Misinterpretations of the De Facto Inalienability Argument

David Ellerman

There are a number of common misunderstandings of the de facto inalienability argument. For example, it is possible to misunderstand the point of the case of the criminous slave particularly when stated in contractual terms. A contract which involves the commission of a crime is not enforceable and is null and void. Hence when a contractual slave committed a crime, he or she voided the contract and thus stepped outside of the contractual role of a thing. Thus the legal system could without any actual inconsistency or embarrassment hold the person legally responsible for the crime. There is a right and proper legal reason to move the square peg from the round hole to the square hole. This point is quite correct but irrelevant to the substantive mismatch, the contradiction between the legal role of the non-criminous contractual slave and factual status of the person [the square peg not fitting in the round hole in the first place]. Obviously the non-criminous slave was not in fact a thing that (who?) suddenly blossomed into personhood when he, she, or it detoured into crime. The non-criminous contractual slave had the factual status of a person just as the criminous slave. The real issue is the factual-status/legal-role mismatch for the contractual slave (square peg/round hole mismatch). When a legal system recognizes such a contract as valid, then the legal system is adopting a pretense or fiction. There always seem to be other misunderstandings of the inalienability argument.

Surely you are arguing that the self-sale contract is invalid because the worker is paid too little. What adequate compensation can there be for a lifetime of labor? Freedom is priceless so there can be no real quid pro quo in a self-sale contract.

That is a complete misunderstanding of the de facto inalienability argument, an argument which never considers the terms of the contract. The argument is similarly independent of assertions that slaves or servants were or are mistreated, overworked, and exploited. The mistreatment arguments are only qualitative variations on the more quantitative underpayment argument. The underpayment analysis of the self-sale contract is as superficial as the official Marxist argument that the problem with renting human beings is that they are not paid the full value of the labor they actually perform. Another misunderstanding concerns the role of voluntariness in the inalienability analysis.

Surely you are arguing that a self-sale contract is invalid because it is really involuntary in spite of the surface characteristic of formal consent. Look at the historical examples. Fearing the example set by free blacks, there was agitation in several slave states in the years immediately preceding the Civil War to require that free blacks select a master and voluntarily resubmit to slavery or else leave the state [see Franklin 1969; Gray 1958]. Any such re–enslavements would hardly pass muster as “voluntary contracts.”

The analysis is totally independent of the historical question of the degree of involuntariness in the self-sale contracts of the past. The de facto inalienability critique assumes a perfectly voluntary contract. An involuntary “contract” would be a fortiori null and void. If “the problem” with historical self-sale contracts was their involuntariness, then the presupposition is that the contract would be acceptable if it were genuinely voluntary. Because if the contract embodied some deeper flaw that would render it invalid even if perfectly voluntary, then there is no need to consider degrees of historical voluntariness. Yet the alienist liberal tradition that reached its apogee in Nozick’s acceptance of voluntary self-sale contracts [1974, 331] sees no deeper flaw, and thus it focuses on voluntariness. The mirror-image of this liberal superficiality is the official Marxist fallback argument that the wage labor contract is socially involuntary. If the labor-theory-of-value argument that wage workers are exploited because they are paid too little is found unconvincing, then perhaps one will accept the backup argument that the contract is socially involuntary because workers born with only their labor power to sell have no other real choice. Yet another misunderstanding of the argument concerns the rationality of the contract.

Surely you are arguing that a self-sale contract is invalid because no rational person would enter into such a contract. Only a person not in possession of their faculties would agree to the contract, and a contract by a legally incompetent person is invalid.

Again, the de facto inalienability argument makes no presumption about which contracts are considered “rational” or “irrational” by the standards of the day.

Surely you are expressing a value judgment that a self-sale contract should be invalid, and thus that the right to self-determination should be inalienable.

