which is adequate, logically whole, regardless of its contested historical accuracy. Customary terms of the service tenure of land, rents, tolls, wages, professional fees, customs regulating early forms of banking and marine insurance, and, of course, above all the prices and specifications of traded goods all bear plausible traces of earlier contractual or para-contractual origin. Unless we resign ourselves to the idea of an endless chain stretching into the past where every custom is born of another earlier custom, or to the idea that customs can be decreed into existence by command, contract is the only residual hypothesis to account for them. We can then look upon custom as ossified contract whose terms have become standardized. In the case of the just price and the more general scholastic category of the just contract (conceived as the sole morally deserving case of “zero-sum” transactions, where “neither party gains” instead of one losing what the other gains), standard terms have even been invested with moral value.
There is a demonstrable advantage to any two parties in not having to adhere to custom but having the broadest possible frame within which the terms of a contract can be adjusted to their particular “circumstances.”3 Offsets against the advantage of adjustability are provided by the reduced transaction and information costs, and the greater peace of mind associated with customary terms. If such offsetting advantages predominate, the spontaneous rise and survival of a custom are broadly consistent with rational choice and it can be explained as if it were itself a result of agreement.
The significant particularities of custom are that terms are standard rather than ad hoc (though, as the great diversity of “customary” medieval and early modern terms and conditions for property holding, inheritance, marriage, master-and-servant relations, commercial ventures, etc. demonstrate, there was usually some room for negotiated agreement about which custom would apply); that a reciprocal promissory obligation to perform often remains inexplicit, or is made explicit only in some weak form; and that sanctions to ensure conformity to the custom are of widely varying reliability and strength. While bearing these features in mind, I see no harm in letting custom submerge under contract in what follows.
Implicit in social criticism, much of normative political theory, and much of economics outside the neo-classical mainstream is the position that the contract-command dichotomy is at best verbal and empty of real empirical content, and at worst a tendentious semantic fraud.
The contract-command distinction is upheld in everyday discourse by the imprecise but robust connotation that seems inseparable from the two concepts: contract is understood as being freely entered into, hence compliance is by voluntarily assumed obligation; while command is obeyed under coercion or, of course, the probable threat of it. The arguments denying that such a distinction is possible have roughly the following form.
1. Contracts are generally not entered into freely, though it is just possible to claim that unimportant ones may be. The consequence of not entering into a given contract is to incur an opportunity cost, which is the difference between the value a would-be contracting party places on the expected consequences of entering into this contract and the expected consequences of taking the next-worse alternative available to him. The next-worse alternative may be quite bad. There may be, in everyday language, “no alternative.” The opportunity cost of declining the best alternative in favor of the next-worse one may be such that he “just can’t afford it"; “. . . being free to choose . . . has got to include the idea that not going along with the deal that is being offered is an acceptable state of affairs.” 4 Unless society is just or rich (beyond scarcity) or both to begin with, so that it does not put people before unacceptable alternatives, the contracts that really make a difference to one’s well-being cannot be refused, i.e., they are “unfree.” A related though different claim is that a society of scarcity and injustice will not, in general, be made richer and juster by letting contracts take their course.
2. Admittedly, it is easy to dismiss as naive the idea of a binary division between “acceptable” and “unacceptable,” for one does not end and the other does not begin at a particular line or point in the universe of states of affairs. Must “unacceptable” mean starvation, or is “relative deprivation” bad enough? And when is it “acceptable” to be humbled by yielding in a negotiation? A state of affairs can be “unacceptable” only in the sense that another one within reach is more acceptable to a particular person. If we must at all costs seek a binary relation of either/or, “acceptability” is not going to furnish a generally recognizable dividing-line.
A more sophisticated account of free choice might replace preferences for available states of affairs by preferences for states of affairs of varying degrees of probability, so that “not going along with a deal” could be interpreted as evidence, not or not only of the definite availability of a (more) acceptable alternative but also of certain probabilities, “hopes” of more acceptable ones. Such an interpretation, by making room for error of probability judgment and wishful thinking, could at least give coherent meaning to a person “not going along with a deal” although he actually prefers it to the “unacceptable” next-worse alternative that is “being offered"—for taking his chances on the probability distribution of yet other “deals,” not “offered” but possible, ranks higher than either of the offered deals in his preference order. Whichever way we turn and refine the notion, however, “acceptability” is hardly a promising test of the freedom of entering into a contract.
3. It could be held, instead, that the idea of freely entering into a contract suffers from the same conceptual weakness as the idea of free acts in general. Not entering into a given contract entails an opportunity cost in the same way that an act runs into a constraint; if we would rather not incur the cost, or not bump against the constraint, we will (trivially speaking) “choose” not to do so. We will do the other thing instead, but what is the sense of calling the other thing, namely our resulting alternative action, “free"? On this view, it is senseless to speak about choice, with the overtone of freedom that the word carries, once a complete preference-ranking of alternative courses of action is supposed to exist, since the preferred one must ex hypothesi be taken. At worst, this is complete determinism; at best, it shifts the domain of freedom from the choice of actions to the choice of the preferences which wholly prejudge the action that must be taken in conformity with them. At the level of actions, however, “freedom” is a useless attribute for distinguishing contract from command, since one is just as “unfree” as the other.
4. Instead of putting another inclusive binary relation, “either free or unfree,” in the place of “either acceptable or unacceptable,” a continuity argument may be used. It may reasonably be held that while all acts—except perhaps unimportant ones—are unfree, the unfreedom of accepting or refusing contractual and command-obedience relations, as well as of the acts of subsequent compliance, is a function of opportunity cost. Unfreedom of an act decreases as the opportunity cost of not doing it diminishes, i.e., as the value or utility difference between the consequences of doing one thing and doing the next-worse thing gets smaller, and hence the reason for doing the more valuable of the two acts becomes less compelling. In the limit, there are free acts. They are the ones that have no sufficient reason, that are gratuitous in the literal sense of being costless, of having no opportunity cost because the next-worse, forgone alternative was just as worthwhile or just as worthless as the one actually taken. All other non-gratuitous acts are unfree5 to a degree depending on the alternatives, i.e., on the facts of the case. A priori, in abstraction from the circumstances, nothing valid can be said about contract being more (or less) free than command.
The arguments we have sketched ("unacceptable” alternatives cannot be said to leave room for “free” acceptance of less unacceptable ones; there are no free acts anyway; freedom varies inversely with opportunity cost, so that the better the reason for an act, the less free it is) underpin two special pleas.
One
