Mises blog, archived comments below.
Left-Libertarians on Corporations “Expropriating the Efforts of Stakeholders”
Over at Mutualist Blog, Kevin Carson replies to, inter alia, Peter Klein’s response to Roderick Long. I replied at length in the comments, but let me just note here a few of the comments, expressions, and assumptions that caught my eye as being problematic from a libertarian and Austrian point of view. First there is the repeated complaining about “vagueness of ownership rights in the corporation,” and “the ambiguous division of control between management and shareholders.” There is a “pretense that management represents shareholders or that the latter are the owners in any real sense“. “Corporate management, in fact, is a self-perpetuating oligarchy in control of a free-floating mass of unowned capital.” “It uses its purported representation of shareholders as a legitimizing ideology to insulate it from accountability to internal stakeholders.“ “More generally, hierarchy and the separation of labor from residual claimancy are inherently prone to incentive and agency problems.” And finally, corporations “expropriate” the “efforts” of “internal stakeholders” “because of the vaguely defined property rights in the organization. … much of the value created by internal stakeholders is expropriated by management.”
Carson also relies on “Rothbard’s threshold of calculational chaos“–to argue that “the predominant oligopoly firms in the existing manufacturing sector” must be artificially large since they “are already demonstrably above” this threshold.
(He goes on: “Rothbard argued, specifically, that rational calculation becomes impossible whenever no external market exists for an intermediate good. Since, in fact, the majority of intermediate goods used by the typical manufacturing corporation are firm-specific, their transfer prices must be assigned internally rather than based on outside markets.”)
One hardly knows where to begin in responding to such reasoning. But as I noted in my response–libertarianism does not require any “pretense” that “management represents shareholders or that the latter are the owners in any real sense.” It only requires respect for property rights and not interfering in capitalist acts between consenting adults. That is, if you can somehow show that “management” does not “represent” shareholders, or that they are not “the owners” in “any real sense”–so what? Whose rights are being violated? If you don’t like the way a firm is organized, don’t work there; don’t invest in it.
Beyond that: in a libertarian society we need only identify who has the right to control a given resource; and who is responsible for the commission of various torts or crimes. If a collection of people (shareholders, directors, managers, creditors) whatever all agree to some complicated internal set of rules that specify their right to control a set of private assets, then *their* rights are not violated (they all agreed to it), and outsiders have no business complaining, any more than they would have a right to complain about the “messiness” of ownership claims within a neighborhood that has an ambiguously drawn set of restrictive covenants. For example if I buy a share of Wal-Mart stock I am in some sense an owner, but only in specified ways–I don’t have the right to use the Wal-Mart HQ for a picnic etc. I have agreed to a contractual set of rules that divide control–day-to-day control is given to managers; and a set of procedures determines how changes to the rules or to the decision-makers is made. From the perspective of an outsider, Wal-mart property is owned by a set of people (shareholders plus directors plus managers).
In response to Carson’s claim that corporate property is “a free-floating mass of unowned capital”–hogwash. Walmart’s inventory and factories and stores are not unowned by any stretch of the imagination. Just because some anti-market or anti-capitalist types don’t like the messiness and complexity of the internal rules governing rights of control (ownership) of these assets is utterly irrelevant. You don’t have to work for them, or invest in them. This “unowned” comments has a whiff of Georgism about it.
As for yammering about “stakeholders” — this leftist concept is routinely used by governments to justify infringing property rights. Again: in libertarianism, the corporation does not need to justify anything–so it does not need to pretend it “represents” anyone. If a group of people agree to pool their money and become shareholders, this just means they have agreed to collectively purchase some things with their money, and to have specified rights of control and rights to gain or dividends, that is their business. The consent of the parties is all that is needed to justify it.
As for “stakeholders,” it depends on who this means. For people that are employed by, or contract with, or invest in, or sell to or buy from the company–their rights are defined by contract already. The only other people left would be those who have torts committed against them by employees of the company. A libertarian theory of causation (as I noted here) is what is needed here, to determine who should be vicariously responsible for the actions committed by employees–should anyone else be? Should the corporation as a whole? The managers? Executives? Directors? Shareholders? Creditor? Vendors? Customers? Consultants? Contractors? “Stakeholders”? Whoever it should be, they should of course not be exempted from liability. But most people, including bad-lefties and libertarian lefties (and most libertarians in general) seem to simply assume that vicarious liability and respondeat superior are valid, and that absent state law, shareholders ought to be liable for torts committed by employees. But to my knowledge no one has shown that they should be. This has has to be established before one can bluster in outrage at the failure of the state to hold shareholders personally liable for such torts.
As for the comments about management “expropriating” the “efforts” of “stakeholders”–here we have what appears to me to be Marxian reasoning: the “expropriation of efforts”? What? I’d like to see exactly whose “labor” is being “stolen”? An employee? Hey, he isn’t compelled to work for them. The comments indicate that the value of the stakeholders’ effort is stolen from them–but you can’t “expropriate” value. People do now own value. There is no property right in value. Workers do not have any ownership claim to a company they have worked for–they have a claim to whatever they have contractually agreed to, that’s all.
As for the complaints about the separation of labor from “residual claimancy.” Libertarianism does not require labor to not be “separated” from XYZ; it does not base property rights on whether there are or are not “incentive” or “agency” “problems”. If incentive or agency problems that arise when using a given firm structure, presumably people over time will invest in or employ more efficient structures. If they don’t–hey, it’s their money.
Comments (123)
- JoeMama
- PWNED
- DixieFlatline
- Nice work Stephan. We’ve been discussing mutualism in the forums.Personally tired of the anti-capitalists who think they are owed more than their wage for their labour, and that someone else accumulating capital somehow entitles them to that capital.
- Matthew Dawson
- Not so much. He confuses the moral and economic arguments against corporations, and he misses the point about “expropriation” (granted, I probably wouldn’t use that word, given the connotations). What Carson is trying to say is that, in a free market, workers would be able to recieve the full product of their labor as wages; however, the cartelization and oligopoly effects that the state enforces keeps the cost of labor artifically low. I’m not sure I fully agree with him here, but that’s what he means. It’s not “Marxist” by any means.
- Mike
- This isn’t really on topic, but you were a little unfairly dismissive of the workers’ occupation in Chicago. My understanding was they were demanding contractually guaranteed severance pay. It’s not quite the syndicalist “take over of the means of production” you made it out to be. Our reading of the situation should depend on the details of the contract in dispute. If they were indeed guaranteed pay that they are not receiving (which is allegedly $1.5 million), then they are merely expropriating that which is owed to them. If not, then they are trespassing. But I really don’t think any outside observer is in a position to know without thoroughly analyzing the contract in question.
- Rich
- >> Personally tired of the
>> anti-capitalists who think
>> they are owed more than their
>> wage for their labour, and that
>> someone else accumulating capital
>> somehow entitles them to that
>> capital.You didn’t read the article, did you? Just some comments on it? Agency issues are a very real problem in corporations.A single propriator has interests which are identical to his business. Effectively, he *is* is business. He enjoys it’s profit, and he suffers it’s loss. If he is the decision maker, all the incentives of the market conspire to drive him “as if by an invisible hand” to an efficient solution.
In a modern corporation, however, that is not the case. The “owners” generally delegate the management of the company to managers, who will (like any employee) pursue their own interests, which may or may not include a reasonable effort toward turning a profit they will not enjoy.
Of course that’s not important from a political point of view, since if they (for example) pay themselves excessive salaries, the wasted money belongs to the shareholders, and they authorized the manager to act on their behalf. But none the less, as economists, one must acknowledge that unless the managers of a corporation own 100% of the stock, the interests of the shareholders and the interests of the managers are not identical, and that there are economic implications to that fact.
If an anarchist society (including an anarcho captialist society), of course, corporations would not exist. Corporations exist independently of their owners only because governments say they do. Without a government to perpetuate the legal fiction of “corporate personhood”, one is left with a large and stylized partnership which allows partners to “sell out” and new partners to “buy in” on a stock exchange.
- Stephan Kinsella
- Dawson,It could be he has some idiosyncratic use of the term. But if this is his argument it is still flawed: for we are all, producers and consumers, employers and employees, made worse off by the state’s predations, as a general rule. You could argue the workers “expropriate” their employers due to various federal laws; and so on. So if this is a fancy way of saying “governments cause damage”, uh, yeah, we know that.
- Dan Mahoney
- “What Carson is trying to say is that, in a free market, workers would be able to recieve the full product of their labor as wages;”Why should workers “receive the full product of their labor” when part of that product depends on capital provided by the capitalist? If these claims about the “full product” of ones labor are supposed to be obvious, I have to say I’m not seeing it.
- DixieFlatline
- Rich, in an anarchist society, anything (including a corporation) can exist if it is voluntary.It’s a myth that people will not pool their capital, and create organizational structures and forms to handle management, compensation, and liability.
As long as it is voluntary, people can contract to organize any way they wish. Or do you deny this?
- Jerusel
- Dixieflatline,I think you misunderstand Rich’s argument. He did not say that people could not pool their resources or contract how they pleased, but that the presence of government intervention in those associations creates artificial personhood when the owners are not legally accountable.
It seems you two agree on voluntary association. If you want to disagree with him, it should be about the legal differences between a corporation and partnership. Do you believe that corporate personhood is compatible with anarchism?
- whittaker
- “As long as it is voluntary, people can contract to organize any way they wish. Or do you deny this?”Dixie, no one is stopping people from organizing. But why do those people need state-mandated exemptions from liability? Why do they need thousands of pages of corporate law to create artificial notions of personhood and corporate veils?
Why can’t those people be responsible for the direct and indirect effects of their actions, the same way any independent business owner would be?
The presence of corporate law gives shareholders an incentive to act immorally, by treating their investment as a numbers game, in essence gambling on a return without any personal involvement in the enterprise. Corporate law also allows those in control of an organization to hide their personal interests behind the fiction of serving an abstract entity.
When corporate personhood is combined with the “unlimited police power” of the legislature (another ill-advised element of our legal system) the result is lobbying, special favors for corporations, and further entrenchment of the corporation an arm of the state. The final result is market failure (since corporate managers are chosen for political skill rather than productive capacity) followed by management holding employees, customers, and shareholders hostage in their demands for bailouts.
We need a complete repeal of corporation laws and a constitutional amendment preventing their re-enactment.
- DixieFlatline
- Jerusel, what the state does, can be done contractually and voluntarily in the private market (the basis of Anarcho-Capitalism). Now whether you choose to deal with such a firm is up to you. In fact, most people can choose in this society whether or not they will be patrons of corporations. Most do.@ whittaker
There is a demand for limited liability investment structures. In a free market, if you don’t like dealing with a firm that limits it’s liability to you, then you won’t engage with them. That’s your right. But in a free market, investors can structure themselves anyway they want, as long as they come to it voluntarily.
Now whether what they come up with is feasible, or desirable in the market, will be determined by competition. They will still have to compete.
I find the entire frustration with corporations very amusing, and totally irrational. It’s definitely one topic where a great many libertarians, primarily self-described left-libertarians, turn off their brains and become dogmatic.
- evan
- I can’t understand why people have difficulty understanding that limited liability can always exist. Do they not realize that THEY acknowledge the limited liability of corporations everyday? This would be no different without the presence of the state.
- Jerusen
- DixieFlatline,I am sorry…I’m afraid I don’t understand your point of view. Or maybe you are just dodging the question asked of you. Do you think it is ok to legislate limited liability for corporate owners? It is either yes or no. The main issues here have been government involvement and nothing else. Nobody is denying that limited liability cannot contractually exist.
As a consumer, I am not required to sign a contract when I enter a Wal-Mart removing liability from damages, but that still exists through state legislation.
If limited liability should ever exist, in the form contractual acceptance between associating parties would be an acceptable method, but dictating it through force of law seems less than Libertarian.
Can I get one of these handy dandy government guarantees for limited liability for my person? I would love to limit my liability through force of government for injuries caused from driving on the highway…with a monster truck…and flaming tires. That would be cool.
But anyway, if you are set on replying again, there is no need to insult intelligence.
- Brent
- For some, it comes down to hating an organizational design because there are currently privileges granted by the state to organizations that employ that design. For others, it comes down to hating the well-to-do who run some of these organizations. Either way, any discussion about the inherent evil of corporations is bound to be less than fruitful.
- Stephan Kinsella
- Rich: “Of course that’s not important from a political point of view, since if they (for example) pay themselves excessive salaries, the wasted money belongs to the shareholders, and they authorized the manager to act on their behalf. But none the less, as economists, one must acknowledge that unless the managers of a corporation own 100% of the stock, the interests of the shareholders and the interests of the managers are not identical, and that there are economic implications to that fact.”You do realize that as soon as there are at least 2 people involved in a firm–eg., a 2-person partnership–each partner has incentives to waste that do not exist in a sole proprietorship. If I own my own shop, then every dollar I spend on a business meal comes off my bottom line. But if I’m 1 of 5 partners, then I might as well order the best steak on a business meal, since I get all the benefit but only 1/5 the cost.
- TokyoTom
- Stephan, while I agree with most of your post, your attempt to shift the burden of argument on the issue of limited liability strikes me as a bit disingenuous:most people … seem to simply assume that … absent state law, shareholders ought to be liable for torts committed by employees. This has has to be established before one can bluster in outrage at the failure of the state to hold shareholders personally liable for such torts.
As I’ve noted elsewhere, http://mises.org/Community/blogs/tokyotom/archive/2008/11/26/corporations-amp-the-state-some-criticisms-of-huebert-and-block-s-criticisms-of-long.aspx, one of the chief purposes and effects of the corporate form is that through it, the state allows owners to sidestep any personal liability for the wrongful acts that their corporation commits, with the result that liability for such wrongful acts is limited to the assets of the corporation. Very clearly, limited liability to investors is an act of state, and not something that investors could contract for in advance with the as yet unknown victims of their future torts. As such it seems to me clearly inconsistent with libertarianism.
Do you find it so difficult to establish that such limited liability IS consistent with libertarianism that your best response is to shift the burden of proof, while characterizing those who disagree with you as “blustering with outrage”?
- Dan Mahoney
- Fromhttp://en.wikipedia.org/wiki/Corporation
“The defining feature of a corporation is its legal independence from the people who create it. If a corporation fails, shareholders only stand to lose their investment, and employees will lose their jobs, but neither will be liable for debts that remain owing to the corporation’s creditors. This rule is called limited liability, and it is why the names of corporations in the UK end with “Ltd.” (or some variant like “Inc.” and “plc”).”
Seriously, what is so hard to understand about this? Why do so many libertarians think that limited liability provides a means to commit rights-violations under the cover of some legal fiction?
- Dan Mahoney
- A related question: as with the issue of intellectual property law, why do so many libertarians feel no hesitation to discourse on technical, legal issues they clearly don’t understand?
- ktibuk
- Good job Stephan. Now you need to see how your IP stance contradicts all you have said in this corporation debate. Maybe you can sense your own wiff of Georgism regarding IP, or rather copyrights. Although you are very much invested in your position, there might still be hope for you.And Dan Mahoney,
“Seriously, what is so hard to understand about this? Why do so many libertarians think that limited liability provides a means to commit rights-violations under the cover of some legal fiction?”
Exactly… There is an anti capitalist mentality behind all this.
- magnus
- Corporations existed before corporate statutes. So did marriage. So did commercial contracts.The State co-opted all of these voluntary practices and relationships and brought them under its control, first through a top-down form of court-made law (not true common law, mind you, but a statist facsimile of it), then when the courts weren’t enough, the State turned to statutes.
Corporations were originally designed for limited contractual liability, since they arose at a time when the modern idea of tort law didn’t exist.
Limited tort liability is an entirely different kettle of fish, one for which corporate statutes are totally ill-suited to handle.
- JA
- “Very clearly, limited liability to investors is an act of state, and not something that investors could contract for in advance with the as yet unknown victims of their future torts.”Please, pretty please, with sugar on top…explain to us WHY investors SHOULD be held personally liable for employees or managers?
So if I invest in shares of UPS, or lend them money in the form of bonds, and a delivery man under employ of the company decides to drive unsafe, and runs over some old lady, why am I personally responsible for the driver’s actions? Or if I appoint a board of directors, and the directors rip off a bank, why am I personally responsible for the director’s theft?
If a customer in Wal-Mart — a “stakeholder” by his patronage or association — decides to shoot up the place and murders multiple people, are the owners of Wal-Mart responsible for the crime? The other customers? The lenders? The “workers”?
Why?
- JA
- A gut feeling about “left-libertarianism” –Is it about “selling” socialism using libertarian language? Or about “selling” libertarianism using socialist language?
I realize there probably is tiny “movement” or “intellectual tradition” tracing their roots to Tucker et al. But is it really possible to mix Marx and Mises and Rothbard and Proudhon, given all of these men were operating under entirely different premises?
