Voluntary Slavery and the Limits of the Market

Most anyone ought to know that a man is better off free than as a slave, even if he did not have anything. I would rather be free and have my liberty. I fared just as well as any white child could have fared when I was a slave, and yet I would not

give up my freedom.

—Reverend E. P. Holmes, 1883

One of the most momentous achievements of modern Western capitalism was the transition from a system of bonded labor, indentured servitude and forced work to a system of formally free contractual labor. Fifty years ago it might have been assumed that just as indenture and bondage declined in the industrial world, it would eventually disappear everywhere with capitalism’s globalization. But bondage has not faded away. In parts of the world today labor bondage and similar practices persist under other names (e.g., debt peonage, attached labor, serfdom, debt slavery). In a bonded labor arrangement “a person is tied to a particular creditor as a laborer for an indeﬁ nite period until some loan in the past is repaid.” ¹ In practice this indeﬁ nite period can last a lifetime. Bonded workers are often completely servile, forced to exhibit deference and subordination to their employers both on and off the job. ² Even those who have defended the economic rationality of such relationships have noted the “ugly power relations” involved in the phenomenon. ³ The International Labour Organization estimates that some 12.3 million people, many of them children, are held as bonded laborers around the globe. ⁴

Although bonded labor is considered by many to be a paradigm of unfree labor and is often analogized to slavery, it is generally contracted voluntarily. Indeed while slavery itself is usually rooted in an initial act

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of coercion, it is not necessary for even slavery to originate in violence and force. Slavery has been reported to be voluntary in a number of important historical instances. ⁵

How might labor bondage arise voluntarily? Because poor peasants have no assets, they have no formal collateral. The wages they receive tend to vary with the agricultural seasons; they are lower during the lean seasons when unemployment is high and higher during the peak growing seasons when unemployment is low. In many cases peasants’

survival from one harvest season to the next will depend on borrowing for consumption during the lean seasons; they simply do not earn enough during peak seasons to save.

Consider the case of a landlord who offers credit in exchange for a laborer’s agreement to pledge his future services as collateral for the loan. In so doing the landlord increases his power to enforce the agreement because he can directly deduct the amount due from the worker’s wages during peak season. And the laborer now has access to credit that might not otherwise have been available to him. From the perspective of contract theory, it is not evident that there should be any legally imposed limits on competent adult landlords and laborers who seek to enter such contracts. For if agents are rational and can foresee the future consequences of their contractual provisions, there is no reason not to allow borrowers the freedom to commit to providing indentured services to lenders should they lack the resources to repay their loans.

In this chapter I examine the ways that two different frameworks with different underlying normative assumptions view the phenomenon of bonded labor: libertarian laissez-faire theory and Paretian welfare economics. Libertarians believe that consensual agreements between competent adults should be respected. ⁶ Paretians endorse exchanges that leave both parties better off in terms of their preferences. Each theory gives us reasons for endorsing many, if not most instances of the practice of bonded labor, reasons that are intuitively plausible. But each theory also ignores or dismisses other considerations, such as those that I raised in earlier chapters, that might lead us to view these very same instances of labor bondage more critically.

I argue that neither theory fully accounts for our objections to bonded labor, objections that are codiﬁ ed in the laws of developed capitalist countries. In the United States, for example, there are important restrictions

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on labor contracts: the state does not enforce voluntary slavery contracts, debt slavery, speciﬁ c performance as a remedy for breach, or contracts that are considered “unconscionable.” Libertarianism and Paretianism do not adequately account for these restrictions. Moreover their failures to do so are interesting; they support my claim that we cannot rely on abstract concepts of freedom, equality, and externality to evaluate market exchanges.

In considering the adequacy of these theories to account for our objections to bonded labor, I distinguish between two important dimensions of bonded labor: the background circumstances in which bonded labor arises (ideal versus nonideal markets) and the nature of the agent whose labor is bonded (adult laborer versus child laborer).

With respect to the ﬁ rst dimension, bonded labor arrangements tend to arise in desperate circumstances, where they exploit the vulnerabilities of the most vulnerable and make some people utterly dependent on the will and whims of other people.

Even in more ideal circumstances, where there are no market failures and no dire poverty, we still have reasons not to enforce labor bondage agreements. Beginning with the case of children, I build on my argument in chapter 7, arguing that bondage of children’s labor can stunt the development of the capacities they will need to be able to stand as social equals. Bondage prepares children for a life of servility based on

“misunderstanding one’s rights . . . (or) placing a comparatively low value on them.” ⁷ I then suggest that my argument about children can provide a lever to mount an objection to binding the labor of adults;

perhaps if the capacities to stand as an equal can be stunted by bonded labor arrangements, they can also be lost. I draw on some empirical evidence to suggest that the capacity for autonomy is, as John Stuart Mill put it, “in most natures a very tender plant, easily killed, not only by hostile inﬂ uences, but by mere want of sustenance; and in the majority of young persons it speedily dies away if the occupations to which their position in life has devoted them, and the society into which it has thrown them, are not favorable to keeping that higher capacity in exercise.” ⁸

