'm taking title to it now, then I should be obligated to pay for it in six months time. However, if I don't actually take title to the wheat now, then it seems I shouldn't be compelled to go through with the deal.
I'm not sure how that might apply to options.
Futures are not merely a promise, they are a transfer of property rights. Things like a marriage promise are not enforceable because enforcing it would be an alienation of rights, as in moral agency itself, which is not alienable. A contract for a deferred sale is an an "alienation" of a concrete right to actual property. The fact that an action is the expected result of it is not relevant, as the property could be transferred without the active cooperation of one of the individuals - a marriage cannot be.
You could not foce the seller of the future to actually produce the commodity in question, but most future contracts are not in fact related to any production at all. The seller merely has to make good on the contract, for instance, by buying the commodity on the market and delivering it to the seller. In reality, most futures contracts are written "naked", and settlement is done by matching offsetting contracts and cancelling both out, with the profit and loss being distributed to the parties by the commodities exchange.
Options work essentially the same way, with the obvious differences in mechanics required by the different nature of the contract.
The state won't go away once enough people want the state to go away, the state will effectively disappear once enough people no longer care that much whether it stays or goes. We don't need a revolution, we need millions of them.
histhasthai:Futures are not merely a promise, they are a transfer of property rights. Things like a marriage promise are not enforceable because enforcing it would be an alienation of rights, as in moral agency itself, which is not alienable. A contract for a deferred sale is an an "alienation" of a concrete right to actual property.
So when does the transfer of property rights take place? I presume the alienation of the property right takes place at the point in time that the futures contract is entered into. Is that correct?
histhasthai:The fact that an action is the expected result of it is not relevant, as the property could be transferred without the active cooperation of one of the individuals - a marriage cannot be.
So what you're saying, I think, is that you can force him to transfer or alienate his property, if he's previously agreed to do so, but you can't force him to alienate his moral agency as in marriage.
What if you entered into a contract which said "I promise to buy and take title to your property in a year's time" or what about "I promise to give you $100 next week"? Would those be enforceable contracts?
leonidia:What if you entered into a contract which said "I promise to buy and take title to your property in a year's time" or what about "I promise to give you $100 next week"? Would those be enforceable contracts?
I think not.
But you can make the first contract enforceable just by agreeing on the penalty for breaking the promise. E.g. I have to pay you $10K if I won't buy your property in a year's time, provided that you have to pay me $10K if you won't sell me your property in a year's time.
Rothbard comments that this was common in the Middle Ages: "If A agreed to sell a parcel of land in exchange for B’s agreed upon payment of a money price, each would obligate himself to pay a certain sum, usually twice the value of his contractual obligation, in case of failure to pay."
"I promise to give you $100 next week"
That's unenforceable because nothing is offered in return. That's true under current law too. A promise is unenforceable at common law unless there is consideration, or the promise is made under seal.
leonidia:Since futures contracts are simply promises to perform and no exchange of property takes place until the futures date, it would seem to me that futures contracts are not enforceable in a free society.
Yes, but it's not a big deal.
If I buy a contract on a futures exchange, I have to provide a certain dynamic margin which will cover the damages if I default. E.g. if I promise to sell a barrel of oil in August for $100, and next month the price of August oil rises to $150, then I have to deposit at least $50 to protect the counterparty. The month after that it might drop to $130, and then I can recover $20 back. In practice I should provide plenty to spare, or else my broker might liquidate my position automatically.
In other words, no one trusts my promise. They make sure they're covered whether I can perform or not.
In the aftermath of the South Sea Bubble, politicians looking for a scapegoat blamed speculators, and passed a law banning futures & options contracts. The law was a complete failure. The contracts continued - the market didn't need the state to enforce them.
leonidia:I presume the alienation of the property right takes place at the point in time that the futures contract is entered into. Is that correct? [...] So what you're saying, I think, is that you can force him to transfer or alienate his property, if he's previously agreed to do so, but you can't force him to alienate his moral agency as in marriage.
Yes to both. And "can't" is more than a moral restraint, it's simply not possible to force someone to be married, even if you could force him to be present for the rituals, rituals are not a marriage.
