Тег: Contract

Written contracts are a crutch for the weak that destroys civilization

We now live in an amazing time when buying a streaming subscription requires agreeing to a legal tome that exceeds “War and Peace” in volume. We have grown accustomed to thinking that this is normal, a sign of “civilization” and a “state governed by the rule of law.” But in reality, a paper contract as thick as a brick is not a sign of progress, but rather a medical report on the sickness of society. A diagnosis that screams: “We no longer trust each other!”
 
For this reason, let’s consider a bold idea: in a truly healthy, free society, the vast majority of transactions should be concluded with a simple handshake. And we are not talking about Western-style romance, but about a dry, pragmatic, and extremely efficient thing—the institution of reputation.
 
As soon as we stop believing in a person’s word, we start proliferating paperwork. And where there is paperwork, there are lawyers, notaries, regulators, and, of course, our favorite stationary bandit, who happily takes on the role of supreme arbiter using your own taxes. But let’s look back at history. Do you think that without state control and tons of waste paper, people would have simply torn each other’s throats out? Not at all.
 
How did the diamond exchanges of Antwerp and New York work? For centuries, Orthodox Jews conducted deals worth millions of dollars there. Do you know what the contract for a batch of diamonds looked like? It didn’t exist. Two people looked at the stones, shook hands, and said: “Mazal u’Bracha” (“Luck and blessings”). And that was it; the deal was closed. If someone broke their word or tried to pass off junk, they weren’t dragged into court. They were simply expelled from the community forever. Their reputation was multiplied by zero, and they could no longer buy even bread from their own. The risk of losing face and business was a thousand times more terrifying than any state fine.
 
Another example is the medieval Lex Mercatoria (Merchant Law). Imagine: the 11th century, merchants trading from England to the Levant. There is no single state, just a bunch of different feudal lords. How do they conclude contracts? They created private law, without kings and officials. If a merchant from Genoa cheated a clothier from Flanders, the clothier didn’t write a complaint to the Pope. News of the deception spread through all the Champagne fairs, and simply no one did business with the Genoese anymore. Reputation was harder than gold.
 
And then there is the Wild West. From the movies, it seems people only shot each other there. In reality, until the federal government arrived with its laws, people (miners, farmers, cattlemen) created claims clubs. Land was bought and sold on a word of honor and an entry in the club’s ledger. Conflicts were resolved by neighbors over a glass of whiskey, not by judges in wigs. And it worked!
 
But today, we have forgotten how to reach agreements. We have outsourced the most important human function—the ability to take responsibility and resolve conflicts—to the Leviathan. The moment something goes wrong: “I’ll sue you!” or “I’ll call the police!”. Modern man has turned into a weak and infantile teenager who runs to complain to “Daddy State” because someone broke his sandcastle. And “Daddy” is deliriously happy about it. Because while we are litigating, he collects fees, swells the ranks of bureaucrats, and writes new laws on how we should properly breathe.
 
Total reliance on written contracts is a crutch for a society whose legs have atrophied. It is a path to nowhere! The decline of social trust and total legal infantilism are literally eating modern Western civilization from the inside. The Roman Empire collapsed not only because of barbarians; it suffocated in its own bureaucracy and taxes when citizens ceased to be citizens and became merely a “taxable base.” And we are currently stepping on the same rake. A society in which people cannot trust each other’s word, where everyone views their neighbor as a potential fraudster, and where buying a used car requires a 100-page contract—this is a fragile society. It will collapse as soon as the bureaucratic apparatus fails, and this will inevitably happen with 100% probability in the long run.

Voluntarist, Bitarch

A Book About Contracts, Trust, and Trading Enterprises

I asked ChatGPT to style my longread about the problem of contracts as an Arabic treatise. You can see how it handled it in the following text; I haven’t changed a single letter, for as the Lord said: leave man to his manliness, and leave the neural-slop to the neural networks.

A Treatise on How Men Maintain Justice in Their Affairs When There is No Single Sovereign Over Them

In the name of Allah, the Most Gracious, the Most Merciful.

Praise be to Allah, Who created humans in need of one another and made the exchange of goods the cause of the prosperity of the lands. Peace and blessings be upon His Prophet, who was a merchant before he became a Messenger, and who said:

“The honest and trustworthy merchant will be on the Day of Resurrection with the prophets, the truthful, and the martyrs.”

Know then, O seeker of knowledge, that there exist societies where people primarily acquire what they desire through exchange, rather than through gift or violence. In such societies, well-being depends on trade, crafts, and mutual agreements. However, therein arises a particular difficulty: no one can guarantee in advance that every transaction will prove honest.

This is especially noticeable when one person fulfills their part of the agreement today, while another promises to fulfill theirs only after months or years.

Therefore, wise men since antiquity have resorted to written contracts.

