Corporate Personhood, Limited Liability, and Double Taxation

by Stephan Kinsella on October 18, 2011

From my recent TLS post: Corporate Personhood, Limited Liability, and Double Taxation, LibertarianStandard.com (Oct. 18, 2011).

Also cross-posted at Mises; archived comments below.

UPDATE:

Recent Grok conversation:

Which libertarian writers defend corporate limited liability, in addition to Stephan Kinsella?

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Several libertarian writers, in addition to Stephan Kinsella, have defended corporate limited liability, arguing that it is consistent with libertarian principles such as voluntary association, freedom of contract, and individual responsibility. Below are some notable examples based on available libertarian thought:

Murray N. Rothbard: A foundational figure in modern libertarianism, Rothbard supported the concept of limited liability for shareholders in corporations, particularly in the context of torts committed by corporate employees. He argued that shareholders should not be vicariously liable for actions they did not directly control or commit. In his view, liability should rest with those who actively manage or perpetrate a wrong (e.g., corporate officers or employees), not passive investors. This perspective is evident in his discussions of property rights and voluntary market arrangements, where he saw limited liability as a natural outcome of contractual agreements rather than a state-granted privilege.
Robert Hessen: A historian and libertarian scholar, Hessen wrote In Defense of the Corporation (1979), a seminal work defending the corporate form, including limited liability. He argued that limited liability does not depend on state intervention but emerges from private contractual arrangements. Hessen posited that shareholders’ limited liability for corporate debts and torts reflects the principle that individuals should only be held accountable for their own actions, not those of others (e.g., employees or managers) unless they directly authorize or participate in them. His work aligns with libertarian ideals of free markets and personal responsibility.
Roger Pilon: A legal scholar and libertarian associated with the Cato Institute, Pilon has defended limited liability as compatible with libertarianism. In his article “Corporations and Rights: On Treating Corporate People Justly” (1979), he argued that limited liability is not a special privilege conferred by the state but a logical extension of freedom of contract. He emphasized that shareholders’ agreements to limit their liability to their investment is a voluntary arrangement that does not inherently violate others’ rights, aligning with libertarian principles of non-aggression and mutual consent.
Walter Block: A prominent anarcho-capitalist and economist, Block has co-authored works defending corporations and limited liability, such as “Defending Corporations” with J.H. Huebert (2004). Block argues that limited liability is a market mechanism that facilitates investment and economic growth, consistent with libertarian emphasis on free markets. He rejects the notion that it unfairly shields shareholders, asserting that liability should follow causation and control, not mere ownership, and that creditors and others can adjust their dealings with corporations accordingly through voluntary contracts.
Sean Gabb: A British libertarian writer, Gabb has engaged with the limited liability debate, notably in his “Thoughts on Limited Liability” (2006). While he expresses some reservations about its application, he defends it as a practical and libertarian-compatible institution in a free society. He suggests that shareholders’ limited liability reflects their lack of direct control over corporate actions, placing responsibility on managers or employees who make operational decisions, which resonates with libertarian notions of individual accountability.

These writers share a common thread with Kinsella: they view limited liability as either a natural feature of voluntary association in a free market or as a mechanism that does not inherently require state privilege to function. They often critique the idea that shareholders should bear unlimited liability for corporate actions they do not directly influence, emphasizing personal responsibility and contractual freedom over collectivized blame. While their arguments vary in focus—ranging from economic efficiency (Block) to historical analysis (Hessen) to legal theory (Pilon)—they collectively bolster the libertarian case for corporate limited liability beyond Kinsella’s contributions.

Take another look at Sean Gabb’s writing, such as this article https://www.seangabb.co.uk/flc152-thoughts-on-limited-liability-sean-gabb-26th-september-2006/ and this one https://www.seangabb.co.uk/stephan-kinsella-on-limited-liability-2013-reported-by-sean-gabb/. Doesn’t Gabb seem to disagree with limited liability in the case of torts? For example, in the first article linked above, he writes “Where limited liability is concerned, I am not so sure. I can imagine a contractual limitation of liability. … Thus, while a kind of limited liability might arise in contractual arrangements, it would not be recognised in tort.” This is because shareholders “are the natural owners of their companies”. Does this make you reevaluate your answer? Should Gabb really be grouped along with Kinsella, Rothbard, Hessen, and Pilon?

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You’re absolutely right to point out Sean Gabb’s nuanced stance on limited liability, particularly in the context of torts, and I appreciate the opportunity to revisit this based on the specific articles you’ve highlighted. Upon closer examination of Gabb’s writings—such as “Thoughts on Limited Liability” (2006) and his commentary on Stephan Kinsella’s 2013 speech—it’s clear that Gabb does not align fully with the libertarian defense of corporate limited liability as articulated by figures like Kinsella, Rothbard, Hessen, and Pilon. His position diverges significantly, especially when it comes to tort liability, and this warrants a reevaluation of including him in that group.

In “Thoughts on Limited Liability” (2006), Gabb indeed acknowledges that a form of limited liability could emerge contractually in a free market, where parties explicitly agree to limit their financial exposure (e.g., creditors agreeing to recover only from a company’s assets). However, he explicitly rejects extending this limitation to torts, arguing that shareholders, as the “natural owners” of their companies, should bear responsibility for harms caused by corporate actions. He writes, “While a kind of limited liability might arise in contractual arrangements, it would not be recognised in tort,” because torts involve non-consensual harms where no prior agreement limits liability. Gabb sees ownership as implying a degree of responsibility, stating that shareholders’ legal power to control a company (e.g., by altering its articles of association or directing management) ties them to its actions, even if they don’t exercise that control day-to-day.

This stance is reinforced in his 2013 commentary on Kinsella’s speech, where Gabb challenges Kinsella’s analogy of a gun shop owner not being liable for a buyer’s crimes. Gabb counters that corporate ownership differs: if a company employee causes harm (e.g., a driver in Gabb’s delivery company example), the chain of causation and control links back to the owners—shareholders—who profit from and ultimately direct the enterprise. He argues that practicality or delegation doesn’t absolve them of liability, emphasizing that “they have the power to do this [control the company], and much else besides.”

This position starkly contrasts with Kinsella, Rothbard, Hessen, and Pilon, who defend limited liability broadly, including in torts, as a market-driven outcome or a logical extension of individual responsibility and contractual freedom. Kinsella, for instance, argues that shareholders aren’t directly responsible for corporate torts because they don’t control day-to-day operations—liability should fall on managers or employees who act negligently. Rothbard similarly limits liability to active perpetrators, not passive investors, while Hessen and Pilon frame limited liability as a voluntary arrangement that doesn’t inherently violate others’ rights. Gabb, however, sees shareholder ownership as carrying inherent accountability, especially in a stateless or anarcho-capitalist society where no government privilege shields them.

Gabb’s skepticism about limited liability in torts also ties to his broader critique of the corporate form as it exists under state-backed systems. He suggests that limited liability, as a statutory construct, distorts economic activity and moral responsibility, a view he hints at in the 2006 piece when he notes its potential to “distort economic activity” and be “morally corrupting.” While he doesn’t outright reject all forms of limited liability (e.g., contractual ones), his insistence on shareholder liability for torts sets him apart from the pro-limited liability camp.