It all smells a little funky and artificial. Other than Long, most of this is stuck on blogs and self-published e-books. Is this about POLITICKING by a couple cranks, or is there some genuine intellectual creation going on?
- Doctor Whatzit
- Hey there, JA. In what sense can ANY system of thought or set of views developed by human brains NOT be “artificial”? You seem to want to cast connotations about willy-nilly while being as-lazy-as-you-want-to-be about actual denotations.
- Stephan Kinsella
- TokyoTom:
Stephan, while I agree with most of your post, your attempt to shift the burden of argument on the issue of limited liability strikes me as a bit disingenuous:
most people … seem to simply assume that … absent state law, shareholders ought to be liable for torts committed by employees. This has has to be established before one can bluster in outrage at the failure of the state to hold shareholders personally liable for such torts.
As I’ve noted elsewhere, http://mises.org/Community/blogs/tokyotom/archive/2008/11/26/corporations-amp-the-state-some-criticisms-of-huebert-and-block-s-criticisms-of-long.aspx, one of the chief purposes and effects of the corporate form is that through it, the state allows owners to sidestep any personal liability for the wrongful acts that their corporation commits,
It’s only sidestepping if they should have this liability in the first place. Should they?
with the result that liability for such wrongful acts is limited to the assets of the corporation.
This is untrue. Liability on the part of the *person who committed the wrongful act* is unlimited. If an Exxon employee robs your house, you can sue him for all he’s worth.
Very clearly, limited liability to investors is an act of state, and not something that investors could contract for in advance with the as yet unknown victims of their future torts.
The primary thing corporate law does is say that you can’t sue a *shareholder* of a corporation *as if he’s vicariously liable* for the full amount of damages for torts committed by employees of the corporation he owns shares in. It does not prevent suits against the tortfeasor himself, whether that person is an employee, shareholder, manager, director. It does not prevent suits against managers, or the corporation itself, as being vicariously liable for the acts of the employee (though I am not sure you could easily make out the case that all managers are liable). Now, if you want to object to the inability to sue shareholders for vicarious liability for the torts of another, you need to show that the victim *should* be able to sue the shareholders. Should he? If so, why? What exactly is your theory of causation and responsibility?
Do you find it so difficult to establish that such limited liability IS consistent with libertarianism that your best response is to shift the burden of proof, while characterizing those who disagree with you as “blustering with outrage”?
I’m referring in general to all the rants over the years by mostly legally ignorant libertarians about corporate limited liability.
Dan Mahoney:
Seriously, what is so hard to understand about this? Why do so many libertarians think that limited liability provides a means to commit rights-violations under the cover of some legal fiction?
I do not know. I think many libertarians are armchair capitalists–in favor of it in principle, but no direct experience with how it really works. So they are clueless about corporate law and when they hear “limited liability” they play lawyer and make some amateur assumptions about what it means. I see similar things all the time with IP law–pro-IP libertarians will confuse trademark, copyright, patent, trade secret, they will get the rules confused–they defend the system even though they don’t understand what its rules are or how it works. It’s bizarre. [Ah, I see you noted this in your followup comment below.]
kitbuk:
Good job Stephan. Now you need to see how your IP stance contradicts all you have said in this corporation debate. Maybe you can sense your own wiff of Georgism regarding IP, or rather copyrights. Although you are very much invested in your position, there might still be hope for you.
I don’t know what you mean. Are you saying that something similar to IP rights can be created by contract in the free market, and that state IP rights merely simulate this? The problem wtih this is that contracts cannot ensnare third parties, which IP rights do. If IP rights were limited to parties in privity your argument would carry more water.
JA:
“Very clearly, limited liability to investors is an act of state, and not something that investors could contract for in advance with the as yet unknown victims of their future torts.”
Please, pretty please, with sugar on top…explain to us WHY investors SHOULD be held personally liable for employees or managers?
Excellent question, JA. One to which the leftoid libertarian anti-corporate types have no answer, since they have no well-thought out theory of libertarian causation and responsibiltiy (and they often have a paltry understanding of what corporate limited liability provisions in the first place). They simply hand-wave and want to rely on positive law principles such as respondeat superior and vicarious liability, without a careful explanation of why shareholders should be liable. They rely overmuch on the state’s classifications such as “owner” and “shareholder” and “employee”.
- DixieFlatline
- Jerusen,If you read my responses, I made it clear that I am for voluntarism. I *assume* that everyone here agrees that the state should not legislate most things, if not everything. I’m not sure if that is what you were doing, but it is a typical anti-capitalist strawman to claim the vulgar libertarians are pro-state action.
So no, the main issue here has nothing to do with government. Perhaps you are early to this blog entry, but late to the larger discussion between Klein/Long.
As a consumer, I am not required to sign a contract when I enter a Wal-Mart removing liability from damages, but that still exists through state legislation.
I agree with that.
If limited liability should ever exist, in the form contractual acceptance between associating parties would be an acceptable method, but dictating it through force of law seems less than Libertarian.
It’s defined by law, it’s not dictated by law. You’re quite aware when you enter WalMart that they are a limited liability corporation. And I think most people, have a fairly decent understanding of what that means.
You are under absolutely no obligation to shop at WalMart, so do not. Very simple. If you don’t like their structure, policies, management, or state privilege, stop shopping there. That is how the market works. Punish them by withdrawing your patronage.
Can I get one of these handy dandy government guarantees for limited liability for my person?
As a matter of fact, you can. An individual can incorporate, which makes the position of the Mutualists all the more crankish. A corporation by structure, is not a “big business”.
I would love to limit my liability through force of government for injuries caused from driving on the highway…with a monster truck…and flaming tires. That would be cool.
Don’t confuse state privilege with legal structure. We’re all against state privilege, but we should all be for voluntary cooperative structures of any sort.
But anyway, if you are set on replying again, there is no need to insult intelligence.
I looked at my first response to you, and I saw no insult. Perhaps the issue is, as Reagan put it (paraphrased),”it’s not that you’re wrong, it’s just that you know so much that isn’t true”.
- Dan Mahoney
- More from Wiki, this time with a nice Rothbard quote:The anarcho-capitalist libertarian and Austrian economist Murray N. Rothbard, in his Power and Market (1970), attacked limited-liability laws, but argued it was possible similar arrangements may emerge in a free market, stating,
Finally, the question may be raised: Are corporations themselves mere grants of monopoly privilege? Some advocates of the free market were persuaded to accept this view by Walter Lippmann’s The Good Society. It should be clear from previous discussion, however, that corporations are not at all monopolistic privileges; they are free associations of individuals pooling their capital. On the purely free market, such individuals would simply announce to their creditors that their liability is limited to the capital specifically invested in the corporation, and that beyond this their personal funds are not liable for debts, as they would be under a partnership arrangement. It then rests with the sellers and lenders to this corporation to decide whether or not they will transact business with it. If they do, then they proceed at their own risk. Thus, the government does not grant corporations a privilege of limited liability; anything announced and freely contracted for in advance is a right of a free individual, not a special privilege. It is not necessary that governments grant charters to corporations.
In the U.S. lawyers have suggested that, while limited liability towards creditors is socially beneficial in facilitating investment, the privilege ought not to extend to liability in tort for environmental disasters or personal injury.
- Stephan Kinsella
- Leftlibertarian.org replies to my LRC post (rather, the post of one “Stephen Kinsella”) here. Gotta love his rant about “the crimes of capitalism” and “workers heroically staging a work-in against the unfair policies of the American system of capitalism“–they are “merely trying to get their fair share.”Meanwhile, elsewhere (2), the left-libertarians keep playing a type of bait and switch with their terminology. Someone cheers on the return of “militant” unions: when this is objected to, on the grounds that we libertarians oppose union violence, then they crawfish and dance around and say that if one reads thru 17 email chains he’ll see they didn’t mean “violent,” for heaven’s sake. When I object to accusations that companies “expropriate” the “value” of the “efforts” of “stakeholders”–they say by “expropriate” they don’t really mean “expropriate”; and by “stakeholder” they don’t mean what leftists usually mean by it; and by “bargaining power” they don’t mean what leftists usually mean by it.
If someone can give me a dictionary to translate it might be helpful.
Here’s a summary of the discussion so far:
Long/Carson: “Corporations are imperfect, and thus proprietorships and cooperatives are what would emerge on the free market.”
Klein: “Proprietorships and cooperatives are also imperfect [various arguments and examples given], so they might not dominate on the free market.”
Long/Carson: “Yes, but corporations are imperfect!”
- Dan Mahoney
- Stephan quotes Carson:Carson also relies on “Rothbard’s threshold of calculational chaos”–to argue that “the predominant oligopoly firms in the existing manufacturing sector” must be artificially large since they “are already demonstrably above” this threshold.
(He goes on: “Rothbard argued, specifically, that rational calculation becomes impossible whenever no external market exists for an intermediate good. Since, in fact, the majority of intermediate goods used by the typical manufacturing corporation are firm-specific, their transfer prices must be assigned internally rather than based on outside markets.”)
Carson has a pretty unblemished record of misunderstanding and misapplying Rothbard’s extension of Mises’ calculation argument; I’ve lost track of the number of times he’s done it.
This is the issue: a large firm engages in several stages of production, call them A, B, C. It has to ask the question: is it cheaper to buy capital goods of type A, to produce capital goods of type B, to be used in the production of good C, as opposed to buying capital goods of type B directly in the market? As long as the firm is not so large as to preclude markets in capital good type B, it will not suffer from calculational chaos. “Firm specificity” is totally beside the point (it would be an empirical claim anyway, that Carson does not support by way of evidence).
- Dan Mahoney
- I have to voice here a criticism of Prof. Klein: he’s according Carson’s work far, far more respect than it deserves.
- Jeremy
-
Other than Long, most of this is stuck on blogs and self-published e-books.
So what if it is? What does that have to do with anything? This is just more anti-intellectual argument by smell / feeling. It’s disappointing Misesians resort to such vague tactics when their core values are challenged.
- DixieFlatline
- Jeremy, odd you would accuse Misesians of being anti-intellectual.Last I checked, Misesians were the only people giving Carson’s views any daylight, even if generally there are a lot of disagreements.
- happylee
-
It seems you two agree on voluntary association. If you want to disagree with him, it should be about the legal differences between a corporation and partnership. Do you believe that corporate personhood is compatible with anarchism?
Jerusel states the questions correctly. The answer suggests itself.
- Jeremy
-
Jeremy, odd you would accuse Misesians of being anti-intellectual.
So you think “That ideas makes me feel funny” is a valid intellectual argument?
Please…
- whittaker
- “Please, pretty please, with sugar on top…explain to us WHY investors SHOULD be held personally liable for employees or managers?”Certainly. Such a rule would foster closer communication between shareholders and employees, and probably discourage the growth of inefficient mega-corps.
In other words, providers of labor and providers of capital might actually start TALKING to each other and working together. What a concept! When was the last time a rank-and-file employee of a 100+ person firm actually talked to a shareholder?
Do I have all the answers to how far the chain of liability should extend, and how it should depend on the negligent/intentional and tortious/criminal nature of the injury? No. These are the kinds of things that can be (and have been) worked out, case by case, over the years in the development of the common law. The real question is, why should the state make an arbitrary exception to these common-law rules, conditioned on the observance of various obscure formalities (monthly board meetings, etc.) that have no public value. This situation simply ensures that deep-pocketed entities able to afford expensive corporate lawyers can further entrench their advantage over smaller competitors.
- JA
- What Carson is trying to say is that, in a free market, workers would be able to recieve the full product of their labor as wages; however, the cartelization and oligopoly effects that the state enforces keeps the cost of labor artifically low.Which “workers”? How do you define who is a “worker”? What is the “full value” of labor and how do you measure? What is “low cost” and how do you measure? Are “labor” and “capital” referring to real people or abstract concepts?
Is it possible that some “workers” are really exploiting the capitalists…or more likely, other “workers”?
- DixieFlatline
-
So you think “That ideas makes me feel funny” is a valid intellectual argument?
Jeremy, that’s not what I wrote.
It’s important in a fruitful debate, to be precise. Carson and Long fail to be precise in their criticisms of business, and many people pick these up and run with them, also without any degree of precision.
If you want to attribute a position to me, make sure it is a position I hold. Please re-read what I wrote to you, and you can respond to that.
- whittaker
- “Please, pretty please, with sugar on top…explain to us WHY investors SHOULD be held personally liable for employees or managers?”Certainly. Such a rule would foster closer communication between shareholders and employees, and probably discourage the growth of inefficient mega-corps.
In other words, providers of labor and providers of capital might actually start TALKING to each other and working together. What a concept! When was the last time a rank-and-file employee of a 100+ person firm actually talked to a shareholder?
Do I have all the answers to how far the chain of liability should extend, and how it should depend on the negligent/intentional and tortious/criminal nature of the injury? No. These are the kinds of things that can be (and have been) worked out, case by case, over the years in the development of the common law. The real question is, why should the state make an arbitrary exception to these common-law rules, conditioned on the observance of various obscure formalities (monthly board meetings, etc.) that have no public value. This situation simply ensures that deep-pocketed entities able to afford expensive corporate lawyers can further entrench their advantage over smaller competitors.
- JA
- Such a rule would foster closer communication between shareholders and employees, and probably discourage the growth of inefficient mega-corps.And this relates to liability (and respect to liberty) how…?
In other words, providers of labor and providers of capital might actually start TALKING to each other and working together
And you have evidence that this does NOT already occur?
When was the last time a rank-and-file employee of a 100+ person firm actually talked to a shareholder?
Probably a ga-zillion times in the last year.
Seriously, is this for real? “Public value”?
- whittaker
- Mr. Kinsella:”Now, if you want to object to the inability to sue shareholders for vicarious liability for the torts of another, you need to show that the victim *should* be able to sue the shareholders. Should he? If so, why? What exactly is your theory of causation and responsibility?”
This kind of thing is addressed in great detail in judicial opinions that form the common law. I’m not saying the common law is perfect, but great effort is expended on trying to explain and justify it.
By contrast, there is very little explanation or rationale for the mountains of arbitrary corporation statutes that you appear to endorse. By what logic does holding regular board meetings entitle a firm’s shareholders to exemption from vicarious liability — whereas neglecting such formalities suddenly revokes this exemption?
[Apologies for the double post above].
- whittaker
- “When was the last time a rank-and-file employee of a 100+ person firm actually talked to a shareholder?Probably a ga-zillion times in the last year.”
Please name ONE instance. I have worked for numerous corp’s of various sizes and I have never seen it happen.
- whittaker
- ” Can I get one of these handy dandy government guarantees for limited liability for my person?As a matter of fact, you can. An individual can incorporate, which makes the position of the Mutualists all the more crankish. A corporation by structure, is not a “big business”.”
So why doesn’t everyone do this?
Actually an individual can incorporate, but only for a “valid business purpose”. Under the scheme you endorse, the benevolent government decides what’s valid. And you usually have to pay lawyers and comply with obscure formalities. What is the logic behind these rules?
- JA
- Please name ONE instance. I have worked for numerous corp’s of various sizes and I have never seen it happen.Seriously…are you for real?
Look up “Analyst Days” and public companies.
I know numerous people who own firms with 100+ employees…they speak with employees on a daily basis.
Nevermind the millions of employees who are ALSO shareholders, from public companies to law firms to a group of guys who started a business and continue to work there.
But lemme guess…these don’t count as “rank and file” right? And “rank and file” — like “worker” or “stakeholder” means whatever fits the moment.
- whittaker
- No, an owner (if you mean an owner of a substantial percentage) does not count as rank-and-file.Yes, there are corp’s with significant employee ownership, but I don’t think that is a common, nor often effective structure. Typically the people providing the capital are not the same people with the skills and desire to work. I believe that business works best when these two groups of people can work together as partners, with roughly equal economic power.
- JA
- Define “substantial percentage”?Define who counts as “people with the skills and desire to work”?
Define what “business works best” means?
Define “equal economic power”?
- Mashuri
- I think what Whitakker is trying to point out (correct me if I’m off base) is that there should be no arbitrary state protection of stakeholders. For example, if it can be proven that shareholders and investors knew of a corporate policy/environment that encouraged and resulted in violations of others’ personal and property rights, they should be held accountable.
- whittaker
- “I know numerous people who own firms with 100+ employees…they speak with employees on a daily basis.”Sorry, I mis-read “shareholders” for “employees” in this sentence.
Do these people speak individually with the rank-and-file, as in two-way dialogue? Or is this just giving speeches? I worked for one 10-person firm where the president refused to speak directly w/ the workers, insisting on going through the chain of command.
- JA
- For example, if it can be proven that shareholders and investors knew of a corporate policy/environment that encouraged and resulted in violations of others’ personal and property rights, they should be held accountable.Accountable to who? How does “knowing” something translate into responsibility (liability) for others’ actions? What is an “environment” anyway? Is someone voluntarily follows a policy, why is the policy-writer responsible?
