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IPFS News Link • Property Rights

Freedom of Contract and Property Rights

•, By Wanjiru Njoya

Freedom of contract entails the right to enter into or exit from contracts at will. As Richard Epstein argues in his defense of the contract at will:

The first way to argue for the contract at will is to insist upon the importance of freedom of contract as an end in itself. Freedom of contract is an aspect of individual liberty, every bit as much as freedom of speech, or freedom in the selection of marriage partners or in the adoption of religious beliefs or affiliations (p. 953).

Utilitarian classical liberals, like Epstein himself, who agree with him on the value of individual liberty therefore defend the widest possible scope for contractual freedom. They would only accept limits on that freedom in exceptional cases which Epstein defines as "the infrequent cases in which discharge of the contract at will is inconsistent with the performance of some public duty or with the protection of some public right."

By contrast, from a natural-rights libertarian perspective freedom of contract is derived from the right to self-ownership: "The right to contract is strictly derivable from the right of private property" (Rothbard, Ethics of Liberty, p. 133). This entails the right to enter into agreements in respect of oneself or one's property: "the right of property implies the right to make contracts about that property to give it away or to exchange titles of ownership for the property of another person."

From a Rothbardian perspective "the only enforceable contracts (i.e., those backed by the sanction of legal coercion) are those where the failure of one party to abide by the contract implies the theft of property from the other party [or] where the failure to abide by the contract means that the other party's property is retained by the delinquent party, without the consent of the former (implicit theft)" (p. 133). As Rothbard explains, all rights are property rights, and there are no rights that are not also property rights. From this perspective there is no right to enforce a contract for "public policy" reasons, nor does "public policy" constitute the rationale for why particular contracts should not be enforced.