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How are Contracts Enforced in a Free Market?

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limitgov Posted: Wed, Mar 6 2013 9:26 AM

How are contracts enforced in a free market?  Or is my thinking not correct, do they even need to be enforced? 

 

If not, though, why would they not need to be enforced?

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dude6935 replied on Wed, Mar 6 2013 12:21 PM

By market forces: specifically the effects of reputation and the need for ongoing business relationships, the presence of arbitration services, and the use of threats of retribution from individuals and their agents. 

http://www.youtube.com/watch?v=jTYkdEU_B4o - The Machinery Of Freedom: Illustrated summary

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limitgov replied on Wed, Mar 6 2013 12:24 PM

"the use of threats of retribution from individuals and their agents."

can you please give some juicy examples?

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Clayton replied on Wed, Mar 6 2013 12:38 PM

I think the question is ill-formed. I think we're better asking "what are the kinds of contract enforcement mechanisms which have existed in the past and would be likely to exist in the future in an environment of very weak or non-existent central authority?"

One mechanism that I think doesn't get discussed enough is class, as in social status. Class is a mechanism for enforcing contracts because not honoring your contracts is a fast-track to losing your status, which is a form of soft-ostracism. There are problems with the system... once you inject statism, class becomes much less useful as people who should be expelled from the reputable class are, instead, protected. This dilutes the value of status in judging the trustworthiness of someone you don't personally know very well, which is, I think, its original raison d'etre. Additionally, upward-mobility is naturally restricted by an inherent class-interest to prevent new entrants in favor of promoting one's own kin, regardless of their objective reputability.

But part of this is the consequence of status being measured in only one dimension... i.e. one's social status vis-a-vis the national/clerical class hierarchy. So, the monopolization/centralization of status marks impedes upward mobility - the question is why this occurs. We can look at guilds and business-licensing to get an idea: the existing certifiers of class/reputability don't want new certifiers or competing marks of reputability, so they take legal/political action to prevent them. Thus, the whole structure tends to centralize. But just like the way unions choke their companies into bankruptcy, thus shooting themselves in the foot, so the status system squeezes the lower classes to the breaking point and leads to total breakdown.

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can you please give some juicy examples?

The most obvious is forceful repossession. If you break a contract and thereby commit theft, then I can justifiably repossess any collateral or performance bond you have agreed to. If you value being free from this forceful repossession, you will be more likely to honor the contract. The same is true in the other direction. If we both value peace, we will be more likely to honor our contracts. 

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I like the explanation, Clayton.   And what are the other mechanisms?

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Clayton replied on Wed, Mar 6 2013 1:20 PM

@limit: I would just recommend that you browse Friedman's work to get started:

http://www.daviddfriedman.com/Academic/Course_Pages/legal_systems_very_different_12/LegalSystemsDraft.html

There's a lot more depth you can go into later, but if you're just looking for a survey of different mechanisms, I'd start here.

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"

http://www.daviddfriedman.com/Academic/Course_Pages/legal_systems_very_different_12/LegalSystemsDraft.html

There's a lot more depth you can go into later, but if you're just looking for a survey of different mechanisms, I'd start here."

 

darn it...its blocked at work.

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Your question does not make any sense.

What you are calling "the free market" is just some ill-conceived abstraction about a fairy tale land where violence is never used to solve problems.

In the real world, there are many ways to enforce contracts, by real incentives, many of them boiling down to some form of violence.

These incentives can be called "positive" or "negative", positive meaning something is gained by respecting the contract, and negative meaning something is lost by not respecting it.

This of course is a matter of point of view. Positive and negative are always relative to the expectations governing the contract.

For instance, the expectations of a slave might be low enough so that the prospect of not being flogged is considered by him something to be sought, a positive incentive. 

And for a spoiled upper class teenager girl the expectations might be so high that she considers punishment not getting the car she wanted as a birthday gift from his parents but something cheaper or safer.

The last few decades of western society have been unusually peaceful, at least at the level of its every day citizen.

So people don't expect violence to happen. The mere possibility of a violent confrontation happening is such a major negative incentive that most people will do the most abject acts of self-humiliation in order to avoid it.

Of course, this advanced state of pussification of a people is not sustainable in the longer term.

"Blood alone moves the wheels of history" - Dwight Schrute
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So people don't expect violence to happen. The mere possibility of a violent confrontation happening is such a major negative incentive that most people will do the most abject acts of self-humiliation in order to avoid it.

Of course, this advanced state of pussification of a people is not sustainable in the longer term.

What on earth does any of that mean exactly? What 'acts of self-humiliation' are you talking about? Is pussification a technical term?

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What on earth does any of that mean exactly? What 'acts of self-humiliation' are you talking about? Is pussification a technical term?

 

"Pussification" is not a technical term of course, and this internet forum is not an academic venue either.

However it is a rather self-explanatory term. It means the process whereby most individuals in modern society are becoming increasingly fragile and self-indulgent creatures due to their lacking exposure to sources of violence and pain during their formative years.

People are no longer expected to be able to defend themselves, or to overcome their personal problems themselves.

We became so affluent that we can afford being depressed. Like a wild animal overfed in a zoo, depression comes from the over thinking of the non problems that we supposedly face.

Without exposure to hardship people get soft, and once a people becomes too soft, it is wiped out by a heartier race.

Old societies had ways of dealing with that, like the rites of passage and stuff. They made boys do daunting things so when they became adults they were fearless.

But present day pussified western civilization is obsessed with protecting its children from all harm, and that leads to intensification of its pussification.

It's like living in an emotionally sterile bubble that prevents your immune system from growing.

Of course this is a very big subject and one can only scratch its surface here.

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Crikey! Another ubermensch. What are your views on the Quantum Electrics of an a priori physics of God, by the way?

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Consumariat:

Crikey! Another ubermensch. What are your views on the Quantum Electrics of an a priori physics of God, by the way?

Sorry, I don't get it. Is that some kind of inside joke?

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Meistro replied on Wed, Mar 13 2013 10:26 AM

there's no way to predict what solutions will happen, be credit ratings are one type of solution

 

... just as the State has no money of its own, so it has no power of its own - Albert Jay Nock

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