The Almighty said in the Surah “Al-Baqarah”:

“O you who have believed! If you contract a debt for a specified term, write it down.”

Note that the Almighty does not command the recording of the purchase of an apple at the bazaar or a cup of sherbet in a teahouse. For such transactions are completed before a dispute can even arise. One hands over the goods, the other the money, and both depart satisfied.

But it is otherwise with agreements whose consequences stretch across time.

When a master hires a worker, he buys not labor already performed, but a promise of labor. When a craftsman accepts an order, he sells not a finished product, but a promise to manufacture it. When a merchant equips a caravan, he buys not goods, but the hope of future profit.

Therefore, the parties are forced to describe their expectations in detail.

Who provides the tools?

Who is responsible for damages?

How to distinguish diligence from negligence?

Which circumstances should be considered excusable?

Without such clarifications, each will later remember only that part of the conversation which is advantageous to them.

However, another difficulty arises here.

For human life is not like the drawings of a geometer.

Aristotle said that matters of practical wisdom do not possess the precision of mathematical objects. And indeed: if a triangle remains a triangle today and tomorrow, people are constantly changing.

A servant may become the friend of the master.

A student may become the companion of the teacher.

A companion may become a rival.

And a man hired to sweep the floor may turn out to be a skilled cook or a skilled thief.

Therefore, every contract is inevitably drawn up by people who know the future worse than it seems to them.

If the relationship ceases to benefit one of the parties, it can usually be terminated with moderate losses. The worker leaves the master, the master releases the worker, and the remaining disagreements are most often not so great as to destroy the lives of both parties for their sake.

But the most difficult case arises when it concerns the investment of capital.

For here the desires of the parties are inherently different.

He who gives the money would like to see it again someday, and with profit.

He who receives the money would be most pleased by a situation in which the money remains with him forever.

Therefore, commercial enterprises need a force that compels people to keep their promises.

However, here too, excess is as harmful as deficiency.

If coercion is too weak, no one will trust their funds to other people.

If coercion is too strong, then every unlucky entrepreneur risks becoming a slave to their creditors.

For the success of an enterprise is never guaranteed.

A ship may sink.

A caravan may be plundered.

A workshop may burn down.

And thus, not every loss is a consequence of deception.

Consequently, the prosperity of a state depends not on maximum severity nor on maximum leniency, but on the correct proportion between them.

In this matter, wisdom resembles what Aristotle called the mean between extremes.

For there exist two diseases of trade.

The first disease consists in that no one owes anyone anything.

In such a society, merchants quickly cease to trust one another, craftsmen work sloppily, and the borrower perceives other people’s money as a gift of fate.

The second disease is the opposite.

In such a society, every debtor lives under the threat of ruin, every worker chooses only between various forms of dependence, and those in power use their might to destroy competitors.

Both diseases are ruinous.

Therefore, reasonable people treat contracts with respect, but do not turn them into an object of worship.

For the contract exists for the benefit of people, and not people for the contract.

If every letter of the scroll becomes more important than common sense, then the contract gradually transforms from an instrument of cooperation into an instrument of domination.

For this reason, all trade rests on the presumption of good faith.

People must proceed from the assumption that their partner wishes to obtain benefit not through the destruction of the deal, but through its successful completion.

A good contract is beneficial to both parties.

If benefit is obtained by only one party, then we have before us not a contract, but a kind of command.

However, hope for good faith alone is not enough.

One must understand which forces make good faith profitable.

In all times, such a task was solved by communities.

A merchant did not travel simply as an individual.

Behind him stood his city.

His kin.

His guild.

His faith.

If the merchants of some city acquired a reputation as fraudsters, the next caravan from that city was met without former hospitality.

If anyone offended such merchants without cause, he risked bringing upon himself the enmity of the entire community.

Therefore, reputation became a kind of wealth.

Ibn Khaldun wrote that people achieve great goals only thanks to asabiyyah — mutual support and solidarity.

The same is true for trade.

However, here too, excess brings harm.

When belonging to a corporation becomes more important than a person’s abilities, the market loses flexibility.

Then monopoly takes the place of trust.

Privilege takes the place of reputation.

And coercion takes the place of cooperation.

Therefore, over time, other ways of ensuring trust emerged.

One of them was insurance.

In such a scheme, a third party appears, who receives payment for the readiness to cover losses from unforeseen circumstances.

But precisely because the insurer does not wish to pay extra, he carefully examines the behavior of the participants of the deal.

Thus, insurance not only distributes risks, but also encourages transparency.

However, it too is not a miracle.

Insurance protects well against misfortune, but protects poorly against evil intent.

If fraud proves more profitable than honest work, no insurance fund can exist for long.

Therefore, merchants also devised pledges and escrow accounts.

In some cases, the money remains with an intermediary until the obligations are fulfilled.