The de facto inalienability argument is rooted in facts–not in value judgments. It is a fact that I can voluntarily alienate the use of this writing instrument (my pen or my computer), and it is a fact that I cannot do the same for my own personal actions. To use the language of the employment contract, I am inexorably the “employer” of my intentional actions (a.k.a. “labor services”). I can at most agree to co-operate with other people, and then we are jointly responsible for the results. Yet the contractual framework for the sale and transfer of a commodity is applied to human labor as it is applied to pens and computers. The law pretends that the responsible co-operation of the employee with the employer “fulfills” the contract for the transfer of labor. The employer enjoys the sole de jure responsibility for the (positive and negative) results of the human actions. But the legal fiction of the transferred labor must not be abused for the commission of a crime. Then the fiction is set aside in favor of the facts. The worker whose labor was sold by the lifetime or by the hour is now recognized as co-responsible with the master for the results of their joint activity. The instrument in work is promoted to a partner in crime. A Misunderstanding of the Criminous Employee Example One of the principal intuition pumps of de facto inalienability theory is the criminous employee example. There is not one but two “inconsistencies,” and they should not be confused; (1) the formal or legalistic inconsistency of treating the same person legally as a thing (e.g., in the normal employee’s role) and legally as a person (e.g., when committing a crime), and (2) the substantive inconsistency in a legal system that accepts a de facto person as fulfilling the de jure role of a thing (e.g., the employee in normal work). These inconsistencies could be restated using the analogy of the square peg (de facto person), the round hole (legal role of a thing), and the square hole (legal role of a person). In terms of the hole/peg analogy, one should not confuse: (1) the formal or legalistic inconsistency of treating the same peg as fitting in both a round hole and a square hole, and (2) the substantive inconsistency in a legal system that accepts a square peg as fitting in the round hole. It is argued that once the employer and employee commit a crime (or conspire to do so), they step outside of and invalidate the employment contract. They become partners carrying out a joint venture, and the law treats them both as being legally responsible for the results of their actions. Thus there is no legal inconsistency in treating the criminous ex-employee as being legally responsible. That is correct, and that was not the point of the example of the criminous employee. The fact that the criminous activity invalidates the employment contract does indeed keep the legal bookkeeping straight. The substantive inconsistency is the point of the criminous employee example. The employee does not suddenly burst into personhood when committing a crime and then lapse into automatism in normal work (e.g., as in the hypothetical part-time robot example). The person is just as much de facto responsible for non-criminous work as for committing a crime in co-operation with the employer. It is a factual point, not a legal point. The example of the criminous employee forcefully brings this fact to light. The foundation of the legal framework for the employment system is the legal validation of the employer-employee contract, the acceptance of the employees’ de facto responsible cooperation with their employer as fulfilling the labor contract. It is an institutionalized fraud. There is no testimony about this fraud as telling as the testimony of the legal system itself in the case of the criminous employee. In order to hold the employee legally responsible for his or her de facto responsible actions, the legal system has to render that employment contract null, void, and invalid. That is the correct juridical response, and we have only argued that it should be extended to all employment contracts. People should always be held legally responsible for the positive and negative results of their de facto responsible actions, and thus the employment contract should always be considered null, void, and invalid. De Facto Inalienability Theory as a “Value Judgment” Economists are much more comfortable about a normative argument if they can label it as a “value judgment”–as in “I hate pink plastic flamingos.” Then the interpretation of the de facto inalienability argument is as follows.

Everyone has a right to their value judgments. You think that pink plastic flamingos should be banned, that anchovy pizzas should be banned, and that employment contracts should also be banned. There are already laws against selling various items (e.g., certain controlled drugs, rare animals, and dangerous firearms), and you are expressing the value judgment that labor should also be made non-transferable.

That is a misunderstanding of the de facto inalienability argument. Controlled drugs, rare animals, and dangerous firearms are all de facto alienable and transferable. The de facto inalienability argument was never used as an argument against the legal sales of those items [see Rose-Ackerman 1985 for some of the arguments]. Labor is different. It is not a value judgment that labor is de facto inalienable and nontransferable; that is an empirical factual judgment. If true, then the legal contract to transfer that which is inherently non-transferable would be fraudulent. There is a value judgment involved here, namely that inherently fraudulent contracts should not be legally validated. But the Defenders of the Received Truth would rather not defend the employment contract by taking issue with that value judgment. “Interpreting” Employees as Independent Producers One strategy for the Defense is simply to “reinterpret” the employment contract in some more palatable form–as if the contract was putty that could be remolded at will. For example, let’s “say” the workers are selling their outputs instead of their labor. However, that is not the way the employment firm is legally structured. In order to sell their outputs, the workers must first own them, and that requires paying for the inputs. One could also “say” the workers bought the inputs–but that is only more “flapping one’s wings in the void”–so let’s try another tack. Another flight of fancy is to “interpret” all employees as independent producers of labor. The labor services themselves are “interpreted” as the only fruits of their labor, so in that sense the workers can be “said” to produce, own, and sell the fruits of their labor. In terms of the stylized model, the labor services L are taken as the only fruits of the workers’ labor; the tangible product Q is taken as being produced by the employer who set up all the contracts. The basic idea is to sever–at the level of legal interpretation–the connection between the performance of the labor L and the production of the product Q. The employees produce only L, while the employer produces Q. Independent producers pay for their own inputs. Thus to continue the “reinterpretation,” one must also sever the connection between performing L and using up the non-labor inputs K. Let’s “say” the employer uses up K. The only activity the employees are performing is the production of the labor services L, and they do pay for the food, clothing, and shelter involved in producing that labor. Independent producers also have direct control of their services. Therefore, let’s “reinterpret” the employment relationship as not involving authority.