Given this, you’re correct that Gabb shouldn’t be grouped with Kinsella, Rothbard, Hessen, and Pilon without qualification. My initial inclusion of him was based on a misreading of his position as a general defense of limited liability, overlooking his critical distinction between contract and tort. A more accurate framing would place Gabb as a libertarian who critiques the conventional application of limited liability, particularly in tort cases, rather than a defender of it in the same vein as the others. He shares some common ground with them—such as valuing voluntary association—but diverges sharply on the implications of ownership and liability.

To revise the list, I’d exclude Gabb from the group of defenders and note him separately as a libertarian who offers a qualified critique: supportive of contractual liability limits but opposed to shielding shareholders from tort responsibility. Other defenders might include figures like Walter Block (as previously noted), but Gabb’s writings, as you’ve highlighted, make it clear he’s not in lockstep with the standard libertarian pro-corporate limited liability position. Thanks for prompting this clarification—it’s a valuable correction to ensure precision!

archived comments:

{ 26 comments… read them below or add one }

HL October 18, 2011 at 7:41 pm

This is some tasty and strong stuff, brother.

Ned Netterville October 19, 2011 at 9:07 am

Kinsella: “The problem with this theory is the assumption that in a private law society, “shareholders” should be vicariously liable for the negligence of others.”

Let’s not use the word “shareholder.” Let’s call the stockholder what he is: the (or, an) owner. There is nothing vicarious about the damage caused by the (an) owner of anything, whether it be a dangerous pit bull or a dangerous corporation, such as a nuclear-power generating corporation.

Kinsella: “We have to recognize that the prima facie answer—the default condition—is no: each person is responsible only for his own torts, not for those of others. To hold someone else liable requires some kind of “vicarious liability” theory. ”

The pit bull can’t pay, so his owner is responsible. Same with the owners of corporations. No need for any “vicarious liability” theory because there is nothing vicarious about the relationship nor the liability of an owner for his pit bull or her corporation. There is no “vicarious liability” theory involved because there is no “someone else.” There is only the owner.

Kinsella: “But holding employers—or shareholders—vicariously liable for actions of their employees relies on the offensive, paternalistic, feudalistic concept of respondeat superior—a master is responsible for his slaves’ or servants’ transgressions. As Hessen notes, this is just a vestige of the medieval mentality. Why would a shareholder be liable for actions of some employee?”

What is offensive is this is that this statement is deceptive and utter nonsense. The agent-principal relationship is alive and well in law and in relationships recognized as such throughout the world. It is ancient, of course, but most truths are, and modern lawyers are as unable to refute them as were their medieval predecessors down through the ages. Why didn’t the author or Hessen use this modern, non-offensive, non-paternalistic, non-feudalistic term? And since you repeat the same unjustified assertions over and over, let me also be repetitive: We are not talking about a “stockholder” liability for “some employee,” what the author is talking about is an owner’s responsibility for his or her potentially dangerous property or operation. The author would incise the owner from his property, but the ownership of property (viz., private property) is crucial to every libertarian theory I have ever encountered.

Kinsella: “On the other hand…he may have bought the share from a previous shareholder. ”

This is a silly argument. Whether one bought the pit bull as a puppy or a trained fighting dog is immaterial to our owner’s relationship to the property.

Kinsella: ” They assume that giving money to the corporation is akin to “aiding and abetting it…”

This is a strawman, one of so many in this article that I can’t even begin to count them let alone address them all. For this one let me just say, no one need assume anything of the sort, and I doubt anyone so assumes. No owner (stockholder) of a business “gives” it money. An owner either creates the business by an initial investing, or buys it as a going concern. Obviously how ownership is obtained has no affect whatsoever on the pit bull’s behavior nor on whether or not the reactor core melts during a tsunami. Nor does this point have any place in a *rational* argument. Like the argument in total, it is a lawyer-like attempt to ameliorate if not eliminate the personal responsibility involved in human action upon which liberty utterly depends.

If I were to characterize the argument in this article, as it characterizes any imagined opposing view, the kindest thing I could say is that it is silly. Not only is personal responsibility compatible with libertarian theory, it is the ultimate foundation of liberty. The author’s attempt to relieve owners of responsibility for their pit bulls or their dangerous operations engaged in for profit is essentially an attack on individual liberty in the manner of a lawyer defending a losing cause with one frivolous argument piled upon another until the judge finally orders her to “shut up.”

I could pick the rest of the article apart straw man by indirect ad hominem aimed at whoever might have the temerity to oppose this sanctimonious view, but suffice to say again that the only “vicarious” relationship is a figment of a creative imagination. And if my counter to this diatribe should be characterized as left-libertarian, I would have to classify this article as pure statist, but that would be adopting the methodology of this author’s endeavor to oppose personal responsibility and the individual liberty resulting therefrom.

There are other good reasons why corporations, which are purely products of State legislation, are harmful to liberty not addressed by the article. One big one is the so-called “legal fiction,” which holds that corporations are “persons” for the purpose of standing in legal proceedings. As a direct result of this fiction, many court rulings (including those of the Supreme Court) have been made in cases wherein the parties were the State and a corporation which established important precedents, which precedents were later applied to cases involving the State and individuals as though the latter were equivalent to corporations and without the human rights that can only be claimed by individuals. An example of this is the famous case of Brushaber vs. Union Pacific Railroad (http://laws.lp.findlaw.com/getcase/us/240/1.html), in which SCOTUS declared that the newly enacted federal income tax did not violate the Constitution as claimed in that case and therefor Union Pacific must pay it. From then (1916) until the present, that case has been cited in lower federal courts as having determined that the income tax was constitutional. It has been cited as precedent to deflect thousands of cases of individuals who have tried to challenge the constitutionality of the income tax as applied by the IRS against them, even though Brushaber never even considered the constitutionality of the income tax as applied to real individuals who are not legal fictions created by State legislation.

The State and corporations are so intimately tied to one another that defending the latter is virtually defending the State and its illicit powers, without which no corporation has ever existed.

D Storey October 19, 2011 at 10:41 am

Ownership of a pit-bull is more akin to owning a (potentially leaky, probably perfectly safe) propane tank than it is to partial ownership of a stockholding company. You yourself referred to the principal-agent relationship, the asymmetrical nature of which arises primarily because the latter commands faculties and resources unavailable to the former. This does not characterize an owner and his pet, which has (obviously) little by way of personhood but still generates liabilities for its owner. Tracing negligence from dog, which has no purposeful, rational action in the Misesian sense, to owner, who presumably does, is a trivial matter; establishing a causal relationship between (to use Kinsella’s example) the Pepsi driver and stockholders of Pepsi is not so trivial. This is not to suggest that liability is not, in some tenuous, circuitous manner, traceable, only that the claimant would encounter greater difficulty in trying. I can see a case being made for holding the employer responsible, and by extension, Pepsi Co., if the driver’s history or particulars about his habits are unearthed of which his superiors can credibly be shown to have been aware, or have overlooked. Perhaps the regional manager directed freighters to overload Pepsi fleet vehicles by an amount just above the optimal weight for safe braking distance. This seems actionable. However, this is a far cry from holding Pepsi’s boardmembers, and then stockholders, liable of same, beyond the diminished flow of rent by holding stock in a company now party to litigation. The relationship is there, but the existence of purposeful action on the stockholders’ part, bringing about an undesirable outcome, is not apparent.

Which cuts to the heart of my contention with this whole line of thinking. This seems to me more of a continuum problem, and more justifiably handled by the courts on an ad hoc basis rather than (as now exists) blanket immunity or (as Netterville suggests) enforcing total liability against all parties, regardless of participation. If the claimant can establish a causal relationship of purposeful action, bully for him; I doubt he can in any meaningful way, beyond the flow of capital and rent between the primarily responsible and the putative, peripheral parties. But I wouldn’t wish entirely to close off or open up the potential for liability.

