Contracts Small and Contract Large: Contract Law through the Lens of Laissez-Faire

This paper examines and rejects the commonplace view that the doctrines of classical contract law (offer and acceptance, consideration, damages) were logically linked to the political philosophy of laissez-faire. Many writers (Grant Gilmore, Patrick Atiyah, Lawrence Friedman) attribute much of the rigid and mechanical nature of nineteenth century contract law to its affinity with laissez-faire. In this paper I reject that connection. The key distinction is that between security of exchange and freedom of contract. Laissez-faire is strongly committed to both, but most of contract law only requires the former without the latter. Security of exchange ensures that the enforcement of legal contracts when, as commonly is the case, one party must perform before the other. Freedom of contract guarantees a broad sphere in which voluntary arrangements are permissible. Most contract law is devoted to the former, which can be supported even by those who favor extensive regulation of economic transactions. The strength or weakness of that law is largely determined by instrumental questions of whether they promote stable contracting over time.