To speak of managing, directing, or assigning workers to various tasks is a deceptive way of noting that the employer continually is involved in renegotiation of contracts on terms that must be acceptable to both parties. Telling an employee to type this letter rather than to file that document is like my telling a grocer to sell me this brand of tuna rather than that brand of bread. I have no contract to continue to purchase from the grocer and neither the employer nor the employee is bound by any contractual obligations to continue their relationship. [Alchian and Demsetz 1972, reprinted in Putterman 1986, 112]

Thus each employee is interpreted as an independent self-employed job shopper producing either typing-labor or filing-labor according to what the customer wants. This continuous-renegotiation view of the labor contract goes back to John R. Commons.

The labor contract is not a contract, it is a continuing renewal of a contract at every successive moment, implied simply from the fact that the laborer keeps at work and the employer accepts his product. . . [The employee] does not own the job–his employer is under no duty to keep him–he owns the liberty to be continuously bargaining with his employer to be kept on the job by virtue of continuously delivering a service which the employer continuously accepts, thereby impliedly renewing continuously the contract. [Commons 1968, 285-286]

This is true of any at-will rental contract, such as an at-will lease of an apartment, so it does not address the specific critique of the labor contract. The important part of the Alchian-Demsetz argument is not the point about continuous renegotiation but the reinterpretation of the employment relation as a non-authority relation like a contract with an independent producer. The customer is not in an authority relationship with the grocer. The typing-labor or filing-labor is the only product of the worker that the employer decides to buy (like the can of tuna or the loaf of bread). The worker produces and sells that labor in a made-to-order fashion in his or her labor-job-shop. This interpretation of the labor contract can be stated using our description of Labor’s Product. Labor’s Product = (Q, –K, 0) =          (Q, –K, –L) + (0, 0, L) .                                                Whole Product + Labor The interpretation of the employees as independent producers of labor, in effect, makes an incision and cuts the causal connection between the labor (0, 0, L) and the whole product (Q, –K, –L). The workers are pictured as only producing and selling the labor L; the whole product is produced by the employer. Like the watchmaker who assembles the watch so that it will run correctly, the employer makes all the right contracts for L and K so that the whole product (Q, –K, –L) will be produced as the result. This independent-producer interpretation of the employee’s role looks, at first, like a novel theory, but it turns out to be only an ingenious and elaborate restatement of the conventional theory. The usual theory is that the employees sell the labor L as a commodity, and that the employer employs the labor L and the other inputs K to produce the product Q. The problem with the theory never was its legal coherence; it hangs together beautifully. The problem was at the factual level. Labor did not fit the mold of a transferable commodity; labor services are not transferable like a can of tuna, a loaf of bread, or the services of an apartment or a van. Take, for example, the idea of severing the connection between performing the labor L and producing the product Q. There are times when an individual wants to be severed from the results of his actions. For instance, the hired killer does not want responsibility for the fruits of his labor. That even shows in the language; he is a “trigger-man.” The hired killer bears no personal animus against the victim; he is only hired to “pull the trigger.” He would