Do these people speak individually with the rank-and-file, as in two-way dialogue?
Yes.
- Doctor Whatzit
- regarding “Please, pretty please, with sugar on top…explain to us WHY investors SHOULD be held personally liable for employees or managers?”Because partners in a partnership would.
- DixieFlatline
-
So why doesn’t everyone do this?
I dunno. Why does everyone still vote? Why did Obama get elected? Why is Brittney Spears a multi-platinum recording artist? Why does orange juice taste funny after I brush my teeth?
Actually an individual can incorporate, but only for a “valid business purpose”.
Uh hunh…
Under the scheme you endorse, the benevolent government decides what’s valid.
That’s a strawman. I never said I endorse the state. Care to provide a source for your claim?
What is the logic behind these rules?
You want me, an anti-state libertarian, to explain the logic behind the state?The onus is back on the Mutualists to define what is and is not a big business. Obviously, a corporation of one person, is not a big business, and I think at least a few of us would concede that a one man corporation is not likely to be a significant recipient of state privilege.
- Stephan Kinsella
- Update: The “Freedom Democrats” (allies of the left-libertarian?) falsely accuse me of advocating that these workers be shot. What a lie. I never even implied, this, nor do I believe it (my views on punishment and proportionality are spelled out here). They also accuse me of being a rightwing “paleo” libertarian, which is another bizarre charge (see, e.g., my views on gay marriage and affirmative action, not to mention IP, my shall we say modern views on religion, evolution, and the like, and so on.)
- Mashuri
- JA,Let’s start with something a little more direct. If a corporation’s President orders his employees to pollute a populated river because a majority of shareholders voted in support of this action, should only the acting employees be held accountable by the river dwellers or should the President and supporting shareholders also share in the liability?
- Stephan Kinsella
- whittaker:
“Please, pretty please, with sugar on top…explain to us WHY investors SHOULD be held personally liable for employees or managers?”
Certainly. Such a rule would foster closer communication between shareholders and employees, and probably discourage the growth of inefficient mega-corps.
So… we should be against corporations, because they should not have limited liability–which is because the shareholders should be liable… which is because it would be one way to prevent large corporations. Nice circular argument.
PLUS, it’s utilitarian–sounds like a wealth-maximization coasian types saying we should pick legal rules to maxmize [some given social value]. Terrible. Tsk tsk.
… Do I have all the answers to how far the chain of liability should extend, and how it should depend on the negligent/intentional and tortious/criminal nature of the injury? No.
Until you have a sound theory of libertarian causation and responsibility, you cannot criticize the failure of the state to attribute vicarious liability to shareholders for actions of others.
These are the kinds of things that can be (and have been) worked out, case by case, over the years in the development of the common law. The real question is, why should the state make an arbitrary exception to these common-law rules,
Show exactly how the common law estalibhses that shareholders are vicariously liable for actions of others–and how this rule is compatible with libertarianism.
JA:
Which “workers”? How do you define who is a “worker”? What is the “full value” of labor and how do you measure? What is “low cost” and how do you measure? Are “labor” and “capital” referring to real people or abstract concepts?Is it possible that some “workers” are really exploiting the capitalists…or more likely, other “workers”?
Yes–the concepts above are largely state classifications–who is an employee, etc. As for exploitation–the state reduced overall prosperity, in general. Everyone is harmed by everyone; this is the problem with the state. In a free market we would be so much richer, there may well be more big AND more small companies, and more diverse types.
There is nothing wrong with normal libertarians, and left-libertarians having different predictions about what the free market landscape would look like; the problem is the latter are too confident that their very sketchy opinions are firmly established, and b/c of their “thickism” they tie it in too much with political principles. This is their central error. So it’s no longer just a disagreement over predictions–to them, their shaky predictions and personal preferences inform their politics, so it becomes something more.
whittaker:
“Now, if you want to object to the inability to sue shareholders for vicarious liability for the torts of another, you need to show that the victim *should* be able to sue the shareholders. Should he? If so, why? What exactly is your theory of causation and responsibility?”This kind of thing is addressed in great detail in judicial opinions that form the common law. I’m not saying the common law is perfect, but great effort is expended on trying to explain and justify it.
First, you haven’t even shown that the common law clearly requires this. And second, even if you do–we are libertarians, are we not? Show that a given common law rule is justified.
By contrast, there is very little explanation or rationale for the mountains of arbitrary corporation statutes that you appear to endorse.
I’m an anarchist. I don’t endorse any statutes. I simply believe that as Hessen has shown people could arrange their affairs similarly in a free market; and that the criticisms of corporations are too often uninformed, confused, or based on mistaken reasoning. I readily agree with the left-libertarians that the state’s granting of an easy way to form corporations might skew the form of entity that direction–who knows. I am as opposed to this as they are. The market is indeed distorted. I am less confident than they of exactly how it’s distorted, or what it would look like absent state intervention; and I certainly disagree with them that we can be confident large corporations could not exist without the state, and that therefore those that exist are illegitimate, their property “unowned” or “expropriated” and the like.
By what logic does holding regular board meetings entitle a firm’s shareholders to exemption from vicarious liability — whereas neglecting such formalities suddenly revokes this exemption?
Very little–well, it is based on the type of utilitarian, conseqeuntialist reasoning some anti-corporatists here have been trotting out. But this is not what the anti-corporatards based their reasoning on. They keep yammering about size, and separation of ownership and control, inefficiencies, and limited liability.
- JA
- If a corporation’s President orders his employees to pollute a populated riverBut how can an executive or investor “order” anyone to do anything? A business is not like a military, where a lawful order is backed by threat of deadly force. Instead, it’s a voluntarily relationship of service for money.
In this case, a person chose to pour chemicals into a river for money. I agree with an earlier comment that “employee” is a made-up classification by the State.
- JA
- Because partners in a partnership would.non sequitur…this does not answer my question.
- Mike
- “But how can an executive or investor “order” anyone to do anything? A business is not like a military, where a lawful order is backed by threat of deadly force. Instead, it’s a voluntarily relationship of service for money. “Stephan’s actually written pretty extensively disagreeing with this claim.
I’m not sure either side has actually come to a satisfactory libertarian theory of agency and culpability. Stephan has claimed that deliberately inciting a riot would make one culpable for the actions of the rioters, so it’s difficult to see how managers paying employees to pollute would be any different.
I think he’s wrong on the first count but right on the second, but I’ve not fully formed my opinion as to why.
I think, for example, if you pay someone to murder you are culpable, while if you merely convince them to murder you are not. Obviously the murderer would still be responsible in either case.
Why is the first different from the second? I think in the first condition you have granted the murderer agency, while in the second you have not. This could, in theory, be extrapolated to hold shareholders accountable for corporate torts, though not in all instances.
Like I said, I’m still working the idea out. I’d appreciate any criticism/feedback.
- JA
- This could, in theory, be extrapolated to hold shareholders accountable for corporate torts, though not in all instances.One question is if they have any liability at all. You make some good comments that they do.
Another question is if any accountability goes beyond the shares owned in the company by the investor…hence the LIMITED liability part.
- Mike
- “Another question is if any accountability goes beyond the shares owned in the company by the investor…hence the LIMITED liability part.”Again, I think it depends. If I loan my brother-in-law $1000 to go bet in Vegas, and make it explicit that I am liable only for this $1000, I am not indebted to the casino to cover his gambling debts.
If, however, I contribute $1000 to a fund to help my brother-in-law murder his boss, if and when the police come to arrest me, I cannot explain to them “But wait! My brother-in-law and I agreed that my contribution was one of limited liability! I can only be held responsible for my part of the contribution!”
There is no dispute among libertarians that someone must be fully liable in the case of torts (government does grant limited tort liability, in the name of “tort reform” or “forgiveness,” though I am not familiar enough with corporate law to say whether this is bundled as part of the LLC package). Surely, the agent is liable, for his misdeeds, but the question is when (and if) the principle can also be liable. Or, if you prefer, whether it is accurate to call a shareholder a principle at all, though this opens a can of worms when dealing with the corporate form.
- whittaker
- “Do these people speak individually with the rank-and-file, as in two-way dialogue?Yes.”
OK. Please post their names and addresses so I can send them my résumé. 😉
- whittaker
- Mr. Kinsella:”I readily agree with the left-libertarians that the state’s granting of an easy way to form corporations might skew the form of entity that direction–who knows. I am as opposed to this as they are. The market is indeed distorted.”
If we agree on this much, I’m satisfied. That’s my main point here anyway.
- Stephan Kinsella
- Mike:
“Another question is if any accountability goes beyond the shares owned in the company by the investor…hence the LIMITED liability part.”Again, I think it depends. If I loan my brother-in-law $1000 to go bet in Vegas, and make it explicit that I am liable only for this $1000, I am not indebted to the casino to cover his gambling debts.
If, however, I contribute $1000 to a fund to help my brother-in-law murder his boss, if and when the police come to arrest me, I cannot explain to them “But wait! My brother-in-law and I agreed that my contribution was one of limited liability! I can only be held responsible for my part of the contribution!”
Sure, but note that your example characterizes your action as using your brother in law as a means to kill someone–you are intending to and trying to commit a crime.
But is that how you can characterize a shareholder’s act of becoming or being a shareholder? In fact, please note that it’s possible for a corporation to be owned by shareholders, NONE of whom have invested a DIME in the company–they might have bought the shares from original investors.
Surely, the agent is liable, for his misdeeds, but the question is when (and if) the principle can also be liable.
And who IS the principal. Is a shareholder a principal? Why?
Or, if you prefer, whether it is accurate to call a shareholder a principle at all, though this opens a can of worms when dealing with the corporate form.
You’re getting it.
whittaker:“I readily agree with the left-libertarians that the state’s granting of an easy way to form corporations might skew the form of entity that direction–who knows. I am as opposed to this as they are. The market is indeed distorted.”
If we agree on this much, I’m satisfied. That’s my main point here anyway.
Fine, but all but the most vulgar of libertarians realize this fairly trivial point.
- MJP
- JA:
“There is nothing wrong with normal libertarians, and left-libertarians having different predictions about what the free market landscape would look like; the problem is the latter are too confident that their very sketchy opinions are firmly established, and b/c of their “thickism” they tie it in too much with political principles. This is their central error. So it’s no longer just a disagreement over predictions–to them, their shaky predictions and personal preferences inform their politics, so it becomes something more.”Tell me – what do you think of those punk roxxor anarchist teenagers who support anarchy because it’s “chaotic”? Is that just a “difference in predictions?” Of course your “prediction” that anarchy can be orderly informs your politics, and is something more than a mere prediction.That’s how we left-libertarians see anarcho-capitalists who insist that the free society would continue to be dominated by large hierarchical corporations. It’s like taking pride in believing that things will get worse after the revolution and you’re badass enough to support it. Either that, or you believe that things would get better because the few who amass great sums of wealth would be super-productive economic Ubermenschen one thousand times more productive than the pathetic average joe can ever dream to be, in which case the burden of proof is on you to show that these Ubermenschen exist. Here’s a hint: they don’t, and the Libertarian Left doesn’t have to prove that they don’t.
- Dan Mahoney
- MJP’s response indicates that, like all leftists, left-libertarians’ argument isn’t so much with particular institutions like corporations, but with human nature itself.
- MJP
- “MJP’s response indicates that, like all leftists, left-libertarians’ argument isn’t so much with particular institutions like corporations, but with human nature itself.”So if I deny the existence of demigods, I am arguing against human nature? What is this nonsense?
- Mike
- “And who IS the principal. Is a shareholder a principal? Why?”Well, my understanding is that the shareholder is generally thought to be the principal, as he is typically referred to as the “owner” of the company. I tend to agree with you that this is problematic, but surely, then, you can understand Carson’s complaint that the ownership of a corporation is poorly defined.
Corporate ownership is not a bank loan. The investors didn’t “give” money to the corporation, as you put it earlier, because they are the corporation. At least, that is how it is generally understood.
If you’re arguing that, in a free market, individuals may loan money to a corporation as a sort of “qualified, indefinite loan,” with dividends being replaced by “interest,” well, that seems possible. But somebody has to own the corporation, and at least be responsible for the official acts the corporation does.
When we invest in a corporation, as owners, we are essentially granting agency to the managers to manage our money in our best interest. If a company’s business model is to make shoes, and they take that money and use it to kill their competition, then of course they are not using your money or your agency as in a way you had agreed to, and you should not be held responsible. If, on the other hand, their official business model is in some way aggressive, and you invest in them anyway, hoping to profit from their aggression, then I think you should be held responsible, without limit when liability was not contractually limited with third parties.
So, yes, I think the shareholders are the principal, and employees are the agent, at least most of the time. The question becomes, then, was the employee acting in an “official” capacity when committing the offense in question (a similarly problematic term, I know), or was he acting outside of his official capacity? Or, when is an agent not an agent? When he uses company property in a way that was clearly not permitted by the owners, he is not an agent. When he uses it in a way that clearly is, then he is. The problem, as always, lies in the margins.
- Mike
- Wow. I apologize for apparently having terrible grammar. But I stand by my assertions.
- whittaker
- MJP, very interesting formulation. As one who has been a hard-core conservative Republican for over 20 years, I am amazed to find my views now being described as “left-libertarian”.I think that there are certainly individuals who are demi-gods in their fields and revered by some people, but they should not be treated as such in a political, economic or legal sense.
- Dan Mahoney
- MJP,If you had used the word “demigod” in your original post, I’d have known you’re not be taken seriously, and wouldn’t have bothered responding. My mistake.
- Stephan Kinsella
- Mike:
“And who IS the principal. Is a shareholder a principal? Why?”Well, my understanding is that the shareholder is generally thought to be the principal, as he is typically referred to as the “owner” of the company.
Yes, they are generaly thoguht to be, b/c the state labels them this way. That’s the state’s classification. But ownership is the right to control–here, control is divided between a number of people and subject to private rules that themselves are subject to change by specified procedures. Ownership is relevant here only b/c of the ability of the “owners” to control what is going on–but in this sense, there are any number of people who have influence–from lenders, to customers, to suppliers, employees, unions, local “stakeholders,” and so on.
I tend to agree with you that this is problematic, but surely, then, you can understand Carson’s complaint that the ownership of a corporation is poorly defined.
I don’t think it’s poorly defined–it’s just complex. Sorry. I don’t think it’s problematic. Life is complex. Causation is a complex, fact-bound matter. Sure, it’s easy to just rely on the state’s classification of ownership as a black-white way to distinguish, but why is this fair or objective?
Corporate ownership is not a bank loan. The investors didn’t “give” money to the corporation, as you put it earlier, because they are the corporation. At least, that is how it is generally understood.
Shareholders are not necessarily investors at all. What if the company gives you stock? What if it’s a gift from an aunt?
So the shareholder has limited rights: the right to a pro-rata share in assets upon liquidation; and the right to vote for directors. That’s about it. Is this “influence” enough to give them responsibility? What if it’s less significant than the influence of a host of other market actors?
If you’re arguing that, in a free market, individuals may loan money to a corporation as a sort of “qualified, indefinite loan,” with dividends being replaced by “interest,” well, that seems possible. But somebody has to own the corporation, and at least be responsible for the official acts the corporation does.
I’m arguing that lenders are often more influential over and helpful to a company than is shareholders. Are they responsible too? What about its vendors? customers?
When we invest in a corporation, as owners,
Owners are not investors. Invesotrs ae not owners. I might buy IBM stock and give IBM $20. Then I sell the stock. I am the investor, but not an owner. The buyer of the stock is not an investor in IBM (he never gave them money).
we are essentially granting agency to the managers to manage our money in our best interest. If a company’s business model is to make shoes, and they take that money and use it to kill their competition, then of course they are not using your money or your agency as in a way you had agreed to, and you should not be held responsible. If, on the other hand, their official business model is in some way aggressive, and you invest in them anyway, hoping to profit from their aggression, then I think you should be held responsible, without limit when liability was not contractually limited with third parties.
agreed, as should be clear from my Causation and Responsibility article. but most shareholders don’t own shares in companies whose official mission is to kill people. We are talking about accidental torts committed by employees of the company, when they are instructed and trained *not* to do this.
- P.M.Lawrence
- I have slightly edited, rearranged or repeated quotations for continuity, always indicating breaks.Stephan Kinsella wrote ‘…let me just note here a few of the comments, expressions, and assumptions that caught my eye as being problematic from a libertarian and Austrian point of view… As for the comments about management “expropriating” the “efforts” of “stakeholders”–here we have what appears to me to be Marxian reasoning: the “expropriation of efforts”? What? I’d like to see exactly whose “labor” is being “stolen”?’.
