The Austrian School denies objective value—value is determined by the subjective assessment of the parties at the moment of the transaction. However, Rothbard’s theory of restitution requires that a penalty correspond to the “actually transferred asset.” If value is subjective, then a corporation’s private court is entitled to recognize a $10 million fine for resigning from a post as a legitimate “transferred title”—and qualify the employee’s departure as fraud, opening the way to forced restitution through labor.
Who determines the proportionality of a penalty clause in a contract, and on what basis, if objective value does not exist and the interpretation is carried out by a court hired by one of the parties?
Konweni
As stated in the wording of the question, value is determined by the subjective assessment of the parties at the moment of the transaction. Accordingly, if a penalty amount is specified in the contract in case of its termination, it means that at the time of signing, the value of concluding the contract was higher for the potential payer of the penalty than the amount of the penalty itself. And if the penalty specified in the contract seems absurdly high to an outside observer, this tells us that it was absolutely imperative for the party in question to conclude this agreement at that moment. Another explanation is that the party signing the contract did not read the penalty clause or rashly assumed that it was some kind of nonsense that no one would take seriously, the key points were discussed verbally, and everything else is just empty legal blah-blah-blah.
However, since the question specifically refers to Rothbard’s opinion, he does not make the qualification about the actually transferred title of ownership for nothing. If an employee had been paid an advance and then left the job without working it off, then the penalty is justified, and its size can be calculated precisely from the amount of the advance (for example, the unpaid amount plus the costs of an urgent search for a replacement employee). But if the labor has not yet been paid for, then the asset has not been transferred, which means that penalty sanctions are inappropriate. This is simply a matter of a broken promise. The employer can try to demonstrate to the court what costs he incurred as a result of the employee’s actions, and the court may well take these calculations into account.
Of course, the contract may contain a clause stating that all disputes are settled in a certain court, which is a pocket court of the employer, unknown to the hired employee at the time of signing. The problem, however, is that the court itself does not engage in the enforcement of its decisions, and in the absence of a state, the plaintiff will have to do this themselves at their own expense (and they will also have to put the court entirely on their payroll, as clients are unlikely to flock there on their own). Of course, through his pocket court, he can impose a crazy penalty on the employee who fled from him, and then send thugs to force him to work it off, provided that the employee does not have such funds. But the economics of such actions only begin to add up in colonial conditions, that is, in the presence of overwhelming military superiority of a cohesive group of colonizers over a fragmented mass of natives. Directly in a free society, being a part of it, it will not be possible to pull off such tricks systematically; the non-legal nature of such an organization of work would be far too obvious. Even if this does not lead to unexpected sanctions from actual or potential counterparties, the employer will have to organize forced labor in a society with free labor, where no one will help him, for example, catch runaway workers. You need it, you catch them. And new workers will likely go and be hired by a competitor.
And now I will answer the asked question directly. Who will assess the proportionality of the penalty and on what basis? The employee will assess it, based on their own subjective considerations. If they pay voluntarily, then it is tolerable. If not, see the paragraph above.
