Rudolf von Jhering (1818-92) and the economics ofjustice

J.L.M. Elders

Rudolf von Jhering was a German legal scholar who departed from the domi­nant legal science of his time. His first writings were still influenced by the conceptualist jurisprudence in his country, the so-called ‘ Begriffsjurisprudenz'.

In his famous study about the spirit of Roman law (Geist des romischen Rechtes) von Jhering defined Roman law as the system of disciplined ego(t)ism, a concept that was to be developed further in his last work, as we shall see. The main thesis in his last study is that purpose has to be regarded as the source of all law. Therefore, the legal system has to deal with social reality. In this connection we can also mention the proposition of H.S.A. Hart in his The Concept of Law (Hart, 1961), where he says: ‘Given survival as an aim, law should have a specific content’ (p. 189).

Von Jhering based his theory upon the principle of psychic causation: human conduct is ruled by purpose and there is no true human act without meaning. Given this as a starting point, law can be defined as a complex of rules of conduct, maintained by a political authority by means of external coercion in order to secure the essential conditions of life. In German: ‘Recht ist der Inbegriff der mittels auβeren Zwanges durch die Staatsgewalt gesicherten Lebensbedingungen der Gesellschaft’.

Von Jhering was influenced by Darwinism and for this reason he saw ego(t)ism as one of the main motives of mankind. Therefore, taking into account individual selfishness, we do need motives to socialize individual selfish striving in order to make it possible to barter on an equal footing. These motives, according to von Jhering, are reward and constraint or punish­ment. Without reward or at least the prospect of reward, there would not be a single motive to act, while, without constraint, there would not be an incen­tive to keep one’s promises if to do so would be against what one saw as one’s best interests.

While, in nature, predominance goes to the strongest without exception, apart from the care for the young ones, human society will gradually develop a restriction of prevailing power of the strong towards their fellow men and this might be the result of well-understood self-interest. So the captured enemy will no longer be killed but will be made subservient. Eventually arbitrariness will be ended by legal rules. Social relationships wherein individual members can enjoy their subjective rights have to be regulated by legal rules.

The final development of this process has taken place with the different universal declarations of human rights, a little more than a half-century after the publication of von Jhering’s work. One of the main characteristics of von Jhering’s theory is, as we shall see, the search for incentives to reconcile self­interest with the interests of other people and of society as a whole. Going more deeply into the subject, we shall see that von Jhering takes as a starting point that human beings in general do act out of self-interest. Thus he is asking how society can survive if its members just strive for their individual interest without taking into account the legitimate interests of other people. The answer has to be that human egoism can be made subservient to the general interest of society by engaging and paying the individual the remu­neration he is asking.

If human conduct which responds to basic human needs was not rewarded in one way or another, whether by gaining pleasure, profit or social esteem, nature could not achieve its aims for want of incentives to act in conformity with these basic human needs. Only by reconciling self-interest and the interests of others can a foundation be laid for barter, commerce and social intercourse. Any private association, firm or company has to be based on the common interest of its members, partners or shareholders. Also any bilateral agreement presup­poses the satisfaction of expectations created by mutual promises.

Therefore, when the law enforces a promise, it does so in order to secure the promisee’s reasonable expectations of due performance. Von Jhering takes as a simple example the case of a mill owner who wants to extend his factory and for that reason needs a piece of his neighbour’s land and so starts bargaining. If the price to be paid by the mill owner does not exceed a profitable return for him and if the landowner is adequately compensated for the loss of his plot, an agreement is likely to be entered into. Von Jhering stresses that well-understood self-interest of the partners in a bilateral con­tract is the only sound motive for its formation. Lack of interest on the part of one of the parties, on the contrary, may make a contract voidable. However, von Jhering does not overlook altruistic aspects in human life and conduct.

For instance, if a bilateral agreement implies a strong disproportion be­tween the price to be paid and the end to be achieved, while this would be in conformity with the declared will of the parties concerned, we will have to look for other motives to explain the agreement. Von Jhering therefore makes a clear distinction between egoistic and altruistic motives because human life implies not only personal life but also the survival of the human species.