like to sever the labor–”pulling the trigger”–from the resulting murder. But the facts cannot be so easily “reinterpreted.” He together with the “entrepreneur” is de facto responsible for the murder. In contrast, consider the de facto transferable services of a truck or van. A van and its owner can be parted. The services of the van can be severed from the owner and de facto transferred into the employment of another person. The van user’s employment of the van is not an authority relation over the will of the van owner. If the van owner chooses to continue the at-will rental contract when the van user chooses to use the van to go shopping for a can of tuna instead of going to mail a letter, then the van owner is, in effect, supplying the van user with tuna-shopping-van-services rather than letter-mailing-van-services. If labor services could in fact be similarly severed and de facto transferred into the employment of another person, then there would be no de facto inalienability critique of the contract. But that is not the case. The imaginative restatement of the employee as an independent producer of labor does nothing to change those facts. “Voluntary Acts Between Knowledgeable Consenting Adults” Liberalism, and particularly libertarianism, argues that at least a prima facie case can be made for allowing any voluntary acts between knowledgeable consenting adults. Does the de facto inalienability argument rule out any such voluntary acts between consenting adults? The (surprising) answer is “No” [at least not at the underlying noninstitutional level]. Understanding this answer requires a keen appreciation of the difference between the institutional (de jure) overlay and the underlying non-institutional (de facto) realities. The de facto inalienability argument does not rule out the de facto transfer of labor since it takes that to be impossible in the first place. What it rules out is the institutional overlay of the employment contract superimposed on the reality where labor has in fact not been transferred. What the argument excludes is at the institutional level, not at the underlying non-institutional level. It forbids the legal validation of an inherently unfulfillable contract. It does not forbid any non-institutionally described voluntary acts between knowledge consenting adults. Nozick pointedly uses the expression “capitalist acts between consenting adults” [1974, 163]. The adjective “capitalist” is institutional so Nozick is not simply arguing for allowing voluntary acts between knowledgeable consenting adults. He is arguing for certain institutional superstructures to be laid over those voluntary acts. Nozick, with admirable consistency, argues not only for “capitalist acts” but also for the slavish acts involved in the voluntary self-enslavement contract [331]–as if there were no problem for a person to de facto fit the legal role of a non-person. The abolition of the employment contract, like the abolition of the self-sale contract, does not infringe on the freedom to make (non-fraudulent) contracts; it only restricts the “freedom” to make inherently unfulfillable and naturally invalid contracts. The employment contract is, like the self-sale contract was, a subtle fraud vouchsafed by the legal system itself. Yet the point about “voluntary acts” can be illustrated by considering a simple fraud. There are widgets and cheap pseudo-widgets, and it is difficult to tell them apart. A buyer B legally buys a widget from the seller S and pays its price, but S transfers a pseudo-widget to B to “fulfill” the contract. There is a mismatch between the legal transfers and the factual transfers. In this case, there are two ways to restore a transfer matching:

  • change the factual transfers–S furnishes a genuine widget to replace the pseudo-widget–or,
  • change the legal transfers–rewrite the legal contract as a contract to buy a pseudo-widget–which may or may not be agreeable to B.