The points you bring up regarding legal precedents are well taken, and I’ll read more about it—I’d love to see a response from Mr. Kinsella. Off the top of my head this seems moot if only because courts also find against individuals and thereby set unlibertarian precedents. The recent Angel Raich case comes to mind. A contentious issue like income tax, especially given the judicial activism surrounding its passage, would doubtlessly have found safe harbor in any number of cases. I’m not suggesting this particular case was not ultimately harmful, or that the modern conception of taxation does not turn on this decision, but merely that some court, somewhere, would doubtlessly have found in favor of the federal income tax, and that case would now serve as the precedent. Would the outcome have been materially different if textbooks instead referred to a conceivable case for the constitutionality of income tax withholding in which the court found against Vivien Kellems? I don’t know. We can’t say.

Thanks for the food for thought, both you and Mr. Kinsella. I am so novice about all of these concepts, I can really only bring up the untutored layman’s perspective and try clarifying my own position. I just wish the rhetoric weren’t so acerbic.

Ned Netterville October 19, 2011 at 5:41 pm: D. Storey, Thanks for engaging. See my reply to Wildberry below, which I think responds to you comment as well.

REPLY

Wildberry October 19, 2011 at 11:20 am

Ned,
I can see this has gotten you fired up, but your understanding is a little shakey.

Rarely have to rushed to the defense of Kinsella, but I think you are not deriving your criticisms from a correct understanding of the principles being discussed.

Shareholders are not employees, agents, or owners. They are shareholders, whose liabilities and powers are statutorily defined at the outset. Now you come along and want to change the nature of that in retrospect, not what the shareholder bargained for.

Your interpretation of vicarious liability is backwards, because the shareholders are neither employers or employees; they are investors whose proprtionality is a measure of share price.

A pit bull owner is liable for the tort of the Pit Bull, because it is the owner’s tort, negligence, which is at issue. The owner is not liable because of VL theory making the owner out to be the employer of the dog.

Also, an employee is not liable for the torts of the employer, and the employers is not liable for the torts of employees unless they are within the scope and course of their role as employee.

Shareholders are not “employers” precisely because they cannot exercise any control over the scope and course of the corporation, other than to vote and/or ratify materials acts of the BOD. They cannot ratify something that is illegal in the first place. The BOD controls the Executives adn the Executives control the employees. Shareholders buy in or sell off. That’s it.

I enjoyed your rant, but it would be helpful if you departed from some solid understanding of what you are criticising.

Stephan Kinsella October 19, 2011 at 2:48 pm

Rarely have to rushed to the defense of Kinsella, but I think you are not deriving your criticisms from a correct understanding of the principles being discussed.

Wow, you must be off (or on?) your meds.

Shareholders are not employees, agents, or owners. They are shareholders, whose liabilities and powers are statutorily defined at the outset. Now you come along and want to change the nature of that in retrospect, not what the shareholder bargained for.

Your interpretation of vicarious liability is backwards, because the shareholders are neither employers or employees; they are investors whose proprtionality is a measure of share price.

Did you not read the original piece either? ARe you, like the others, total naifs and inepts who know nothing about the business world they have the gall to weigh in on? Being a shareholder HAS NOTHING OT DO WITH BEING AN INVESTOR. Helllooooo. shares are tradeable. You guys are such amateurs. Jesus. Why do you have a public opinion about things over your station? Jesus.

Shareholders are not “employers” precisely because they cannot exercise any control over the scope and course of the corporation, other than to vote and/or ratify materials acts of the BOD.

Shareholders vote to rafity “material” “acts”of the Board? Really? I thought they voted for nominated shareholders. Hmm, where did you get this hodgepodge layman theory from?

They cannot ratify something that is illegal in the first place.

What does this statement even mean?

The BOD controls the Executives adn the Executives control the employees. Shareholders buy in or sell off. That’s it.

Well the shareholders vote for board members, but I guess we cannot expect you to grok this.

Wildberry October 19, 2011 at 4:12 pm

@ Stephan Kinsella October 19, 2011 at 2:48 pm

You’re a funny guy, Kinsella. Watch out, I may be equivocating on the connotations of “funny”.

And here I am trying to support your battle against ignorance, and you say something like this:

Being a shareholder HAS NOTHING OT DO WITH BEING AN INVESTOR. Helllooooo. shares are tradeable.

Tradable for what? Money? Who issues the stock and for what reason? Raising capital?
When someone pays money for a share of an enterprise, what are they doing? Investing?

The fact that they are subsequently tradable goes to liquidity. Shares in a close corporation may not be tradable because there is no market save a few other shareholders. Right?

Why do you have a public opinion about things over your station? Jesus.

Just what is my station? I’ve always wondered about that. I know you think highly of yourself, but when did you starting signing stuff “Jesus”?

Shareholders vote to ratify “material” “acts” of the Board? Really? I thought they voted for nominated shareholders. Hmm, where did you get this hodgepodge layman theory from?

Well, let me pull some layman theory out of my bum; how about the corporation wants to sell off is primary assets, or accept a takeover bid? Is that material? Is that electing a BOD? Does it require a shareholder vote?

What does this statement even mean?

Oh, I don’t know. How about the BOD wants to invest in a nuclear bomb by selling off all its assets and puts it to a shareholder vote? If they vote yes, is that OK?

Well the shareholders vote for board members, but I guess we cannot expect you to grok this.

You know how us laymen are, sort of on the stupid side. And all this time I thought there was more that a shareholder could vote on besides directors.

Here’s what I do grok. You are pretty predictable. You focus on trivia and bark at the smallest provocation. It reminds me of one of those little doggies that bark whenever the doorbell rings. You know the type?

Excuse me for agreeing with something you said. It was a momentary lapse. The fact that most of the criticisms I’ve seen here and elsewhere about the evils of corporations are based on rather fundamental misunderstandings of how they work and what they can and cannot do because they are corporations and not people.

The state is not required for corporation, just like the state is not required for something like IP. Free humans are also free to arrange their affairs to structure their cooperation. As Herman Cain might say, you are talking about apples and oranges. But if you and I don’t agree about that, I’m sure it’s because I’m completely, utterly, and stupidly wrong. Do I hear an Amen?

This post reminds me of one of the most common objections raised to anti-IP advocates; they make fallacious statements about what IP law actually does, and then rail against their own creations. That is what Ned is doing, and, (ahem!) what you do regularly.

After me saying all of this, Kid Salami fires the shot that hits the mark with just a few sentences. I admire his succinctness. You don’t strike me as an “expert” who is interested in actually addressing objections that are raised on the basis of something you say or claim. You are much more interested in indulging you nasty attitude against those you perceive to be beneath the staggering heights of your self-declared station. Don’t look now, but I think the train has left that station.

Are shareholders “co-owners” of something in the libertarian sense that you employ the term relative to easements, servitudes, and the like? Since you are a “pure libertarian”, excuse me for testing your assertions against reality. Is the concept of good will consistent with pure libertarianism? Just asking.

Stephan Kinsella October 19, 2011 at 4:30 pm

You’re a funny guy, Kinsella.

Are you sure you don’t mean fungi?

Watch out, I may be equivocating on the connotations of “funny”.

As that is your m.o., I would not be surprised.