Important for our subject is the way in which von Jhering explains eco­nomic maintenance. In human life, he says, past, present and future are all linked up together. When one has to take care of one’s future, past experi­ences will nearly always play an important role. And this will often produce a strong motive to ownership to secure future expectations. For instance, as land grows scarcer as a result of the increase in population, a system of individual property rights tends to develop, as has been showed by Richard A. Posner in his The Economics of Justice (Posner, 1983). Property in law has been defined as the closest relation between man and the thing owned, to the exclusion of others.

But the price of property has to be paid, and this price must in general be earned by labour. Von Jhering regards labour as a kind of merchandise in conformity with the prevailing view of his time. Labour will be offered in exchange for money because barter is the basis of all economy. The classic definition of contract, notably the meeting of the will of the parties concerned as to true, full and free consent, is criticized by von Jhering in so far as the economic motives remain undisclosed in this description. The interests of the parties which seem to coincide at the moment of the formation of the con­tract, may afterwards turn out to be incompatible. In von Jhering’s time the hard-and-fast rule ‘pacta servanda sunt or ‘lawfully made contracts do bind the parties’ held without exception. Therefore he stressed the importance of the economic purpose of the parties and the necessity of harmonizing their mutual interests.

In modern law we could say that von Jhering had already defended the priority of substance over form, and in this respect he was ahead of his time.

The most striking application of the ideas of von Jhering as to the nature of an agreement is to be found in the doctrine of the disappearance of the foundation of a contract which in German civil law is called the doctrine ‘des Wegfalls der Geschaftsgrundlage'. For further reading about this subject, see ‘Principles of equity in German civil law' (Diederichsen and Gursky, 1973). This doctrine applies to the economic background of bilateral contracts and has developed equitable remedies in the case of lack of consideration.

The halting of individual arbitrariness in business and economic inter­course is one of the most striking results of the state of law. Although our penal codes are not always successful in the struggle for the prevention of crime, there can be no doubt that, without the possibility of prosecuting and sentencing crime, public safety would decrease and the conditions for free negotiations and free bargaining would soon fail to exist. But of no less importance is the possibility of enforcement in civil law. The law of contract in general upholds the agreement and the possibility of suing a party in the case of breach of contract may not only further the motives of both parties for due performance but also serve the economic interests of the community at large.

Economic need will urge man to cooperate with his fellow men but, as von Jhering rightly observes, society cannot survive on benevolence. The basis of every economy, it has to be reiterated, is barter and mutuality while each performance demands a service in return.

The fixing of the price to be paid may result from the bargaining power of the offerer and von Jhering admits that, in this respect, problems may arise because the parties are not always in an equal situation. In von Jhering's time, however, the legal order could not cope with the demands of equity, as it can in ours. The protection of the public, for instance, against economic pressure by means of a new statute law, such as a contract of service act, a rent act or an unfair contract terms act, has only taken definite form in the twentieth century.

No doubt there remain cases in international trade where the weaker party has no recourse but to accept the conditions put by the stronger offerer, but this does not mean that human need could not be met in a satisfying way by free marketing, given the legal possibilities in cases of unacceptable results. In von Jhering’s time, as we have seen, legal corrections in this respect were not at all adequate and therefore, resulting from different social movements and trade unionism, the civil law system in most West European countries has been brought up to date in the course of a half-century. On the other hand, in socialist countries, where the system of free marketing was replaced by centralistic political leadership, the protection of the individual became even less adequate than it was in von Jhering’s time. The breakdown of the com­munist system has made it clear for all to see that, without the motive of economic self-interest, the production of goods sufficient to meet the needs of citizens falls short.