In other cases, the parties risk a pre-deposited security.

But these means too have limits.

They work well where the subject of the transaction already exists.

They work worse where the subject of the transaction is yet to be created.

Precisely for this reason, the most risky type of trade remains the investment of capital in new enterprises.

As the market develops, a greater number of interactions become customary.

Rules appear for them.

Standards.

Intermediaries.

Insurers.

Arbitrators.

Experience.

The world of trade gradually becomes like a beautiful garden, where the paths are paved with stone, dangerous places are fenced off, and a signpost stands at every intersection.

It is comfortable to live in such a garden.

But it is difficult to get rich.

For high profit arises where there are no paths yet.

Therefore, the largest fortunes are created not in the garden, but beyond its fence.

There, where merchants set out for unknown lands.

There, where seafarers seek new routes.

There, where people invest money not in an existing business, but in the mere possibility of its appearance.

Just as Sinbad the Sailor once obtained diamonds from a valley to which no safe path led, a prudent investor seeks opportunities where others see only danger.

Yes, dreamers, adventurers, and fraudsters will always gather around such enterprises.

But beside them, people capable of distinguishing fruitless madness from fruitful madness will also appear.

And it is they who will become the pioneers of new markets.

Others will come later, when the risk diminishes and the profit becomes more modest.

And therefore it should be concluded:

Contracts are necessary.

Reputation is necessary.

Surety is necessary.

Insurance is useful.

But none of these instruments is capable of completely ridging a person of risk.

For risk is the price people pay for the opportunity to discover something new.

And thus, the greatest riches are born not where there is no danger at all, but where people know how to face it with open eyes.

The Problem of Contracts

In the comments of Bitarch and Voluntarist’s post, a discussion flared up regarding contracts and their binding nature. Opinions ranged from the view that a contract is sacred to the view that a contract itself is not worth the paper it is written on, and that only the good will of the contracting parties matters. All this was accompanied by questions about how an ancap society is even supposed to be built if contracts are not observed there. I will try to outline my approach to the problem.

Ancap is a free market plus the decentralization of law. That is, on one hand, it presupposes developed exchange relations—gifting and coercion are not completely excluded, but they certainly do not dominate. On the other hand, there is no top-down guarantee that the exchange will prove to be fair. Especially in situations of deferred exchange, when one party to the deal provides real value right now, while the other promises some presumed value later.

Within the framework of this text, I will understand a contract as the accompaniment of an exchange transaction by certain non-obvious conditions. These are precisely what must be fixed in explicit form, because otherwise, it will inevitably turn out that the parties understood each other differently. There is no particular sense in composing a detailed text describing a transaction for buying vegetables at a market. Often, people don’t even ask for the price: a person simply scoops up the goods, shows them to the seller, the seller names some amount within reasonable limits, the person pays and leaves; everything works on defaults—so much so that one can even not know the language and simply show numbers on a calculator.

It is a different matter if it is assumed that the transaction should take place only if both parties agree to some deferred interaction. For example, there is an employment contract. One party promises productive labor, the other promises payment for that labor. But beyond this, a desire arises to ensure that the parties agree on which party provides the space, tools, and materials; what labor is considered productive and, accordingly, subject to payment, and what labor, conversely, is sabotage and subject to a fine; to what extent the employee is responsible for damage to the employer, and to what extent the employer for damage to the employee, and so on. Fixing this agreement in an explicit form allows, firstly, the parties themselves not to forget after some time what agreement was reached, and secondly, to appeal to this agreement in the event that any of the parties decides to involve third parties to secure their interests.

I need a diligent worker to build a palace…

There is an obvious problem here. Long-term relationships are inevitably accompanied by changes, sometimes quite radical. These changes may be impossible to predict in advance, or their possibility may have seemed too irrelevant at the start to be described. You hire a worker—and after some time you find that they are now a business partner or even a spouse. Or, conversely, that they are a competitor who secured the start of their own business using your client base. Or less radically: you hire a person for cleaning, and it turns out they also cook well. Or they clean the premises so thoroughly that they simultaneously “clean up” some valuables stored therein.

But employment is only half the battle. After all, if the relationship has changed significantly but both parties are interested in continuing it, the new relationship can be formalized through changes in the contract. And if one of the parties is interested in breaking off the relationship, they can simply leave the job or, accordingly, show the worker the door. In this case, the parties may have unresolved claims, but if the breakup is not delayed, the volume of claims will be small, and it will then be easier to write them off than to insist on a final settlement.

