Freedom of Contract, Commercial Rationality, and State Cooperation

This essay defends Alan Schwartz’s intellectual project of liberalizing contract law among commercial parties by integrating consequentialist and deontological perspectives. It responds to two major critiques of Schwartz’s assumptions: the “rationality objection,” which argues that not all merchants are truly sophisticated and therefore require paternalistic protection; and the “moralist objection,” which holds that some transactions are morally objectionable and should not be legally enforced, regardless of their consequences.

To counter the rationality objection, the essay introduces the concept of commercial rationality, arguing that any merchant capable of learning and updating beliefs can reach efficient agreements over time. Limiting freedom of contract for less sophisticated parties hinders this inductive learning process, reducing social welfare and constraining autonomy.

In response to the moralist objection, the essay offers two arguments. First, it emphasizes the state’s dual role as both moral agent and coalition partner in transactions. Merchants who can self-enforce agreements contribute more to contractual value and therefore justify minimal state interference. Second, regardless of the parties’ contributions, denying legal enforcement would unfairly favor those with greater enforcement resources—who can afford self-enforceability—undermining equality of opportunity.