Imputation on the single ground of benevolence fails to do justice to relevant differences between people and will not promote activity. As von Jhering put it, in the long run, justice will be realized better by retaliation in which the principle of reward and punishment is upheld. Therefore, since in modern Western law the drawbacks of ultimate freedom of enterprise and market have been mitigated by adequate statute law, and the protection of the weak and the poor has taken a definite form in a social charter, von Jhering’s ideas still hold firm.

While profit can be regarded as a reward of free enterprise, the duty of care towards one’s fellow men has been gradually developed in a complicated system of legal rules and judge-made law. Contracts inconsistent with public order or morals are in principle null and void. In case of duress, undue influence, error or fraud, contracts are in general voidable and damages may be granted to the injured party. In the unfair contract term acts, which exist in various countries, there are several legal possibilities or remedies for freeing a victim from the burden and consequences of unfair terms imposed upon him. Finally, there are many legal provisions that seek to protect citizens against the dangers of monopolistic economic power by prescribing free competition and forbidding price fixing.

As we have already seen, von Jhering was fully aware that prices in business do not always correspond to the value of the performance, but value was regarded by him as a strict economic category and for this reason he considered free competition to be the best remedy to secure performances that are worth the money. In theory, weighing up their interests, people should be able to refrain from dealing with monopolistic offerers, but in practice most people will not weigh present against future wants, with the result that they prefer instant satisfaction.

On the other hand, if abuse of economic power should enable a man to gain a very large profit, moral considerations might fail to stop him. Therefore, as von Jhering rightly put it, the only way to prevent this egoistic threat is recourse to the law. In classic Roman law, an equitable remedy called ‘laesio enormis^, had already been introduced. According to this, a sale which turned out to be very disadvantageous for one of the parties because the price of an object was more than twice its value could be rescinded unless the seller consented to adjust the price.

A later development is the so-called ‘iustum pretium doctrine’, whereby there should be no disproportion between price and value. However, this doctrine has not been enacted in most civil law systems. On the one hand, it is incompatible with party autonomy and freedom of contract, while, on the other, several legal remedies have been introduced by which, in the event of error, fraud, duress or abuse of power, the injured party may rescind a con­tract. Apart from this, modern civil law has introduced the possibility of adjusting the terms of a contract if there is a significant change in circum­stances that could not have been foreseen when the contract was drawn up.

Summing up, in bilateral contracts there has to be some payment, but it need not be for the full amount. In case of frustration, the courts have a discretionary power to order compensation or to adjust the costs or benefits in cases of total or partial loss of payment. This is what von Jhering thought to be a demand of justice, without which society cannot survive. In his eyes, survival was a value that surpasses individual interest.

Another elaboration of von Jhering’s principle of reward and punishment is the way he deals with the idea of requital or retaliation. In his eyes, this concept has been used mainly to indicate punishment or revenge. Claims for reward on account of special achievements barely exist, at least in the West­ern world. The orders of chivalry to which distinguished persons are admitted by way of honour or reward have to be regarded as a favour, not as the honouring of a right. Of course, social esteem might be seen as a form of moral reward, but the legal order does not recognize it, with one important exception. Harm to one’s reputation may give rise to a claim for damages. However, nowadays reward for special achievements in business may be found in profit sharing and high salaries. In so far, von Jhering’s principle of reward has found considerable recognition.

Much attention is paid to the importance of constraint in the way von Jhering deals with the bilateral juristic act, which is interpreted by him against the background of barter. Every agreement in which performance and service in return do not coincide in time may make enforcement necessary in the case where one of the parties fails to perform duly or on time. If one of the parties to a contract breaks the obligation imposed upon him by their mutual agreement, a new obligation will arise of right. The justification for enforcement by constraint is to be found in the character of a corresponding offer and acceptance. Von Jhering regarded a mutual promise in dealing as a motor for economic development and this the more so because by means of bilateral agreement people may draw on their future economic capacities to create new possibilities for the present which might lead to an enormous extension of economic growth.

