of trust to enrich myself at the expense of others, the law will compel me to make restitution, even where criminal intent was absent. But if I profit by similar errors in the management of a corporate trust, the difficulty of bringing the responsibility home is great indeed.

It is the ideal of a free community to give liberty wherever people are sufficiently advanced to use it in ways which shall benefit the public, instead of ways which will promote their own pleasure at the public expense. And it has been the practice of the most successful communities to go farther than this, and give freedom somewhat in advance of this ethical development. Liberty is directly advantageous wherever the ethical development of the community fits people for its use; it is likely to prove indirectly advantageous wherever there is a fair prospect that they can be taught to improve their ethical standards in the immediate future.

329. Labor and Freedom of Contract12

What "Freedom of Contract" Has Meant to Labor

1. Denial of eight-hour law for women in Illinois.

2.

Denial of eight-hour law for city labor or for mechanics and ordinary laborers.

3. Denial of ten-hour law for bakers.

4. Inability to prohibit tenement labor.

5. Inability to prevent by law employer from requiring employee as condition of securing work, to assume all risk from injury while at work.

6. Inability to prohibit employer selling goods to employees at greater profit than to non-employees.

7. Inability to prohibit mine owners screening coal which is mined by weight before crediting same to employees as basis of wages.

8. Inability to legislate against employer using coercion to prevent employee becoming a member of a labor union.

9. Inability to restrict employer in making deductions from wages of employees.

10. Inability to compel by law payment of wages at regular intervals.

II. Inability to provide by law that laborers on public works shall be paid prevailing rate of wages.

12. Inability to compel by law payment of extra compensation for overtime.

12 Adapted from a bulletin used at the Chicago Industrial Exhibit in 1906.

13. Inability to prevent by law employer from holding back part of wages.

14. Inability to compel payment of wages in cash; so that employer may pay in truck or scrip not redeemable in lawful money. 15. Inability to forbid alien labor on municipal contracts. 16. Inability to secure by law union label on city printing.

330. Static Assumptions of Contractual Freedom13

BY ROSCOE POUND

"The right of a person to sell his labor," says Mr. Justice Harlan, "upon such terms as he deems proper is, in its essence, the same as the right of the purchaser of labor to prescribe the conditions upon which he will accept such labor from the person offering to sell it. So the right of the employe to quit the service of the employer, for whatever reason, is the same as the right of the employer, for whatever reason, to dispense with the services of such employe. In all such particulars the employer and the employe have equality of right, and any legislation that disturbs that right is an arbitrary interference with the liberty of contract, which no government can legally justify in a free land." With this positive declaration of a lawyer, the culmination of a line of cases now nearly twenty-five years old, a statement which a recent writer on the science of jurisprudence has deemed so fundamental as to deserve quotation and exposition at an unusual length, let us compare the equally positive statement of a sociologist: "Much of the discussion about 'equal rights' is utterly hollow. All this ado about the system of contract. is surcharged with fallacy."

To everyone acquainted with the facts at first hand the latter statement goes without saying. Why, then, do the courts persist in the fallacy? Why do so many of them force upon legislation an academic theory of equality in the face of practical inequality? Why do we find a great and learned court in 1908 taking a long step into the past of dealing with the relations between employer and employe in railway transportation, as if the parties were individuals, as if they were farmers haggling over the sale of a horse? Why is the legal conception of the relation of employer and employee so at variance with the common knowledge of mankind? Surely the cause of such doctrine must lie deep. Let us enquire then what these causes are and how they have operated to bring about the present state of the law of freedom of contract.

18

Adapted from "Liberty of Contract," in 18 Yale Law Journal, 454–487

(1909).

14 Adair v. U. S., 208 U. S. 161.

There is no doubt that the theory of "natural rights" is at the basis of modern conceptions of freedom of contract. This began as a doctrine of political economy, as a phase of Adam Smith's doctrine which we commonly call laissez faire. It was propounded as a utilitarian principle of politics and legislation by Mill. Spencer derived it from his formula of justice. In this way it became a chief article in the creed of those who sought to minimize the functions. of the state, to insist that the most important of its functions was to enforce by law the obligations created by contract. This theory has shown itself present in both legislation and judicial decisions. As a consequence the doctrine of liberty of contract is bound up in the decisions of our courts with a narrow view as to what constitutes special or class legislation, that greatly limits effective law making. For one thing there is the doctrine that apart from constitutional restrictions there are individual rights resting on a natural basis, to which the courts must give effect, beyond the control of the State. "In the judicial discussions of liberty of contract this idea. has been very prominent. One court reminds us that natural persons do not derive their right to contract from the law.15 Another court in passing adversely upon legislation against company stores, says any classification is arbitrary and unconstitutional unless it proceeds on "the natural capacity of persons to contract." Another, in passing on a similar statute, denies that contractual capacity can be restricted except for physical or mental disabilities." Another holds that the legislature cannot take notice of the de facto subjection of one class of persons to another in making contracts of employment in certain industries, but must be governed by the theoretical jural equality.18

