Front Page Titles (by Subject) CHAPTER 3.: Restraints on Free Contract - The Principles of Ethics, vol. 2
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CHAPTER 3.: Restraints on Free Contract - Herbert Spencer, The Principles of Ethics, vol. 2 
The Principles of Ethics, introduction by Tibor R. Machan (Indianapolis: LibertyClassics, 1978). Vol. 2.
Part of: The Principles of Ethics, 2 vols.
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Restraints on Free Contract
401. Society in its corporate capacity cannot be blamed for enforcing contracts to the letter–is often, indeed, to be blamed because it does not enforce them, but deliberately countenances the breaking of them, or itself breaks them; as when, after the houses forming a street have been taken on lease at high rents, because few vehicles pass, it authorizes the turning of this quiet street into a noisy thoroughfare; or as when, having given parliamentary titles to buyers of encumbered estates on certain terms, it, by subsequent laws, alters those terms; or as when it allows a proprietary agreement, entered into for one purpose, to be extended by a two-thirds majority so as to cover another purpose.
Contracts, then, must be strictly adhered to and legally enforced; save, as before pointed out, in cases where a man contracts himself away. And this necessity for severity in the enforcement of contracts, will be manifest on observing that if there grew up the system of judicially qualifying them, out of beneficent regard for defaulters, this beneficent regard would promptly be counted upon; and reckless contracts would be made in the expectation that, in cases of failure, the worst consequences would be staved off.
But while it is not for the state to relax contracts or mitigate their mischievous results, it remains open for those between whom they are made, voluntarily to modify the operation of them. Negative beneficence may still enjoin an entire or partial relinquishment of such undue advantage as a contract, literally interpreted, has given. Of merciless enforcement of contracts, and unscrupulous disregard of claims which have arisen under contracts, the treatment of tenants by landlords, especially in Ireland, furnish numerous instances. Where a barren tract–stony or boggy–taken on a short lease at a small rent, has by persistent labor been reclaimed, and the resulting fertility has given it some value, it not uncommonly happens that the landlord offers to this industrious tenant the option of either surrendering his occupancy at the end of his lease, or else of paying a greatly raised rent, proportionate to this raised value which his own toil has given to it. The contract not having been of a kind to exclude this disastrous result, the law can say nothing; but the landlord, if duly swayed by the sentiment of negative beneficence, will refrain from taking advantage of his tenant's position–will, indeed, feel that in this case what is here distinguished as negative beneficence does but enjoin a regard for natural justice, as distinguished from legal justice.
Kindred cases there are, as those of the Skye-crofters, in which the making of contracts, though nominally free, is not actually free-cases in which the absence of competing landlords gives to a local landlord an unchecked power of making his own terms, and in which the people, having little or no choice of other occupations and being too poor to emigrate, are compelled to accept the terms or starve. Here, where the conditions under which equitable exchange can be carried on are suspended, it remains for the promptings of negative beneficence to supplement those of equity, which are rendered inoperative. The landlord is called on to refrain from actions which the restraints of technically formulated justice fail to prevent.
There are cases of a more familiar kind in which sympathy demands, and often with success, that contracts shall be but partially enforced. During recent years of agricultural depression, the requirements of leases have been in multitudinous instances voluntarily relaxed, in ways which negative beneficence suggested. Landlords have returned parts of the rents agreed upon, when tenants have been impoverished by bad harvests to an extent which could not reasonably have been expected when the lease was made.
402. In the transactions of businessmen, there occur sundry allied classes of cases in which compromises between self-regard and regard for others, imply desistance from actions which justice does not interdict. Let us take three such.
Here is a grazier who, with numerous cattle at the end of a long drought, has scarcely anything for them to eat, and who, because other graziers are similarly circumstanced, cannot sell his cattle without great loss; and here is his neighbor who happens to have reserved large stacks of hay. What shall this neighbor do? If he pushes his advantage to the uttermost, he will either entail on the unfortunate grazier immense loss by the sale of his cattle, or impoverish him for years by an enormous expenditure in fodder. Clearly negative beneficence requires him to moderate his terms.
Another instance is that of a contractor who has undertaken an extensive work on terms which, to all appearance, will leave him only a fair remuneration, making due allowance for ordinary contingencies–say a heavy railway cutting, or a tunnel a mile or two long. No one suspected when the contract was made, that in the hill to be tunneled there existed a vast intrusion of trap. But now where the contractor expected to meet with earth to be excavated he finds rock to be blasted. What shall be done? Unless he is a man of large capital, strict enforcement of the contract will ruin him; and even if wealthy he will do the work at a great loss instead of at a profit. It may be said that even justice, considered not as legally formulated but as reasonably interpreted, implies that there should be a mitigation of the terms; since the intention of the contract was to make an exchange of benefits; and still more is mitigation of the terms required by negative beneficence–by abstention from that course which the law would allow. But clearly it is only where a disastrous contingency is of a kind greatly exceeding reasonable anticipation, that negative beneficence may properly come into play.
