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Contracts never have merely two parties. They are never "private" in the sense implied above. A contract requires a third party to enforce the contract against either party at the other's appeal. The existence of the enforcing party is a suppressed premise in almost all contracts, and the consent of that third party is rarely explicitly discussed.
Asking for unbounded "freedom of contract" means asking for the existence of a third party who consents to enforce any contract, and has the power to enforce any contract; in other words, a third party that is amoral and omnipotent; one with no objections to any contract terms, and sufficient power to enforce against any party.
The state, in a democratic republic, cannot be such a third party, because it is not amoral — it has moral (or moral-like) objections to some contract terms. For instance, today's republics do not countenance chattel slavery; even if a person signs a contract to be another's slave, the state will not consent to enforce that contract.
I suggest that, given what we know about humans, the creation of an actual amoral and omnipotent third party would constitute UFAI ....
This is a very good point, but while we can't reasonably expect the government to impartially enforce all contracts presented to it, we also can't reasonably tolerate a government that won't recognize or enforce any contracts.
To take an excerpt from one of the linked essays
This is not a contract that goes beyond my intuitions of what it would be reasonable for the state to enforce. It seems we've come to a point where the state (or at least, some states) will refuse to enforce contracts for marriage with terms which it would readily enforce if they were business agreements. Certainly there are stronger economic reasons for making business contracts enforceable than marriage contracts, but I don't think it follows that marriage agreements should be less enforceable, and I have doubts that this is an optimal state of affairs.
I would have framed it as a bet: I bet you $50,000 that you will cheat on me before I ever do. I think the government of my country would refuse to enforce that (gambling is restricted, I can't even access the websites of certain prediction markets as my ISP will block them), but I would've expected the US to have no problem with that.
Gambling is illegal in the US except in specially licensed casinos.
Not exactly. There's no federal law against gambling, and states have their own restrictions. But restricted is not the same as illegal; states that do not allow licensed casinos do not necessarily have any laws against citizens making bets with each other over which money changes hands, when done on a non-commercial basis.
And of course, there are other forms of licensed gambling, including that which is run by the state.
Well, US regulators are attempting to declare intrade illegal.
Sure — what you're saying is that you don't like the specific judgments, or standards of judgment, used by the enforcing party known as the state of California. Which (as you note) is not the same thing as saying that you don't want an enforcing party to make any judgments.
FWIW, it is not clear to me that "receiving $50,000 if the other spouse sleeps around" is actually one of "the rights marriage traditionally gave them", so I think the essayist is stretching the truth there.
(Further, there are n different "traditions" of marriage going into a multicultural society: Catholic marriage is not the same as Anglican marriage, that being one of the major reasons there exists such a thing as Anglicanism ....)
Traditionally, "divorce" was a cause of action with a plaintiff and a defendant - a winner and a loser, an aggressor and a victim - and alimony (in the form of cash payments) was the prize the victim/winner won for proving one of the limited grounds for divorce (generally desertion, adultery, or cruelty).
It's certainly not a specific right ever guaranteed by the institution of marriage, but there used to be some rather strong legal hammers wielded against adultery (especially against that which was committed by women,) and some couples would like to have some comparable hammer on hand for their own relationships.
It follows, then, that someone who advocates unbounded freedom of contract in a democratic republic wants the state to be such a third party and for it to not have objections to any contract terms.
Well, yes ... or maybe they are confused and do not understand the implications. A lot of political positions are easy to argue in the absolute when you do not expect to get elected and therefore do not expect to have to implement them.
Enforcing contracts if and only if they had the informed consent of all contracting parties doesn't sound "amoral", exactly - that seems like a very limited subset of the space of all possible contracts, even, with the remainder of that space treated as "immoral".
Right, but that wasn't the sort of thing I was talking about. I won't voluntarily help enforce a contract in which a starving person sells their eyeballs¹ to a rich person in exchange for a sandwich, even if the parties have informed consent. I don't think most other people in my society would, either; and I expect that if such a contract came before a judge or jury, it would be thrown out as unconscionable — a moral judgment.
¹ Literally; not in the metaphorical sense used by bad advertising companies.
I already understood you; let me try a similar example until the converse is true. Most other people in my society would help enforce a contract in which a young person is drafted to serve in the military or taxed to give money to the elderly without his consent. A libertarian would not - a moral judgment. Your claim that the "freedom of contract" view is "amoral" ignores all similar moral decisions. You could make a good case for "immoral", based on a morality that weighs the dangers of military inadequacy or the suffering of transfer payment recipients more highly than an individual's right to control their life or money, but that exposes the fact that people have to choose a system of morality and that the ones who believe in "freedom of contract" have indeed already started to do so.
But that was (I thought) just a nitpick about vocabulary. Ironically your example weakened your excellent argument slightly. Asking why society should enforce contracts which society wouldn't consent to enforce was a very good point, but in your hypothetical case (and now, I see, many others) would it matter? Rich men can afford to enforce their own contracts; in practice all the government and society would need to do would be double-checking that they didn't have cause to interfere. When defining "cause" in this hypothetical it would still be important to specify the underlying system of morality; although there are certainly many decision theories that make it impossible for Parfit's hitchhiker to precommit to pay, IIRC most consider that to be a bug.
It is not my impression that the draft or taxation operate on the basis of contract. ("Social contract" is a fiction — we're talking here about actual contracts, entered into by two contracting parties, and enforced by a third; as in the example of marriages in the original post.)
