The Fall and Rise of Freedom of Contract
A Collection of Papers by Some of the Sharpest Thinkers in the Field
OCTOBER 01, 2000 by GEORGE C. LEEF
This is a book about a turning of the tide. The tide in question is the intellectually important question of how society will treat contracts. Once a pillar of the common law and a cornerstone of the American legal system, by the 1970s the idea that people should be free to contract as they choose was rapidly giving way to legal theories that call for governmental interference with contractual freedom in many circumstances. Egalitarian sentiment had invaded the law schools and then the courtrooms, giving judges and juries considerable latitude to undo or rewrite contracts where they felt that the parties had “unequal bargaining power,” “unequal access to information,” or for other reasons. An influential book proclaimed The Rise and Fall of Freedom of Contract.
But a funny thing happened on the way to the demise of freedom of contract—its defenders arose to rescue it from oblivion. Over the last three decades, law and economics scholars have staged an intellectual counterattack showing from many different angles the superiority of freedom of contract and the counterproductivity of governmental interference. In The Fall and Rise of Freedom of Contract, F. H. Buckley, a professor at the George Mason University Law School, discusses the rescue operation. The book is a collection of papers given at a series of colloquia at the George Mason University Law and Economics Center and brings together some of the sharpest thinkers in the field.
The attack on freedom of contract was rooted in the same mundane intellectual errors that plague us in so many ways. The critics overestimated the problems associated with freedom and underestimated (or entirely ignored) the costs of interference with freedom. As Buckley observes, “Consumers are not as helpless as they were made out to be; and intrusive legal rules designed to protect them not infrequently left them worse off.” But legal theorists, like politicians, enjoy the luxury of making rules that sound good but mainly affect other people. The common-law rules of contract were an easy target for them: Why stick with musty old legal principles when ingenious and compassionate thinkers could devise better, fairer ones?
A crucial question that occupies Professor Buckley in his introduction is how best to defend freedom of contract. He discusses three approaches: neo-formalism, which is based on the objection that the enemies of contract have politicized the law; Kantianism, the positing of a human right to freely enter into contracts; and consequentialism, the argument that freedom of contract leads to better outcomes than intervention. Buckley, like his contributors, believes that the most powerful and convincing arguments for freedom of contract are consequentialist, and perhaps he’s right. While readers of Ideas on Liberty may see freedom of contract as a moral issue and regard it as unnecessary to demonstrate that interference has bad consequences, for many other people the case will not stick unless bolstered with consequentialist arguments.
There is too much in this volume to cover in a short review. It is like trying to tell a friend what’s on the menu at a terrific restaurant. So here are some of the outstanding items. The redoubtable Richard Epstein leads off with “Contracts Small and Contracts Large: Contract Law Through the Lens of Laissez-Faire.” His essay is an extended rebuttal to four notorious critics of freedom of contract, arguing that they simply beat up on a few peripheral problems and then announced that they had killed off the case for contractual freedom. Epstein cuts their arguments to ribbons, exactly as anyone familiar with his legal and economic acuity would anticipate.
In his essay “In Defense of the Old Order,” Timothy Muris argues that standard form contracts, far from being an assault on consumers by big business, enhance efficiency and give consumers benefits that would probably never be realized by most if they had to “bargain from scratch.”
Essays by Professors Paul Rubin and Robert Cooter explore the boundary between tort and contract, suggesting that consumers would be better off if they were allowed to contract out of tort, leaving their remedy against a seller to the terms of the bargain and/or ordinary contractual remedies.
Zoning and land-use restrictions are another area where we have placed mistaken faith in government and would benefit from greater reliance on contract. Professor Robert Nelson’s “Zoning by Private Contract” demonstrates that the putative goals of zoning could be realized through contract, without the coercion and favoritism with which zoning is so rife.
For the rest of the menu, visit the restaurant.