That “stolen” is made up (and the scare quotes wrongly suggest that Kevin Carson used the term in his post). It would all be a lot clearer to anyone who digested the part where Kevin Carson first introduced it:”… a major problem is that much if not most of the value of the ostensibly shareholder-owned corporation results from the human capital contributed by internal stakeholders, but that this value is not reflected in formal ownership rights. The result is that much of the value created by internal stakeholders is expropriated by management, thus undermining the incentives of human capital to invest its efforts in the organization.” It’s not formally “stolen” because there are no formal ownership rights, and it is unethical to the extent that the constrained lack of choice forced people into that vulnerability (see above about all corporations being the same). “Appropriated” might have been clearer in this respect, but “expropriated” also conveys the idea that these things are taken from people who would otherwise have had them. This also implicitly defines “stakeholder” – a person who would otherwise have had some of that, who contributed to its being there. That doesn’t take tracking through several posts. So “If someone can give me a dictionary to translate it might be helpful” probably wouldn’t work. He had that right in front of him, but a dictionary would just be something else he wouldn’t chase up.
‘…libertarianism does not require any “pretense” that “management represents shareholders or that the latter are the owners in any real sense.” It only requires respect for property rights and not interfering in capitalist acts between consenting adults. That is, if you can somehow show that “management” does not “represent” shareholders, or that they are not “the owners” in “any real sense”–so what? Whose rights are being violated? If you don’t like the way a firm is organized, don’t work there; don’t invest in it… I’d like to see exactly whose “labor” is being “stolen”? An employee? Hey, he isn’t compelled to work for them… If [there are] incentive or agency problems that arise when using a given firm structure, presumably people over time will invest in or employ more efficient structures. If they don’t–hey, it’s their money.’
That’s very “let them eat cake”. The problem is that, with the distortions favouring that, the usual “choice” is as between different firms that are like that. Any colour you like so long as it’s black.
“If a collection of people (shareholders, directors, managers, creditors) whatever all agree to some complicated internal set of rules that specify their right to control a set of private assets, then *their* rights are not violated (they all agreed to it), and outsiders have no business complaining… Just because some anti-market or anti-capitalist types don’t like the messiness and complexity of the internal rules governing rights of control (ownership) of these assets is utterly irrelevant. You don’t have to work for them, or invest in them….” But that’s not a corporation, it’s a partnership. A corporation has outside (state) help as well, which makes it unlibertarian and outsiders’ business – partly from that restriction of alternatives I just mentioned.
‘Again: in libertarianism, the corporation does not need to justify anything–so it does not need to pretend it “represents” anyone’ – oh, yes, it does. It needs to justify all that intervention that brought it into being.
“If a group of people agree to pool their money and become shareholders, this just means they have agreed to collectively purchase some things with their money, and to have specified rights of control and rights to gain or dividends, that is their business. The consent of the parties is all that is needed to justify it.” But that’s not a corporation, it’s a partnership.
DixieFlatline writes “…in an anarchist society, anything (including a corporation) can exist if it is voluntary”.
Actually, a corporation can’t, unless it’s the sort like a monastery or a sports club which has its own internal dynamic to hold it together. Today’s corporations mostly have that state-provided legal fiction stuff to do that.
“It’s a myth that people will not pool their capital, and create organizational structures and forms to handle management, compensation, and liability” – but the most they can achieve that way is a partnership.
“…what the state does, can be done contractually and voluntarily in the private market (the basis of Anarcho-Capitalism)… There is a demand for limited liability investment structures…” – almost, but it would be a partnership with de facto limited liability for partners who could lie low (and not all could). So Evan is mistaken too.
“Now whether you choose to deal with such a firm is up to you. In fact, most people can choose in this society whether or not they will be patrons of corporations. Most do… In a free market, if you don’t like dealing with a firm that limits it’s liability to you, then you won’t engage with them. That’s your right. But in a free market, investors can structure themselves anyway they want, as long as they come to it voluntarily… You are under absolutely no obligation to shop at WalMart, so do not. Very simple. If you don’t like their structure, policies, management, or state privilege, stop shopping there. That is how the market works. Punish them by withdrawing your patronage.” See my earlier remarks about restrictions on choice.
“Carson and Long fail to be precise in their criticisms of business” – do please go and look. You will find, for instance, that they are not criticising business.
“The onus is back on the Mutualists to define what is and is not a big business” – rubbish, since that was not what they were talking about.
“…I think at least a few of us would concede that a one man corporation is not likely to be a significant recipient of state privilege” – then you really should go and check your history. You would soon find out the significance of the “corporation sole” in state establishment of religion.
Stephan Kinsella mischaracterises partnerships: “You do realize that as soon as there are at least 2 people involved in a firm–eg., a 2-person partnership–each partner has incentives to waste that do not exist in a sole proprietorship. If I own my own shop, then every dollar I spend on a business meal comes off my bottom line. But if I’m 1 of 5 partners, then I might as well order the best steak on a business meal, since I get all the benefit but only 1/5 the cost.” He is confusing the cash flow of paying for that with the drawing down of that partner’s share of the business. That drawing comes off that partner’s entitlements, and shows up in the books. His “summary of the discussion so far” is also a mischaracterisation. Rather than sisk making confusion worse confounded, I suggest people go and read it for themselves.
Dan Mahoney writes “Carson has a pretty unblemished record of misunderstanding and misapplying Rothbard’s extension of Mises’ calculation argument; I’ve lost track of the number of times he’s done it. This is the issue: a large firm engages in several stages of production, call them A, B, C. It has to ask the question: is it cheaper to buy capital goods of type A, to produce capital goods of type B, to be used in the production of good C, as opposed to buying capital goods of type B directly in the market? As long as the firm is not so large as to preclude markets in capital good type B, it will not suffer from calculational chaos.”
That is an accurate description of the conditions that would head off the problem – only, Kevin Carson has actually pointed out how large firms do get into that sort of thing. It happens whenever a firm has to decide a transfer price for itself. The very fact that there are problems for tax authorities from transfer pricing means that the tax authorities often don’t have independent reference values they can use to argue with firms’ own claims about prices.
Stephan Kinsella writes “I simply believe that as Hessen has shown people could arrange their affairs similarly in a free market…”; up to a point, that is correct; however, they would actually be partnerships, which would make a material difference from time to time.
- Dan Mahoney
- “Transfer price”? Rothbard must be turning in his grave.I’m guessing this is something different from an ordinary price (the meaning of which is clear to most intelligent people)? Seems like a good example of what Stephan pointed out earlier, that the left-libertarians like to use conventional terms (e.g., exploitation), until someone points out a flaw in their reasoning, then more esoteric meanings are claimed to be intended.
The arrival of P.M. Lawrence signals that there is no more need to follow this debate.
- P.M.Lawrence
- The charitable meaning of that would be, “the authority has arrived”, and the uncharitable meaning of that would be, “my mind is made up, do not confuse me with the facts”, with a dash of ad hominem. Either way, you should follow the discussion if only to learn what transfer prices are: prices used between departments or subsidiaries when goods or services move between them but stay within the larger entity. They usually come up these days when they have an effect on tax calculations.
- Jerusen
- On a side note,My brain hurts trying to keep up. One doesn’t have to wonder why libertarianism will always be an obscure minority among political ideologies. Words are boring. Visual stimulation is the preference of the masses….and the socialists have cornered the market!
- Mike
- “So the shareholder has limited rights: the right to a pro-rata share in assets upon liquidation; and the right to vote for directors. That’s about it. Is this “influence” enough to give them responsibility? What if it’s less significant than the influence of a host of other market actors?”This is a good point. Maybe I do need to reanalyze the notion of corporate “ownership,” in cases where it is separate from the right to control resources. If this is the case, though, then it would have ramifications further than just corporations. If I rent my car to you, granting you the right control it for a limited duration of time, do you become the “owner” of that car for that time? Ownership then reverts to me upon the expiration of the contract?
Setting that aside for a moment, I’d like to explore the notion of agency and culpability a bit more. If A employs B to commit aggression, clearly A is culpable for B’s aggression. If A employs B for some non-aggressive act, but B then uses A’s resources to commit aggressive act, A, it would seem, is not culpable.
What, however, if A employs B to do whatever C tells him to do? If C commands B to commit aggression, who is culpable here? Clearly B and C are. I know that you would argue that A is not because he lacked intent, but I am not sure intent is necessary for culpability. I can surely commit aggression against you on accident. So what then? What if A suspects B and C are committing aggression, but says nothing because the profits keep rolling in? What if C informs A that he has instructed B to commit aggression, but A says nothing?
I may have gone off on a tangent here, but these are not rhetorical questions. I’m genuinely curious.
- Stephan Kinsella
- Mike:”If A employs B for some non-aggressive act, but B then uses A’s resources to commit aggressive act, A, it would seem, is not culpable.”
You have just joined the pro-corporation side, since this view would totally eviscerate the notion of respondeat superior and vicarious liability that makes the company responsible for the torts of its employees committed while in the scope of performing their duties. I am not even sure I would go this far.
“What, however, if A employs B to do whatever C tells him to do? If C commands B to commit aggression, who is culpable here? Clearly B and C are. I know that you would argue that A is not because he lacked intent, but I am not sure intent is necessary for culpability. I can surely commit aggression against you on accident. So what then? What if A suspects B and C are committing aggression, but says nothing because the profits keep rolling in? What if C informs A that he has instructed B to commit aggression, but A says nothing?”
this is all academic because in almost all cases, the company never wants or orders an underling to commit a crime, or even a tort. They try to get them not to, to avoid liability. The questino is whether the company, or its shareholders, managers, etc., ought to be liable for the torts performed accidentally by one of its employees, even if the company has taken steps to try to prevent him from doing this. For the general framework I would use to analyize particular cases, see my Causation piece linked above.
- TokyoTom
- Stephan, thanks for your comments.1. Me: “one of the chief purposes and effects of the corporate form is that through it, the state allows owners to sidestep any personal liability for the wrongful acts that their corporation commits”
You: It’s only sidestepping if they should have this liability in the first place. Should they?
Again, you are shifting the burden of proof on the issue. Is there any libertarian argument that the state OUGHT to step in and allow investors to unilaterally shift a portion of the risks of their business venture to others who might be damaged by the activities of the business?
I don’t believe that there is any such libertarian justification for limited liability. Without the act of state in creating limited liability for shareholders, such limited liability would not exist – except perhaps vis-a-vis creditors and business counterparties who might otherwise agree to limited their claims to the assets of the company, in exchange for agreed methods of risk control or higher prices. However, such limited liability could not otherwise exist as to Involuntary (or “tort”) creditors who without their consent are injured by the corporation, who have not agreed to assume the risk of corporate insolvency and shareholders’ limited liability, and who have neither received ex ante compensation for doing so nor had the opportunity to bargain for contractual safeguards.
This result seems to be entirely outside of libertarian principles that require voluntary exchanges and eschews takings by force (including by the state), particularly if uncompensated.
2. Me: “with the result that liability for such wrongful acts is limited to the assets of the corporation.”
You: This is untrue. Liability on the part of the *person who committed the wrongful act* is unlimited. If an Exxon employee robs your house, you can sue him for all he’s worth.
Me: My point is that limited liability lets investors entirely off the hook for damages that the wrongful acts of the corporation and its employees. While a few employees might individually be held responsible for their actions, this still may leave many injured persons uncompensated for injuries cause by a corporation’s business activities (many of which it many be impossible to identify a single bad/responsible actor inside the firm: defective products, pollution, etc.).
Before limited liability corporations were established, the common law doctrine of respondeat superior required investors to bear responsibility for the acts of a business, just as individual proprietors and partnerships remain so liable today.
3. Me: “Very clearly, limited liability to investors is an act of state, and not something that investors could contract for in advance with the as yet unknown victims of their future torts.”
You: Now, if you want to object to the inability to sue shareholders for vicarious liability for the torts of another, you need to show that the victim *should* be able to sue the shareholders. Should he? If so, why? What exactly is your theory of causation and responsibility?
Me: Again, you simply fail to answer my question, and presume that the state action that leaves shareholders free to shift business risks to others is valid and justifiable. Even as you remain unwilling to make your case, I am happy to expand my argument that limited shareholder liability is an unlibertarian grant by the state to shareholders.
The chief point, of course, is that the creation by the state of corporations limits tort liability to
individual tortfeasors (if any) and to the corporation itself – up to the value of its assets (after sharing with all other creditors), and frees the owners from liability. This reduces the likelihood that victims will receive full compensation for corporate acts. Unlike an unincorporated entity, the act of the state in authorizing investors to act through corporations thus places the owners (and managers, who are similarly free from liability except for torts they may individually commit) in a position to shift some of the social costs of their business activity on to members of the public who have not agreed to bear those costs.Because the shareholders (and employees and managers) bear no responsibility for the full magnitude of costs that coprorate activites may impose on others, as an activity holds some promise of increasing shareholder wealth, limited liability for tort claims creates a moral hazard problem by leaving shareholders (and managers) with the possible upside benefits to such activities without regard for the full magnitude of possible social costs (which might greatly exceed the benefits).
This results in not simply in an unjust and uncontracted for shifting of risks from tortfeasor corporations to victims, but also inefficient resource allocation decisions – by shifting risks to those least positioned to anticipate or manage them, and by encouraging excessive entry and aggregate overinvestment in hazardous industries while not fully incentivizing investment in precautions.
Further, the limited liability of the corporate form greatly reduces incentives of shareholders to monitor corporate risk-taking, and frees executives to act in ways that further their own interests without bearing full responsibility for risks that are posed to third parties and to investors (which is quite evident in the activities leading up to the ongoing financial crisis).
The subject of limited liability has been much discussed recently; may I recommend the following?
Nina A. Mendelson, A Control-Based Approach to Shareholder Liability for Corporate Torts, 102 COLUM. L. REV. 1203, 1205-06 (2002).
Timothy P. Glynn, Beyond “Unlimiting” Shareholder Liability: Vicarious Tort Liability for Corporate Officers, 57 Vanderbilt L.Rev. 330 (2004). - fundamentalist
- TokyoTom: “I don’t believe that there is any such libertarian justification for limited liability.”The justification would be the issue of control. Common sense says that people who don’t control events aren’t responspible for the results. Look at the LLC, which is a partnership giving limited liability to certain partners, those without control over operations. The partners with control also assume responsibility for the company.
The fact that the state authorizes limited liability doesn’t mean it’s right or wrong. We haven’t had the opportunity to test whether limited liability would develop without a state. So until an anarchist state appears, it will be a totally theoretical issue. But I see no reason why courts wouldn’t allow contracts in which some parties had no control over operations. Then, when someone tried to sue a partner or stockholder who had no control, the judge and jury would consider it rather ridiculous to sue someone who had not control over operations. In fact, I doubt that reasonable people would even try to sue such partners. They would look at the situation and ask how it is different from a bond holder. A bond holder has invested money in the company but has no liability for the actions of management. The stock holder, or LLC partner, has no guaranteed income like the bond holder, so in exchange for the extra risk, he gets to vote on who will manage the company, but like the bondholder he has no control over management decisions.
- JA
- I don’t believe that there is any such libertarian justification for limited liability.Please see here:
http://en.wikipedia.org/wiki/Corporation
“The defining feature of a corporation is its legal independence from the people who create it. If a corporation fails, shareholders only stand to lose their investment, and employees will lose their jobs, but neither will be liable for debts that remain owing to the corporation’s creditors. This rule is called limited liability, and it is why the names of corporations in the UK end with “Ltd.” (or some variant like “Inc.” and “plc”).”
Please explain how any of above is NOT libertarian?
What I find confusing is how this whole conversation started with a promise that “free markets would lead to a prevalence of organizational structures that mutualists like…co-ops, worker-owned firms, etc.”
But suddenly, when the deficiencies of such organizations are pointed out…that human nature and economics indicate such a “Workers Paradise” isn’t likely…the conversation is shifted toward limited liability for murder-for-hire or polluters-for-hire. Never mind all of the rest of us are talking about normal free market businesses…enterprises which trade on a voluntary basis for profit, violating the rights of none.
There is also suddenly a shift to the justification for partnerships and sole proprietorships. But this leaves out all the problems of partnerships — what if one partner dies, what if one partner wants to leave, what if all partners want to sell out, what if new investors want a fast exit strategy — the solution is to create a corporate structure and issue shares of the business. This has nothing to do with limited liability. Such a structure can be created without State intervention.
“The defining feature of a corporation is its legal independence from the people who create it” — i.e. joint stock companies. Again, how is such a form NOT libertarian?
My point is that limited liability lets investors entirely off the hook for damages that the wrongful acts of the corporation and its employees.
But the investor IS on the hook to the limit of their investment. They potentially lost all the value of their shares. How is this different than employees losing their jobs or bankers losing their loans or customers losing their service (all of these being LIMITED exposure)?
You still need to answer WHY the investor is on the hook for more than than the value of their shares, given that some employees were the actual perpetrators (agents) of the violation of others’ rights. Should the other, non-perpetrator employees also be fully responsible simply because they worked there? Why not also other associates — suppliers, customers, lenders? What makes “investment” so special that it requires the investor to bear the full responsibility of other people’s violation of other people’s rights?