Sorry, I think we are using "amoral" to mean different things. It was not my intention to say "libertarians are amoral" but rather that the absolute-freedom-of-contract position demands that the enforcing party not be moved by any objections to any possible contract terms. I thought this was perfectly clear; apparently not.
In order for parties A and B to have "absolute freedom of contract", the enforcing party C (e.g. the state — or a cooperative, the neighbors, a Nozickian private agency, or what-have-you) must ask no questions beyond "Is this really a contract between A and B?" If so, enforce it; if not, don't enforce. If C is ever moved by objections to contract terms and ever declines to enforce, then A and B do not have absolute freedom of contract with respect to C's enforcement.
Only in extreme cases.
Now suppose the existence of an amoral, demiomnipotent third party that can determine if a person understands the implications of an agreement and is free from coercion, will formalize any contract iff all parties understand the implications of said contract and are free from coercion, and enforces all formalized contracts only at the request of any party to the contract. Is that UFAI, FAI, or neither?
I've left 'coercion' undefined for now; if your answer hinges on a precise point within the reasonable definition space, try to find that line.
It's less unfriendly than fubarobfusco's example, but still not quite optimal, since refusing to enforce some contracts (most obviously, contracts which inflict technical externalities on third parties) increases utility.
You could weaken this conclusion by assuming that the AI can drive all transaction and contracting costs to zero, since then all Coasian-optimal contracts are made. But even that result assumes, e.g. that inequalities in marginal utility are not relevant (since otherwise a utilitarian AI will want to "redistribute" wealth - broadly understood - and use imperfect contract enforcement to do so).
Information asymmetries may also be a problem: it's possible that Coasian reasoning can be extended to yield a constrained Pareto optimum in such cases, but I'm not at all sure about that. Even then, what if the AI is better informed than the agents are?
Agents with self-control problems can incur "internalities" to themselves. Of course self-control issues can be mitigated if the agent alters her own behavioral tendencies and sets up appropriate incentives (acting as a "principal" to herself in a principal/agent setup): nevertheless, if such possibilities are inherently limited, then imperfect enforcement of contracts could increase the agents' utility in the long term.
Strategic considerations also pose a severe challenge to Coasian reasoning and freedom of contract more generally: if we allow all contracts, then extortion attempts may qualify as contracts and then agents will want to extort each other or evade shakedowns, and pay resource costs to do so.
Plus there might be other stuff I haven't thought of.
What would be an example of a penalty clause that 'inflict(s) technical externalities on third parties'? I might add the stipulation that those parties must also be parties to the contract.
I'm not asking that this entity actually do anything beyond the specific tasks related to contract enforcement that it has been assigned. It isn't intended to bring about immortality or make perfect predictions about the future or prove that it is physically possible to fulfill a contract (I assume that every formalized contract would have a penalty clause which is provably possible, such as a monetary debt or a lien)
I did also throw in a magical 'free from coercion' clause, specifically to sidestep extortion. It's a patch that I can't figure out how to make more elegant; if "If I don't get money now the bank will foreclose on my house, so I agree to work for [employer] for three years in exchange for a fair large advance" is allowed, why isn't "If I don't pay off [bookie] now, he will break my legs, so I will agree to [oppressive treatment by third party for below-market compensation]" or even "I agree to submit to [oppression] by [extortionist] in exchange for one cent and not getting shot."
My comment was not restricted to "penalty clauses", it includes contracts more generally. Obviously we can think of contracts which would cause negative externalities if they were enforced, e.g. through a penalty clause. Refusing to enforce some of these contracts increases utility.
Re: extortion, it's not clear what the correct decision-theoretic analysis is. One might think that the real issue is not so much with the extortion itself (since this is in fact a contract to which Coasian arguments should apply), but with any attempt to expend real resources in order to improve one's bargaining position:
Given that someone is willing to break my legs unless I pay him off, a contract where I pay him off and he refrains from breaking my legs is Pareto efficient and may even maximize utility if, say, the extortionist happens to have a high marginal utility of wealth compared to myself. (Of course, this is a rather convenient assumption: the real point is that pure transfers of resources do not have bad properties in the general case.)
But it is obvious that losses are involved: agents now have a perverse incentive to acquire the potential to extort others (where they didn't have such an incentive before), and victims have an incentive to boost their own bargaining power by acquiring means of defense or by pre-committing not to pay off extortionists (and this is quite costly as well: it means that negotiation can break down, and extortionists will then want to make good on their threats).
The notion that extortion is avoided if contracts are "free from coercion" is not unproblematic. "Free from coercion" generally means respecting property rights. But how are property rights to be assigned in the first place? Should a railroad operator have the "right" to throw sparks onto a nearby field, or should the field owner be allowed to forbid trains from passing near her property unless they are fitted with a costly spark preventer? Note that here, either of the agents may seek to extort the other! So, although some property right assignments are sensible (the right not to be shot, and not to have one's legs broken) this doesn't really solve the problem in the general case.
The principled solution to this problem would be entering a once-and-for-all contract in which we all refrain from seeking increased bargaining power in damaging ways, but obviously the same issues apply to this contract, so we have a vicious cycle. We use a variety of solutions to deal with this, including imperfect contract enforcement, and social norms which forbid extortion: in fact, we generally try to find deals which will benefit others, as opposed to harming them.