Contracts

In his book, A People’s History of the United States, Howard Zinn says that contracts always favor the rich at the expense of the poor and powerless.  Therefore, he thinks, that law simply to enforce contracts is not just since the contracts don’t originate in just conditions.

Zinn thinks the rich party always gains a better advantage than the poor counterpart.  I think this is demonstrably false.  I would argue that the poorer counterpart, in general, has more to gain.

Rich, poor, or middle class, people enter into contracts to improve their position in life.  There is no point to doing it, if gain is not expected.  The rich already have much, materially, so a contract with a poor person is going to typically only improve their position slightly.  A poor person, entering into a contract, has more to gain because they have less to begin with.  Proportionally, based on material measures, it is easy to see the poor person gains more.

On the other hand, the poor person also has more to lose. If he contracts to work for someone, and they terminate his contract, he no longer enjoys the proportionally large gains he was experiencing.  Should the poor person not fulfill his part of the contract, it won’t be that big of a hit to the rich person, since he is already well off materially.

In essence, comparatively, the poor has more to gain and more to lose by entering into a contract with a rich person.

So what does this have to do with law, contracts, and justice?

Contracts favor both parties, because neither would enter into the contract if they don’t see an advantage to doing so.  Value is subjective, and how each party values the contract is individual, and it cannot be objectified by an outside party like Howard Zinn.  His claim that the terms are always unjust fails in the face of subjective value.

We have to assume that both parties agreeing to a contract understand the ramifications of doing so, and what failing to uphold their part will mean for them.  They both understand that the rewards of the contract also come with risks should either party not be able to fulfill their part of the contract.  It is true, that man has a tendency to act on passion, and discount risks.  He may borrow money, in a zeal to improve his condition based on a market opportunity he sees.  He may not want to think about what it would mean for him should he not be able to repay the borrowed funds.  If he doesn’t consider that conditions beyond his control may lead to his inability to repay funds, that is not the fault of the lender.  The lender is still owed the money or the collateral put up.  That collateral was put up, should indicate to the borrower exactly what he is risking.  He should have a plan B, should conditions prohibit his plan A from succeeding.

Does this mean that there will be prudent men who don’t mortgage their farms to take advantage of market opportunities?  Sure.  Does it mean sometimes imprudent men gain great material advantage from accepting risk?  Sure.  It also means that imprudent men can lose everything because they accepted risk or that prudent men take a risk and they are prepared to deal with the repercussions should the risk not pay off.  People need to be treated like rational adults who can deal with the consequences of their decisions, even when the consequences are very serious.

This doesn’t mean the fallout isn’t sad.  It doesn’t mean that we shouldn’t feel sorry for them.  We have all made poor decisions that resulted in sad consequences.  If we can, we should do our best to help them in their time of need.

What we shouldn’t do is pretend that they are victims of an unjust order that always favors the rich.  The remedy to income disparity is leveling. and leveling makes everyone poorer.  Freedom permits the industrious to improve their position.  Freedom means that you should be free to enter into contracts.  Making the choice to enter a contract means you consent to the terms and the risks of noncompliance.  Freedom doesn’t mean that you can just take whatever risks you want and not have to deal with the consequences when the results don’t pan out like you hoped.

It is hard, because it is distressful when people have gotten into debt and lose their property, and livelihood as a result.  Who can listen to Rain on the Scarecrow without feeling dejected?  Feeling bad for people going through a hard time doesn’t mean that a system that enforces contracts is not just.

If people can’t expect that the terms of a contract will be upheld, then there is no justice.  A poor person would expect a rich person to make good on their promises.  If we are to be treated equally, then a rich person should expect that a poorer person should make good on their promises.  Imagine if only rich people were expected to uphold their side of a bargain, and the poorer counterparts would be exempted for various reasons.  The borrowing opportunities for those without much money would dry up, making it even harder for them to improve their material well being.  Therefore, contrary to what Howard Zinn asserts, not only is contract enforcement just, it actually helps encourage the conditions for poorer people to enhance their life.