Dear Mr. Kinsella:
I’m a huge fan of your work and if it’s not too much trouble, I wanted to ask your input regarding the practice of airline overbooking and how this may relate to theft from a libertarian perspective. I recently watched libertarians on Twitter/X arguing about this issue so I wanted to get your take.
When you buy an airline ticket, and on the day of the flight the flight is overbooked, and you’re not allowed to board the plane ,and you don’t get your seat, is the airline commiting theft?
The argument is that when you buy an airplane ticket you’re buying a future good (a future plane seat) and so on the day of the flight you gain title to an airplane seat, and if the airline doesn’t give you the seat they’re stealing from you.
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My response:
You are not buying a future good IMO. Even if you were, it would not be theft since if the flight is overbooked there is no seat left to give you so nothing to be stolen. But it’s not even a future good since the airline doesn’t promise you at all to be able to fly you or that they will board you. They maintain discretion I am sure. This is complicated by the existence of federal regulations, but let’s ignore those for a second.
The way I would look at it is this. When the customer “buys” a ticket, he is giving title to his money to the airline, in exchange for the chance or hope that the airline will be able to fly him somewhere at the appointed time. That’s all. The airline, in return, conditionally transfers to the customer a future good: some money–basically a “refund” that will be transferred if the airline is unable to fly the passenger.
In principle the amount to be “refunded” could be a different amount than the price paid for the “ticket”–it could be lower, the same, or higher. I would think the default would normally be a “refund” of the price paid. In some cases where it’s very important that make the flight–well you still can’t guarantee it, but you can incentive the airline to do all in their power by negotiating a penalty clause, sometimes called a “performance bond.” so for example instead of paying $1000 for a ticket and having the right to a $1000 refund in case they are unable to fly me, I pay $2000 for the ticket and the airline agrees to pay me back $10,000 in liquidated damages if it is unable to fly me. (I pay more for the ticket than before, since the airline is taking on more risk.)
In any case there is no future good being transferred, other than the conditional future repayment (refund). Instead you are “purchasing” as service, but a service contract is a one-way title transfer not a two-way one. For example if I pay you money for a service, like for you to sing at my party, to paint my house, or to give me a massage, the service provider is not transferring title to you to anything he owns. After you get a massage it’s not like you now “own” some massage he gave you. Rather, you paid money to him, conditional upon his perform a certain action that you wanted performed. If he doesn’t perform the action, then the title to your money does not get transferred. If you paid him ahead of time, then he owes you a refund or some kind of penalty, depending on the performance bond you agreed to.
I discuss many of these issues in ch. 9 of LFFS, https://www.stephankinsella.com/lffs/ , on contract theory, but also in ch. 11, ““Selling Does Not Imply Ownership, and Vice-Versa: A Dissection”.
I also elaborate in further detail on some of these issues in an upcoming chapter, “The Title-Transfer Theory of Contract,” in David Howden, ed., Palgrave Handbook of Misesian Austrian Economics (Palgrave, forthcoming 2025). This is not yet complete but I attach the current draft. Please do not circulate this since I am still revising it.
BTW this issue comes up with fractional-reserve banking where defenders of FRFB claim that failure to repay a customer’s IOU on demand, if the bank is insolvent, is not theft either. I think they are right–on this issue, not on the economics of FRFB. See my post The Great Fractional Reserve/Freebanking Debate.
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Followup question:
Thank you so much.One clarifying question if that’s alright, you said “it would not be theft since if the flight is overbooked there is no seat left to give you.“ Assuming that I am buying a future good, Isn’t it the case that the seat still exists? It’s just that there’s other people with possible claims to it like you.
My response:
Right. The analogy is not perfect. Usually the question arises when A transfers title to a future good to B, and then at the future money, A doesn’t have the good. Thus, there is nothing for A to “steal” from B. So there is no theft. But in this case, we are literally talking about the future transfer of a future, ownable good, a thing. In the case of a “service”, like “if you pay me $1000 then I will endeavor to fly you on my plane,” then in this case the airline has not actually transferred any future good at all to the customer, other than a refund or performance bond payment.
So I guess I should not say that the failure to fly you is not theft since there is no right left to give you; I was simply making an analogy. If the only reason the airline cannot fly you is that there are not enough seats and it has overbooked, then sure, in principle it could fly you, but then it would have to bump someone else. Which is precisely why their contract is sure to contain many clauses emphasizing that if they overbook, then they are not liable (except for a refund) and they have discretion in selecting which customers to allow to fly.
In any case I do not believe that the “purchase” of a service is a two-way title transfer, as I point out in ch. 11, as noted previously, so the airline is not committing theft at all when it fails to fly you, since no one “owns” the “flight” or action of flying. Again, services are not owned; they are things the service provider does, to trigger the (one-way) payment of money to them. If the airline does not perform the service, then this triggers a title transfer from the airline back to the passenger–a refund or something like this.
Stephan: In your chapter, do you discuss Krell v. Hennry, the case about renting a viewing spot for the coronation parade for King Edward VII (which then was postponed or cancelled)? If if it no trouble, I, too, would like to see the draft. I am working on a real estate matter in which your reasoning might be of help.
I do not but would be interested in the legal issues regarding that case. I’ll email you the draft chapter.
BTW I found the case you mention: https://en.wikipedia.org/wiki/Krell_v_Henry . I don’t think the general approach to contract law that Rothbard, Evers and I advocate is aimed at forecasting how particular cases would be decided, or even at re-examining every past precedent or contract law doctrine as it emerged over the centuries. Rather it’s to set the institution of contracting on a sounder theoretical footing rooted in property rights. No doubt many existing contract law doctrines or precedents would be incompatible with how the TTTC would approach disputes and the development of doctrine, but it is of course premature to true to predict this, as it would be pointless and premature to have some libertarian scholars try to “correct” or “rewrite” the entirety of the common law or of the civil law/civil codes.