LITMIR.BIZ

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on to the hats they found in their bundles. If, in addition, there was an authority entitled to outlaw unjust contracts and it felt that the just price of beaver was what it has always been, the number of mutually agreeable exchanges would be further restricted, only people of the requisite status and very keen on beaver being prepared to pay the just price. A number of hats would go begging, their holders being unable either to wear or to swap them.

      Analogous, though less outlandish, problems arise when we imagine bundles made up of all sorts of talents, skills, knowledge and muscle-power, and various job opportunities, outlets for this talent, needs for that skill or muscle. As we can expect from a random distribution, there would be a hopeless mismatch within each bundle between talents and opportunities, skills and the occasions for using them. Status rules and the banning of unjust bargains, e.g. the setting of minimum wages or of a “rate for the job,” would prevent at least a part of the possible matching between bundles from taking place. In this context, the capitalist state is naturally one that will not enforce status-related and justice-related rules and constraints on the freedom of contract,⁹ passively allowing the ideas which gave rise to them to be eroded by the tide (when such a tide is running) of the capitalist ideology and the exigencies of capitalist business practice. The state which will actually outlaw and suppress such rules, however, may learn to like outlawing and suppressing in a general way, and may not remain a capitalist state for very long.

      Pareto has laid down the precise sense in which the voluntary reshuffling by their owners of the contents of random bundles, results in the “best” distribution of the world’s goods. If two consenting adults close a contract, and there is no independent evidence of duress (i.e. evidence other than the contract looking unfavourable to one party), we accept a prima facie case that they like the terms of this contract better than not entering into a contract with each other. (The precise condition, in fact, is that one of them prefers and the other either prefers, or is indifferent to, contracting.) There is also an (albeit weaker) case for holding that there is no other contract which these two people, given their respective situations, could have concluded instead such that it would be preferred by one of them to the contract they did conclude, while leaving the other party at worst indifferent. If, then, it cannot be shown that their contract violates the rights of a third party (it may violate his interests), no one—neither the third party, nor anyone purporting to defend his interests—has the right to hinder them in executing their contract as agreed. Overriding the contract, or forcibly amending its terms ex post, let alone insisting that, as amended, it is still binding on the parties, are the ways of “hindering” typically reserved for the state (cf. pp. 112-3).

      The condition “it cannot be shown that their contract violates the rights of a third party” is, however, obviously neither straightforward nor easy, though it is putting the onus of proof where it belongs. Sometimes the onus is allowed to shift the other way, the contracting parties having to prove that they are not violating third-party rights. This is not an unfair characterization, for instance, of the practice of some American regulatory agencies. Norms for judging the rights of someone in relation to a contract to which he is not a party cannot be laid down independently of culture and ideology and may, even so, remain contentious. For instance, to stay safely in a realm of capitalist culture and ideology, does it violate the rights of the lowest bidder if he is not awarded the contract, assuming that the tender specified no explicit rule about accepting the lowest bid? Must the best qualified candidate for a job get it? Can land use be changed if it spoils the view for the neighbours? Different capitalist answers appear to be possible. Different capitalist jurisprudence might interpret the “third party” condition in a more or less austere manner, and careful thought may be needed before one can say that a particular state is not respecting the freedom of contract and is, on this ground, an adversary of capitalism.

      What, on the other hand, is an unambiguous denial of the freedom of contract is the interdiction or forcible amendment of a contract (in order, for example, to tilt its terms in favour of one of the parties) on grounds not involving the rights of third parties. Admission of such grounds appears to presuppose that a person, in entering into a contract, is capable of violating his own rights and it is incumbent upon the state, whose proper function is the defence of recognized rights, to prevent him from doing so. This is the key to a whole boxful of cases where it can be claimed that a person needs to be protected against himself. One oft-cited case (which involves other problems, too) is the puzzle about a man’s freedom (in the sense of right) to sell himself into slavery.¹⁰ A fundamentally different case for denying the freedom of contract arises out of the claim that, in agreeing to a certain set of terms, a person would be mistaking his own preference or interest. The ground for stopping him is no longer one of his right, and a fortiori not one of a conflict between two of his rights, but of his utility as seen from the outside by the sympathetic observer. On this ground, prohibition stops a man from buying whisky because his real (or “rational,” “true,” “long-term” or “unconfused” as it is sometimes called to distinguish it from plain) preference is for sobriety. The weakness-of-will argument may have to be invoked to justify the distinction between plain revealed preference for whisky and unconfused long-term preference for a sober life. However, much the same distinction must be agreed to support other applications of the principle of paternalism: the payment of wages in kind, the provision by the state of welfare services (e.g. health) in kind, compulsory insurance, education, etc., each of these in contra-distinction to giving the recipient cash in lieu, to be spent as he saw fit.

      Another’s conception of a person’s good or utility, another’s diagnosis of his real preference or long-term interest, is adequate ground for interfering with his freedom to enter into contracts a consenting adult partner is prepared to agree to if, and only if, it is accepted that it is a proper function of the state to use its monopoly power of coercion to enforce A’s conception of B’s good. Now A may be anybody, or the sympathetic observer, or the majority of voters, or the foremost socio-psycho-economic research institute, or the state itself. Different kinds of states could be distinguished according to which of these potential sources they would profess to follow. The test of the capitalist state is that it follows neither source, for it gives priority to the freedom of contract, including under it the extremely important freedom not to contract at all. Anticipating chapter 2, I might say broadly that other states profess to follow one or more of the possible sources. The choice of “sources,” whose conception of the good is to be listened to, is inevitably determined by the state’s own conception of the good; it will choose to be guided by congenial spirits, kindred intellects. Selection of the adviser, no less than selection of what advice to accept, is tantamount to doing what one wanted to do all along. In choosing to promote B’s good, the state is in effect pursuing its own ends. This, to be sure, is a quasi-tautology; it calls for more attention to the nature of the state’s ends.

The Contours of the Minimal State

      Indifference to the satisfactions of governing gives rise to self-imposed limits on the scope of the state.

      It is strange but not patently irrational for the state to minimize itself.

      A theory, or at least an approximative definition, of the capitalist state, which requires it to respect the freedom of two parties to enter into contracts that do not violate the rights of a third, looks incomplete, as is—by customary standards—the state in question. For what are the third-party rights which the state ought to protect and what are mere pretensions which it ought to ignore? There is a virtually limitless list of potential claims which third parties could make against the terms of a given contract. Laws must be made and administered both to define the category of claims that shall be treated as justified and to reduce the area of doubt (and hence of arbitrariness) between those that shall and those that shall not be so treated. Once there is a state, it is incumbent upon it to deal with these tasks.

      There is some presumption that in the state of nature a spontaneous cooperative arrangement would arise and fulfil this function, for the same general reasons which let us suppose that

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