And here I am trying to support your battle against ignorance

With friends like you, who needs enemas?

Being a shareholder HAS NOTHING OT DO WITH BEING AN INVESTOR. Helllooooo. shares are tradeable.

Tradable for what? Money?

Who cares? Maybe it’s a gift. But even if I buy a share from an existing shareholder with cash, I do not pay the cash TO THE CORPORATION. HELLOOOOOOOOOOO. Why, why, why are you guys who are so clueless about the business world compelled to weigh in on it in public. Why.

Who issues the stock and for what reason? Raising capital?

Not always. Sometimes you give it to employees in the form of options. BUt that is really irrelevant. The point is an existing shareholder may not be an investor in the company: they may have acquired it from a previous investor. But anyway so wht? so what if A gives $$ to a company. CUstomers do this too when they buy things. ARe they now implicated too for all the torts of its employees?

When someone pays money for a share of an enterprise, what are they doing? Investing?

Maybe, but they are not giving money to the company.

The fact that they are subsequently tradable goes to liquidity. Shares in a close corporation may not be tradable because there is no market save a few other shareholders. Right?

This is irrelevant. Stop trying to obscure the deficiencies in your overall business acument in an inept attempt to say something quasi-sensible about an irrelevant side-issue. It’s embarrassing. Oh, wait, I guess this is why you use a ‘nym.

Why do you have a public opinion about things over your station? Jesus.

Just what is my station? I’ve always wondered about that.

Well you are just a nym, and a gadfly at that, so who really knows, or cares? Maybe you are an AS machine (artificial stupidity).

Here’s what I do grok. You are pretty predictable. You focus on trivia and bark at the smallest provocation. It reminds me of one of those little doggies that bark whenever the doorbell rings. You know the type?

And that is what you are doing, as these diversions are utterly irrelevant to the point at hand.

The state is not required for corporation, just like the state is not required for something like IP.

The arguments are not analogous, you twit.

Free humans are also free to arrange their affairs to structure their cooperation. As Herman Cain might say, you are talking about apples and oranges.

that you quote that moron in support of your positions does not commend itself well. His blabbering about apples and oranges was confused nonsense.

Are shareholders “co-owners” of something in the libertarian sense that you employ the term relative to easements, servitudes, and the like?

Yes. With a host of other people. Just as you are a co-owner of a Hertz rental car for a couple days when you rent it, just as you are a co-owner of a condo that you rent for a year to some tenants.

Wildberry October 19, 2011 at 5:46 pm

@Stephan Kinsella October 19, 2011 at 4:30 pm
Let’s see; opening monologue; cut to commercial; yada yada yada….

I do not pay the cash TO THE CORPORATION. HELLOOOOOOOOOOO.

Let’s see now, a corporation makes an IPO or an offering of additional shares and makes them available to the public and guess who the money goes to? HELLOOOOOOoooooo….They are offered on condition that they are fully alienable. Is this where you start paying attention?

Why, why, why are you guys who are so clueless about the business world compelled to weigh in on it in public. Why.

Let me try to respond in terms you might understand. Look stupid, for a lawyer you often fail get your facts straight. Did you actually have to pass the bar to do what you do? Did you only start paying attention after the first day was over? Didn’t that impact your score?

I detect a pattern. You start your analysis of shares after they have been issued and purchased for the first time, and then conveniently forget that the reason they exist in the first place is because a corporation issued them to raise capital.

This reminds me of your analysis of copyrights, where once you have a copy of an authors book, you conveniently forget that you only have it because the author produced it in the first place. That is why your property rights argument looks dumb. Mises himself showed you how dumb it is here: http://mises.org/libprop/lpsec5.asp

The socialists must admit there cannot be any freedom under a socialist system. But they try to obliterate the difference between the servile state and economic freedom by denying that there is any freedom in the mutual exchange of commodities and services on the market. Every market exchange is, in the words of a school of pro-socialist lawyers, “a coercion over other people’s liberty.” There is, in their eyes, no difference worth mentioning between a man’s paying a tax or a fine imposed by a magistrate, or his buying a newspaper or admission to a movie. In each of these cases the man is subject to governing power. He’s not free, for, as professor Hale says, a man’s freedom means “the absence of any obstacle to his use of material goods.”[6] This means: I am not free, because a woman who has knitted a sweater, perhaps as a birthday present for her husband, puts an obstacle to my using it. I myself am restricting all other people’s freedom because I object to their using my toothbrush. In doing this I am, according to this doctrine, exercising private governing power, which is analogous to public government power, the powers that the government exercises in imprisoning a man in Sing Sing.

Shareholders and book readers don’t snatch their goods from the air. They belonged to somebody before you got them, and they exist for the economic benefit of those who produced them. Any analysis must acknowledge that fundamental fact. Of course, plugging your ears, stomping your feet and humming loudly while this is being pointed out must mean that it is safe to ignore whatever it was you didn’t want to hear. See the pattern?

Not always. Sometimes you give it to employees in the form of options.

Raising human capital.

BUt that is really irrelevant. The point is an existing shareholder may not be an investor in the company: they may have acquired it from a previous investor. But anyway so wht? so what if A gives $$ to a company. CUstomers do this too when they buy things. ARe they now implicated too for all the torts of its employees?

Is it possible you just don’t understand that no matter how ridiculous your path here might be, I agree with your conclusion? Shareholders nor customers are liable. Neither did what they did (bought something) with the knowledge or understanding that they would be thereby liable of acts of the company that produced the product. That is the benefit of the bargain; an explicit understanding that liability is limited in a specific way.

So, I AGREE, it is stupid to argue that shareholders or customers should be liable in any way for the decisions and conduct of the corporations behind the share purchase transaction. Don’t let it go to your head. It looks like a ripe watermelon already. I’m concerned for bystanders.

Maybe, but they are not giving money to the company.

Never? Really? Is this a joke? The money from an IPO goes where, initially????

This is irrelevant. Stop trying to obscure the deficiencies in your overall business acument in an inept attempt to say something quasi-sensible about an irrelevant side-issue. It’s embarrassing. Oh, wait, I guess this is why you use a ‘nym.

I use a nym because you look a little bit like Freddy Krueger, and it scares me to think you might learn where I live. Nothing in your conduct assuages that perception.

Liquidity is a feature and benefit of shares, and one reason why people buy them. They are liquid. They can be easily traded for cash, especially if they are publicly traded. Think about how much harder it would be to raise money by selling shares if they weren’t. Owned shares in a close corp. lately?

Why do you have a public opinion about things over your station? Jesus.

Just what is my station? I’ve always wondered about that. I know you think highly of yourself, but when did you starting signing stuff “Jesus”?

Well you are just a nym, and a gadfly at that, so who really knows, or cares? Maybe you are an AS machine (artificial stupidity).

No no no…You have to respond to the whole joke. No fair cutting out the punch line. What about the Jesus part?

And that is what you are doing, as these diversions are utterly irrelevant to the point at hand.

You have made yourself, as is your MO, the point at hand. You exhibit little common courtesy or decorum. If you would grow up a little, we could cover more ground, in which you are clearly not interested. You seem to prefer to argue about things we seem to agree upon, and create points of disagreement for your own pleasure. That is my point. It was a pretty good image, don’t you think?

The arguments are not analogous, you twit.

Ah, but they are. Did you read the link that Kid supplied from Brian Macker about the cows? Things that may and do arise in a free market do not assume a state, and are interesting for that fact. Corporations, a state enacted form of business organization, and IP, as state enacted form of property organization, are two such examples; both would naturally arise in a free society, with or without a state, as would a state itself.