Further, the limited liability of the corporate form greatly reduces incentives of shareholders to monitor corporate risk-taking, and frees executives to act in ways that further their own interests without bearing full responsibility for risks that are posed to third parties and to investors
Which is why many executives are given shares as part of their incentive packages. Nobody here has claimed that the corporate form offers an “Owner’s Paradise.” Like all things in the real world, there are trade-offs in all circumstances, or it varies market to market. The argument is that A) The corporate form is libertarian, and B) As shown by many here, the corporate form also has advantages — not based on state intervention — over partnerships, sole proprieterships, workers collectives, communes, etc. in MOST cases, which means they will likely still be the prevalent organizational form in a real free market. No doubt other forms will also (still) be common. Even in our statist world, law firms are usually partnerships, there are credit unions and other patron-owned firms, communes, etc.
- fundamentalist
- PS, to clarify the issue even more, give bondholders the right to elect the board in the bond contract. Bondholders have natural limited liability. With the right to vote on board members, they have become just like owners of preferred stock. So how would a bondholder with the right to vote be any different from a stockholder with limited liability?
- Mike
- “You have just joined the pro-corporation side, since this view would totally eviscerate the notion of respondeat superior and vicarious liability that makes the company responsible for the torts of its employees committed while in the scope of performing their duties. I am not even sure I would go this far. “Well, no, not necessarily. If I pay you to drive my car to the gas station and get me a gallon of milk, I may not be liable if you get into an accident. But if I pay you to drive my car around all crazy-like, and you get into an accident, I might be. Whether my liability would be “limited” in this case assumes I am only liable to you, but I am not sure this is clear. You seem to be saying that my liability is a matter of due diligence, but this seems subjective.If I did not do due diligence in hiring someone to go get me a gallon of milk (say I hired someone with a known bad driving record) could I then be held responsible? If so, what is the logic in limiting my responsibility?
- JA
- It’s like taking pride in believing that things will get worse after the revolution and you’re badass enough to support it. Either that, or you believe that things would get better because the few who amass great sums of wealthSorry…but as a libertarian, I don’t really care if “society” or the “working man” or “average Joe” or “labour” gets better or worse.
My libertarianism is based on a moral duty to not violate the legitimate rights of others. It’s not based on a promise of Utopia or a Worker’s Paradise.
Further, I think for some of the “working class,” a free market will be a bad deal. Many self described “workers” don’t want the risks of ownership, they want benefits and high wages, guaranteed by the State. They want to pollute a river and blame someone else for it, because “it’s not their fault, they were just following orders.” Having to compete on skill or service alone is scary to them, which is probably why most “working class” folks are socialist to the bone.
- Mike
- “Sorry…but as a libertarian, I don’t really care if “society” or the “working man” or “average Joe” or “labour” gets better or worse.My libertarianism is based on a moral duty to not violate the legitimate rights of others. It’s not based on a promise of Utopia or a Worker’s Paradise.
Further, I think for some of the “working class,” a free market will be a bad deal. Many self described “workers” don’t want the risks of ownership, they want benefits and high wages, guaranteed by the State. They want to pollute a river and blame someone else for it, because “it’s not their fault, they were just following orders.” Having to compete on skill or service alone is scary to them, which is probably why most “working class” folks are socialist to the bone.”
See, this is why people don’t like us. Libertarianism does not require that you be a solipsist.
- JA
- See, this is why people don’t like us.Indeed. That’s why I asked if left-libertarianism was a really just a marketing ploy to sell normal libertarianism to leftists, using socialist-sounding language. If that’s the case, it isn’t going to work for many of the reasons I described, but I wouldn’t be so suspicious.
My gut tells me it’s the other way though…a marketing ploy to sell real socialism to libertarians, especially when I read comments on the Carson blog to the effect that “left-libertarians believe corporations = companies, and left-libertarians are anti-corporation.”
- Mike
- You’re assuming some nefarious motivation behind the ideology. Can’t it just be that this is what some people believe? I don’t think anyone’s trying to sell anything.
- JA
- You’re assuming some nefarious motivation behind the ideology. Can’t it just be that this is what some people believe?Why is selling considered nefarious? I already admitted it’s possible that they just have weird beliefs, but it isn’t possible to take Mises and Rothbard’s premises and come up with mutualist conclusions. The only people who seem to be doing it are just two people (Long and Carson), so it doesn’t seem to be a intellectual (dialectal?) tradition.
- Vulgar Libertarian
- Klein and Kinsella,While I admire your patience, please stop taking these “left-libertarians” seriously. Their arguments are atrocious (“Dilbert”, “Walmart is the state”, etc). Why give so much attention to these guys? They’re clearly not worthy of your time.
A lot of people have an aesthetic revulsion to “bigness”. It doesn’t matter if the bigness is moral and efficient; it’s still bigness. These left-libertarians are a subset of these people who will manipulate any argument to suit their anti-bigness aesthetics. The very word “vulgar” betrays the aesthetic motive.
They call the Mises Institute “vulgar libertarians”. When has the MI ever support tariffs, subsidies, bailouts, etc? If anything, the MI has been the strongest critic of managed trade, always supporting true free trade. Yet the MI is vulgar?
Seriously, why bother? Kevin Carson believes in the Labor Theory of Value. He thinks interest wouldn’t exist in a free market. The entire left-libertarian “movement” ignores the fundamental assumption of modern economics, Austrian or otherwise: methodological individualism. They really and truly believe the economy is a battle between bosses and workers.
Why take the time to argue against these obviously obselete ideas? It’s 2008, not 1850. Economics has moved on. They haven’t. Most biologists don’t give the time of day to Lamarkians, and you shouldn’t spend another minute arguing against “Mutualists”.
- Mike
- “Why is selling considered nefarious? I already admitted it’s possible that they just have weird beliefs, but it isn’t possible to take Mises and Rothbard’s premises and come up with mutualist conclusions. The only people who seem to be doing it are just two people (Long and Carson), so it doesn’t seem to be a intellectual (dialectal?) tradition. “First of all, I doubt Long would refer to himself as a mutualist. He wrote a pretty thorough critique of the mutualist “use and occupancy” theory of ownership.
Second, there was something about your phrasing, “trying to sell X to Y,” that implied intellectual dishonesty on the part of the seller.
- Mike
- Stephan,I’m starting to come around to your notion of the individual tortfeasor being responsible for torts, with any collaborating agents being responsible as well, and non-collaborators being responsible only so far as they have agreed to be. I suppose in this sense shareholders can almost be seen as insurance providers for the acting agents.
The problem is with the way corporate personhood distorts claims in our current market. Bob Murphy wrote a piece on this, but I can’t remember where I saw it.
If a UPS truck driver’s brakes go out and he hits me with his truck, and I try to sue him, he says “Don’t sue me! My boss ordered a faulty truck! Sue him!” I try to sue the boss and he says “I didn’t know the truck was faulty! Besides, I was only acting as an agent of the UPS corporation! Sue them!” If I then try to turn around and sue UPS, they say “But our liability is limited!” But somebody’s got to pay. In our current market, limited liability can result in absolution of liability (I’m thinking specifically of pollution cases, airplane crashes, etc.), which is surely not libertarian.
If the question becomes “Who is at fault, and to what extent did other parties agree to cover his fault?” then this does seem libertarian. Oftentimes, however, this is not how these cases play out.
- JA
- If I then try to turn around and sue UPS, they say “But our liability is limited!” But somebody’s got to pay.This is a weird scenario. People sue companies all the time. The question is if UPS investors or shareholders should bear liability BEYOND what they own as shares.
Limited liability does NOT mean “100% Free from Liability.” It means liability is LIMITED to the owners’ ownership in the company. Just as lenders are limited in that they only lose their loan, and employees are limited in that they only lose their jobs.
Even in today’s world, an attack on corporations because “limited liability = absolution of liability” is a straw man, since this isn’t the case.
Now, there might be circumstances where the company’s damages exceed the total assets of the firm (a company explodes an entire town by accident, to keep in the vein of the “realistic examples” cite here by many), so liquidating the firm won’t be enough to cover the debt. In these cases, I’m not sure if it’s libertarian to go after the shareholders beyond their share ownership. Ultimately all liability…for individuals, as well as partnerships and co-ops, are limited by the ability to pay.
- Mike
- “In these cases, I’m not sure if it’s libertarian to go after the shareholders beyond their share ownership.”I’m not either. In fact I’m starting to come around to the idea that it’s not. Still, someone has to have unlimited liability.
“Ultimately all liability…for individuals, as well as partnerships and co-ops, are limited by the ability to pay. ”
This is not really true. If an individual actor accidentally blows up a city, he is liable for all the damage he causes, whether he can pay it or not. There are different approaches as to how he should pay it back, but an inability to pay does not excuse one from responsibility (yes, I am aware that this is an absurd hypothetical, but absurd hypotheticals are worth exploring when they can help us form our analysis).
- TokyoTom
- Roger,The justification would be the issue of control. Common sense says that people who don’t control events aren’t responspible for the results. Look at the LLC, which is a partnership giving limited liability to certain partners, those without control over operations. The partners with control also assume responsibility for the company.
It appears that you are confusing LLCs (limited liaibility corporations that are treated as partnerships for tax purposes) with Limited Partnerships, but it seems you are agreeing that the managing partner ought to have unlimited liability (to “assume responsibility for the company”). In corporations, by government fiat none of the owners has unlimited liability, and the lack of control that investors or their transferees typically have is a reflection of that limited liability. Of course it is possible for shareholders to have actual control, whether in the case of close corporations or even large public ones, and courts sometimes “pierce the corporate veil” (very sporadically) to hold shareholders responsible for bad acts despite legal niceties.
The fact that the state authorizes limited liability doesn’t mean it’s right or wrong. We haven’t had the opportunity to test whether limited liability would develop without a state. So until an anarchist state appears, it will be a totally theoretical issue. But I see no reason why courts wouldn’t allow contracts in which some parties had no control over operations.
Corporations are creatures of the state that could not exist in their current form without a transfer of risk that is neither voluntary nor fully compensated.
There is nothing objectionable in excluding bondholders or other voluntary creditors from unlimited liability; they can bargain for limited risks and certain controls over corporate action. The question is whether it is consistent with libertarian principles to limit the liability of ALL investors to those who are subjected unwillingly to damage resulting from the torts of the corporation.
While I am sympathetic to common investors in public corporations, who have bargained for the situations they find themselves in, and not for unlimited liability, the question of where we go from here is logically distinct from the question as to whether the course to the present situation is one that comports with libertarian principles.
It seems to me that it does not, and that we face any number of undesirable consequences as a result – not merely a shifting of risks to citizens that finds its counterpart in citizen pressure groups, but in a bifurcation of ownership and control that provides ample opportunity for executives to loot their firms. These come on top of the problems with rent-seeking and politicization that tie in with the growth of big government.
- Mashuri
- JA wrote,
“But how can an executive or investor “order” anyone to do anything? A business is not like a military, where a lawful order is backed by threat of deadly force. Instead, it’s a voluntarily relationship of service for money.”All authority carries a threat behind it. Authority in business threatens insubordination with termination. Question, since our military typically punishes insubordination with court marshall, and not death, should a commander who orders the execution of what he knows are innocent people, but does not participate in the action himself, not be held accountable? - JA
- What is missing from all this is:Very few firms fail because of damages from torts.
Nearly all firms fail because they are unprofitable.
So it’s fun to speculate about killer UPS drivers and Mr. Burns polluting rivers…but nearly all of the “limited liability” is about limited exposure to those voluntarily connected with the business.
When a corporation goes out of business, the shareholders are limited to their investment when paying off all contractual obligations. A banker can’t go after an investor’s personal assets to pay off the corporation’s loan. Someone with an employment contract can’t go after an investor to get the rest of the contract, or a customer with a service contract, or a supplier who is owed money. All of these examples voluntarily took the risk of doing business with the corp. though contacting with the entity.
It’s really this simple. The huffing and puffing of on torts and “bifurcation of ownership and control that provides ample opportunity for executives to loot their firms” etc. is really just that.
- JA
- Authority in business threatens insubordination with termination.A dissolution of a voluntary relationship by one party is not the same as the violent threat within the structure of military dicipline. Neither is an order from a policeman holding a revolver against your head the same as a request from a manager to an employee to not lick the french fries or else find other employment.
The employee can always quit. Hence, a request from an employer to an employee is not an “order.”
- Stephan Kinsella
- TokyoTom:
Is there any libertarian argument that the state OUGHT to step in and allow investors to unilaterally shift a portion of the risks of their business venture to others who might be damaged by the activities of the business?
No, and the state should not exist. But people criticize corporations as being *mere* creatures of the state on the grounds that the state gives them privileges that would not exist in the free market.
I don’t believe that there is any such libertarian justification for limited liability. Without the act of state in creating limited liability for shareholders, such limited liability would not exist – except perhaps vis-a-vis creditors and business counterparties who might otherwise agree to limited their claims to the assets of the company, in exchange for agreed methods of risk control or higher prices. However, such limited liability could not otherwise exist as to Involuntary (or “tort”) creditors who without their consent are injured by the corporation, who have not agreed to assume the risk of corporate insolvency and shareholders’ limited liability, and who have neither received ex ante compensation for doing so nor had the opportunity to bargain for contractual safeguards.
Again: the question is, absent the state, should shareholders be vicariously liable for torts committed by employees, or not? The presumption is they should not, since they did not commit the acts–unless you can come up with a sound argument for why they should (and pointing to the way it’s been done before doesn’t cut it).
My point is that limited liability lets investors entirely off the hook for damages that the wrongful acts of the corporation and its employees.
While a few employees might individually be held responsible for their actions, this still may leave many injured persons uncompensated for injuries cause by a corporation’s business activities
You are assuming the “business activities” are “the cause”. This is question begging.
Before limited liability corporations were established, the common law doctrine of respondeat superior required investors to bear responsibility for the acts of a business, just as individual proprietors and partnerships remain so liable today.
Why should they be? Because the common law says so?
You: Now, if you want to object to the inability to sue shareholders for vicarious liability for the torts of another, you need to show that the victim *should* be able to sue the shareholders. Should he? If so, why? What exactly is your theory of causation and responsibility?
Me: Again, you simply fail to answer my question, and presume that the state action that leaves shareholders free to shift business risks to others is valid and justifiable. Even as you remain unwilling to make your case, I am happy to expand my argument that limited shareholder liability is an unlibertarian grant by the state to shareholders.
You need to explain why shareholders should be liable. You keep calling them investors–shareholders are usually not investors.
The chief point, of course, is that the creation by the state of corporations limits tort liability to individual tortfeasors
It limits state-imposed vicarious tort liability. If the state stops taxing you, this is good, because it should not be taxing you in the first place. If the state stops imposing vicarious tort liability on shareholders, this is also good, if it should not be doing this in the first place. You seem to assume they should. why?
This reduces the likelihood that victims will receive full compensation for corporate acts.
If a FedEx driver negligently crashes into you, why arey ou calling it a “corporate act”? He was not directed to do this by FedEx, was he? Why is his negligence theirs?
In any event–this whole critique is ridiculous. Whenever a corporation’s employee commits a tort, the victim is compensated by the corporation or its insurer. IT’s almost always irrelevant that he can’t sue shareholders individually. Even if they could, shareholders could simply purchase shareholder-liability-insurance, no biggie.
fundamentalist:
PS, to clarify the issue even more, give bondholders the right to elect the board in the bond contract. Bondholders have natural limited liability. With the right to vote on board members, they have become just like owners of preferred stock.
Yes, this is my point about overreliance on state classifications. What it means to be a “shareolder” is (a) a right to receive a pro-rata share of assets upon liquidation, and dividends, IF they are paid; and (b) a right to vote for directors.
Why does having these two rights automatically mean vicarious liability?
Mike:“In these cases, I’m not sure if it’s libertarian to go after the shareholders beyond their share ownership.”
I’m not either. In fact I’m starting to come around to the idea that it’s not. Still, someone has to have unlimited liability.
Yes–the guy who commits the tort. Who would have insurance/indemnity from the compamy. The company would have insurance too if it’s vicariously liable. If you hold shareholders liable,they would start obtaining insurance too. And presumably most people would have “uninsured motorist” type insurance in case a deadbeat, uninsured corporation harms them and can’t pay for their damages.
Tokyotom:
The question is whether it is consistent with libertarian principles to limit the liability of ALL investors to those who are subjected unwillingly to damage resulting from the torts of the corporation.
You keep calilng shareholders “investors”. They need not be. And the question is whether they should have vicarious liabiltiy or not.