The point is that there is no fraud involved if B knowingly agrees to the rewritten contract to buy the pseudo-widget for the same money (the price of a real widget). If the same de facto transfers could be carried out with no fraud involved, then what is the point of a fraud? The point is that–without the fraud–the defrauded party would very likely not agree to the same de facto transfers. For example in a democratic firm, Labor might not want to make a gift of the profits to Capital. What in fact is ruled out by the prohibition against frauds? No voluntary acts between knowledgeable consenting adults are prohibited. It is the mismatch between the legal transfers and the factual transfers to fulfill the contract that is prohibited. In the example, the voluntary act of knowingly exchanging the price of a genuine widget for a pseudo-widget was not prohibited. While the de facto inalienability argument does not rule out any voluntary acts between knowledgeable adults, it does rule out “capitalist acts between consenting adults.” The employment contract involves a transfer mismatch. But, since labor is de facto non-transferable, there is only one way to remedy the mismatch, namely rewrite the legal transfers in some fulfillable form. Consider the simple model of the employment firm involving the parties Labor and Capital. In the non-institutional factual description of the transfers, the non-labor inputs K and a sum of money M (e.g., the wages wL) are factually transferred from Capital to Labor, and Labor produces the outputs Q and factually transfers them away (say) to Capital. Let us now rewrite the contracts to fit these realities of “capitalist production,” and let us further suppose that both parties knowingly agree to these new contracts. Then there would be no fraud. What do we have? Not an employment firm, but an example of worker-managed production possibly with transactions at non-market prices. The non-labor inputs K have been legally purchased by Labor from Capital, and the outputs Q have been legally appropriated by Labor and sold to Capital. The net payment $M goes from Capital to Labor. If the transfers were at market prices then $M = $pQ – rK, but parties may knowingly agree to exchanges at non-market prices. Or such non-market transactions can be interpreted as a market transaction followed by a voluntary gift. For instance, Labor could knowingly agree to buy K and sell Q all for the net payment of the money $M = $wL. That, in effect, is the market transaction with the net payment $M = $pQ – rK followed by the voluntary gift of the profits pQ-rK-wL = p from Labor to Capital. And that, in effect, is what the fraudulent employment contract induces Labor to do in conventional production. In a democratic firm, if the workers want to knowingly donate their profits to Capital or any worthy cause, they are free to do so. These points serve to mark the non-consequentialist nature of the de facto inalienability critique of the employment contract. With a different legal overlay, the same de facto transfers could knowingly and voluntarily take place without involving any fraud. This also serves to emphasize that there is no inherent conflict between the de facto inalienability argument and allocative efficiency or Pareto optimality (applied to non-institutionally specified states of affairs). In a simple garden-variety fraud, it is presumably always possible to ascertain that the de facto transfer does not correspond to the agreed-to legal transfer, e.g., to tell the difference between a pseudo-widget and the genuine article. The “beauty” of an institutionalized fraud like the employment contract is that there is no de facto transfer that fulfills the contract; in effect, there is no genuine widget to contrast with the pseudo-widget. The pseudotransfer of labor (i.e., voluntary co-operation with the employer) has been accepted for centuries by the legal authorities themselves as fulfilling the contract. The “discovery” of the fraud thus requires extensive analysis together with heavy use of intuition pumps like the case of the criminious employee to see that labor is not de facto transferable after all. And any responsible scholar and respected businessperson–being embedded in the institutions of the employment system–has every incentive not to make that discovery. Voluntarily Following Orders The analysis has emphasized the property structure of production, but the same remarks can be applied, mutatis mutandis, to the parallel governance structure of production. In the employment relation, the worker W decides to do X because the employer or boss B says to do X. Here again, the problem does not lie in the factual reality of W choosing to do what B says; the problem lies in the legal overlay. In the employment relation, the reality, namely a rather one-sided form of voluntary co-operation between autonomous decision-making individuals, is legally interpreted as B “employing” W with B as the sole decision maker. B is the “head,” W is the “hand.” The head makes the decision and then employs the hand to carry out the decision. The hired hand is the conductor of B’s intentions, the instrument of B’s will; it has no “head” of its own. In terms of the legal transfers between W and B, the employment contract transfers the use-rights over W’s time, the direct control rights over W’s services, to the employer B. It is a transfer, not a delegation, of decision-making authority. But the factual transfers cannot match that legal transfer. Short of some part-time robot concoction, W remains the de facto decision-maker over W’s actions. All W can do is to voluntarily co-operate with B by deciding to do as B says. The facts cannot be changed to eliminate the mismatch (science fiction aside); human decision-making capacity is not de facto transferable. The legal contract should be rewritten in a non-fraudulent form to fit the facts. The legal relationship between W and B is then one of delegation, not an alienation or transfer of decision-making capacity. W and all of W’s colleagues in the work process (including B) are the decision-makers; B acts as their delegate or representative. B’s decision initiatives are taken in the name of the whole group, in the name of the governed. When the workers decide to do X because the boss B says to do X, that would legally as well as factually be their decision–even when X is not a crime. Similar remarks apply to vote selling. The inalienability critique argued against W being permitted to sell his or her vote to B so that it became B’s vote. There was no inalienability critique of W casting W’s vote as B says. That may indicate what Hutcheson called a “weak mind” but it would not pretend to alienate the de facto inalienable capacity for decision-making. Would the abolition of the employment contract impair workers’ freedom? Workers would not be prevented from performing the same (non-institutionally described) voluntary acts as before, namely deciding to do what B says. But criminals are today denied the “contractual freedom” to voluntarily contract into the legal role of an instrument, the de jure role of a non-decision-making non-responsible tool employed by the employer. With the abolition of the employment contract, that “contractual freedom” would also be denied to all de facto responsible decision-making persons.