It is worse if we are talking about investments. There, a unilateral breach of relationship is precisely what the investor wants to avoid from the very beginning, whereas the recipient of investments is initially interested in exactly this scenario: just give me your money and leave forever. In order for investments to exist as a noticeable phenomenon despite such a powerful asymmetry in incentives, a systemic factor of coercion of the investment recipients is needed, so that they strive to fulfill the original agreements rather than presenting the investor with a fait accompli: the money is spent, there is no return, maybe something will be returned someday, inshallah. At the same time, when this factor works too harshly, the entrepreneur bears additional risks: the success of a business is never guaranteed, even if the entrepreneur did everything in accordance with the original business plan for which the investments were obtained. He may indeed find himself in a situation where the investments are spent, success is not achieved, there is nothing to return, and then the notorious coercion factor begins its violent actions to collect the debt. The cheaper coercion is for the investor, the more readily he will invest in dubious projects, and the harsher the conditions under which he provides investments will be.

The investment climate is precisely formed by the perception of such subtleties: how likely is the sudden intervention of third parties and natural forces into the bilateral relations fixed by the contract; how conscientious are entrepreneurs in following agreed-upon plans, or are they more inclined to collect money for one thing and spend it on another; but also conversely, how likely is it that the goal of providing investments is not the creation and development of a business, but the enslavement of the entrepreneur and turning him into a serf.

In other words, both extremes harm the economic prosperity of society. The conditionally left extreme is bad, where it is impossible to motivate a worker, and any somewhat complex project is simply not implemented because everyone has scattered to their own affairs and steals every single nail from work. And if you are foolish enough to lend money, you had better say goodbye to your money immediately; it will be spent on all sorts of good things, but by the very design of society, you are entitled to no benefit from this. But the conditionally right extreme is also bad, where a worker has a choice between several types of indentured contracts and starving to death, and if someone wishes to work for themselves using borrowed funds, the payment schedule will put them in conditions as difficult as those of a hired worker, only with the hourly prospect of falling into debt slavery. If someone starts a business using their own honestly saved funds, the person who has the resources to coerce their workers and debtors into order feels an irresistible temptation to use those resources to put spokes in the wheels of an independent competitor, even if this would be considered an unlawful act.

Ifrits or djinn? Marx or Pinochet?

Applying this to the topic of contracts, it means that, on one hand, contracts, being evidence of the existence of complex and structured declarations of the parties, are absolutely necessary in a society with a developed market and, generally speaking, should be respected. But, on the other hand, the desire to observe any contract to the last letter at any cost, as well as the desire to describe all conceivable conditions of interaction between the parties in contracts with incomprehensible precision, is counterproductive and leads to the loss of that very respect for contracts, since they begin to be perceived more as a tool of violence by the party who drafted the contract over the party who was given a ready-made text to sign.

The most important thing in contractual relations is the presumption of good faith of the participants. Both the parties to the contract and public opinion must be confident that a contract is, firstly, a privilege of equals (a document describing unequal relations is called a “statute”), secondly, stems from the parties’ desire for their own benefit, and thirdly, a good contract is beneficial to both parties. It is this presumption of good faith that makes one party seriously and benevolently consider the other party’s statement that the previous terms of the contract are no longer beneficial to them and therefore it is desirable to revise them, or if this is impossible, to carefully terminate the contract.

But good faith is not inherent in everyone and not under all conditions. In order for the presumption of good faith to justify itself, rather than prompting one to enter into contracts with fraudsters over and over again, one must understand that powerful incentives work toward this very good faith. It remains to understand what these incentives could be in a world with a developed market and an absence of centralized coercion.

Historically, such incentives were provided almost exclusively by the counterparty’s membership in a particular community that bore a share of responsibility for its member and was therefore forced to independently ensure their good faith in relations with the outside world. If merchants from a certain polis cheated while trading, subsequent merchants from that polis might be robbed or denied entry to the harbor. And if merchants from a certain polis were robbed without reason, a punitive expedition might sail in their stead. Or no one might sail at all, because your polis had acquired a bad reputation among traders. If you hire a stonemason from the guild of free masons, he will work so as not to bring shame upon his corporation. If Swiss mercenaries flee the battlefield, who will be interested in hiring Swiss mercenaries?

However, relying only on such insurance groups also entails costs. At some point, for example, it may turn out that you have the right to hire only a union member, otherwise both you and your worker are guaranteed problems. And now membership in a professional community becomes not a sign of quality, but simply an imposed inevitability. Tying a person to a corporation deprives the market of flexibility, forces the loss of profitable opportunities, slows down progress and, ultimately, harms general prosperity, not to mention that it provokes conflicts out of nowhere—that is, when outsiders poke into things that are seemingly not their business, claiming that they have an interest in this matter.

But if a person does not belong to a group that bears responsibility for them, how can their good faith be guaranteed through purely market incentives? In many cases, insurance can help. A third party is brought into the transaction, who receives an insurance premium and in exchange undertakes to guarantee compensation for damages from unforeseen circumstances that arose despite the good faith execution of contractual obligations by the parties. This party is interested in paying nothing for the insurance event and will therefore try to prove the bad faith of one party or another. This means that the parties become interested in drafting the contract and conducting business as transparently as possible so as not to be left holding the bag when it comes to the prospect of insurance payments.