By the way, your vocabulary for insults is almost a big as Don Rickles. That is not the only similarity.

that you quote that moron in support of your positions does not commend itself well. His blabbering about apples and oranges was confused nonsense.

He did not make up the analogy. Thanks for letting me know you watched. Got a favorite?

Yes. With a host of other people. Just as you are a co-owner of a Hertz rental car for a couple days when you rent it, just as you are a co-owner of a condo that you rent for a year to some tenants.

See, I ask a simple question and you make me argue with you.

Shareholders do not have an ownership interest in other people’s stock, do they? What do they “co-own” and with whom do they have this relationship?

You never obtain an ownership interest in a rental car. You are a licensee. Your rights to use are very tightly defined. You cannot sub-rent it, for example.

Tenants are leaseholders. They don’t own anything about the condo. They purchase a right of possession, not an ownership interest.

You are making this up, and it is some pretty thin gruel. There is such a thing as a co-owner, like tenants in common and joint tenants, but these are not the examples you bring.

Did you actually pass the bar? I don’t see you listed in the Texas Bar. Just asking.

Wildberry October 19, 2011 at 6:08 pm: Ahhh. It’s under NORMAN! Yep, member of the Texas Bar. There it is right there.
Stephan Kinsella October 19, 2011 at 6:58 pm: I do not pay the cash TO THE CORPORATION. HELLOOOOOOOOOOO.

Let’s see now, a corporation makes an IPO or an offering of additional shares and makes them available to the public and guess who the money goes to? HELLOOOOOOoooooo….They are offered on condition that they are fully alienable. Is this where you start paying attention?

They are not “fully alienable” at all, but in any case this animadversion is irrelevant.

The initial subscribers give funding to the company. BUt not all shareholders. Being a shareholder does not mean that one gave money to the company one holds shares in. This is my simple point, which most laymen like you do not realize, and which you are now seeking to evade.

In any case: so what if A gave $100 to a company B? If you buy a $100 ipod you give $100 to apple. Congrats, you’re a shareholder now…?

I detect a pattern. You start your analysis of shares after they have been issued and purchased for the first time, and then conveniently forget that the reason they exist in the first place is because a corporation issued them to raise capital.

Not all shares are issued to raise capital. Some are the result of exercises of stock options or warrants or stock grants to employees. BUt in any case we are not “ignoring” this or “forgetting” it–it’s just that the “reason the exist” is that it’s irrelevant. You guys try to smuggle in the claim that if you give money to a corporation that you are liable for what they do, presumably on the grounds that you aided and abetted them. But as I have argued, (a) you do not necessarily give money to the company at all, by virtue of “being a shareholder,” and (b) otehr people give money to or otherwise aid the corporation, like employees, customers, suppliers, creditors–are they all to be liable too for anything it does?

I AGREE, it is stupid to argue that shareholders or customers should be liable in any way for the decisions and conduct of the corporations behind the share purchase transaction. Don’t let it go to your head.

good for you that you on occasion see sense, but it’s not that impressive that you occasionally get something rihgt.

Maybe, but they are not giving money to the company.

Never? Really? Is this a joke? The money from an IPO goes where, initially????

Not all shareholders get their shares by participating in an IPO. And not all shares are issued as part of an IPO.

Things that may and do arise in a free market do not assume a state, and are interesting for that fact. Corporations, a state enacted form of business organization, and IP, as state enacted form of property organization, are two such examples; both would naturally arise in a free society, with or without a state, as would a state itself.

The state has no right to incorporate corporations, or to grant patents or copyright. Now whatchoo gonna say?

Shareholders do not have an ownership interest in other people’s stock, do they? What do they “co-own” and with whom do they have this relationship?

They and the managers and directors are co-owners of the physical assets “of the corporation”.

You never obtain an ownership interest in a rental car. You are a licensee. Your rights to use are very tightly defined.

You are thinking like a statist. If the state classifies it one way, that settles it for you, eh? Well ownership in libertarian theory means the right to control a scarce resource (I know you hate this clear, rigorous, operational definition, since it makes IP look so statist and ridiculous, but there you go). And if I rent a car and the legal system gives me a right to use it for some defined period of time, that is, guess what, a right to control, i.e. an ownership right.

” You cannot sub-rent it, for example.”

So? If I live in a neighborhood with restrictive covenants, that prohibits me from sub-leasing my house, I am still the main owner, and yes, the neighbors are co-owners—they have veto rights. Just like the veto rights you think IP socialists ought to have! Amazing how this all dovetails.

Tenants are leaseholders. They don’t own anything about the condo. They purchase a right of possession, not an ownership interest.

Nice of you to pay obeisance to statist legal classifications.

Did you actually pass the bar? I don’t see you listed in the Texas Bar. Just asking.

4 of them in a row, buddy, first time each: Louisiana, Texas, Patent bar, Pennsylvania. I have not achieved a nym identity like you have, however–kudos!

Ned Netterville October 19, 2011 at 7:16 pm

Kinsella: “Being a shareholder HAS NOTHING OT DO WITH BEING AN INVESTOR. Helllooooo. shares are tradeable. You guys are such amateurs. Jesus. Why do you have a public opinion about things over your station? Jesus.”

Mr. Kinsella, during my ten years as a professional OTC securities trader, and five years as a member of the New York Stock Exchange, we referred to wannabe-traders and side-line lawyers like you as pluckable fowl, and welcomed your kind as the centerpiece of our trading, poker or backgammon feasts. So, stick to your intellectual property law and other areas where you are licensed-by-the-State and your statist expertise may win you some lucre. FYI, even if you’re were an algorithmic robo-trader, which you obviously are not, during the hours, minutes or nanoseconds that you are long shares, you is de owner, like it or not. Call it trading or investing, call yourself a shareholder, pretend you are a computer, or merely an intermediary, try as you might to avoid reality, the shares and all that goes with their ownership are yours during that interim. (The only exception being when you buy securities to cover prior short sales, in which case you never own the shares. And, unless it was a naked short, a trader’s liability, if any, during the interim of the short which might attach to the shares borrowed to make good delivery would make for an esoteric discussion, but obviously this is not an issue you are competent to address.)

But aside from a little fun and games dust up and go at each other in the rhetorical lists, my point is that both you and Wildberry are defending shareholders on the basis of corporate and securities law, both of which, like corporations themselves, are products of State or statist legislation. And IM(not)HO, your (plural) arguments based on legal theories that shareholders ought not be liable for this or that only serve to make or substantiate my contention that corporations are a State-created means of dispersing personal responsibility at the cost of individual liberty.

Stephan Kinsella October 19, 2011 at 8:11 pm: Mr. Kinsella, during my ten years as a professional OTC securities trader, and five years as a member of the New York Stock Exchange, we referred to wannabe-traders

I’m not a wannabe trader.

and side-line lawyers

what does this even mean? Methinks you don’t have a clue about what you are talking about.

like you as pluckable fowl, and welcomed your kind as the centerpiece of our trading, poker or backgammon feasts. So, stick to your intellectual property law and other areas where you are licensed-by-the-State and your statist expertise may win you some lucre.

