On Contracts

Perhaps the greatest mistake mankind has ever made is to believe that human society is in need of "lawmakers." We do not observe the "natural order" and see that we are all "rule-following animals"; that there are ancient laws working within society anyway - like Property, Contracts and Torts. I have written many posts on Property; and quite a few on Torts. Today, let me talk about Contracts.

I was prompted into this discussion because of this video of a Freedom Watch programme with Judge Andrew Napolitano, in which he interviews Jim Rogers. They discuss gold - and the US dollar. How gold is going up and up, while the US dollar is going down and down. Rogers refers to the Nobel laureate economist Paul Krugman as an "idiot" - because Krugman the Keynesian does not understand money. They discuss free trade - and Rogers makes some very pertinent remarks in its favour. After that, the Judge talks about the fact that the US Constitution authorises the government to make coins, not paper notes, and that the original legislation prescribes the death penalty for those who would debase the currency.

I also think Contract should be brought in here - for most paper notes are emblazoned with a "promise to pay." These notes are therefore contracts and the issuer is bound by "private law" to redeem his notes in real money. The notes are clearly "money substitutes."

So, forget about written constitutions, governments all around the world are violating Contract.

In which case, what do we have to say about Jean-Jacques Rousseau and his disastrous idea of a "social contract"? It was Rousseau who "placed the legislator far above mankind" - as Bastiat wrote. Do read Bastiat's The Law sometime - for it contains biting criticisms of Rousseau. What meaning does a "social contract" have when the simple currency note contract is being violated universally?

John Rae's Life of Adam Smith talks about Smith and Hume's encounters with Rousseau - and, in these, Rousseau emerges as quite a bounder. However, towards the end of the book, Rae mentions that Adam Smith once commented to a friend, pointing to Rousseau's Social Contract, that this book would have a tremendous impact some day. What is not clear is whether Adam Smith made this remark in a good sense or a bad sense: that is, whether he thought the book would have a beneficial impact or a disastrous one. Rae does not elaborate on the point.

Methinks it is quite likely that Adam Smith thought Rousseau's book would have a disastrous impact. After all, Smith lectured on Jurisprudence. He would have known that contracts are "private law" and not "public law." There can never be any "contract" - in the sense of a binding agreement - between a mass of people and their rulers or "representatives." To me, the very idea of a "social contract" is a great big piece of fiction. I would much rather prefer to live in a world wherein the actual Contract on the currency note is complied with.

Adam Smith was an admirer of Voltaire, not Rousseau. He met Voltaire many times in Geneva - and the two philosophers got along famously. I have written another post on Rousseau, Adam Smith and the republicanism of Geneva, the city Rousseau came from, here.