Furthermore, customers get scared off by contracts that they don't understand, because they could be held to some obnoxious clause that's hidden in there. Enforcing contracts is inefficient, and we should stop doing it.
Is there more to ESR's argument than that?
On the other hand, if your primary concern is starting a project with no intention to sell it, I would go with the GPL to prevent a company from shanking your idea. But as an open source company, BSD is the way to go if you are selling to business.
As I understand, the idea is that market and open source are friendly forces and actually support each other in the long run. The GPL may prevent open-source software from being market-friendly.
I'd certainly be in support of not enforcing contracts that can't be broken down into simple statements that a 10 year old couldn't understand. It'd prevent a lot of the problems you see rolling around about now regarding investments people "didn't understand" and the like.
It's real easy to see how a negative hit to someone like Bernie Madoff ruins his career, but he's a high profile individual that many people know on sight.
If I started ripping people off, there's nothing to say I couldn't easily mitigate any negative PR by changing names (or on the internet, just changing handles). In more local endeavors, I could make a mint, ruin my name, and just move to another state (or if pressed, another country.)
Contract law still bears an important role in accountability, IMHO.
Yeah, about $65 billion too late.
It's not even a question about reputation scaling -- which (as you say) it does not do, which it hasn't ever done, since even in 10,000 BC you could travel to a place beyond the range of your reputation. (Maybe the Internet will change that. The jury is still out on whether it can, as well as on whether the negative consequences of that are too great and we'll have to take steps to ensure that the Internet can't destroy your reputation worldwide. Reputation isn't all smiles and balloons. You can destroy innocent lives with reputation. Happens all the time.)
Reputation just doesn't work in all sorts of situations. Madoff is a prime example, but anyone who uses Twitter, reads The Four Hour Workweek or spends twenty minutes watching TV commercials can find thousands of additional examples. Reputation is easily faked. It is easily bought. It is too readily extrapolated from one narrow field of endeavor to another. It is biased toward members of your family, and toward people who resemble members of your family. It relies on past results to predict future results, and thereby mispredicts events that occur on a longer time scale than the acquisition of a reputation. It works by implicitly assuming its own effectiveness and breaks down in edge cases. ("Why would Mr. Jones feed me Kool-Aid laced with poison? Just think what that would do to his reputation!")
Most importantly, reputation is just a predictive tool. When it fails, it leaves you with no recourse: That is not its job. I can use my accountant's reputation to predict whether he will steal my money. But if he does steal my money, reputation is now useless as a tool for getting my money back. That's what a contract is for. The primary purpose of a contract isn't promoting trust; it promotes trust because its primary purpose is to give me recourse after trust breaks down. I can try to take my money back from my account -- and if that doesn't work I can attempt to take it out of his insurance company, his auditors, or even people he has previously paid (look up clawback in the dictionary -- my accountant just explained it to me).
That said, I am all for court enforcement of contracts. In fact, I wish that the courts would respect, if not enforce, far more contracts than they do.
Erm... Microsoft?