Will such a scheme help us? Alas, only partially. It does not protect against conscious fraud if the profit from it exceeds the amount of the insurance premium. The fraudster has left with the money, and the insurance company shrugs and says that there is clear bad faith of the counterparty, which they did not insure against and do not intend to insure, because today you pay for the loss from a fraudster’s actions, and tomorrow half of all deals will become fraudulent.

To provide guarantees in trade and employment, escrow account mechanisms and various collateral schemes help quite well. In the case of escrow, the participants of the deal lose the ability to receive payment until they prove the fact of execution of contractual obligations to a third party. In the case of collateral, the loss of one participant of the deal from the actions of another is compensated by the value of the collateral. But this does not help protect the investor at all, because in investments for creating a business from scratch, it is specifically the investor who puts in the money, and the entrepreneur only gives a promise to direct this money toward creating a business that should bring profit.

Is this vulnerability so critical? One must look at the context. The market develops a habit of typical actions because they save transaction costs. In a developed market, competition leads to a decrease in insurance commissions, so insuring risks becomes not particularly expensive, and this is done almost everywhere. The world of typical market interactions turns into a cozy park with paved paths, detailed infographics, and fences in all dangerous places. Sweet, cozy, beautiful, and zero drive. In other words, the profitability of business decreases. A good haul can only be made by opening a new market. And only here do we enter the space of unprotected investments.

Venture investing, based on a bare business idea, is a conscious risk for the chance of a big win. Yes, this sphere will attract strange people: project-pushers, “info-gypsies,” simple fraudsters. But from the investors’ side, those who are ready to deal with such a crowd will enter this sphere—those who can sift through insane projects to find those whose insanity looks noble, reinforce inventor-maniacs with clever managers and technical specialists—in short, the market will reward those who set sail not in a washbasin, but at least in a caravel. And then legends will be composed about them, and someone will also earn money on the reproduction of these legends.

No more drinks for Sinbad!

Contracts, restitution, and pocket courts

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.

— Hm, maybe I should sign? But that portrait on the wall is far too suspicious…

Read and Die: How Long Contracts Steal Your Life

Do you know what your mortgage papers, a smartphone license agreement, and a devil’s contract with fine print from a bank have in common? Exactly: it’s impossible to read and understand them without sacrificing a couple of years of your life and your nerve cells. Let’s be honest: this is no accident. This is the theft of your time and your right to a conscious choice!

Today, an ordinary contract with a bank looks like the Joker’s villainous plan: a thousand pages, pretentious language, “asterisks,” and fine print. They convince you that “this is how it has to be,” and then they act surprised: “Didn’t you read on page 843 that the rate is floating and can triple?” Remember the 2008 mortgage crisis? Millions of people signed contracts with “floating rates.” Most didn’t even imagine what that meant. And the result? When the refinancing rate skyrocketed, families ended up on the street, and the global economy plummeted into a severe depression.

And do you know what the scariest part is? According to informal polls, a significant number of people think that if a mortgage rate is 20%, it means the apartment will be 20% more expensive in total, not 20% more every year. If such elementary things are unclear to many, how can we expect them to tackle a thousand-page contract that even specialists struggle to read?

Other examples of unfair contracts:

– Insurance where almost nothing is covered because page 58 mentions “exclusions.”
– A software license that gives a company the right to track your activities on the device.
– A mobile plan with “unlimited internet” where the speed drops to almost zero after the first 10 GB.
– Employment contracts that forbid you from working in the same field after resignation so that you don’t create unnecessary competition.

Let’s call things by their real names: this is not a voluntary agreement. This is fraud disguised in legal language. It’s the same as if you were sold a car that explodes on its own after a year, simply because somewhere on page 287 it was written in fine print: “Warning, may explode!”.

I propose a simple rule: any contract longer than 4,000 words or written in language that an average person wouldn’t understand on the first try is null and void. It’s simple. If you can’t fit it into a couple of clear screens, it means you want to hide something. Hid it? The contract doesn’t work. This applies to everyone—even banks, even mortgages. Imagine a bank decides to sneakily insert a clause about raising the rate on page 999? Congratulations, the apartment is yours; you don’t need to pay more. It’s their own fault—they wanted to fleece a person of their time and nerves, now they pay the price of justice!

By the way, even now in many countries with an independent judicial system, there is a chance to create a precedent for the nullity of a contract, even a mortgage. One could refer specifically to the theft of time and fraud, as the bank consciously provided a contract that an ordinary person without specialized education could not understand, despite their best efforts.
An idea for the future: create a community of auditors who issue a “simplicity badge” (analogous to an SSL certificate). If you see such a badge, you can be sure the contract is clear and contains no hidden traps.

