prior probability

Note: This is the last installment of our series of blog posts reviewing Nathan B. Oman’s new book The Dignity of Commerce.

Nate Oman concludes his beautiful book on The Dignity of the Commerce by drawing a fundamental distinction between “pernicious markets” and “well-functioning markets.” This distinction is essential to Oman’s theory of contracts. According to Oman, contracts should only be enforced when they support healthy or well-functioning markets. To this end, Professor Oman identifies three types of pathological markets: (1) markets that produce harm, like the market in slaves in the antebellum south, (2) noncommercial markets, such as markets in human organs, and (3) malum in se markets or inherently bad commercial transactions. Imagine, for example, a judge conducting an auction instead of delivering a well-reasoned verdict in accordance with law. (As an aside, it’s worth noting all three of these markets are illegal under existing law, although the slave trade was once legal.)

Here, however, is where we part ways with Professor Oman. At the end of the day, Oman’s tidy distinction between “well-functioning markets” and “pernicious markets” is unsatisfying and unhelpful. Why? Because once we draw a distinction between moral commercial practices and immoral commercial practices, then Oman’s commercial theory of contracts completely falls apart: the commercial nature of a particular promise becomes totally irrelevant to its legal enforceability. Instead, what ultimately matters is whether the contract is consistent with morality. But this conclusion brings us back to square one: why should the law enforce only “moral” promises and not “immoral” ones (a topic we explore in detail in this paper), especially when morality is almost always in the eye of the beholder? Was Shakespeare’s Shylock, to borrow Oman’s own example, acting morally or immorally when he demanded a pound of Antonio’s flesh as per their agreement?

Moreover, as a matter of logic, we could do without the qualifiers “well-functioning,” “healthy,” etc. to describe markets. Such qualifiers are totally superfluous, since any actual market is, by definition, well-functioning; otherwise, it would not exist. Right? Despite these objections, let us conclude by confessing that we really enjoyed reading Oman’s book. His work forced us to clarify our thinking about the relation between markets and morality.

Welcome back from Spring Break! For our next class, we’re going to go back in time, back to the summer of ’04. That’s when Mark Zuckerberg relocated his new company to Northern California and brought along Facebook’s first two interns, Stephen Dawson-Haggerty and Erik Schultink, for the ride. Legally speaking, what do James Bond, Rich Paul, and Facebook’s interns have in common? In a word, they’re all “agents,” i.e. persons who are authorized to work on behalf of another, the principal. (FYI: Rich Paul works for LeBron James as his sports agent, while the fictional James Bond works for MI6, the British Secret Intelligence Service.) Principal-agent relationships are very common in the business world, so we will spend an entire lecture on the law of agency in our next class. Why? Because whenever a principal-agent relationship exists, the following fundamental legal question often arises: When is the principal legally liable for the acts committed by its agents? Under the doctrine of respondeat superior, the answer to this question depends in large part on whether the agents are employees or independent contractors (see chart below). Accordingly, although we have been focusing mostly on the founding of Facebook this semester, we will take a time out from the movie The Social Network and focus on the fictional world of secret agent #007 James Bond instead. In particular, we will debate whether Mr Bond is an employee or an independent contractor.

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