- fundamentalist
- TokyoTom: “It seems to me that it does not, and that we face any number of undesirable consequences as a result – not merely a shifting of risks to citizens that finds its counterpart in citizen pressure groups, but in a bifurcation of ownership and control that provides ample opportunity for executives to loot their firms. These come on top of the problems with rent-seeking and politicization that tie in with the growth of big government.”I agree with you completely that the behavior of executives in a lot of corporations is disgusting. I just don’t agree that such behavior is caused by the corporate structure. Some of it is just the natural inclination of people to greed. But much of it is caused by the state’s control over the economy. If you get the state out of the economy, corp execs will have little reason to bribe them for special treatment. Anyway, your argument is based on the disgusting behavior of some execs and not necessarily on principle.
As for following libertarian principles, I don’t see why limited liability violates any of them. I think some of the problem comes from people getting hung up on the word ownership. Stockholders are not owners in the normal sense of the word. Ownership means control; without control their is no ownership. As a result, stockholders do not own a corporation. They have none of the control of owners. They are no more owners than are bondholders. Stock ownership is a hybrid type of ownership somewhere between a partnership and a bondholder.
As I mentioned, libertarian principles underscore the right of contract. Promoters and investors can draw up any contract that doesn’t violate the property of others. Even in anarchy, stock in a corp would be just such a contract. The stock ownership contract only removes control of the company from the investor. It does not guarantee limited liability.
Whether or not the stockholder has limited liability has nothing to do with the contract. It is a law issue and natural law has never held people responsible for actions they had no control over. So under libertarian concepts of contract and natural law, I don’t see why some type of corporation with limited liability wouldn’t develop.Peter Drucker once said that boards of directors are asleep at the wheel. I’m no expert in business law, but it seems to me that the board has fudiciary responsibility to protect the interests of shareholders, but they do a poor job of it. In addition to going after execs, like those at Enron, the law ought to go after all board members when management commits crimes.
But you can’t stop people from committing crimes, even managers of corporations. That’s part of human nature that can’t change. As with Enron, the market punishes stock holders for such criminal behavior and the law punishes the execs. Stockholders should be diversified in case execs commit such crimes.
The question is whether or not the corporate structure causes the crime, or at least encourages it. As it currently stands, I think it does encourage it because boards of directors are asleep at the wheel. If board members did their jobs, there would be a lot less disgusting, immoral and illegal behavior on the part of execs. The solution is to punish board members along with the execs.
At the same time, let’s put the situation in perspective. We have tens of thousands of corporations. How many have been guilty of immoral or criminal behavior? Just a handful. We need to compare the behavior of corporations with that of privately owned companies to see if corporations are worse. And do we really want to resort to group punishment, as SOX does, for the behavior of a few?
- jp
- I’d love to deal with a bank with full liability because in case of failure shareholders would have to repay me for the full amount I deposited. Unfortunately I can’t deal with a fully liable bank because (in Canada at least) the government has legislated that all banks must take on the limited liability corporate form.Canada has a long tradition of fully liable banks, but by the late 1800s these were being forced to officially incorporate and adopt limited liability. Kinsella, the eternal apologist for limited liability, seems to characterize today’s LL dominance as the end result of natural market processes. He doesn’t understand that in situations like the one illustrated, limited liability nature was forced on banks by the state and by extension on those who dealt with them, the depositors.
This huge subsidization of LL for banks is unfortunate as it has cut down on consumer choice. Where are the double liable banks we’d prefer to deal with? Where are the fully liable ones? They’ve been cut out of the picture by government LL legislation. Not by natural market forces.
- Mashuri
- JP Wrote:A dissolution of a voluntary relationship by one party is not the same as the violent threat within the structure of military dicipline. Neither is an order from a policeman holding a revolver against your head the same as a request from a manager to an employee to not lick the french fries or else find other employment.
The employee can always quit. Hence, a request from an employer to an employee is not an “order.”
A one-sided threat to dissolve a voluntary relationship has coercive power over the party that does not want that relationship to dissolve. The policeman holding a revolver to my head is coercing me by threatening to take something of value from me: My life. A company owner telling a contractor, who wants to keep his contract active, that he will be terminated if he doesn’t do as ordered is also being coerced via threat of having something of value taken from him.
- JA
- A one-sided threat to dissolve a voluntary relationship has coercive power over the party that does not want that relationship to dissolve.You are distorting the word coercive. The essence of a voluntarily relationship is that either party can decide to dissolve.
The policeman holding a revolver to my head is coercing me by threatening to take something of value from me: My life
No, he is threatening (coercing) you with a revolver. In such as case, you have no rational choice but to comply.
The rest of your post is a Non Sequitur, as you haven’t proved that violent threats are the same as voluntary dissolution of a relationship. A child understands voluntary relationships are different than threat of deadly force, yet you can’t get it?
Further, contracts have nothing to do with value. By definition, any party can dissolve the contract at any time for whatever reason (though the dissolution may include final contractual obligations).
- Mashuri
- I assume JP and JA are the same person?Before I get into a semantic battle over the meaning of coercion, I want to clarify your position. The system of accountability you seem to be preaching would make a nice loophole for cult leaders to operate with impunity. Charles Manson, whose “Family” followed his commands without being threatened should still be a free man, correct?
- JA
- Charles Manson took an active (planning) role in murdering people.He is guilty of murder. Being a “cult leader” is not a crime.
- Mike
- “Charles Manson took an active (planning) role in murdering people. “I think this is a distinction without a differentiation. An employer who orders an underling to commit aggression is not taking an active role in that aggression?
- Yancey Ward
- One falling into this debate from the outside needs to understand something about mutualists like Carson- they don’t think you should own capital you are not working with yourself. JA is exactly correct- they are socialists/communists masquerading in libertarian clothing. Every argument they advance has a single, solitary goal- the dimunition of the principle of physical property ownership. This is why the language of debate keeps getting distorted whenever one engages with them. The principle they are attempting to advance is use it or lose it. To support this, one must completely invalidate the principle of voluntary contracts, and mutualists do this through a variety of methods, but the most common (and seen in several instances in this thread alone) is to change the meaning of voluntary to coerced.
- TokyoTom
- Stephan, allow me to clarify further:TT: “Is there any libertarian argument that the state OUGHT to step in and allow investors to unilaterally shift a portion of the risks of their business venture to others who might be damaged by the activities of the business?”
SK: No, and the state should not exist. But people criticize corporations as being *mere* creatures of the state on the grounds that the state gives them privileges that would not exist in the free market.
TT: My point is simply that there is no libertarian argument that the state OUGHT to step in and allow investors to unilaterally shift a portion of the risks of their business venture to others who might be damaged by the activities of the business. I’m glad that you agree, and am puzzled that you do not acknowledge that the state grant of limited liability to investors (and to transferees of such investors) in corporations constitutes an uncontracted-for shifting of risks to investors from victims of corporate torts.
TT: “Without the act of state in creating limited liability for shareholders, such limited liability would not exist – except perhaps vis-a-vis creditors and business counterparties who might otherwise agree to limited their claims to the assets of the company, in exchange for agreed methods of risk control or higher prices. However, such limited liability could not otherwise exist as to Involuntary (or “tort”) creditors who without their consent are injured by the corporation, who have not agreed to assume the risk of corporate insolvency and shareholders’ limited liability, and who have neither received ex ante compensation for doing so nor had the opportunity to bargain for contractual safeguards.”
SK: Again: the question is, absent the state, should shareholders be vicariously liable for torts committed by employees, or not? The presumption is they should not, since they did not commit the acts–unless you can come up with a sound argument for why they should (and pointing to the way it’s been done before doesn’t cut it).
TT: Stephan, again you refuse to actually advance a justification for the government grant of limited liability to shareholders (indeed, you concede that, there is no libertarian argument for such a state grant), but simply argue for the status quo, on the grounds that shareholders don’t typically themselves do not commit the torts.
If there is no libertarian grounds for the use of government fiat to limit the liability that shareholders bear for the risks that the activities of the business might injure others, then surely the “presumption” you offer should be reversed, and you should advance a case that whether those who are injured by business enterprises should justly be forced to assume the risk that their ability to make claims against the assets of the business owners depends upon whether the business happens to be a sole proprietorship, a partnership or limited liability corporation.You state that “the question is, absent the state, should shareholders be vicariously liable for torts committed by employees, or not?”, presume that shareholders should have no liability as principals for acts of the corporation “because they did not commit the acts”, and then ask me to advance arguments that shareholders should be held responsible for the acts of corporations. I disagree, note that your formulations dodge a number of issues, and note further that you have completely ignored the arguments that I and others have advanced for unlimited shareholder liability (prominently, the two Yale LJ articles and the Vanderbilt L Rev article).
Time for you to start doing some of the work.
TT: “My point is that limited liability lets investors entirely off the hook for damages that the wrongful acts of the corporation and its employees. While a few employees might individually be held responsible for their actions, this still may leave many injured persons uncompensated for injuries cause by a corporation’s business activities”
SK: You are assuming the “business activities” are “the cause”. This is question begging.
TT: Well said, Artful Dodger, but it’s not me who’s begging the questions. Putting aside (i) the question of the scope of vicarious liability WITHIN the firm and (ii) cases where there is a only one a single injured party and a single employee committing an unauthorized tort, it is undeniable that small, medium and large corporations have in the past and continue from time to time to commit large-scale torts – in the form of pollution, dumping of waste, defective products, other personal injuries, slander and the like – that arise directly from their business activities. In most such cases, no single individual tortfeasor within the corporation can be identified. Clearly, in some such cases a few employees might individually be held responsible for their actions, this still may leave many injured persons incompletely uncompensated for injuries caused by a corporation’s business activities.
TT: “Before limited liability corporations were established, the common law doctrine of respondeat superior required investors to bear responsibility for the acts of a business, just as individual proprietors and partnerships remain so liable today.”
SK: Why should they be? Because the common law says so?
TT: No; sole proprietors and partnerships have been and remain liable for the acts of a business because it is unjust to allow them to externalize a significant portion of the risks of their activities, while capturing the benefits of those risks. The state, by providing the corporate form, allows the externalization of such risks on a vast scale, and continues to do so by further making limited liability available for those who prefer to be taxed as partners. But to reverse the question, perhaps you care to point to libertarian principles or a common law doctrines (which libertarians frequently point to as a valid basis for determining the scope of ownership rights and who should be responsible for injuries caused to others) that would justify a position that those who own and operate businesses ought NOT to be responsible for the damages those business activities cause, beyond the assets of the business?
TT: “Again, you simply …. presume that the state action that leaves shareholders free to shift business risks to others is valid and justifiable. Even as you remain unwilling to make your case, I am happy to expand my argument that limited shareholder liability is an unlibertarian grant by the state to shareholders.”
SK: You need to explain why shareholders should be liable. You keep calling them investors–shareholders are usually not investors.
TT: Again, you are nonresponsive. Perhaps you should pick fewer nits and acknowledge the bigger picture. For small corporations, start-ups, and corporations raising capital, the shareholders typically are investors. Moreover, for small firms, closely-held firms (including large LBOs) and even for many large firms, there are major shareholders that are also clearly “owners”. You have advanced no libertarian or other argument that justifies limiting the liability of investors and owners at all for the torts of corporations; much less for your implied position that investors and owners should be able to freely slough-off any vicarious responsibility for damages to victims of corporate acts by the simple expedient of selling their shares to others (who, while they do not directly fund the company, are certainly investing in ownership of the same set of assets and liabilities as the initial investors).
TT: “The chief point, of course, is that the creation by the state of corporations limits tort liability to individual tortfeasors”
SK: It limits state-imposed vicarious tort liability. If the state stops taxing you, this is good, because it should not be taxing you in the first place. If the state stops imposing vicarious tort liability on shareholders, this is also good, if it should not be doing this in the first place. You seem to assume they should. why?
TT: Where does “the state” impose vicarious tort liability? Respondeat superior is largely an old and evolving part of the common law. I don’t agree with all cases, but individual judgments are hardly the same as the state acting by law to free shareholders from liability above the amount they paid for the shares for the risks generated by corporate activities.
TT: “This reduces the likelihood that victims will receive full compensation for corporate acts.”
SK: If a FedEx driver negligently crashes into you, why arey ou calling it a “corporate act”? He was not directed to do this by FedEx, was he? Why is his negligence theirs?
In any event–this whole critique is ridiculous. Whenever a corporation’s employee commits a tort, the victim is compensated by the corporation or its insurer. IT’s almost always irrelevant that he can’t sue shareholders individually. Even if they could, shareholders could simply purchase shareholder-liability-insurance, no biggie.
TT: “Ridiculous”? Nonsense! There, are we even now?
The grant of limited liability to involuntary creditors cannot be justified on libertarian grounds, and arguments I have noted regarding efficiency, moral hazards, equity, the disincentives for shareholders to closely monitor firms, the relative freedom of managers and executives to loot, and the related rise of citizen pressure groups to seek to have governments provide checks are all substantial and important.
While there are many cases where injured persons are compensated, there are many cases where corporations have generated widespread risks and failed, leaving countless others holding the bag, while investors (and managers) may have profited and then exited without substantial loss. The limited liability grant actually encourages such behavior.
You say that, if victims could “sue shareholders individually”, in which case “shareholders could simply purchase shareholder-liability-insurance, no biggie”. I heartily agree – a system of pro rata shareholder unlimited liability would work (as one of the law journal articles argues), as well as being more just. I appreciate the concession – so have you stopped fighting this point?
Regards.
- JA
- An employer who orders an underling to commit aggression is not taking an active role in that aggression?What I dispute is this is an “order.”
It’s not an order. It’s a mutual agreement.
“Underling” is another meaningless word outside of serfdom or the military, both institutions based on violent threat. The employee-employer is an equal agreement of mutual service (trading labor for money).
- JA
- Kevin Carson believes in the Labor Theory of Value.Is this true?
If so, it relates to my earlier questions. How can Carson use Rothbard and Mises’ calculation argument against large firms (whatever “large” means)…when he disregards the very premises of the Calculation Argument by holding the false “labor theory of value”?
The Calculation Argument presupposes marginal utility, Austrian price theory, etc. If the Labor Theory of Value is true (and it’s not), then the Austrian “Calculation Argument ” makes no sense!
Is Carson just making up a “Cargo Cult” of ideas, completely unrelated by logic or reason (i.e. he’s just a crank weirdo), or is he trying to attract normal libertarians to his socialist ideas by throwing in Rothbard and Mises, even though neither man’s idea make any sense when connected to the Labor Theory of Value.
- Mike
- TT:I’m trying to decide what I should think about limited liability. Could you give me a couple of specific examples (hypotheticals are fine) of the kinds of corporate acts that limited liability presently protects but which you think shareholders should correctly be accountable for beyond the pro-rata share of the firm’s assets and income? Also, in your mind, would shareholders have to be shown to have been aware of the acts in question, or would they be responsible for all of the decisions of management — even those “off the radar screen”?
Thanks!
- Mike
- JA:Carson does accept the validity of some form of the LTV, but not in the way you might think of it. Part 1 of his book details this thoughts on value theory. There is also a fair synopsis in Robert Murphy’s critique of Carson in the Journal of Libertarian Studies. You’ll find that despite Murphy’s objections, there is a lot to Carson’s thought that is consistent with Austrian economics. I don’t think Carson’s value theory precludes him from finding use in Mises and Rothbards calculation arguements. Carson accepts that prices form as a result of supply and demand — the haggling of the market. For him prices simply tend, in the long run, to equal whatever value is necessary to compensate the marginal worker for the subjective disutility of labor. Though I remain unconvinced that his LTV is a superior explanation of prices, I find that most caricatures of it represent misunderstandings of the position.
- TokyoTom
- Mike, try starting from basics. Say you have an unincorporated sole proprietor who is engaged in manufacturing and produces is a hazardous or toxic waste. If he disposes it in a way that causes injury to others, he is liable – up to all of his assets (and even further, though it may be a bankruptcy law cut off and it not be worth the injured person’s efforts). If he hires one or more employees, he is responsible for any injuries if he directs them to dump the hazardous waste, or if they cut corners as a result of his negligent oversight.If he incorporates, he will not be held responsible personally unless he committed the tort himself or directed it; his liability will be limited to the net assets of the firm. Clearly, the state grant of limited liaiblity lessens the ability of persons injured by his business activities to recover damages for their losses (they MIGHT be able to recover from the employee, but they will not have access to his personal assets). This creates a moral hazard on the part of the corporation owner to maximize private benefits from business activites while not having to worry about whether the full scope of losses may exceed the value of the gains. Courts recognize the injustice in this and sometimes “piece the corporate veil” to protect injured persons and even voluntary creditors.
The state grant of limited liability has made it possible for founding shareholders to gather even more capital from persons who know that their downside risks are limited and wish to capture upside benefits. As these shareholders have limited liability, they also have limited interest in making sure that risks are managed well. The result has been a continuing erosion of shareholder rights, a whithering of control over managers, and the growth of ever larger corporations able to impose ever larger risks on society (the downside of which they can further limit by separately incorporating different business lines, especially the riskier ones).