All of this would be a return to the essence of voluntary exchange: people must understand what they are agreeing to. If a person spends half their life trying to understand what they’ve agreed to, it’s no longer a free market, but legalized racketeering. The world would only change for the better after this. Banks and companies would begin to compete for the clarity and transparency of their contracts. The market would be cleared of parasites who feed on incomprehensible papers. And finally, people would reclaim the right to a conscious choice, and therefore, their freedom!

Voluntarist, Bitarch

In addition to the previous post

The post turned out poorly. As a mitigating circumstance, I can only cite a lingering respiratory infection, because of which everything is running, and it is somewhat distracting.

It was a mistake to mention some debates and takes from those debates, because readers naturally tried to understand how they related to the content of the post—and the connection there is quite weak. The thing is, I am not very interested in the topic of survival under a state; otherwise, the topics of my posts would mainly concern tactics for standing in line for various state social perks, roughly speaking, for the slop. The post concerned specifically the ethical aspects of concluding contracts under ancap, and the fact that positive law in conditions of decentralization works very limitedly, and therefore not every document that says “Contract” and is signed by the parties actually possesses the properties one would expect from a contract. That is, it is not a fact that the mutual promises described in it will actually be fulfilled by the parties, were planned to be fulfilled by the parties, or can be forcibly realized in reality by the efforts of one of the parties.

Is it ethical to sign a contract that you do not want to fulfill? Yes, if the alternative involves significant costs. Is it ethical not to fulfill a signed contract afterwards? Yes, or to fulfill it partially. Is it ethical not to make it clear in advance that you do not like the contract? Yes, if this type of feedback is punishable. Is it ethical to abuse deceits of this sort? Of course not; on the contrary, it is ethical to strive to avoid situations where such deception is required.

By the way, the presented ethical approach simultaneously completely closes the meme topic of contractual slavery under ancap.

Contracts

I had a debate yesterday. My opponent was pushing popular takes about how the state is no different from those contract jurisdictions of yours, and that obtaining a passport is like signing a contract. Where is the text of the contract? Right here, the body of laws. Much arguing followed, during which I formulated for myself why contracts are needed and how to view them.

A contract is merely a mutual promise. Promises are made, revised, disavowed, and broken; their violation may have certain consequences. The vast majority of contracts are not smart contracts. They cannot execute themselves; they must be executed by people. My interlocutor asks: if you ancaps reserve the right to break any contract in advance, and even explicitly state that you reserve the right to try to avoid harmful consequences of its breach—then why are contracts needed at all? How does a world with contracts differ from the state of nature, where nobody owes anyone anything?

Contracts are needed to make the world simpler, more predictable, and more understandable, providing the ability to make longer-term plans by relying on other people. But if a contract does not execute itself, then simply relying by default on the fact that it will be executed by other people is fraught with erroneous planning. And here there are two paths, both valid and not contradictory. One can invest in contract enforcement mechanisms. Or one can try to enter into contracts that the counterparty will want to fulfill.

For example, the traffic rule “in this area, it is customary to keep to the right side of the road” is a good rule. It is far better than its absence because it increases the predictability of traffic. It is cheap to follow, because what difference does it make which side you drive on; you can drive on the right. And it is expensive to ignore. There is no need to specifically enforce this rule; it is enough that everyone knows about it, and if they happen not to know, they quickly find out by observing the flow of traffic. And since those who love to stretch the truth tend to call the relationship between a citizen and the state a contract—implicitly concluded on the principle of a public offer—then this traffic rule is a good example of a healthy person’s social contract.

Now let’s imagine a situation. A person enters a certain territory. At the checkpoint, they are offered twelve volumes of rules of conduct on this territory—and a place to sign this contract, which will give them the right of entry. Since the person will not read these volumes, the procedure for them boils down to the following: you ask for a signature to let me in. Here is the signature, let me in. The contract on my part is fulfilled. And any further appeal to the contents of the sixth volume of the tomes gathering dust at the checkpoint will be perceived by them as lawlessness, and pointing out that you signed the contract will be perceived as mockery. Such contracts do not make the world simpler or more predictable. They are needed by self-proclaimed enforcers to have a reason to nitpick a violation, while the party who signed them for the right of entry will constantly violate them without any ulterior motive; therefore, one cannot rely on the existence of such-and-such a contract and people’s adherence to it in their planning. This means that under ancap, the natural emergence of a practice to accompany stay on a territory by imposing a voluminous code of rules is unlikely to take hold. More precisely, the maximum volume of rules acting on a territory will be proportional to the exclusivity of access to it and the ease of enforcement. An expensive, elite, closed club can afford complex norms of behavior. A public park cannot.

