What Is a Gentlemen’s Agreement?
A gentlemen’s agreement is an informal, often unwritten agreement or transaction upheld by the integrity of the involved parties. Such agreements are generally made orally and lack legal binding. Despite its casual nature, any breach of this agreement can damage business relationships significantly, affecting trust and future collaborations.
Key Takeaways
- Gentlemen’s agreements are informal, unwritten pacts between parties for transactions or commitments.
- Such agreements hinge on integrity, social norms, and the peer pressure within social networks.
- These pacts have been prevalent in business and trade throughout history.
Understanding Gentlemen’s Agreements
A gentlemen’s agreement relies on the honor and etiquette of the parties involved, eschewing legal problems for fulfillment of spoken or unspoken promises. Breaches do not have court-administered redress but can cause immense social and reputational damage, deterring future dealings.
The Inner Workings of Gentlemen’s Agreements
These agreements have been historically significant in international trade, industry dealings, and personal business practices. Such pacts became particularly common during the early industrial age and the initial half of the 20th century. They played a role in setting industry prices and maintaining competition strategies in sectors like steel, iron, and tobacco, often sealed with a socially accepted gesture like a handshake.
Limitations of Gentlemen’s Agreements
Unfortunately, such informal agreements can be used for anti-competitive practices, such as price-fixing or trade quotas, bypassing regulations due to their non-written nature. These actions could lead to higher costs and inferior products for consumers or even discriminatory practices within social networks. Due to their informal essence, regulating and enforcing these agreements prove challenging. It’s notable that the U.S. government outlawed such pacts in trade and commercial relations from 1890.
A Historical Market Perspective on Gentlemen’s Agreements
From the 1800s to the early 1900s, U.S. industry and government entities frequently engaged in gentlemen’s agreements. These led to concerns about monopolistic practices and collusion, prompting the 1903 creation of the Bureau of Corporations, and subsequently the Federal Trade Commission (FTC). Notably, financier J.P. Morgan orchestrated gentlemen’s agreements protected by regulatory bodies, bypassing crucial antitrust acts, as evidenced in the inception of United States Steel Corp.
Example: U.S. and Japan’s Gentlemen’s Agreement of 1907
An iconic instance of a gentlemen’s agreement occurred in 1907 between the United States and Japan. It focused on regulating Japanese immigration and addressing discriminatory practices against Japanese immigrants in the U.S. Without congressional ratification, Japan restrained its citizens’ immigration for work, while the U.S. countered by eliminating segregation against Japanese residents.
The Purpose of Gentlemen’s Agreements
Such agreements serve to finalize deals without leave from regulatory bodies or judicial enforcers. This cuts transaction costs and provides flexible deal reconciliations.
Exploring Synonyms for the Gentlemen’s Agreement
Other terms for a gentlemen’s agreement include informal agreement, unspoken agreement, handshake agreement, verbal agreement, and tacit agreement.
Legal Standing of Gentlemen’s Agreements
While many facets of gentlemen’s agreements may be enforceable under an oral contract doctrine, certain agreements are mandatory by law to be in writing, such as real estate transactions.
Related Terms: oral contract, informal agreement, handshake agreement, trust-based agreement, pactum
References
- Becker, William H. American Manufacturers and Foreign Markets, 1870–1900: Business Historians and the New Economic Determinists. Business History Review Vol. 47, No. 4. 1973. Pp. 466-481.
- History Channel. “Gentlemen’s Agreement”.
- FTC. “Our History”.
- Ohio State University eHistory. “Gentlemen’s Agreements”.
- St. Louis Fed. “The Panic of 1907: J.P. Morgan and the Money Trust”.