The focus on investors earning profits while bearing no personal responsibility for losses has given us a gradual shift in the nature of corporations (which now are given rights by the state to have unlimited lives and unlimited purposes, and are even recognized as “persons” for purposes of the Bill of Rights), a growth in corporate scale and risks posed to others (as shareholders, creditors and executives, managers and employees have increasingly less identifiable personal risk and more opportunity to look out for number one while ignoring risks), and a growth in citizens forming pressure groups to push for the regulation of firms and the risks they pose (mandating the posting of bonds for certain activites, mandating pollution clean up, etc.).
All fed by the state grant of limited liablity – which could only exist on a libertarian basis (without veil piercing) if a substantial owner was covering the risks.
- Stephan Kinsella
- TokyoTom:
TT: My point is simply that there is no libertarian argument that the state OUGHT to step in and allow investors to unilaterally shift a portion of the risks of their business venture to others who might be damaged by the activities of the business. I’m glad that you agree, and am puzzled that you do not acknowledge that the state grant of limited liability to investors (and to transferees of such investors) in corporations constitutes an uncontracted-for shifting of risks to investors from victims of corporate torts.
It’s not a shift if they don’t or shouldn’t have liability in the first place. for example, right now the state’s laws do not hold YOU accountable for, say, the actions of United Airlines. This is not a privilege granted to you or any shift in liability since you shouldn’t be liable for them anyway.
TT: Stephan, again you refuse to actually advance a justification for the government grant of limited liability to shareholders (indeed, you concede that, there is no libertarian argument for such a state grant),
Correct. I’m an anarchist.
but simply argue for the status quo,
Where?
If there is no libertarian grounds for the use of government fiat to limit the liability that shareholders bear for the risks that the activities of the business might injure others, then surely the “presumption” you offer should be reversed, and you should advance a case that whether those who are injured by business enterprises should justly be forced to assume the risk that their ability to make claims against the assets of the business owners depends upon whether the business happens to be a sole proprietorship, a partnership or limited liability corporation.
No: there is no libertarian grounds for the state to *impose* liability on shareholders for acts of employees.
You state that “the question is, absent the state, should shareholders be vicariously liable for torts committed by employees, or not?”, presume that shareholders should have no liability as principals for acts of the corporation “because they did not commit the acts”, and then ask me to advance arguments that shareholders should be held responsible for the acts of corporations. I disagree, note that your formulations dodge a number of issues, and note further that you have completely ignored the arguments that I and others have advanced for unlimited shareholder liability (prominently, the two Yale LJ articles and the Vanderbilt L Rev article).
I’ve given my reasons and sketched out my view of a theory of causation. I have little interest in reading the works of a bunch of mainstream unlibertarian utilitarian state apologist lawyer hacks.
- P.M.Lawrence
- Stephan Kinsella says of Mike’s “If A employs B for some non-aggressive act, but B then uses A’s resources to commit aggressive act, A, it would seem, is not culpable”, “You have just joined the pro-corporation side, since this view would totally eviscerate the notion of respondeat superior and vicarious liability that makes the company responsible for the torts of its employees committed while in the scope of performing their duties”.No, because he added that “while in the scope of performing their duties”. Mike’s description is more that of the “frolic”, for which the responsibility does not flow through.
Fundamentalist says of TokyoTom’s “I don’t believe that there is any such libertarian justification for limited liability”, “The justification would be the issue of control. Common sense says that people who don’t control events aren’t responspible for the results.”
Actually, it doesn’t say that, if you look wider than the instantaneous effect. Consider someone who lets go of a plate that breaks a fraction of a second later. Instantaneously, nobody was holding it, so it fell – but the letting go reasonably foreseeably although not absolutely certainly led to the smash (some falls don’t break things).
So, common sense says that people who don’t control events because they let go are responsible for the results.
JA asks of “The defining feature of a corporation is its legal independence from the people who create it. If a corporation fails, shareholders only stand to lose their investment, and employees will lose their jobs, but neither will be liable for debts that remain owing to the corporation’s creditors. This rule is called limited liability, and it is why the names of corporations in the UK end with “Ltd.” (or some variant like “Inc.” and “plc”).”, “Please explain how any of above is NOT libertarian?”
Because there is no way you can ever achieve that in full without state aid. The most you can achieve by contract is to limit liability to contracting parties, and the most you can achieve de facto is to let sleeping or silent partners hide while active partners cannot.
‘What I find confusing is how this whole conversation started with a promise that “free markets would lead to a prevalence of organizational structures that mutualists like…co-ops, worker-owned firms, etc.”‘ – it didn’t, go and see. It started out with saying there would be smaller and simpler types of firm, of which those might be some. It never had a claim that those would be prevalent, outside the straw men that got thrown up.
“Never mind all of the rest of us are talking about normal free market businesses…enterprises which trade on a voluntary basis for profit, violating the rights of none” – only, they aren’t like that, they are state aided and crowd out alternatives.
“There is also suddenly a shift to the justification for partnerships and sole proprietorships. But this leaves out all the problems of partnerships — what if one partner dies, what if one partner wants to leave, what if all partners want to sell out, what if new investors want a fast exit strategy — the solution is to create a corporate structure and issue shares of the business. This has nothing to do with limited liability.”
Absolutely correct, just as a solution to someone asking for his change on a purchase is to throw him out without giving him his change.
“Such a structure can be created without State intervention” – wrong. Quite simply, the only possible free transactions always leave someone in a position of responsibility.
“But the investor IS on the hook to the limit of their investment” – actually, http://en.wikipedia.org/wiki/Corporation wasn’t quite right on this point, so I updated it. It usually works out that way, though.
“You still need to answer WHY the investor is on the hook for more than than the value of their shares, given that some employees were the actual perpetrators (agents) of the violation of others’ rights” – see my reply to Fundamentalist.
‘when I read comments on the Carson blog to the effect that “left-libertarians believe corporations = companies, and left-libertarians are anti-corporation.”‘
Go back and re-read them. It’s not a statement that corporations = companies, it’s a statement that companies are corporations (in non-US English, and also in Stephan Kinsella’s own statements); but that doesn’t rule out other corporations. And left-libertarians are not anti-corporation, just against the sort of state intervention that creates most of them. There are, however, a few that have an internal dynamic and don’t get created like that, e.g. the monastery St. Columba founded on Iona during the Dark Ages when there wasn’t any state there.
Being a “Vulgar Libertarian” means being blinkered and recklessly, negligently or wilfully unaware of the selectiveness of facts and/or arguments being admitted. It’s not an aesthetic charge at all. And, of course, that selectiveness is just what Vulgar Libertarian is recommending.
Mike follows up “In these cases, I’m not sure if it’s libertarian to go after the shareholders beyond their share ownership” with “I’m not either. In fact I’m starting to come around to the idea that it’s not. Still, someone has to have unlimited liability.”
I believe firms could conveniently restructure from corporations to limited partnerships, with former shareholders becoming de facto limited liability through anonymity and management becoming active and accessible partners. So the pattern of liability arising from such a restructure seems to match what should already be in place.
JA believes that ‘The employee can always quit. Hence, a request from an employer to an employee is not an “order.”‘
Ah, but there is a concealed circularity in there, begging the question. Precisely because corporations have been given state aid, they have crowded out other options – so the only way an employee can quit is by going to another one just the same, unless he is lucky enough to find one of the rare alternatives.
Stephan Kinsella asks “the question is, absent the state, should shareholders be vicariously liable for torts committed by employees, or not? The presumption is they should not, since they did not commit the acts–unless you can come up with a sound argument for why they should (and pointing to the way it’s been done before doesn’t cut it).” – see my reply to Fundamentalist.
“You need to explain why shareholders should be liable. You keep calling them investors–shareholders are usually not investors.” While that remark encapsulates a precise distinction between owning and having made an increment to physical or other capital, saying it like that does not clarify matters but only serves to confuse them.
Fundamentalist addresses TokyoTom: “I agree with you completely that the behavior of executives in a lot of corporations is disgusting. I just don’t agree that such behavior is caused by the corporate structure. Some of it is just the natural inclination of people to greed. But much of it is caused by the state’s control over the economy. If you get the state out of the economy, corp execs will have little reason to bribe them for special treatment. Anyway, your argument is based on the disgusting behavior of some execs and not necessarily on principle.”
There is something with a bearing on this at http://en.wikipedia.org/wiki/Corporation#Corporations.27_criticism – “Legal Scholar and Professor of Law at the University of British Columbia Joel Bakan describes the modern corporate entity as ‘an institutional psychopath’ and a ‘psychopathic creature.’ In the documentary The Corporation, Bakan claims that corporations, when considered as natural living persons, exhibit the traits of antisocial personality disorder or psychopathy. Also in the film, Robert Monks, a former Republican Party candidate for Senate from Maine, says: “The corporation is an externalizing machine (moving its operating costs to external organizations and people), in the same way that a shark is a killing machine.””
Yancey Ward misunderstands “One falling into this debate from the outside needs to understand something about mutualists like Carson- they don’t think you should own capital you are not working with yourself”.
Actually, there is a range of views there. Kevin Carson takes the view that “property” that turns out not to be legitimate, i.e. true property, should go to people who are working with it directly, and that working directly with something that definitely isn’t owned sets up ownership (very Lockeian, that). But he doesn’t rule out legitimate property changing hands, say by gift, as far as I can see.
- Yancey Ward
- P.M. Lawrence,Nothing you wrote contradicts my “misunderstanding”.
Carson, and the mutualists “like” him, don’t accept the profitting from accumulated capital unless that person is the one laboring with the capital. If you are not the one laboring with the capital, be it a bulldozer or a fertile field, then mutualists don’t recognize your ownership of this capital. If mutualists were more open about this, I wouldn’t give them such a hard time, but they always try to obscure this reality about their political philosophy as you did by not really explaining what is meant by “illigitimately owned”.
- stephan Kinsella
- P.M. Lawrence, couple questions.First, are you a (left) libertarian, or not a libertarian at all? I ask b/c of Kevin Carson’s saying I made an unwarranted assumption that you are in this post. Tell you what, I’ll assume you are, until you deny it.
Second, with all your handwringing about corporations being “institutional psychopaths” blah blah blah, let’s envision a free market–or as your comrades like to say, “freed market”–in which some people decide to form a firm and organize it as a so-called “corporation”, which means that in dealings with people (customers, suppliers, etc.) all these people are on notice that any contractual claims they have are limited to the assets of “the corporation” and not the shareholders; and in a world in which libertarian principles of causation prevail and by and large shareholders are not held personally liable for the torts committed by employees of the companies they own shares in. Let’s also imagine that because the world is vastly wealthier, there are no taxes on companies and enterprise, that some of these corporations happen to be very large–as large as today’s MNEs or even larger.
Now, in such a world, would you guys still be whining about corporations…? If so, your complaint has nothing to do with the state or state grants of incorporation. If not, then it seems you think merely having the state grant corporate status (even while taxing and regulating the corporation) makes the corporation an “institutional psychopath.”
Interesting…. theory.
- fundamentalist
- PM: “So, common sense says that people who don’t control events because they let go are responsible for the results.”I responded to that above. You haven’t shown that stockholders ever had the responsibility in the first place.
PM: “”Legal Scholar and Professor of Law at the University of British Columbia Joel Bakan describes the modern corporate entity as ‘an institutional psychopath’ and a ‘psychopathic creature.”
Merely stating it doesn’t make it true. You would have to show that the majority of corporations act in that manner and you can’t. The truth is that very few corporations act that way. The vast majority are good citizens. You’re guilty of trying to make the exception the rule.
I think there is something deeper going on with anti-corp types. Before I tell you what, let me make the following disclaimer: I’m not calling any of you socialists. Repeat, I’m not calling any of you socialists. So please don’t anyone post that I’m calling you names or calling you socialists because, to repeat: I am not calling anyone a socialist. If that is clear enough, then let me say that socialists believe that human beings are essentially pure in motives and they blame bad behavior on something outside of human nature. Anti-corp types seem to share that attitude with socialists, although to repeat: I am not calling anyone a socialist. As a result, anti-corp types have cause and effect backwards: organizational structure does not cause people to behave badly; bad people behave badly because it’s in their nature. They will behave badly in government, in corporations and in non-corporate structures.
For example, all non-profit organizations are corporations. Why don’t they act as psychopathic creatures? They have exactly the same corporate structure, except that they don’t have any pesky stockholders to appease, which should make them more extreme psychopaths. You might respond that the profit motive makes for-profit corps act differently, to which I would respond then it’s not the structure but the motive that is the problem. If that’s true then why don’t you consider privately-owned businesses just as evil as corporations because they have a profit motive, too.
- P.M.Lawrence
- Yancey Ward writes ‘Nothing you wrote contradicts my “misunderstanding”‘ – I thought he wouldn’t get it.As for ‘Carson, and the mutualists “like” him, don’t accept the profitting from accumulated capital unless that person is the one laboring with the capital. If you are not the one laboring with the capital… then mutualists don’t recognize your ownership of this capital. If mutualists were more open about this, I wouldn’t give them such a hard time, but they always try to obscure this reality about their political philosophy as you did by not really explaining what is meant by “illigitimately owned”‘.
Doesn’t that mean, if they don’t say what he thinks they mean after all, but something else, he is going to give them a hard time? He just wants them to match his straw man.
Stephen Kinsella (as I shall deliberately misspell his name, as he did mine at the Rockwell blog) asks “First, are you a (left) libertarian, or not a libertarian at all?”
I shall answer this in instalments as convenient, probably elsewhere. For now, I will point out that this has no bearing on the facts and arguments I present and would merely present a target for ad hominem attacks.
“Tell you what, I’ll assume you are, until you deny it” is an announcement that straw man attacks will be made, probably ad hominem too.
With his ‘with all your handwringing about corporations being “institutional psychopaths” blah blah blah’ he is utterly misrepresenting what I wrote: I drew people’s attention to other criticisms that are on the record, so they can think about those without being filtered out by any prejudice being thrown at me. It’s Joel Bakan‘s ‘an institutional psychopath’ and a ‘psychopathic creature’, not mine, and both he and I are being objective and detached, not “handwringing”.
“Stephen” goes on to hypothesise ‘let’s envision a free market–or as your comrades like to say, “freed market”–in which some people decide to form a firm and organize it as a so-called “corporation”, which means that in dealings with people (customers, suppliers, etc.) all these people are on notice that any contractual claims they have are limited to the assets of “the corporation” and not the shareholders; and in a world in which libertarian principles of causation prevail and by and large shareholders are not held personally liable for the torts committed by employees of the companies they own shares in. Let’s also imagine that because the world is vastly wealthier, there are no taxes on companies and enterprise, that some of these corporations happen to be very large–as large as today’s MNEs or even larger.’
First note that he is still building in his assumption that you could actually get that. I have pointed out that you can’t, not in full, because the buck always stops somewhere and any attempt to get rid of responsibility, whether it succeeds or fails, always leaves it somewhere. Of course you can get a long way de facto, by using anonymity to shelter behind, but sooner or later someone has to come out in the open even if not all the “someones” have to. He is also assuming that these organisations could get – and, more importantly, stay – large. As he remarks, “Interesting…. theory”.
So I’ll help him. I’ll give him a real world example that comes close: Andy Carnegie and his steel business. From http://en.wikipedia.org/wiki/Corporation#Mercantilism we have “Many private firms in the 19th century avoided the corporate model… (Andrew Carnegie formed his steel operation as a limited partnership… )”.
For his shareholders, Carnegie’s firm offered all those things. However, he himself (and some others) remained on the spot, and – in the end – he had to bow out, and sold up; a corporate structure was formed, under the legislative framework. The original structure couldn’t be kept going indefinitely without Carnegie and his colleagues. Yet they did not find it practical to set up the Kinsella-style non-state corporation to start with, despite its advantages to them as he describes those!
Stephen Kinsella asks of his hypothetical, ‘Now, in such a world, would you guys still be whining about corporations…? If so, your complaint has nothing to do with the state or state grants of incorporation. If not, then it seems you think merely having the state grant corporate status (even while taxing and regulating the corporation) makes the corporation an “institutional psychopath.”‘
Clearly, people then and now did and do complain – but about Andy Carnegie et al, not about the steel operation per se. So the answer is no, there would be no “whining about corporations”, unless and until there were any.
Fundamentalist claims that I “haven’t shown that stockholders ever had the responsibility in the first place”.
The point is that someone sets up the resources and physical power that allow a corporation to do things, and there is a chain connecting those original investors to current shareholders, at every step of which control was passed along with ownership. The shareholders didn’t have responsibility in the first place, they got it bundled up with the shares or by being people who set up the corporation.