The central idea I defend here is that where certain competitive markets undermine or block egalitarian relationships between people, there is a case for market regulation, even when such markets are otherwise efﬁ cient or arise on the basis of individual rational choice. ⁹

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L I B E RTA R I A N I S M

Libertarians believe in the principle of freedom of contract within the bounds of justice. If two or more rational adults agree to an exchange, then, provided that they are actually entitled to the goods they are exchanging and that no one else’s rights are thereby violated, the government (and other agents) ought not to interfere. In Robert Nozick’s pithy formulation, libertarians do not forbid “capitalist acts between consenting adults.” ¹⁰ Whereas economists typically value free market exchange as an instrument of efﬁ ciency, the ability to freely exchange one’s own property is seen by libertarians as closely connected to the freedom and inviolability, the separateness and sanctity, of the individual person. ¹¹

In evaluating the permissibility of a particular bonded labor contract, a libertarian will consider whether the goods and services to be exchanged were acquired by legitimate means and whether or not the exchange was voluntary. If these conditions are met, then according to the libertarian the exchange should be allowed. In Anarchy, State and Utopia Nozick claims that respect for the principle of freedom of contract entails that individuals even have the right to sell themselves into slavery. ¹²

Because the libertarian justiﬁ cation of the freedom to participate in bonded labor or slavery contracts refers to the idea of voluntary choice, its application seems to depend on an understanding of what makes an act of exchange voluntary as opposed to coerced. ¹³ What coercion consists of, however, is an elusive matter; the distinction between offers that are coercive and those that are not is notoriously difﬁ cult to draw.

As I noted in chapter 1, coercion rarely takes the form of direct compulsion that deprives individuals of all choice. Even when a gunman threatens “Your money or your life,” what makes the offer coercive is clearly not that you have no power to choose.

On Nozick’s account, what makes an offer coercive is that it decreases an agent’s position with reference to her legitimate baseline situation. ¹⁴ Even though an individual confronted with a gunman’s threat might well decide freely to hand over her money, she is coerced given that the gunman has no right to her money and that by taking it he impermissibly worsens her situation with respect to her legitimate entitlements.

Nozick’s point is that coercion is essentially a normative concept. ¹⁵ Two people can agree on all the facts about an exchange and still reasonably

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disagree as to whether one party to the exchange was coerced by the other.

Whether or not they each ﬁ nd an offer coercive is dependent on their prior determination as to whether the coerced party had a legitimate entitlement that was violated. The reason that the extreme constraints an agent faces due to poverty, lack of education, and so forth would be said to render her action coerced is if she has a right, of some kind, not to be in such circumstances.

Libertarians of course do not generally think that the state has any afﬁ rmative duty to improve the background circumstances of an individual, no matter how bad these circumstances are. In thinking about the legitimacy of bonded labor contracts, then, a main issue between libertarians and their egalitarian critics concerns the nature of agents’ underlying entitlements: the morally acceptable baseline for agreeing to (or threatening not to) contract.

What kind of underlying entitlements, particularly with respect to property, do libertarians think people have? Libertarians tend to think that property rights rest on something like the rights of ﬁ rst claimants. ¹⁶ As long as a landlord was the ﬁ rst to produce goods on the land or acquired property in land via a voluntary transfer from the ﬁ rst claimant, libertarians will grant the landlord an exclusive right to determine how this land is used. On the libertarian view, the state acts unjustly if it prevents the landlord from using his land and the surplus that it generates as he wishes. If an individual landlord wishes to loan some of his surplus to others, then he should be free to decide the terms under which he is willing to forgo the private use of some of his own resources.

It is the landlord’s piece of good luck if he ﬁ nds others willing to accept his highly unequal terms, but, on the libertarian view, this good luck generates no injustice. ¹⁷

Although libertarianism is often seen as the theory most compatible with a pure form of capitalism, it can also embrace and justify a system of voluntary feudalism that includes serfdom. ¹⁸ Indeed if a feudal lord acquired his land by ﬁ rst title and offered employment on his land to only those who wished to live under his protection and accept his terms, a libertarian like Nozick would condemn state intervention to limit his power. This means that at least some versions of libertarianism are compatible with the permanent direct subjection of one individual to another. ¹⁹

A libertarian who puts great weight on initial just acquisition would point out that in fact much of the lord’s initial acquisition during

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feudalism was based on plunder, fraud, and violence. Libertarians do not accept as legitimate agreements based on force or fraud. If the agreements reached between a landlord and a bonded laborer had dirty origins—if they are based in employer malfeasance or maintained only by physical violence—then this is a reason for not respecting these agreements. ²⁰

Not all libertarians worry about the origins of property rights; some emphasize the importance of respecting individual rights in property, however these rights have been erected. ²¹ But even these libertarians recognize some limits on private property rights. ²² As we shall see below, even Nozick argues that a person cannot legitimately acquire all of the water in the world. Some libertarians might argue that individuals have a nonalienable right to self-ownership, so that they cannot contract themselves into permanent slavery, although everything short of permanent slavery is acceptable. ²³

Let’s consider in more detail the example of a very poor laborer who has agreed to bond himself to a landlord in order to attain a loan. In theory a state can set limits on the private property rights involved in this transaction in a number of very different ways: ²⁴

1. The state can accept that it has an afﬁ rmative duty to give the laborer subsistence income or other employment choices to enlarge her background alternatives. If she still enters into the bonded labor contract, it can refuse to enforce the contract.