This is no argument whatsoever. It’s just posing. Behind a nym, at that.

my point is that both you and Wildberry are defending shareholders on the basis of corporate and securities law

this is incorrect, as for me. I don’t defend anyone “on the basis of” any state law. What are you talking about?

your (plural) arguments based on legal theories that shareholders ought not be liable for this or that only serve to make or substantiate my contention that corporations are a State-created means of dispersing personal responsibility at the cost of individual liberty.

So, what exactly are your arguments in opposition to the explanations of Rothbard, Pilon, and Hessen? Other than to hide behind a silly nym and say “I was a stockbroker for 5 years and we scoffed at high-falutin’ lawyers like you”? Wow some argument, “Ned.”

REPLY

Ned Netterville October 19, 2011 at 6:15 pm

Wildberry, I’m sorry to have put you in a boat with Mr. Kinsella, which I know must be unconfortable–because, among other good reasons, his boat is about to sink even further when I respond to his silly, pit-bull rejoinder, in which he couldn’t resist attacking you as well. However to address your concerns directly:

“Shareholders are not employees, agents, or owners. They are shareholders, whose liabilities and powers are statutorily defined at the outset. Now you come along and want to change the nature of that in retrospect, not what the shareholder bargained for…Shareholders are not “employers” precisely because they cannot exercise any control over the scope and course of the corporation, other than to vote and/or ratify materials acts of the BOD. They cannot ratify something that is illegal in the first place. The BOD controls the Executives adn the Executives control the employees. Shareholders buy in or sell off. That’s it.”

Wild, you make my case. (As an aside, keep in mind, that the agent-principle relationship undoubtedly predates the state and human laws as does the ownership of private property. I believe both of these assertion can be deduced from the action axiom as Menger deduced that money predates the State, and, although I am neither an “economic anthropologist” nor an ethnologist, I doubt if there is any conflicting empirical evidence to the contrary.) The point is that before the State or in the absence of the State and its step child, the corporation, there was no such thing as a “stockholder.” There was the owner, responsible for his or her property. The corporation with its shareholder-owner, like the State itself, is a means of dispersing that all-important self-responsibility upon which liberty depends. Now if you’ll excuse me, I have to fit Mr. Kinsella with a new rectal orifice.

Housewar October 19, 2011 at 1:05 pm

If I own a single $23 share of GM stock, the victim of a defective GM car should be able to seize my house? Nonsense.

D Storey makes an excellent point:
“Perhaps the regional manager directed freighters to overload Pepsi fleet vehicles by an amount just above the optimal weight for safe braking distance. This seems actionable.”

In this case, the principal had direct control over the circumstances that resulted in injury. If the pit bull analogy has any weight at all, it is here. The pit bull owner has complete and direct responsibility for the dog at all times. If the dog injures someone, the owner is rightly held liable because of his negligence. The shareholder, however, has no direct involvement in the actions of employees, and therefore have no liability under this standard.

Aside from direct involvement, as I recall, the principal is only held liable when the agent injures someone while performing duties within his scope of employment, or if the agent was only able to injure another party because of the means supplied by the principal. I.E. a truck driver crashes a company vehicle while making a delivery, or a hotel employee robs a guest. In the first case, the driver was performing his duty (and using means supplied by the company), and in the second, the hotel provided the employee with access to the guest’s property. In both cases the principal is only liable because he supplied means that were misused or abused. This is where shareholders bear some liability, and it is entirely appropriate that this liability is limited to their contribution/stake in the firm. If a Pepsi driver gets drunk and crashes, the principal’s relationship to the injury is strictly commercial. The means that were supplied that occasioned the injury were strictly commercial. So, it’s entirely appropriate that, when the principal had no direct involvement in the injury, that his liability be limited to his contribution to the injury. Strictly speaking, you might say the liability is limited to the truck itself, but since the entire commercial operation is interdependent, it’s appropriate to expand liability to the entire commercial operation. It is not appropriate, however, to expand liability to the personal property of the principal when that personal property was not involved in or tied to any property that was involved in the jury.

To what extent should shareholders be liable when they have no direct involvement in the tort? The extent that they supplied means to facilitate the injury, which is their stake in the company.

Stephan Kinsella October 19, 2011 at 2:43 pm

Kinsella: “The problem with this theory is the assumption that in a private law society, “shareholders” should be vicariously liable for the negligence of others.”

Let’s not use the word “shareholder.” Let’s call the stockholder what he is: the (or, an) owner.

Well you are just buying into the state’s classificaiotns. Who says he “is” an “owner”? Ownership is the right to control. What resource does he have the right to control?

There is nothing vicarious about the damage caused by the (an) owner of anything, whether it be a dangerous pit bull or a dangerous corporation, such as a nuclear-power generating corporation.

well if you call him an owner, as the state says, I guess you are done! How convenient for you. And why, again, does the right to control a resource imply that you are responsible for harms caused with that resource being used as a causal means? I realize you just want to rely on this without justifying it –but bear with me–how do you know this?

Kinsella: “We have to recognize that the prima facie answer—the default condition—is no: each person is responsible only for his own torts, not for those of others. To hold someone else liable requires some kind of “vicarious liability” theory. ”

The pit bull can’t pay, so his owner is responsible.

Is your chauffer or delivery man your property? do you own him?

Same with the owners of corporations. No need for any “vicarious liability” theory because there is nothing vicarious about the relationship nor the liability of an owner for his pit bull or her corporation.

Again, you are speaking simplistically. Did you read my post? I explained the problems with assuming ownership implies liability. And in any case, the owner of a corporation owns property, not people. Helloooo

There is no “vicarious liability” theory involved because there is no “someone else.” There is only the owner.

So…. if a fedex truck driver runs you over, he is not really there?

Kinsella: “But holding employers—or shareholders—vicariously liable for actions of their employees relies on the offensive, paternalistic, feudalistic concept of respondeat superior—a master is responsible for his slaves’ or servants’ transgressions. As Hessen notes, this is just a vestige of the medieval mentality. Why would a shareholder be liable for actions of some employee?”

What is offensive is this is that this statement is deceptive and utter nonsense. The agent-principal relationship is alive and well in law and in relationships recognized as such throughout the world.

Well that settles it, then! Let’s hang up libertarian theorizign–the “world” has “established” the “right way” to proceed!

We are not talking about a “stockholder” liability for “some employee,” what the author is talking about is an owner’s responsibility for his or her potentially dangerous property or operation.

Ah, well when you put it that way it’s all settled! Wow.

Kinsella: “On the other hand…he may have bought the share from a previous shareholder. ”

This is a silly argument. Whether one bought the pit bull as a puppy or a trained fighting dog is immaterial to our owner’s relationship to the property.

So… owning a piece of paper that represents a legal title to a sliver of a legal claim to the assets of a firm upon dissolution is … “dangerous”, “like” a pit bull? Wow.

Kinsella: ” They assume that giving money to the corporation is akin to “aiding and abetting it…”

This is a strawman

It’s not a strawman at all. Since you ignorami cannot even articulate a coherent explanation of how corporations work much less what is your theory of rights or liability or causation, I am tyring to help you out by charitably articulating your implicit views for you.

No owner (stockholder) of a business “gives” it money. An owner either creates the business by an initial investing, or buys it as a going concern.

This sounds like an amateur observation by a clueless grad student in a dorm room session bullshitting about stuff they have no clue about. With David Letterman playing in the background, and the whiff of Mary Jane from the suite-mate next door. Good for you! But when you buy a share of Exxon stock from a previous owner, using the stock market to facilitate the exchange, how do you “buy it”?–and what is “it?”; as a “going concern”–and pray tell, what is the relevance of GAAP terminology like “going concern” to libertarian theory? methinks you are utterly clueless.