As we have seen, the words of the offerer with regard to future perform­ance replace immediate settlement, and the expectation of future due performance is secured by the possibility of legal enforcement in the case of breach of contract. Von Jhering points out that legal scholars in the past had great difficulty in explaining and justifying the binding character of mutual agreements. His explanation is that, in former times, the subjective nature of the agreement was overstressed in so far as there was a demand for agree­ment in every aspect. In this view, the possibilities for failing to uphold an obligation would be almost endless and therefore, as Anson in his Law of Contract (Anson, 1982) clearly pointed out, the difficulties inherent in con­tracts in mere subjective terms have led to the formulation of an objective theory of contract which places more emphasis upon the legal expectations that have been aroused by the conduct of the parties and less on true consen­sus in every case.

In this respect, von Jhering taught that the purpose of the deal as such is more important than the individual will. If the will should prevail, one could hardly accept that it sought to bind itself for the future with no possibility of withdrawal. In addition, there is usually some kind of ambiguity between two persons during the formation of the contract because their interests will not always coincide. Therefore the core of civil law has to be found in a set of rules that can be interpreted in accordance with objective criteria.

Common survival has to be guaranteed without sacrificing the individual. The choice of the legislator has to be determined by the principle of the best orientation and this means that the law of contract has to promote barter in the most satisfactory way for all. This point can also be illustrated by von Jhering’s conception of property. He opposes the classical doctrine of prop­erty as the right to use or misuse a thing at will to the total exclusion of others. Von Jhering defended the view that individual property should not frustrate the legitimate interests of society. As to taxation, a system is pro­posed wherein tax is related to income, but von Jhering seems not to agree with taxation as a political means for the redistribution of wealth.

Looking back on the doctrine elaborated so far, it must be admitted that important incentives such as reward and punishment or constraint are not the only factors by which human behaviour will be affected. There are circum­stances in which reward or punishment do not work. In cases of unlimited resources, there would be no need to earn a living or to cooperate with other people. And someone who has the opportunity to enrich himself unjustly at the expense of someone else without the law interfering needs a different incentive to act fairly. This incentive is called morality.

But, at this point, the joint action of economics and the law seems to be powerless - with one exception, the survival of the next generation. Caring for the next generation might further the application of what John Rawls has called ‘the just savings principle’ (Rawls, 1973, pp. 284-93), in which moral views and economic self-interest are combined. One day, the working gen­eration of the present will become dependent on the next generation and, given the growing life expectancy, the importance of care for each new generation is clear.

This aspect of a moral code can already be found in von Jhering’s work. Nowadays von Jhering’s thinking about the relation between economics and the law might at first sight seem self-evident. But the roots of more recent thinking about the connection between a prosperous economic development and reasonable legal standards of conduct are already to be found in the writings of Rudolf von Jhering, and more particularly in his principle that law has to be a means to an end.

Summary

Comparing von Jhering’s study with Jeremy Bentham’s An Introduction to the Principles of Morals and Legislation (1780), it might seem that von Jhering did nothing more than use Bentham’s ‘sovereign motives, pain and pleasure’ to found his theory, but this impression would be wrong. Although utilitarian, von Jhering has proved his mastership by reconciling the goals of maximizing wealth and at the same time protecting human autonomy by means of legal institutions and safeguarding the interests of society and future generations.

References

Diederichsen, Uwe and Karl Heinz Gursky (1973), ‘Principles of equity in German civil law’, in R.A. Newman (ed.), Equity in the World’s Legal Systems, Brussels: Etablissements Emile Bruylant.

Guest, A.G. (1982), in Anson’s Law of Contracts, 25th edn, Oxford: Clarendon, pp. 3-6.

Hart, H.S.A. (1961), The Concept of 'Law, Oxford: Oxford University Press.

Posner, Richard A. (1983), The Economics of Justice, Cambridge, MA: Harvard University Press.

Rawls, John (1973), A Theory of Justice, Oxford: Oxford University Press.

Von Jhering, Rudolf (1877), Der Zweck im Recht [Law as a Means to an End], vol 1.

Von Jhering, Rudolf (1924), Geist des romischen Rechtes.

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