He then says of Joel Bakan’s description, “Merely stating it doesn’t make it true”. No, but it does give you food for thought and a reference to follow up if you want to find out if it is true. Which is why Fundamentalist’s “You would have to show that the majority of corporations act in that manner and you can’t” is a faulty test. I don’t have to show any damned thing, people can follow up Joel Bakan’s work if they want to see how he got there.
Fundamentalist almost gets there with “As a result, anti-corp types have cause and effect backwards: organizational structure does not cause people to behave badly; bad people behave badly because it’s in their nature. They will behave badly in government, in corporations and in non-corporate structures”.
But there is no inversion of cause and effect. It’s just that a corporation attracts and gives incentives to those types, then shelters them so that the corporation does those things as convenient. It’s like accusing someone who wants to drain a swamp because of malaria of not realising that malaria is actually caused by a microbe. When there is no corporation, you get isolated Carnegie behaviour (see above), which is self limiting because individuals come and go, and for which an actual person can be put on the spot and/or affected by his own real human qualities – which happened to Carnegie, later.
Fundamentalist offers “For example, all non-profit organizations are corporations. Why don’t they act as psychopathic creatures? They have exactly the same corporate structure, except that they don’t have any pesky stockholders to appease, which should make them more extreme psychopaths. You might respond that the profit motive makes for-profit corps act differently, to which I would respond then it’s not the structure but the motive that is the problem.”
That’s not a counter-example. They, too, misbehave in just that way. I and others have experienced this at their hands. No, I will not describe my own personal experience of this.
- fundamentalist
- PM: “The point is that someone sets up the resources and physical power that allow a corporation to do things, and there is a chain connecting those original investors to current shareholders, at every step of which control was passed along with ownership. The shareholders didn’t have responsibility in the first place, they got it bundled up with the shares or by being people who set up the corporation.”
That doesn’t make any sense, but I’ll try to respond. I assume you’re trying to say that the original investors were not stockholders and therefore had control over the company. But if those investors become stockholders with limited control, they pass control of the company to the board of directors and management. I don’t know any other way to say it make it clear to you. That seems to be a very difficult concept for you to get your head around. Or are you trying to say that once you have control, and therefore responsibility, you can never under any circumstances relinquish it? And how in the heck does responsibility come “bundled” with the stock shares when the contract for ownership of the stock specifically states that the stock holder does not have control? You make less and less sense with each post.
PM: “I don’t have to show any damned thing, people can follow up Joel Bakan’s work if they want to see how he got there.”
You don’t have to be rational either, but it makes the discussion a lot more interesting. I don’t have to read Bakan’s work. He is merely a poor imitator of the thousands of Marxist economists who have written against the corporation for over a century. I doubt he has anything new to say. And the point stands: you cannot make every corporation guilty of the crimes of a few. It’s unjust and irrational.
PM: “It’s just that a corporation attracts and gives incentives to those types, then shelters them so that the corporation does those things as convenient.”
Tell that to the execs of corporations that have failed and no longer exist, some of the largest in history, or the execs that have gone to prison. You haven’t shown me anything about the corporation that is different from private business in attracting “those types” or that corporations shelter “those types” from punishment. In fact, most pyramid schemes are privately owned in order to avoid state inspection.
PM: “That’s not a counter-example. They, too, misbehave in just that way.”Every single non-profit acts that way? Again, you want to punish the majority for the acts of a few. How just is that? Does no single privately-owned business ever commit a crime? Do you have any idea whether more corporations commit crimes than privately-owned businesses?You have no principle to stand on that would convict the corporation, so you insist on condemnation by anecdotal evidence, and there you want to punish the many for the actions of a few.
- fundamentalist
- PS, since you insist on abandoning principle and indicting all corporations for the actions of a few, you’ll need to have some statistics about what percentage of corporations out of all corporations commit crimes and what percentage of non-corporations commit crimes. I don’t have those statistics myself, but based on media reports, I suspect that less that one percent of all corporations are involved in criminal activity and about the same for private companies.
- TokyoTom
- Stephan, thanks for the further remarks.1. me: the state grant of limited liability to investors (and to transferees of such investors) in corporations constitutes an uncontracted-for shifting of risks to investors from victims of corporate torts.
you: “It’s not a shift if they don’t or shouldn’t have liability in the first place”
TT: Your conditional rejection obviously fails. Clearly state action is necessary to limit shareholders’ liability to the amunt of their investment, and a key aspect of the popularity of the limited liability corporate form over other forms is precisely that it limits the downside liability that shareholders would otherwise bear for the risks of damage that the activities of the company (via employees) pose to unconsenting others who are victims.
As new limited liability forms have been created (LLC and LLPs), once tax authorities have confirmed pass-through tax treatment, their use has exploded, precisely to limit prior liability for torts (and to voluntary creditors). Large public firms separately all of the various hazardous ventures (that they own and control) precisely because they want to limit liaibility to third parties that they would otherwise be exposed to.
2. Nice to see that you see no justification for the government grant of limited liability to shareholders in the first place, and that youy are not arguing for the status quo.
3. you: “there is no libertarian grounds for the state to *impose* liability on shareholders for acts of employees.”
I agree with your statement, but it dodges the real issues. The government acted in a unlibertarian fashion by establishing granting limited liability – previously, unlimited liability of investors for acts of a venture had been imposed not by the state, but by common understanding; as most ventures had no separate legal entity status, vicarious liability for torts was more narrowly applied, and wouldn’t always reach investors.
But with the corporate form, the scale of risks imposed increased and the legal entity was imputed by courts to be the master to which corporate employees reported. But this new “master” was accountable to no one directly, with an ability to seek gains for the benefit of shareholders while creating risks for others, without any requirement to maintain assets to make others whole for the risks imposed: dividends could be paid to shareholders from profits, but when liabilities arose, the firm could simply be shut down.
There are of course many firms where there are identifiable shareholders in charge, and who would have liability but for the corporate form.
4. “I have little interest in reading the works of a bunch of mainstream unlibertarian utilitarian state apologist lawyer hacks.”
Your call, but others may think that reading about the history of the rise of limited liaiblity corporations, some of the results (transfer of risks to parties who are injured without any ability to bargain ahead of time, and resulting pressures for the state to interfere FURTHER), consideratons of the equities and economic efficiency of the status quo, and suggestions for reform might be useful in understanding the full subject.
5. you: “absent the state, should shareholders be vicariously liable for torts committed by employees, or not?” “I’ve given my reasons and sketched out my view of a theory of causation.”
Sounds like I need to refer to the other thread, but certainly here you’ve done nothing of the kind here.
But as for an argument that shareholders should be vicariously liable for torts committed by employees, I could advance the following:
– there are many cases where a small group of shareholders clearly owns and controls a company, in which there is no basis to artificially limit vicarious liability to the company level. Such shareholders may be individuals that own a small firm or via and LBO own a very large firm that was once public, or may be corporations that own and control subsidiaries.
– without limited liability, shareholders of large firms would have been much more interested in limiting the risks of losses and damages that exceed company assets, and would have made sure that they were in a position to manage downside risks directly (through management of executives, managers and employees) and indirectly via insurance (which insurers would also be incentiivized to manage and price risks).
– Sure, there are many investors/shareholders of in “public” companies that have no ability to control corporate risks, but except for the state grant of limited liaiblity, there are no other such classes of shareholders.
– The imposition of large-scale risk of injuries by limited liaibilities on involuntary victims is unjust and inefficient, shareholders (and executives) are better placed to bear the risks, shifting to pro rata unlimited liability by shareholders would not destroy markets (insurers could step in, for a price), and moving to such umlimited liability would greatly reduce the pressures on (and rationales used by) governments to force corporations to disclose more risks, maintain greater capital, bonds and insurance.
- JA
- “Ah, but there is a concealed circularity in there, begging the question. Precisely because corporations have been given state aid, they have crowded out other options”No, they haven’t. There are millions of self-employed people out there, event in our currently statist market. So this is a non sequitur on your part. Further, it says NOTHING about the voluntary nature of employment.
- P.M.Lawrence
- JA quoted me selectively, leaving out my “- so the only way an employee can quit is by going to another one just the same, unless he is lucky enough to find one of the rare alternatives”.That’s the problem with his “There are millions of self-employed people out there, event in our currently statist market” – those are few in proportion to the whole work force, and have taken up most of the opportunities like that. That’s how the crowding out works. It’s a fallacy of composition to think that because some people have managed it, it’s realistic for everybody.
As for “Further, it says NOTHING about the voluntary nature of employment”, so? It takes a specialised definition to call it voluntary, when the opportunities for survival using private resources are also among those crowded out.
I’ll address Fundamentalist later, when it’s more convenient.
- TokyoTom
- Fundamentalist, I note that I have responded to your further on Stephan’s newer thread.
- JA
- It’s a fallacy of composition to think that because some people have managed it, it’s realistic for everybody.It’s also a fallacy to assume that because some people are not something, it’s NOT based on choice and free will. Face it, you have NO proof of your “crowding thesis.”
Working for corporations is popular. Self-employment is not. And it this mostly has to do with human nature.
Most blue collar workers choose corporations because they are state-mooches, who want benefits of capitalism without taking the risks of capital.
It takes a specialised definition to call it voluntary, when the opportunities for survival using private resources are also among those crowded out.
No, it is YOU who is using a special definition for “voluntary.” I am using the common definition…free choice in relationships based on circumstances.
I see the Anti-capitalist mentality (as defined by Mises) peeping out of your posts…”private resources” — which leaves out that nearly all the capital used for starting most businesses is between the ears of the founder (or in their hearts as willpower).
- P.M.Lawrence
- Fundamentalist says of my “The point is that someone sets up the resources and physical power that allow a corporation to do things, and there is a chain connecting those original investors to current shareholders, at every step of which control was passed along with ownership. The shareholders didn’t have responsibility in the first place, they got it bundled up with the shares or by being people who set up the corporation.”,”But if those investors become stockholders with limited control, they pass control of the company to the board of directors and management. I don’t know any other way to say it make it clear to you. That seems to be a very difficult concept for you to get your head around.”
I fully understand that, and I also fully understand that it is not accurate, to the extent that they retain control over those – they can vote them out, and so on.
“Or are you trying to say that once you have control, and therefore responsibility, you can never under any circumstances relinquish it?”
No, I am saying that if you do relinquish control without due care and attention, then – just like walking away from a car leaving its hand brake off on a hill – responsibility stays with you. On the other hand, if you do take the right care in a handover, the person you hand over to gets the responsibility.
‘And how in the heck does responsibility come “bundled” with the stock shares when the contract for ownership of the stock specifically states that the stock holder does not have control? You make less and less sense with each post.’
We’ve been over this before. I know the contract says that. So does the state. They lie. The state is improper here, and nobody can give what he does not have – the old Latin saw nemo dat quod non habet. Does the person selling the shares have any way of not passing on responsibility, other than keeping it? Two people cannot agree among themselves that responsibility should vanish; they do not have the moral authority to do so. But yes, they can put it in writing that that happens.
“I don’t have to read Bakan’s work. He is merely a poor imitator of the thousands of Marxist economists who have written against the corporation for over a century. I doubt he has anything new to say.”
As they say, you can lead a horticulture, but you can’t make her think. Also, “my mind is made up, do not confuse me with the facts”.
“And the point stands: you cannot make every corporation guilty of the crimes of a few. It’s unjust and irrational.”
But who is doing that? We’re just saying the corporation system hands out all sorts of privileges. Sometimes it enables crime, sometimes lesser harm, but always privilege as against natural persons.
Of my “It’s just that a corporation attracts and gives incentives to those types, then shelters them so that the corporation does those things as convenient”, Fundamentalist says ‘Tell that to the execs of corporations that have failed and no longer exist, some of the largest in history, or the execs that have gone to prison. You haven’t shown me anything about the corporation that is different from private business in attracting “those types” or that corporations shelter “those types” from punishment. In fact, most pyramid schemes are privately owned in order to avoid state inspection.’
Notice that when they fail, as when a Roman Emperor was overthrown, they get replaced by more of the same – the approach continues (what happened after Bernie Cornfeld?). Notice also that those who suffer in this way are those who go beyond the shelter they are given, not those who work the system.
When I pointed out that his suggestion that non-profit corporations provided a counter-example was wrong, he misses the point with “Every single non-profit acts that way? Again, you want to punish the majority for the acts of a few. How just is that? Does no single privately-owned business ever commit a crime? Do you have any idea whether more corporations commit crimes than privately-owned businesses?”
I doubt that they all do, all the time; only, they do when it is convenient – which it often is, because of the privileges. It’s also doing the same bait and switch between the privileged status and outright crime. It also has a red herring about private businesses; of course that also goes wrong some of the time – only, it doesn’t have the shelter of those privileges. The point is the privilege, not the bait and switch about crime. Which means…
…”You have no principle to stand on that would convict the corporation, so you insist on condemnation by anecdotal evidence, and there you want to punish the many for the actions of a few… since you insist on abandoning principle and indicting all corporations for the actions of a few, you’ll need to have some statistics about what percentage of corporations out of all corporations commit crimes and what percentage of non-corporations commit crimes. I don’t have those statistics myself, but based on media reports, I suspect that less that one percent of all corporations are involved in criminal activity and about the same for private companies.” is entirely made up.
JA also misses the point, with ‘It’s also a fallacy to assume that because some people are not something, it’s NOT based on choice and free will. Face it, you have NO proof of your “crowding thesis.”‘
No? How about comparing historical patterns under different systems? Oh, wait – I already did that.
“Working for corporations is popular. Self-employment is not. And it this mostly has to do with human nature… Most blue collar workers choose corporations because they are state-mooches, who want benefits of capitalism without taking the risks of capital.”
Now who’s making assumptions? That simply isn’t true, whenever and wherever realistic alternatives were available. Stopping them being realistic, well, that’s the crowding out. I suppose you could add in the learned helplessness effect, so that most people who haven’t been in a free market come to think of the remaining options as the things to go for.
Of my “It takes a specialised definition to call it voluntary, when the opportunities for survival using private resources are also among those crowded out”, JA comments…
‘No, it is YOU who is using a special definition for “voluntary.” I am using the common definition…free choice in relationships based on circumstances.’
Ah. So, if I maroon him on a desert island or drop him out of a plane over the sea, my prior force in doing that doesn’t count towards what happens after that – he is free to look after himself while falling into the sea or looking for resources on the island.
There’s more “sounds like” in his ‘I see the Anti-capitalist mentality (as defined by Mises) peeping out of your posts…”private resources” — which leaves out that nearly all the capital used for starting most businesses is between the ears of the founder (or in their hearts as willpower)’. It’s also unrealistic about the other stuff people need; ex nil nil fit, out of nothing nothing comes. Turn someone like that loose on a desert island and he would soon find he needed more. Or turn a peasant off his land with a lot of others and only the lucky few would find enough opportunities elsehere fast enough to save them; it has often happened before. What could Andy Carnegie have done, without a ship that could take him to a destination where he could flourish?
- Garble
- How does limited liability work in the real world?Your company goes bust (or just has a lot of debt). You sell the assets of the company to another Ltd entity (you can create or buy one for a couple of hundred bucks) with your wife (or any other individual you pay a few hundred bucks to) as director, thereby preserving the original name.
You visit a liquidator and pay him ten grand to “verify” that the best way to dispose of the assets is by private sale, and then you have him sell the assets back to the original Ltd company for 1% of their value. Ta-da! Why would the liquidator care about the creditors? They aren’t paying him – you are!
Go an look up any number of Ltd. liquidations online. They all mysteriously have enough to pay the liquidator, but nothing for the creditors. THe sale of assest often adds upt o the taxman’s and the liquidators bill. (You don’t mess with the taxman – he might actually bring the hammer down on you and your liquidator). The average creditor has to “pierce the veil” in court.
There are all sorts of useful things you can do with limited liability, and in all my years as a credit controller, I’ve rarely seen it used to protect shareholders. Unless the shareholder also happens to be the director.
It’s BS.
Why should shareholders be liable for the risky actions of the company?
An example. Let’s say a courier company tells its drivers to drive as fast as they can and run read lights etc. The shareholders benefit from this, as the compnay always sticks to its 60 minute delivery guarantee. One day a driver bowls over an old lady..
Or the company pours toxic sludge into a lake rather than disposing of it safely, or whatever. If the shareholders benefit from the companies money making actions, they should also stand to be liable for its illegal actions.If I loan you $100 to deal drugs for me, and give me a 5% cut now and then, and then you get caught, do you think the law would see me as “not liable”?
“anti-capitalists who think they are owed more than their wage for their labour,” Dixie Flatline
Are you accepting the “LABOUR THEORY OF VALUE” with respect to what Marx called “labour power?” Namely, the necessary means of subsistence needed for the workers to resume working later?
Or is this the “Iron Law of Wage?”
Lo, I see vulgar corporate libertarians around. As if robber barons’ capitalism be what Hans Hoppe called “clean-capitalism.”