Under pressure entailed by a commercial crisis, a trader, while unable to get further credit from his bank, is obliged to meet a bill immediately falling due. One who has capital in reserve is asked for a loan on the security of the trader's stock. He may make either a merciful or a merciless bargain. He may be content with a moderate gain by the transaction, or, taking advantage of the other's necessities, may refuse except on conditions which will involve immense loss, or perhaps eventual bankruptcy. Here, again, there is occasion for the self-restraint which sympathy prompts.
Since, in cases such as these three, there is voluntary action on both sides, insistence, on ruinously hard terms cannot be classed under the head of injustice; but we are led to recognize the truth that in such cases the injunctions of negative beneficence are scarcely less stern than those which justice utters. Though in the first and the last instances, the taking of a pound of flesh is not under a contract previously made, it is under a contract to which there is practically no alternative; and in the last case as in the first, if the contract is fulfilled the patient may be left to bleed to death.
Let it be added that not only does the sympathetic regard for others' welfare which we here class as negative beneficence, forbid the unscrupulous carrying out of certain transactions which strict justice does not forbid, but regard for public welfare does the same thing. Any course which needlessly ruins those who are on the whole carrying on well their occupations, entails an injury to the social organization.
403. A still larger sphere throughout which the requirements of justice have to be qualified by the requirements of negative beneficence, is presented by the relations between employers and employed–the contracts between those who yield services and those who pay for them.
How far ought an employer to take advantage of the competition among workers, who often greatly exceed in number the number wanted, and are some of them willing to accept low payments rather than starve? This question is much less easy to answer than at first appears; since it is complicated by other questions than those which concern the qualification of justice by negative beneficence. People who blame, often in the strongest language, masters who do not give higher wages than the market rate obliges them to give, think only of the fates of those who are employed, and forget the fates of those who remain unemployed. Yet obviously a master who, in an overfull market of wage earners, gives more than he is obliged, rejects the offers of those who would have taken less. Hence the most needy go without work, while the work is given to those whose needs are not so extreme–those who would not accept such low pay. Now while contemplating the benefits derived by these less necessitous, it will not do to leave out of consideration the exacerbated distress of the more necessitous. It seems a necessary implication that a seemingly generous employer, who looks only at direct results, may. by his generosity, intensify the miseries of the most miserable, that he may mitigate the miseries of the less miserable.
A further disastrous effect may be entailed. The competition in each business is keen, and the margin of profit on transactions is often thereby made so narrow, that much increase in the cost of production consequent on payment of higher wages, must cause inability to meet competitors in the market. Bankruptcy, by no means uncommon even among traders who economize in wages as much as they can, must therefore be the fate of those who do not economize. Only one whose capital is greatly in excess of his immediate wants, can behave thus generously for a time; and even on him bankruptcy must come if he persists. To the reply that he might distribute among his work-people his surplus returns when these were greater than usual, the rejoinder is that disaster would follow were he ordinarily to do this. Though, during a time of prosperity, an employer makes large profits, yet when there presently comes a time of depression, he is not unfrequently obliged to continue working without profit, or even at a loss, that he may keep his staff employed and his machinery in order; and had he not allowed himself to accumulate while prosperous, he could not do this.
Once more there is the fact, either overlooked or deliberately ignored by those who foster the antagonism between employers and employed, that a universal rise in wages is of no use if there occurs simultaneously a universal rise in the prices of commodities. The members of each trade union, thinking only of themselves as producers, and of the advantage to be gained by forcing masters to pay them more, forget that, other things equal, the price of the article they produce must presently rise in the market to a proportionate extent. They forget that if the members of each other trade union do the like, the things they severally produce will also rise in price; and that since, in respect of the more important commodities, the chief consumers are the masses of producers, or the people at large, these will have to pay more for all the things they buy. A broad view of the matter would show them that the factors are these: 1. A quantity of labor expended by all workers. 2. A quantity of capital required for the producing appliances, for stocks of raw materials, and for stocks of the articles produced. 3. A proportion of brainwork for regulating the labor and carrying on the financial operation-purchase and sale. 4. A resulting supply of products, which, in one way or other, has to be divided out among members of the community. As this supply is for the time being fixed, an increased share awarded to bodily labor implies a decreased share to capital, or mental labor, or both. Reduction of the interest on capital is restrained, since, if it is great, capital will go elsewhere; and if, by combination, the reduction is universally pushed below a certain limit, capital will cease to be accumulated. There is also a limit to the lowering of the payment for mental labor. Business capacity will go abroad if ill paid at home; and if everywhere the remuneration is inadequate, the stock of it will diminish. Men will not undergo the intellectual labor and the discipline needed to make them good managers, if they are not tempted by the prospect of considerable rewards. Thus the margin within which, under ordinary circumstances, negative beneficence may mitigate the usually hard terms of the labor market, is but narrow; and even within this margin, it may, as we have seen, involve unintentional cruelty with intentional kindness.