Of course, there are contracts where complexity is due to the complexity of the subject of the deal. For example, the merger of large joint-stock companies. But there, the contract is prepared by professionals from both sides, not provided by one party in a ready-made form without the right to make edits. So the complexity will be voluntary. And it is precisely this that will ensure the desire to fulfill everything exactly as written.

And finally, there are contracts where the subject of the deal is complex, but the text is standard. For example, a bank loan agreement. But for the bank’s client, this text essentially boils down to a short explication: you give me this much now, I give you this much monthly for this many years. As for what exactly should be done if something goes wrong—here, the presumption of the bank’s good faith applies. The client believes that the bank provides fair procedures for such scenarios and is not against following them specifically, because he did not think them through himself. But when it comes down to it, his opinion may change sharply. This is where the bank discovers that all these procedures, from the client’s point of view, are not sacred tablets. It is not a contract at all. These are the bank’s wish-lists. And the client has their own. And the more the bank insists on the observance of its wish-lists, the more dissatisfied the client will be, and the more costs he will try to create for the bank. Therefore, the more highly competitive the loan market will be under conditions of decentralized law, the more customer-oriented the contracts there will be.

The same applies to our ordinary life—most of the rules that others insist on observing are not contracts, but wish-lists. Some we respect, some we don’t, we resolve our conflicts ourselves—and it’s fine, we live. Quite peacefully and happily.

A wise guy who knows which wish-lists are worth voicing and which are not

Using the concept of the implicit contract against statisticians

Voluntarist, Bitarch

You are likely familiar with the argument that the mere use of some benefit supposedly implies agreement with the rules established for it, even if such agreement was not explicitly confirmed. For example, being in a certain territory automatically obligates a person to follow its rules. If they disagree with the rules, they should not visit this territory; otherwise, they can absolutely reasonably expect the punishment established for committing such a violation. This works similarly with any use of material goods and interaction with other people. And some, referring to copyright, may even claim that such a rule applies even to intangible benefits. For example, by simply using a certain program, you automatically agree to follow the rules established by its developer and copyright law itself (“clickwrap”).

Statists—supporters of coercive state power—often resort to such an argument. With its help, they can justify any obligations arising from various state laws as a kind of implicit consent to the norms they establish. Very often they claim that the mere presence of a person within the territory of the state already obligates them to complete submission to all state laws. Well, then they should not be surprised that this argument can be turned against them.

The main tool of the statist in imposing the arbitrariness of the stationary bandit (“legislation”) is coercion through the threat of violence. After all, would a statist be able to force you personally to do or not do something without threatening violence? Of course, it can be initiated only against a specific person who, based on the concept of the implicit contract, has nothing preventing them from simply setting their own terms for interaction.

I warn that if someone wants to commit violence against me, then by interacting with me in such a way, they will enter into an agreement consenting to an euthanasia procedure as part of my self-defense. Having been warned and acquainted with my rule, the choice now lies with the person wishing to commit violence. Deciding to do so, they thereby implicitly sign the contract established by me and accept the conditions specified therein.

Understanding this, the statist is left with only two possible options for how to further regard the concept of the implicit contract. They can either continue to adhere to it, thereby recognizing the right of other people to unlimited self-defense against any attempts to commit violence against them, or throw out this untenable and unfounded concept from the list of their arguments in defense of violent power.

Transaction Insurance

Voluntarist

The topic of non-violent tools for implementing measures against those who violate agreements has been raised by us several times before. Usually, in such cases, the conversation revolves around reputational institutions and ostracism, but besides this, the case of financial instruments providing the possibility of predetermining mechanisms to cover damages caused by a breach of agreement is particularly interesting. Transaction insurance can be called a fairly universal tool of this kind.

To demonstrate what is meant by transaction insurance, let us look at a case of an existing implementation of this practice. It is actively used in lending, especially when it comes to large loans or mortgages. The essence is that the person borrowing the funds also signs an insurance contract, under which they undertake to additionally pay an insurance premium, usually in the amount of a certain percentage of the remaining debt. This percentage is small; its value rarely exceeds 1%, and in the case of a mortgage, one can find an insurance premium rate as low as 0.25% of the remaining debt.

Why is this necessary? If a person finds themselves unable to repay the loan, or if they took it solely for the purpose of stealing the credit funds with no intention of returning them, then these funds are covered by insurance. Given that, in reality, not such a large percentage of people actually violate the terms of the transaction, the funds collected through insurance premiums are quite sufficient to cover the damage caused by a small percentage of deceivers.

As for me, transaction insurance has very great potential. This concept could be applied to a wide spectrum of transactions in principle. During any transaction, the parties could register the contract with an insurance company and contribute a certain small percentage of the transaction amount to an insurance fund. If one of the parties violates the terms of the transaction, the insurance company where the insurance was registered compensates the damaged party.

