Adam Smith, Lectures on Justice, Policy, Revenue and Arms | rauvinj | August 27, 2012


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ADAM SMITH, LECTURES ON JUSTICE, POLICY, REVENUE AND ARMS 131 (Cannan ed. 1896): "Breach of contract is naturally the slightest of all injuries, because we naturally depend more on what we possess than what is in the hands of others. A man robbed of five pounds thinks himself much more injured than if he had lost five pounds by a contract. Accordingly in rude ages crimes of all kinds, except those that disturb the public peace, are slightly punished, and society is far advanced before a contract can sustain action or the breach of it be redressed. The causes of this were the little importance of contracts in those times, and the uncertainty of language."




We all repeatedly make contracts; they are a routine part of our lives. It is not always appreciated, however, that the perfection of the system of contract law, as we know it today, has been accomplished only during the last few centuries. To be sure, the term "contract" appeared early in the common law, but it had, in the beginning, a rather restricted meaning, including within its scope only a few of the transactions that we now would not hesitate to classify as contracts.[2] Indeed, it was not until the end of the eighteenth century that the term came to acquire its modern connotation with its emphasis on the promissory basis of the contractual branch of civil liability.[3] And, well into the next century, the law of contracts was still not fully prepared to cope with such important matters as the contract by correspondence,[4] and the formulation of precise rules for the measure of damages.[5] Even Adam Smith's contemporary, Blackstone, whose Commentaries were first published in 1765, thought, we are told, so little of the importance of contract that he covered it in little more than forty pages.[6] 


Since the days of Blackstone, the law of contract has been gradually improved to meet the needs of modern society. Yet the idea of contract is still influenced by the principle of reciprocity, a notion that can be traced back to the early period of the common law and that has stayed with us ever since in the form of the consideration doctrine.[7] "Contract," according to its famous definition in Termes de la Ley, a widely used text first published in 1527, "is a bargain or covenant between two parties where one thing is given for another which is called quid pro quo."[8] To be sure, our notions of reciprocity have become quite sophisticated as the needs of society have required a broader and more liberal enforcement of promises, and "exceptions" to the consideration requirement have been introduced by case law to protect reasonable expectations. In addition, resort has increasingly been had to legislation broadening promissory liability.[9] And yet, even if we take into account all of these changes, Anglo-American law has not yet caught up with its great rival, the civil law, in making promises generally enforceable (although it is coming closer).


"Group persistencies" (to use Pareto's term), so characteristic of the evolution of the common law,[10] have prevented the legal profession from completely remodeling the law of contracts to meet modern needs. Thus, only a study of the past can enable us to understand adequately the present law of contracts and its deficiencies.








[2] Jackson, The Scope of the Term "Contract," 53 L.Q. Rev. 525 (1937). Medieval lawyers, like their Roman counterparts, had no comprehensive theory of contracts and for the same reason: the substantive law of contract was shaped in a formulary system. Simpson at 185-196. For a modern view of just when a general law or theory of contract came into being, see Simpson, Innovation in Nineteenth Century Contract Law, 91 L.Q. Rev. 247, 250 et seq. (1975). For a different view, at least in connection with this country, see G. Gilmore, The Death of Contract 5 et seq. (1974).


[3] For the modern definition of contract, see I Corbin §3 (1963); Restatement Second §l; U.C.C. §1-201(11); pp. 2 et seq. supra and Ch. 3, §1.


[4] Cooke v. Oxley, 3 Durnford & East 653, 3 T.R. 653, 100 Eng. Rep. 785 (1790). The law of offer and acceptance goes back only to the nineteenth century. The common law borrowed this doctrine, along with many other doctrines, from civilian writers. Simpson, supra note 2, at 247, 258 et seq.


[5] C. T. McCormick, Law of Damages 24 et seq. (1935). The rules relating to damages have also been traced to the civilians. Simpson, supra note 2, at 273 et seq. (1975).


[6] 2 Blackstone, Commentaries 422-470 (1766). This is not quite accurate. 3 Blackstone, ch. 9, which is entitled Injuries to Personal Property, discusses contracts in SS202-223. Also, as Atiyah reminds us, at 215, the discussion of the Law of Persons in the first volume contains much material that we would now classify under the heading of contract. See further Horwitz at 162-163,170-171. Kennedy, The Structure of Blackstone's Commentaries, 28 Buff. L. Rev. 205, 231 (1979).


[7] Indeed reciprocity, a universal principle of social action, can be seen at work in primitive exchange transactions in the form of gifts. Reciprocity, we are told by anthropologists and sociologists, is at the core of exchange and survives in the modem consensual contract. Gouldner, The Norm of Reciprocity, 25 Am. Soc. Rev. 171 (1960); Blau, Interaction Social Exchange, 7 Int. Enc. Soc. Sci. 452 (1968). On the bargain theory of consideration, see pp. 279 et seq. infra.


[8] The quotation is taken from Jackson, supra note 2, at 525-527. In the Mirror of Justices, contract is defined as "a discourse (purparlance) between persons that something that is not done shall be done." 7 Selden Society 73 (Whitaker & Maitland eds. 1895).


[9] See Ch. 5, S2.


[10] For a description of the English judicial process in Weberian terms see Marsh, Principle and Discretion in the Judicial Process, 68 L.Q. Rev. 226 (1952).


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February 15, 2015 Adam Smith, Lectures on Justice, Policy, Revenue and Arms Adam Smith, Lectures on Justice, Policy, Revenue and Arms

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