Tuesday, September 4, 2012

Adam Smith on Contracts under Duress

Much to my surprise, Adam Smith argues in The Theory of Moral Sentiments (VII.IV.12) that the "common sentiments of mankind" demand fulfillment of some promises made under duress to "highwaymen," even though it is universally accepted that such promises are not legally enforceable.
If we consider the matter according to the common sentiments of mankind, we shall find that some regard would be thought due even to a promise of this kind; but that it is impossible to determine how much, by any general rule that will apply to all cases without exception. The man who was quite frank and easy in making promises of this kind, and who violated them with as little ceremony, we should not chuse for our friend and companion. A gentleman who should promise a highwayman five pounds and not perform, would incur some blame. If the sum promised, however, was very great, it might be more doubtful, what was proper to be done. If it was such, for example, that the payment of it would entirely ruin the family of the promiser, if it was so great as to be sufficient for promoting the most useful purposes, it would appear in some measure criminal, at least extremely improper, to throw it, for the sake of a punctilio, into such worthless hands. The man who should beggar himself, or who should throw away an hundred thousand pounds, though he could afford that vast sum, for the sake of observing such a parole with a thief, would appear to the common sense of mankind, absurd and extravagant in the highest degree. Such profusion would seem inconsistent with his duty, with what he owed both to himself and others, and what, therefore, regard to a promise extorted in this manner, could by no means authorise. To fix, however, by any precise rule, what degree of regard ought to be paid to it, or what might be the greatest sum which could be due from it, is evidently impossible. This would vary according to the characters of the persons, according to their circumstances, according to the solemnity of the promise, and even according to the incidents of the rencounter. and if the promiser had been treated with a great deal of that sort of gallantry, which is sometimes to be met with in persons of the most abandoned characters, more would seem due than upon other occasions. It may be said in general, that exact propriety requires the observance of all such promises, wherever it is not inconsistent with some other duties that are more sacred; such as regard to the public interest, to those whom gratitude, whom natural affection, or whom the laws of proper beneficence should prompt us to provide for. But, as was formerly taken notice of, we have no precise rules to determine what external actions are due from a regard to such motives, nor, consequently, when it is that those virtues are inconsistent with the observance of such promises.
What I found astounding about this paragraph is Smith's total disregard for the economic incentives his ethical proposition would entail. If individuals in society generally followed his moral standard of making good even on relatively small promises to thieves, what would be the likely effect on the rate of highway robbery? From an economic perspective at least, the jurisprudential rule (which Smith acknowledges) seems far more sensible the "common sentiments of mankind," as Smith sees them. Of course, there is good reason to question whether Smith has a proper handle on the "common sentiments of mankind" in this instance.

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