Both are enforceable in the sense of being something that can legitimately be contracted for, but your specific examples may not be valid contracts for other reasons, mostly that there is no consideration. That is usually easily remedied by things like deposits, or the common $1.00 payment.
LanceH:If I buy a contract on a futures exchange, I have to provide a certain dynamic margin which will cover the damages if I default. E.g. if I promise to sell a barrel of oil in August for $100, and next month the price of August oil rises to $150, then I have to deposit at least $50 to protect the counterparty. The month after that it might drop to $130, and then I can recover $20 back. In practice I should provide plenty to spare, or else my broker might liquidate my position automatically.
That's true. So by virtue of the fact that the broker has this power, he can force you to abide by the contract.
LanceH: Rothbard comments that this was common in the Middle Ages: "If A agreed to sell a parcel of land in exchange for B’s agreed upon payment of a money price, each would obligate himself to pay a certain sum, usually twice the value of his contractual obligation, in case of failure to pay." "I promise to give you $100 next week" That's unenforceable because nothing is offered in return. That's true under current law too. A promise is unenforceable at common law unless there is consideration, or the promise is made under seal.
I'm familiar with the section of Ethics of Liberty that you refer to. And no doubt in a free society, performance bonds would play a big role. However, there are some things that still aren't that clear to me. Take the following statements.
"I will agree to buy your house next month."
"I agree now to buy your house in a month's time."
"I agree now to build your house in a month's time."
What makes each of these enforceable or not?
BTW, consideration is an aspect of common law, but I'm not sure that it is under natural law. For example if you say "I hereby agree to give you $100" , that's enforceable under natural law, whether or not there is consideration
I just got through that section of Ethics of Liberty and I had to re-read it several times in order for it to make sense. Based on my understanding, I think the answer to your question is not one of timing. That is, it doesn't matter when you agree, it matters that the agreement consists of the exchange of alienable property.
In the first statement the purchaser is pledging his will to enter into an agreement to make an exchange for a house. In a free society this is unenforceable because will only exists in the mind of the purchaser and is therefore inalienable. While the morality of breaking this pledge is questionable, it is clear that the agreement cannot be enforced because the purchaser's will cannot be controlled by anyone but him.
It seems to me that the second statement is enforceable. In the second, the purchaser is not pledging his will. He is pledging some alienable property, probably money, in exchange for the house.
In the third statement, a builder is promising his labor. Without more information, this agreement is not enforceable. This is because forcing the builder to use his labor to build the house in the future, without an up-front payment, constitutes slavery.
leonidia:by virtue of the fact that the broker has this power, he can force you to abide by the contract.
Yes, but that power is something I've given to him voluntarily by accepting him as my broker. The Exchange in turn will only deal with brokers because only brokers are insured against failure to perform.It is possible that the Exchange could deal with me directly, but then it would require a similar margin, or insurance in lieu.
It's all free, voluntary contract.
leonidia:there are some things that still aren't that clear to me
They weren't that clear to me either. I followed Rothbard's link to Hobbes' Leviathan to be sure.
"I will agree to buy your house next month."Unenforceable because tense of verb is future.
"I promise to buy your house next month."Unenforceable because meaning of verb is future.
"I agree now to buy your house in a month's time."Valid because tense of verb is present, and title is alienable.
"I agree now to build your house in a month's time."Invalid because act of building is inalienable labor.
Peter reached the same conclusions.
leonidia:consideration is an aspect of common law, but I'm not sure that it is under natural law. For example if you say "I hereby agree to give you $100" , that's enforceable under natural law, whether or not there is consideration
Agreed. At common law, this form of words is considered equivalent to a promise, and is therefore unenforceable. I suspect, though, that the "natural" law might confuse most people. Most people would not see any great difference between: I promise now to pay you $100.and I agree now to pay you $100.
LanceH: They weren't that clear to me either. I followed Rothbard's link to Hobbes' Leviathan to be sure. "I will agree to buy your house next month."Unenforceable because tense of verb is future. "I promise to buy your house next month."Unenforceable because meaning of verb is future. "I agree now to buy your house in a month's time."Valid because tense of verb is present, and title is alienable. "I agree now to build your house in a month's time."Invalid because act of building is inalienable labor.