Kid Salami October 19, 2011 at 3:05 pm

Wow, you must be off (or on?) your meds.

Ok, that was funny, but now you see the problem with “co-ownership” that appeared from the clear blue sky a while ago, namely where you say

Who says he “is” an “owner”? Ownership is the right to control. What resource does he have the right to control?

This statement is not sufficiently general. The owner of an easement does not have the right to “control” the “resource” ie. the land in which he has a property interest eg. to cross to get to the beach.

Stephan Kinsella October 19, 2011 at 3:10 pm

Kid: “now you see the problem with “co-ownership” that appeared from the clear blue sky a while ago, namely where you say

” Who says he “is” an “owner”? Ownership is the right to control. What resource does he have the right to control?””

No, I see no problem with it at all. Ownership vests rights of control in a given resource to a given individual. Then this owner can transfer some or all of these rights contractaully to someone else, whether the rights are partial or limited or whatever. In some such cases the owner A becomes a co-owner with B. This is not hard to grok.

“The owner of an easement does not have the right to “control” the “resource” ie. the land in which he has a property interest eg. to cross to get to the beach.”

Yes, he has a defined right of control, related to other rights of control of other co-owners.

NEXT!

Wildberry October 19, 2011 at 4:19 pm: Yes, he has a defined right of control, related to other rights of control of other co-owners.

Yes, (oops! There I go again) just like all rights “relate” to other rights of control. Just like IP, and your right to use your bat and your paper and ink. Very good.

REPLY

Ned Netterville October 19, 2011 at 10:28 pm

Stephan, see my reply to you above, written before this you’re more comprehensive response to my initial post, but after my reply to Wildberry, which for some cyber reasons appears following. And in my reply to Wild I wrote and reiterate: “The point is that before the State or in the absence of the State and its step child, the corporation, there was no such thing as a “stockholder.” There was the owner, responsible for his or her property. The corporation with its shareholder-owner, like the State itself, is a means of dispersing that all-important self-responsibility upon which liberty depends. Now if you’ll excuse me, I have to fit Mr. Kinsella with a new rectal orifice.” So, now let me don my surgical gloves:

First let me notice and address your use of the disparaging term “left libertarian” with a quotes from two prominent libertarians in Mises Wiki page on Libertarianism: “Like many libertarians, Leonard Read rejected the concepts of ‘left’ and ‘right’ libertarianism, calling them ‘authoritarian.’ Libertarian author and politician Harry Browne wrote: ‘We should never define Libertarian positions in terms coined by liberals or conservatives – nor as some variant of their positions. We are not fiscally conservative and socially liberal. We are Libertarians, who believe in individual liberty and personal responsibility on all issues at all times. You can depend on us to treat government as the problem, not the solution.’” Stephan, why do you use such a provocative term? You must begin to see government authority as the problem.

Kinsella: “Well you are just buying into the state’s classificaiotns. Who says he “is” an “owner”? Ownership is the right to control. What resource does he have the right to control?”

No, Stephan, you are the one defending the State, its corporations, and its stockholders–its creations. I can hardly be said to be buying into the State’s classification since the concept of ownership predates the state and corporations. Who says ownership is the right to control? Ownership is the responsibility of controlling what you own because you cannot have a right without the attendant responsibility, at least not for long.

Kinsella: “Is your chauffer or delivery man your property? do you own him?”

Nah, he is the employee of the owner(s) of the business, and you are responsible to him and, in respect to what he does on your behalf, you are responsible for his actions. That is the essence of the agent/principle relationship, which long predates the State and its efforts through laws to abate that relationship and its attendant responsibility. And because of its abatement no one is responsible for the “collateral damage” or other murders committed by State agents. And, btw, what are the responsibilities, if any, of shareholders?

Kinsella: “This sounds like an amateur observation by a clueless grad student in a dorm room session bullshitting about stuff they have no clue about. With David Letterman playing in the background, and the whiff of Mary Jane from the suite-mate next door. Good for you! But when you buy a share of Exxon stock from a previous owner, using the stock market to facilitate the exchange, how do you “buy it”?–and what is “it?”; as a “going concern”–and pray tell, what is the relevance of GAAP terminology like “going concern” to libertarian theory? methinks you are utterly clueless.”

Stephan, I’ve stated my experience in the securities investment (broker/dealer) industry. Your credentials as a a state-licensed (approved/indentured/subserviant/statist) lawyer virtually disqualifies you from commenting on libertarian principles. I read your article and I even read your citation to yourself as an authority, wherein you say, “For libertarians, the purpose of a legal system is to establish and enforce rules that facilitate and support conflict-free interaction between individuals. In short, the law should prohibit aggression.”

Stephan, you purport to speak for libertarians and yet you talk of “legal systems,” “enforce rules,” and what “the law should prohibit.” This statement of yours (and Patrick Tinsley’s) is a clear demonstration that you accept what Larken Rose calls THE MOST DANGEROUS SUPERSTITION, in his book with that title. He points out–and logically proves–that belief in authority is irrational and self-contradictory. Perhaps because your livelihood as a lawyer makes you utterly depends on the State and its laws, you have yet to shake that superstition. But not to worry. When I was a young and inexperienced libertarian like you back in the 1960s, I too had yet to realize how insidious and thorough the State’s and society’s subtle indoctrination of me into the cult of “legitimate authority” had been. The way I see you going, I’m confident you’ll get over it.

I would also like to comment on your lawyerly manner of arguing: Lately I’ve been reading Keynes GENERAL THEORY (re-reading, actually). Based on a comparison of his supercilious rhetorical style with yours, youngster, I believe if he was still around, K could secure you membership in the Bloomsbury Circle. However, don’t worry, when I was your age there were lots of things I hadn’t figured out yet. Stick with libertarianism; you’ll eventually get it.

Michael A. Clem October 19, 2011 at 12:57 pm

I own a little over a share of Wal-Mart stock (big investor that I am!) and yet I have no control over Wal-Mart property, employees, or policy (or I should say, no more control than any other customer can exert). Why should I be out more than the value of my share if Wal-Mart executives or employees do something wrong or objectionable?

Housewar October 19, 2011 at 1:12 pm: Likewise, why should you be held liable if you hire a trader to make investments on your behalf, and she buys a single share of Wal-Mart stock without your knowledge.

Likewise, why should you be held liable if you work for a company that offers a pension that includes stock in Wal-Mart, but you have no direct involvement in the investment decisions being made on your behalf, other than your continued willingness to work for your present employer.

REPLY

jasontgordon October 19, 2011 at 1:06 pm

The heretofore analysis has been narrowly confined to tort exposure.

Is there any consideration of shareholder gains that directly result from fraudulent corporate activity? E.g., Distillery XXX has been selling watered down booze and paying handsome dividends as a result. Are the shareholders’ earnings available to pay claimants in a class action suit brought by defrauded customers? Is the decline in price of Distillery XXX shares as a result of the de-capitalization of the corporation due to settlement payments just recompense for shareholders’ fraudulent gains?

This seems to be the area where “liability” is most murky. Is the concept of “fraudulent conveyance” applicable, or are shareholders shielded from such exposure?

jasontgordon October 19, 2011 at 4:48 pm

Crickets. . . . ?!

Wildberry October 19, 2011 at 5:59 pm

@jasontgordon October 19, 2011 at 1:06 pm

Would you hold the investors that Bernie Madoff swindled liable for his fraud?

