Contracts are Good for Libertarians, Too

This is part three of a series offering constructive criticism of the Galt’s Gulch Chile land development deal. To come up to speed on the story, see part one: GGC Story, Timeline & References. For the root cause of the current problems, see part two, “The Creature from Galt’s Gulch“.

Contracts are Good for Libertarians, Too

Is it news to anyone that conflict can arise even among those with similar political and economic philosophies? Agreement in these areas doesn’t guarantee the same on strategy, tactics, management, work habits, personality, style, etc. Contracts —and the time it takes to iron them out— can provide insight into these unique aspects of potential partners. You are “working together” the instant you begin to capture thoughts on a scratch pad. While clarifying business goals it’s wise to reflect on an important question: “Can I work with this person, this team?”.

Partners worth having know that contracts don’t resolve conflicts or solve problems, people do. And yet, those same partners would welcome the clarity that a contract can bring. The offer to put one in place won’t chase quality partners away. It will attract them to those who take their time and vision seriously enough to write things down.

Even the best contracts are for clarity at the beginning and clarity at the end. Clarity at the beginning is the shared vision of the partners and what each is expected to contribute and receive while working towards that vision. Clarity at the end is the shared vision for when and how to end or sell what’s been created. In between, it’s the talent, work, and enlightened self-interest of the people involved that creates, works, produces and resolves all things. Even a hint of invoking some penalty clause in a contract destroys the creative atmosphere.

Slow is Fast

The GGC deal soured due to the psychopathic behavior of a partner in a key role. Would a contract have prevented that? No, but slowing down and taking the time to document the supposedly shared vision of Cobin, Eyzaguirre, Berwick, and Johnson might have revealed that they didn’t share the same vision. Or, it might have flushed out Johnson revealing him to have no credible experience. Even an experienced land developer would face a steep learning curve to work his craft in Chile. That learning curve would be over and above speaking Chilean Spanish, fluently.

Berwick was able to attract investment capital only to fund Johnson’s incompetence and theft. Slowing down to draft a contract may have revealed Cobin to be the best candidate to do the accounting and disburse funds for the project. It might have also enabled the partners to learn from the best practices of other land developers. Money for such projects is typically disbursed in increments upon reaching milestones. Even upon reaching such milestones funds are only released by signature of all partners. These standard practices are in sharp contrast to the way money appears to have been “controlled” at GGC: Johnson using investment capital as his own personal bank account.

The Contract and Natural Law as Rules for Self-Government

Most deals are conducted successfully with no escalation to any party other than those involved in the original contract. The public learns only about projects that attract the attention of the media. The public does not learn about the billions of successful deals conducted with only the original parties because those deals involve no conflict. Stories with no conflict are stories that don’t get written.

Detractors accuse anarchists of not being able to deal with one another in the absence of government. What such detractors don’t realize is that anarchists welcome the presence of government in its superior and necessary form: Self-government. It is the absence of self-government usually at the heart of conflict.

Rules Without a Ruler

Unless the physical laws of the universe are suspended there will be rules governing any deal. The rules are those of natural law and those in the contract. Anarchy is the absence of rulers, not rules.

Ideally, the contract contains only pertinent rules for the agreement that aren’t already covered by natural law. These rules,  combined with the looming presence of the self-government of the parties, are ample ingredients for resolving all conflicts without involving the state. If natural law, the contract, and the self-governance of the partners and participants is not enough then the penalty will be as expensive as involving the state in the affairs of the project. That expense begins with the cost of making the contract state-compliant.

Mediation First, State Courts as an Avoidable Alternative

“…unity in what is necessary, liberty in what is not necessary, in all things charity.”

—Archbishop of Split (Spalato) Marco Antonio de Dominis in his anti-Papal De Repubblica Ecclesiastica in 1617.

Many libertarians, and all anarchists, believe the state to be unnecessary. Unfortunately, a project in which all partners are united in this belief is rare. A practical alternative is to make the contract bind the parties to arbitration first and state agencies only as a last, and penalized, resort. Even a partner insisting on “state protection” would prefer the more efficient alternative of arbitration to resolve contractual issues rather than “escalate” to the state, immediately. An added bonus to this approach is the screening of partners, in advance, who probably wouldn’t abide by arbitration no matter how fair or cost-effective its track record. A drawback is the contract has to be drafted in compliance with the national legal system. The most common types are:

• Civil – Chile and most of South America
• Common – Most of North America
• Plural – Civil and common – Puerto Rico, Scotland, Louisiana
• Sharia – Egypt
• Civil and sharia – Morocco, Jordan
• Common and Sharia – Malaysia, Pakistan

Bitcoin & Alternative Currencies

Johnson and Berwick made a big deal out of GGC being the first real estate deal to accept bitcoin as payment. While most libertarians welcome the use of alternative currencies they present a problem in maintaining state “valid” contracts: Most jurisdictions require “consideration” be provided in state currency. Therefore, it may be necessary to stipulate an exchange rate for all non-state currencies.. A payment of X-bitcoin, for example, would be deemed as equivalent to having given Y-amount of state currency for the sake of consideration.