Very good. That seems to be right.
LanceH: leonidia:by virtue of the fact that the broker has this power, he can force you to abide by the contract. Yes, but that power is something I've given to him voluntarily by accepting him as my broker. The Exchange in turn will only deal with brokers because only brokers are insured against failure to perform.It is possible that the Exchange could deal with me directly, but then it would require a similar margin, or insurance in lieu. It's all free, voluntary contract.
But just suppose that the broker or the exchange didn't demand any kind of margin; it would be stupid maybe, but conceivable. It seems to me now, given the previous discussion, that the futures contract would still be enforceable in a free society because the issuer is really saying "I hereby agree to buy 100 bushels of wheat from you in six months" rather than "I will agree to buy 100 bushels of wheat from you in six months." and the options writer is saying "I hereby agree to buy from you the stock if you should decide to exercise your option" rather than "I will agree to buy from you the stock if you exercise the option."
So even in tha absence of margin (which is a kind of performance bond I suppose) the answer must be that futures and options contracts would be fully enforceable in a free society. What do you think?
leonidia:even in tha absence of margin (which is a kind of performance bond I suppose) the answer must be that futures and options contracts would be fully enforceable in a free society
Enforceable, yes. Workable, no. In the course of a day a contract may change hands hundreds of times. The system works, and works extremely well, because there is certainty of payment. Any default could spark a chaotic chain of defaults. No court could enforce its judgement fast enough.
I suspect, though, that the "natural" law might confuse most people.
Exactly, which is why this discussion is pretty much the same as angels dancing on the head of a pin. People are arguing over when title is "naturally" transferred when there's really no such thing as title in the real world. Title only exists in our minds, and that's why the intent of an agreement should matter, not the precise words that are used. While we can never truly know the subjective state of someone's mind, we can make an objective assessment based on what most people would understand a person to have meant by their statement.
It's completely arbitrary to distinguish between "promising" to buy in the future, and "agreeing now" to buy in the future, especially because most people would be confused by that distinction.
Callisthenes:Title only exists in our minds, and that's why the intent of an agreement should matter, not the precise words that are used.
According to Rothbard from The Ethics of Liberty:
"It should be emphasized that this is not mere wordplay, much as it might seem so in particular cases. For the important question is always at stake: has title to alienable property been transferred, or has a mere promise been granted? In the former case, the agreement is enforceable because a failure to deliver the transferred property is theft; in the latter case, it is a mere promise which has not transferred title to property, a promise that may be morally binding, but cannot be legally binding on the promissor. Hobbes was not engaging in mere word- play when he correctly wrote: " 'Words alone, if they be of the time to come, and contain a bare promise [nudum pactum], are an insufficient sign of a free gift and therefore not obligatory. For if they be of the time to come, as tomorrow I will give, they are a sign I have not yet given, and consequently that my right is not transferred, but remaineth till I transfer it by some other act. But if the words be of the time present, or past, as, I have given, or do give to be delivered tomorrow, then this is my tomorrow's right given away today. .. . There is a great difference in the signification of [the] words . ..between I will that this be thine tomorrow, and I will give it thee tomorrow: for the word I will, in the former manner of speech signifies a promise of an act of the will present; but in the latter, it signifies a promise of an act of the will to come: and therefore the former words, being of the present, transfer a future right; the latter, that be of the future, transfer nothing.' "
Callisthenes:Exactly, which is why this discussion is pretty much the same as angels dancing on the head of a pin.
There's a point there. This is one of the problems with black box law as it is commonly envisioned: a monopoly enforcement agency writes a law that will apply to every situation. Of course, situations not covered by the law always emerge, or ones that are covered, but lead to absurd results. So more laws are written to cover the edge cases. Lather, rinse, repeat.
The difference here is between a moral principle and it's application to concrete circumstances. Black-box law attempts, not to establish moral principles, but to define concrete applications. This is an area where case-by-case evaluation - within a certain broad framework - is important. This is an area where poly-centric law shines. And where social pressure will often be more effective and just than enforcement.
And since contract law is fundamental to any just system of governance, especially to poly-centric law, it's an important reminder that responsibility, even for the law itself, is in the hands of each individual.
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