In so far as pecuniary contracts for services are concerned, the only cases in which negative beneficence operates, with undoubted advantage, are cases in which an employer whose returns are being so rapidly augmented as to give him more than the needful reserve, does not continue passively to take advantage of the change until he is forced to raise wages by the increased demand for labor–declines to use his power of monopolizing all the profit which circumstances give him. But here we verge upon the province of positive beneficence.
404. While, in the treatment of the employed by the employer, there is recognized scope for negative beneficence, in the treatment of an employer by the employed many suppose there is none. But this is untrue.
Every now and then the newspapers report some case in which a large contract for works, which have to be completed before a specified time under heavy penalty. is rendered unprofitable, or even ruinous, by workmen who seize the opportunity of demanding higher wages: believing that the contractor will have no alternative but to comply. If they give the required notices of termination of their engagements with the employer, they cannot be charged with injustice. They simply propose terms more favorable to themselves and decline continuing to work on the less favorable terms. How far the sentiment of negative beneficence ought to qualify their action, must depend on the circumstances of the particular case. Perhaps they have good reason to know that the contract has been taken at very profitable rates, and that payment of the higher wages demanded will still leave the contractor a sufficient return; and in this case the taking advantage of his necessity is consistent with a reasonable altruism. Perhaps, though not likely to gain largely by this particular contract, he has, during previous years, accumulated vast sums and has been a hard taskmaster; and in which case, too, sympathy with him does not indicate such regard for his interests as may prevent him from losing. But in other cases the treatment of an employer as one whose interests are to be entirely disregarded is indefensible. And not only does due consideration for him forbid this indirect coercion, but it is forbidden by regard for society. If, being frequently thus treated, a contractor is ruined, the society loses a useful functionary; and, at any rate for a time, the employed themselves find a diminished demand for their services.
But the endeavors of workers thus to better themselves by taking advantage of an employer's necessities, are in most cases not only unrestrained by the promptings of negative beneficence, but they are unrestrained by the promptings of justice. For while they refuse to work any longer on the terms previously agreed upon, the strikers commonly use their violence, or threats of violence, to prevent others from accepting those terms. They thus break the law of equal freedom. While they assert the right to enter into, or to refuse, contracts themselves, they deny to their fellows the same right. They may without ethical transgression try to persuade others to join them–may without doing wrong argue with those who propose to take their places, and frown on them if they persist; but any course which either forcibly hinders them from taking the places, or puts them in fear of evil consequences other than unpopularity, is morally forbidden: doubly forbidden, since negative beneficence joins with justice in reprobating their course. Those who would accept the terms they refuse (frequently good terms) are often impelled to do so by their responsibilities; and to prevent them is to entail distress not only on them but on their families.
If, as happens not only in the cases indicated but in cases of other kinds, both masters and nonunionist workers are coerced by some form of the system now called boycotting–if, as commonly happens, a united body of men refuse to work along with a man who is not a member of their union; or if, as in Ireland, a political combination enforces social outlawry against those who do not join them; we may see, as before, that the wrongs done are primarily injustices. Whatever the law may at present say about the matter, it is clear that men may, both individually and in combination, refuse to work with, or trade with, or hold any communication with, a certain person, so long as they do not in any way interfere with his activities. Their combination cannot properly be called a conspiracy, unless the thing which they conspire to do is wrong; and there is no breach of the law of equal freedom in declining to work along with one who is disapproved, or in declining to do business with him. The wrong done usually consists in the use of coercion to form and maintain the boycotting organization, and in inflicting penalties on those who do not obey it. No appreciable evil would result if each person remained not nominally but actually free to join or not to join the combination. Even without the checks which negative beneficence imposes the checks which justice imposes would suffice.
I may remark, in passing, that by their disregard of such checks, we are shown how far the mass of men are from fitness for free institutions. A society in which it has become a vice to maintain personal independence, and a virtue to submit to a coercive trade organization and to persecute those who do not, is a society which will rapidly lose again the liberties it has, in recent times, gained. Men who so little understand what freedom is will inevitably lose their freedom.
405. On contracts which justice does not restrain, the restraints put by negative beneficence which have been thus far considered, are those which forbid unduly pressing against another an advantage which circumstances give. A higher form of negative beneficence operating in business transactions has to be considered.
Here and there may be found one who not only declines to sacrifice another's interests for his own benefit, but who goes further, and will not let the other make a sacrifice–will not let the other injure himself by a bad bargain. While not disregarding his own claims, he will not let his client or friend make bad terms for himself; but volunteers to give more, or to do more, than is asked. In a fully developed industrial society, formed of units having natures moulded to its requirements, such a mode of action will be normal. Beyond observance of that justice which consists in fulfillment of contract, there will be observance of that negative beneficence which forbids making a contract unduly advantageous to self.
Conduct thus guided is at present necessarily rare. People whose newspapers record in detail the betting transactions by which one receives pleasure through another's pain, are not people likely to refrain from hard bargains. The qualifying of contracts by sympathetic anxiety for another's welfare, cannot be prevalent in a nation which is given over to gambling throughout all its grades, from princes down to potboys.