Privacy is Not Partner Leverage

Libertarians place a high value on privacy and need not be left out of business opportunities, as a result.

Privacy is a means to protect oneself against unscrupulous characters, usually the state or litigious opportunists (Or do I repeat myself?). It’s not “license” to misbehave or a weakness to be exploited by partners. If you’re so private that your desire to remain so could be used against you as leverage then either use a nominee or represent yourself on behalf of an entity you’ve created to hold the proceeds of the partnership. If you can afford it, do both and make the nominee your lawyer. If not, then represent yourself as the executive of the entity. That’s enough hiding, the partners your dealing with can’t use it against you and you can transfer or sell your interest in the partnership, as needed.

On Berwick’s second trip to Chile he made a point of asking Johnson to confirm their partnership in the presence of a “financial advisor”. That’s the kind of thing someone with a partner agreement wouldn’t need to do. Therefore, I infer that Berwick and Johnson had no partner agreement to document their verbal agreement. Such would also explain the ease with which Berwick describes himself as slipping in and out his affiliation with GGC. I suspect Berwick was attempting a kind of lazy man’s privacy and flexibility by conducting business with nothing written down. Johnson would have seen this as a moth sees a flame.

Documented agreements facilitate recognition by third parties. If either partner would balk when asked to write things down it’s a sure sign of problems down the line. Ideally, recognition would only be made to a private mediator empowered by the agreement. Having such an agreement should in no way be seen as involving the state in disputes. Quite the contrary, the agreement outlines the relationship and clarifies expected behaviors between the parties to keep things running smoothly. It also specifies the resolution of any problems accomplished by a private third-party. Such agreements are an important means of keeping the state out of one’s business. If all else fails, the clarity with which you’ve outlined the agreement might help state agencies exceed their usual incompetence in handling complex matters.

Libertarian Version of 1 Corinthians 6

Contrary to popular belief, the state has no stable of magicians able to create unity or to judge complex matters, fairly. To the contrary, state agencies are inferior to a random sample of unbiased mediators. As the disciplined and fair actions of the GGC rescue team have demonstrated, the state is even likely to be inferior to a biased sample of those directly involved in the conflict!

In refusing to involve the state to resolve their part of the GGC dispute, John Cobin, Wendy McElroy and her husband, Brad, have shown remarkable integrity. They’ve demonstrated, at great personal cost, the high-caliber of behavior, the meticulous self-governance, required to resolve the most complex and intractable disputes without involving state agencies.

Johnson used investor capital in a maze of land and state entity swaps so it will be impossible to rectify the situation with no state involvement , whatsoever. The best course of action for GGC participants is probably to give their proxy to the GGC rescue team who, in turn, may attempt to overturn the various entity swaps of Johnson’s theft.

Perfection?

I find John, Wendy and Brad’s behavior admirable because it is the kind of excellent behavior necessary to keep the state forever out of private affairs. More such behaviors are described in 1 Corinthians 6. In quoting the passage, below, I’ve made five replacements to make it accessible to a larger audience. The original words are next to the replacements for reference. The spiritual beliefs of the reader are of no importance in making the point.

1 Corinthians 6: 1 – 8

“When one of you has a grievance against another, does he dare go to law before the state/unrighteous instead of those who love liberty/the saints? Or do you not know that those who love liberty/the saints will judge the world? And if the world is to be judged by you, are you incompetent to try trivial cases? Do you not know that we are to judge angels? How much more, then, matters pertaining to this life! So if you have such cases, why do you lay them before those who have no standing in liberty/in the church? I say this to your shame. Can it be that there is no one among you wise enough to settle a dispute between the brothers, but brother goes to law against brother, and that before statists/unbelievers? To have lawsuits at all with one another is already a defeat for you. Why not rather suffer wrong? Why not rather be defrauded? But you yourselves wrong and defraud — even your own brothers!”

Libertarians or anarchists working towards a world where people may conduct all the transactions of life without the involvement of the state might consider this passage. I find it hopeful and instructive. Hopeful, because it hints that such a world is possible. Instructive, because it describes some of the excellent behaviors necessary to make it so.

See Part Four, Jeff Berwick and Galt’s Gulch Chile: A Regrettable Summary, for:

• Next-Deal-Itis
• Johnson Superman?
• Marketing is King?
• A Regrettable Summary
• Passive Partner Unicorns
• Berwick’s Way Out
• Berwick Isn’t Working with the GGC Rescue Team
• Did Berwick Lose Money on GGC?
• Public Apologies are Not Restitution
• Johnson’s Way Out
• Postscript

Or, forget about all this and see my Two Paragraph Expat Guide to Chile.