2. The same as (1), except that if the laborer under improved circum-stances still enters into the bonded labor contract, the state will now enforce the contract.

3. Although it has no afﬁ rmative duty to improve the background options of the laborer, the state can refuse to enforce the bonded labor contract in any fashion, even if the laborer defaults.

4. The state can refuse to enforce the bonded labor contract and make it a crime for anyone to solicit voluntary servitude arrangements with workers. It can prosecute the landlord.

5. The state can enforce the contract through speciﬁ c performance and require the laborer to work for the lender until his debt is repaid but alter the substantive terms of the exchange to make it less lopsidedly favorable to the landlord. For example, the state can set legal limits on the amount of interest that a lender can charge for a loan.

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6. The state can refuse to enforce the contract through a speciﬁ c performance decree but give the employer some other sort of monetary or equitable remedy (e.g., allowing the employer to garnish the wages of the employee when she goes to work for someone else). ²⁵ 7. The state can enforce the contract as written through a speciﬁ c

performance decree, and in the event the employee fails to comply with it, prevent her from working for anyone else.

8. Same as above, but the state can enforce the decree by jailing the employee if she defaults on her loan.

Which of these scenarios is a libertarian committed to accept?

Libertarians do not generally hold that the state has any afﬁ rmative obligation to improve the background circumstances of a laborer, and hence they tend to reject (1), (2), and (5). Libertarians believe that treating individuals with respect precludes the state from compelling them to transfer any of their resources to others, even if those others are in dire need. But in practice almost no libertarian would go all the way to either (7) or (8). Nozick, for example, doesn’t; when faced with some de facto monopolistic markets, such as a monopoly over water in a desert, he won’t even go as far as (6). ²⁶

In Anarchy, State and Utopia Nozick defends a version of the “Lockean proviso,” which argues that to be legitimate an initial act of appropriation must not leave anyone worse off than he would have been had there been no appropriation at all. ²⁷ This appeal to the Lockean proviso, and to welfare-based restrictions on the principle of freedom of contract, sits uncomfortably within the conﬁ nes of libertarian theory. ²⁸ After all, the libertarian’s commitment to freedom of contract is supposed to be justiﬁ ed independently of its consequences for human welfare. For once we admit that the welfare consequences for individuals can form a basis for evaluating other people’s entitlements, why should we not contrast the property regime embraced by libertarians with other alternatives, such as a redistributive welfare state that limits background property rights and redistributes income? Perhaps a poor landless peasant would be better off under some alternative form of ownership than he would be under a libertarian regime of private property. At the very least the peasant might be better off if his background assets were more equal to his employer’s.

It is striking how strongly Nozick’s version of the Lockean pro-viso resembles the Pareto efﬁ ciency criterion appealed to by welfare

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economists. ²⁹ However, even if we admit some version of the Lockean proviso, it won’t necessarily kick in with respect to bonded labor arrangements. What if the employer’s monopolizing power is based not on appropriated natural resources such as land, but simply on social power and capital? Nozickean libertarians would deny the application of the proviso at all in that situation.

Of course the fact that libertarians think that people can legitimately enter into bonded labor agreements does not itself entail that they think that the state is required to enforce such agreements in any particular way (or even to enforce them at all. Nozick himself says surprisingly little about the enforcement of rights). My point, however, is that there is nothing in Nozick’s libertarian theory that rules out the state’s demanding that a laborer comply with the terms of his contract by speciﬁ c performance or imprisoning him if he fails to perform his part of the agreement. Further it would seem that for Nozick the state may have a duty to refrain from interfering with the private enforcement of these contracts, which implies its recognition of them.

A libertarian might yet have another objection to press against at least some bonded labor arrangements. As we saw in chapter 7, most children who work are put to work by their parents. Libertarians might claim that parents are not entitled to bond the labor of their children, at least not into adulthood. To the extent that the libertarian defense of the principle of freedom of contract rests on the idea that individuals are voluntarily contracting on their own behalf, or for others who have (voluntarily) designated them to act on their behalf, there is room for libertarian criticism of practices that involve parents using their children’s labor as collateral for their own loans.

Like most libertarians (and to be fair, most political philosophers), Nozick says little about children’s positive rights. ³⁰ In fact some libertarians argue that although it would be a good thing if parents cultivated their

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