This method can also be combined with other types of non-violent sanctions, such as the aforementioned ostracism. A violator of a transaction will, of course, end up on blacklists; the insurance company, which had to spend funds from its fund to compensate for the damage, is especially interested in this. The violator’s life will be very difficult; many will refuse to conduct transactions with them or offer less favorable terms that account for the risk that this person might cheat. But, of course, they can get out of this situation if they eventually agree to cooperate and make concessions to those who suffered from their violation. Of course, they may not have the opportunity to compensate for the damage caused at the moment, however, in such a situation, the parties usually agree on more accessible terms for fulfilling obligations. In the credit sphere, a good example is the debt restructuring procedure, when payments are shifted to the future, stretched over time—which reduces the payment amount—or when a part of the interest rate or the debt itself is written off. In the end, all parties prefer some solution to the problem over the absence of one.

Reputational institutions can also be combined with transaction insurance in a different way. If someone is known for their honesty, with many transactions behind them that they did not violate, they may be offered lower insurance premiums, or even their complete absence. If, however, someone is a known violator or an unreliable agent, transactions with them can be concluded only on the condition of paying higher insurance premiums. Thus, it becomes profitable for people not to violate agreements, since the replenishment of the insurance fund will be shifted specifically onto the violators.

States are not private organizations

Vitaly Tizun’s Column

When criticizing the state, it is very common to hear that if you don’t like it, you should just leave for another “pen.” The argument is that states are also private competing organizations; they survive on funds paid by their clients (meaning citizens), and every person has a choice among many states, which means we already live in a free society. In reality, this is a very inadequate explanation of what the state is and how it works. Why? Let’s find out!

What does replacing one private agent with another usually mean? You need to terminate the old contract and enter into a new one with another agent. Of course, this process can sometimes encounter some difficulties, but overall it does not carry any unacceptable burdens. In this matter, you most likely will not even have to change your place of residence. And if you do (for example, you decide to change residential complexes or find a job in a neighboring city), the environment surrounding you still will not change fundamentally.

What does changing a state mean? You need to renounce your culture, your language, your loved ones and acquaintances, your familiar living environment, incur significant monetary expenses, fulfill a series of conditions regarding the termination of your previous citizenship (sometimes difficult to fulfill; I know one person who could not renounce Russian citizenship due to the need to “pay the debt to the Motherland”), and also fulfill a series of conditions to obtain new citizenship (you cannot move to another country simply by buying housing or finding a job—meaning, while getting the approval of some local residents, you still need permission from the state), and so on.

The process of changing states faces significant costs. An ordinary person will not move to another country simply because they have a poor knowledge of the local language and lack sufficient funds. Most people will flee their country only if the government starts simply shooting everyone indiscriminately (however, such governments usually also close the borders). In any other situation, no matter how bad it is, the majority of the population remains where they were.

One might say that you simply should not belong to the majority, that you need to develop yourself, strive, learn other languages, accumulate funds for relocation by all possible means, prove your reliability and usefulness to another state, and then everything will work out—and if you don’t do this, it means you don’t really want to change anything in your life.

However, even if you strive and successfully move to the territory of another state, this still provides no guarantees regarding the policy of the new sovereign. Regardless of the circumstances, the majority of the population of any state (the very ones who will never move) will not escape paying taxes and obeying state regulations. The state has the ability to use these people and their resources to pursue its own goals. This gives it the opportunity to make mistakes in its policy, or even adopt very inadequate and irrational decisions, since it always has the means to cover the resulting costs.

A private organization needs to function as efficiently as possible because it lives entirely on the sale of its goods and services. Any manifestation of inefficiency is unacceptable for it, as this would lead to the goods it provides being either more expensive or of lower quality than those of its competitors; it would thus lose clients and its income.

The state, however, does not need to strive for maximum efficiency. A specific government only needs to conduct a policy that is efficient enough to keep citizen indignation below a certain critical level. But no more than that.

States in no way resemble private organizations; they do not compete for people, but exploit the population belonging to them. The state is always slavery. To say that states are market and competing organizations is nonsense!

Ancap-chan’s Comment

Any analogy should not be taken completely literally. Of course, states compete for people, although this does not at all negate the thesis that they strive to exploit them for the purpose of obtaining income—if there were no such goal, there would be no sense in competing. Citizenships of different states have different values, although, of course, different people value different advantages provided by one citizenship or another.

But with equal success, we could consider the preferences of slaves regarding which master it is better to be owned by. It is known that some slaves successfully changed masters according to their preferences, although the bulk of them were unable to do so, or did not even perceive it as a need.

In short, the slogan “if you don’t like it—leave” should never be dismissed. In this regard, I want to remind you of an excellent article by Savva Shanaev, Mathematics in the Service of Libertarianism, as well as my brief comment on this article.