Not only, however, is natural law the fundamental assumption of our law and legal philosophy, but we must not forget that it is the theory of our bills of rights. Not unnaturally the courts have clung to it as being the orthodox theory of constitutions. But the fact that the framers held that theory by no means demonstrates that they intended to impose the theory on us for all time. They laid down principles, not rules, and rules can only be illustrations of principles so long as the facts and opinions remain what they were at the time when the rules were announced. Forgetfulness of this latter fact and an intense zeal for natural rights theory has led to a desire to extend this freedom as far as possible and to limit as much as possible whatever would tend to interfere with this, such as the number and kinds of incapacities which would justify a restraint of

this liberty. The decisions of the courts plainly reveal this. They agree that the term "liberty" is broader than Coke's use of it, that the fact that Coke confined it to freedom of physical motion and locomotion does not exclude a broader interpretation today. Yet the same courts that recognize that liberty must include more today than it did as used in Coke's Second Institute, lay it down that the incapacities are to remain what they were at the common law, that new incapacities of fact, arising out of present industrial situations, may not be recognized by legislation. Restraints upon that freedom must find some justification in the existence of like limitations recognized at the old common law.

This appears perhaps no more clearly than in the efforts of the courts to reconcile the existence of usury laws with their notion of liberty of contract. As was said in 113 Pa. St. 427, "The right to regulate the rate of interest existed at the time the constitution was adopted, and cannot, therefore, be considered either an abridgment or restraint upon the rights of the citizen, guaranteed by the constitution. The power to pass usury laws exists by immemorial usage; but such is not the case with such acts as we are considering." That narrow assumptions underlie conceptions of contractual capacities also receives exemplification in connection with judicial discussions of usury laws. For instance in Frorer vs. People, the court said, "Usury laws proceed upon the theory that the lender and the borrower of money do not occupy toward each other the same relations of equality that parties do in contracting with each other in regard to the loan or sale of other kinds of property, and that the borrower's necessities deprive him of freedom in contracting and place him at the mercy of the lender, and such laws may be found on the statute books of all civilized nations of the world, both ancient and modern." It does not even seem to have occurred to Justice Scholfield that the necessities of the miner or factory employee might impair his freedom of contract as well. And instances might be multiplied, showing the purely individualistic character of all natural law theories, and the legal decisions based upon them.

331. Contractual Rights-Legal and Real20

BY THORSTEIN B. VEBLEN

The movement of opinion on natural-rights grounds converged to an insistence on the system of natural liberty, so-called. But this 19141 Ill. 171.

20 Adapted from The Theory of Business Enterprise, 271-278. Copyright by Charles Scribner's Sons (1904).

insistence on natural liberty did not contemplate the abrogation of all conventional prescription. "The simple and obvious system of natural liberty" meant freedom from restraint on any other prescriptive ground than that afforded by the rights of ownership. In its economic bearing the system of natural liberty meant a system of free pecuniary contract. "Liberty does not mean license;" which in economic terms would be transcribed, "The natural freedom of the individual must not traverse the prescriptive rights of property." Property rights being included among natural rights, they had the indefeasibility which attaches to natural rights. Natural liberty prescribes freedom to buy and sell, limited only by the equal freedom of others to buy and sell; with the obvious corollary that there must be no interference with others' buying and selling, except by means of buying and selling.

Presently, when occasion arose in America, the metaphysics of natural liberty was embodied in set form in constitutional enactments. It is, therefore, involved in a more authentic form and with more incisive force in the legal structure of this community than in that of any other. Freedom of contract is the fundamental tenet of the legal creed, so to speak, inviolable and inalienable; and within. the province of law and equity no one has competence to penetrate behind this first premise or to question the merits of the naturalrights metaphysics on which it rests. The only principle which may contest its primacy in civil matters is the vague "general welfare" clause, and even this can effectively contest its claims only under exceptional circumstances. Under the application of any general welfare clause the presumption is, and always must be, that the principle of free contract be left intact so far as the circumstances will permit. The citizen may not be deprived of life, liberty, or property without due process of law, and the due process proceeds on the premise that property rights are inviolable. In its bearing upon economic relations between individuals this comes to mean, in effect, not only that one individual or group of individuals may not legally bring any other than pecuniary pressure to bear upon another individual or group, but also that pecuniary pressure cannot be barred.

Now, through gradual change of the economic conditions, this conventional principle of unmitigated and inalienable freedom of contract began to grow obsolete from the moment when it was fairly installed; obsolescent, of course, not in point of law, but in point of fact. The machine process has invaded the field. The standardization and the constraint of the system of machine industry differs from what went before it in that it has no conventional recognition, no metaphysical authentication. The machine process has not itself.