If forced to choose, I might pick Bailey v. Alabama as my favorite contract law case. That is, if it even counts as one. Which is pretty much my point. Decided in 1911, Bailey is a criminal case – Lonzo Bailey was convicted for fraud. It is also a constitutional case – the Supreme Court struck down the conviction as violating the Thirteenth Amendment’s prohibition of involuntary servitude. A labor case, too – the criminal statute specifically targeted workers who took advances on wages and then later quit before paying the debt. And a race case, though the Court denied it – Alabama’s “false pretenses” statute was one cog in the wheel of Jim Crow neoslavery. But yes, also a contracts case (in a libertarian’s casebook, no less!) because the Court used the case to erect a boundary between criminal and civil consequences for breach of contract.
This overflowing of conventional doctrinal boundaries makes Bailey the perfect vehicle to deliver key insights of a Law & Political Economy approach. So much so that I will do it over multiple posts.
In this first installment, Bailey punctures the ubiquitous conceit that there is or could be an autonomous sphere of economic life – “the free market” – that stands apart from politics, from contests over whether and when to authorize the coercive exercise of governmental power. That contrast between economic freedom and political power is ubiquitous, as in the language contrasting “private” law with government “intervention” in the market (via “public” law). This conceit renders unremarkable what might seem contradictory: a ubiquitous politics that abhors government regulation (of “the economy”) yet thirsts for a state that is “tough on crime.”
So what happened? On the day after Christmas 1907, Lonzo Bailey signed a contract “to work and labor for the said Riverside Company as a farm hand on their Scott’s Bend place in Montgomery County, Alabama” (229). He received a $15 advance on his nominal wages of $12/month, putting him immediately in debt. Over a year’s promised work, he would even up by receiving monthly net pay of $10.75. When Bailey quit come February, the Riverside Company did not sue for breach of contract. Instead, it had Bailey arrested, prosecuted, convicted, and sentenced to pay a fine of $30 plus court “costs” several times that. In the certain event that Bailey could not pay, he would be incarcerated and forced to perform “hard labor” for 136 days. More in a subsequent post on this premonition of today’s post-Ferguson discussion of debtor’s prison, rendered here as forced labor under debt peonage.
The Supreme Court eventually struck down the entire statute underwriting Bailey’s conviction, finding it contrary to the Thirteenth Amendment as enforced via the Anti-Peonage Act of 1867. The fatal flaw was that a bare breach of contract provided sufficient evidence to uphold a criminal conviction for fraud. With this threat of criminal prosecution hanging over a worker like Bailey’s decision whether to continue work or to quit and move on, the statute created a state of “compulsion” that rendered “involuntary” (244) any continued work under the original labor contract.
The point of the Court’s analysis was that the state’s threat to punish the worker handed power to the employer. It was the functional equivalent of “authoriz[ing] the employing company to seize the debtor” (244). The worker’s freedom to leave turned on what would happen if he tried, and the prospect of physical seizure annulled that freedom. It bound him to the employer without anything turning on whether “private” or “public” violence was at issue. A subsequent case put the point more vividly, with the Court explaining that “When the master can compel and the laborer cannot escape the obligation to go on, there is no power below to redress and no incentive above to relieve a harsh overlordship or unwholesome conditions of work.”
So, the general point made vivid in Bailey is that the “private” economic relationship between worker and employer is inescapably shaped by the social and legal context in which they operate. That context, in turn, is constructed substantially by law, including law of a seemingly “noneconomic” sort – such as criminal law or voting rights. The latter lay behind the former in a system where employers colluded with local sheriffs and judges who evaded electoral accountability thanks to Black political disenfranchisement.
In classic liberal fashion, the Bailey majority interprets Alabama’s error as the injection of compulsion into the zone of economic freedom. Rather than putting its fist on the market’s scales balancing labor’s supply and capital’s demand, the state needed to limit itself to its “night watchman” role and remove contracting relationships from the shadow of “compulsion.” This would “make labor free, by prohibiting that control by which the personal service of one man is disposed of or coerced for another’s benefit” (241).
The crux, then, is what counts as “coercion” external to the market relationship. The Bailey majority mapped this terrain as a border between criminal law and contract law. The former was an imposition; the latter was the working out of private dealmaking. “The contract exposes the debtor to liability for the loss due to the breach, but not to enforced labor“ (242).
On this distinction, the dissent pounces. Justice Holmes objected that “the mere imposition of such consequences as tend to make a man keep to his promise” cannot amount to “the creation of peonage when the contract happens to be for labor” (246). Were that so, “I do not see why the allowance of a civil action is not [coercion], as well as an indictment ending in fine.” Recall that the majority drew its line between a civil money judgment and criminal enforcement, the latter being in this case a monetary sanction of fees and costs.
Holmes has a powerful point here. It is the central Legal Realist insight that behind even a civil judgment lies the threat of force. Eventually, the sheriff comes to haul away one’s possessions and sell them at auction to satisfy the judgment. Given that the state’s coercive power is deployed in any form of contract enforcement, Holmes concludes that anything goes—as even the majority concedes that the threat of civilly enforcing contractual duties creates no involuntary servitude.
Perhaps the majority’s line-drawing exercise can rest on a distinction between property and person rather than on the formalism of civil vs. criminal. True, the sheriff may sell off your couch, but he cannot lay hands on your body, at least so long as debtor’s prisons are banned. In contrast, Lonzo Bailey’s nominal fine, left unpaid, would subject him to incarceration as a “slave of the state.”
Resting freedom here, at the limit where the state leaves someone stripped of property but lays no finger on his body, has a long pedigree in political thought and constitutional law. This brings us to our Anatole France moment, when I reassure you that, “In its majestic equality, the law forbids rich and poor alike to sleep under bridges, beg in the streets, and steal loaves of bread.” Stripped of property, my body is on the line. Efforts to sustain it may be met by, yes, physical violence from the state as it deploys the criminal law to block my access to life’s necessities – a bite to eat and some place to be – and to reserve them for someone else’s use.
Note that this analysis has no limitation to breach of contract. It applies in fundamentally similar fashion to contract formation. Bailey’s Christmastime deal was forged in the shadow of an array of laws – vagrancy paradigmatically – that criminalized unemployed Black laborers; in at least one instance these specifically required being employed as of January 1. But even with all that wiped away, there remains the basic point that legally enforced property regimes compel the penniless to choose between work and physical agony. That is the conceptual basis of the old charge of “wage slavery.”
To be compelling without more, however, the wage slavery charge requires a misunderstanding of freedom rendered as lack of constraint. For a Law & Political Economy approach, however, the point is not to cling to an ideal of an economy untouched by political power and to condemn anything that falls short in a parade of false equivalencies. Nor is it to follow Holmes’ Bailey dissent and throw up our hands. Instead, we must start with the question of justice and build with our laws an economy that can answer its call.
The Supreme Court surely got it right by striking down the “false pretenses” law that snared Alonzo Bailey. But in doing so it also blessed as “free” labor markets structured by vast inequalities, so long as the choice to quit was not directly criminalized. And it did so not with an argument but with a sleight of hand, the same trick that persists whenever “free markets” are imagined to operate untouched by the state.