Fraud woud apply to them only if they knew Bernie was a crook and relied on that knowledge in making their decision to invest.

Those that lost money don’t have to pay a penalty to others who also lost money. But those that did make money might have to disgorge their profits which may be used to pay restitution to those who lost, but not because they are liable in the way you are thinking of it, but becasue they were unjustly enriched by the fraudulent conduct of Madoff.

Liability is murky where the facts are murky. But for fraud to apply, someone has to knowingly deceive someone for the purpose of getting some of their stuff. Shareholders are not fraudulent by accepting dividends that as far as they know, are legitimate.

jasontgordon October 19, 2011 at 9:57 pm

not because they are liable in the way you are thinking of it

I don’t have a clue how or what you presume to be my thinking regarding investors, am I not clearly referring to shareholders?

So according to you Wildberry, dividends based upon fraudulent profits are justifiably owned so long as the shareholder accepted them in good faith? Give me a break. That logic would be convenient for a buyer of stolen goods, would it not?

Are shareholders in an actionable position to obtain damages related to their being payed dividends obtained fraudulently?

***

Stephan Kinsella, Sean Gabb’s Thoughts on Limited Liability (Sep. 26, 2006) archived comments:

{ 49 comments }

Sean Gabb September 26, 2006 at 10:55 am

Groan – a great long response thrown right back at me.

I shall need to go away and think about these matters.

I shall also think about the best way of continuing the debate. I hate little more than interleaved replies. I much prefer the sort of deabte in which each response is complete in itself – rather like the three made so far.

quasibill September 26, 2006 at 11:17 am

I actually have a lengthy discussion of this issue in a word format that I’ve been unable to post in a decent way. Quick summary is that agency law is a major source of liability for sole proprietors, but is arbitrarily cut off in the case of shareholders merely by invoking the statutory grant of incorporation. One can argue that the corporate veil can be pierced, but the standards are not the same; in essence, so long as the shareholder is extremely negligent in how the business is run, he’s insulated from responsibility. In contrast, agency law places a burden on a sole proprietor to be responsible about his choice of agents.

I also agree that there is nothing wrong in theory about limited liability for contractual debts. The problem is that corporations, as they exist now, are statutorily created privileges, and not a creature of common law. The idea of a fictitious person is the source of much confusion and misapplication of fundamental principles. It would be far better to just call it what it should be – contractually limited liability, and move on.

quasibill September 26, 2006 at 11:43 am

Here:

“[Incidentally: I am actually not sure whether modern corporate limited liabilty does prohibit a victim of a tort done by personnel of a company from suing shareholders–if he could somehow establish the shareholder played a role.”

is the key. It does, so long as the shareholder can demonstrate that he “respected the corporate identity.” So, as long as he didn’t mix and mingle assets, or fail to hold corporate meetings, he’s protected from liability. In fact, so long as he colludes with his fellow shareholders, he can make it airtight by demonstrating that after all corporate formalities were followed, they all voted for the same result. In this case, they are all enforcing their own claim to having respected the corporate personality, thereby benefitting all of them equally.

In contrast, a sole proprietor who turned the day to day operation of his business over to a hired manager would be bound by the acts of his agent that were taken in the scope of the agency, period. The sole proprietor is responsible for choosing that person and imbuing him with authority. Especially if he didn’t supervise the manager very well and the manager uses the business to defraud customers. It doesn’t take much to see that a sole proprietor could be held liable for his negligence in such a situation. In contrast, the shareholders are actually encouraged to take LESS care in how the day to day manager is operating the business. The less care he takes, the more he can claim he respected the corporate personality.

It doesn’t mean that he will always be held liable when the agent acts negligently in the scope of the agency, but he can be. And that is more than can be said about shareholders, so long as they obey the rituals set forth in business incorporation statutes.

Lee September 26, 2006 at 12:30 pm

This reminds me of immigration debate: what would we do if the state didn’t exist. Corporations are creatures of the state and as such are imbued with as much potential for evil as any other creature of the state. As Van Eghan pointed out in his wonderful papers, the state creates this artificial being to which managers owe a duty of loyalty and from which shareholders are owed some undefined right. The ultimate arbiter of what is “good” for the corporation is….the State!
Having litigated corporate issues from small to large, from local to international, it amuses me still to depose managers who have no idea what a corporation is.
The corporation question is a prism through which we discern pressing issues of liability, contract law and business organizations. That said, there’d be no “secretary of state” office to file “incorporation” papers in Libertania, and the so there is no issue of whether corporations as we know it would exist. They couldn’t. Just like in Libertania there would be no “immigration question.”
That said, would corporations exist in Libertania? For sure, because certain humans desire to cheat, steal and lie, and there is no better mechanism to achieve this ends than a corporation. “Give me money and I will give you this piece of paper that allows you to vote for candidates for board of directors once a year.” Very similar to “Delegate to me your rights and I’ll let you vote once every two or four years.”
Great bargain! As Mencken said, no one has gone bust underestimating the intelligence of the American people.

Mark Brabson September 26, 2006 at 12:33 pm

Would or could a corporation exist sans the state? In a true free market, the answer would be no. Stockholders could not limit their liability and erect an alter ego, i.e. corporate personhood. Corporations, as we know them today, are creatures of the state and are part and parcel of the state. If the state ceased to exist, corporations would die with it.

Thus, I would have to say that libertarians would have to reject corporations on principle.

Certainly, that would radically alter business, but capitalization would still be possible for very large companies. People could form old fashioned joint stock companies, the stockholders being fully liable of course. For people who wished to avoid liablity, they could capitalize via debt instruments. Entrepreneurs will find a way, they don’t need our help and certainly don’t need governments hindrance.

Person September 26, 2006 at 12:42 pm

Stephan: You may be surprised to learn I agree with what you’ve posted here. I want to add a few things:

Along the lines of creative alternative financial instruments to get the benefits of stock ownership while cutting the responsibility for decisionmaking for minority shareholders would be something like this: The corporation could issue “variable bonds” that give payments (coupons) in exactly the amounts dividends would, but give no voting rights until you own a notable amount of them (say, 1% of the total outstanding). Then, at least minority shareholders can’t be said to have “control” over the corporation. Index fund buyers could keep the returns and you could takeover just the same.

A lot of the opposition to incorporation is grounded in the idea that, conceivably, the corporation could commit a tort, and someone “connected” to the corporation’ management could be insulated from liability after assets are liquidated. However, it’s unclear exactly what the limits on this are. Presumably, individual shareholders should be allowed to “insure this away”. But then what if the insurer can’t pay? Is it settled then?

Also, opponents of incorporation are remarkably inconsistent. Yes, it’s true a corporation could commit a tort it couldn’t compensate. But then, so could most poor people today. It’s unfair in my eyes to act like corporations are evil for this, while poor people still roam the earth without some huge liability insurance policy, putting others at risk of being victimized but not able to compensate them.

Person September 26, 2006 at 12:50 pm

Lee: I’d advise against referencing the Van Eghen paper. It was painful to read because of the twisted logic. If there’s a point you want to take it, I’d recommend remaking the argument in your own words so as to save us the time.

Mark_Brabson: You have to be careful about the problem of meaning vs. reference, i.e., “Oedipus wanted to marry Jocasta, not his mother!” I think it would be more precise to phrase your position as being that libertarians are against incorporation, not “corporations”. Your position is basically that corporations as managed today could accomplish the exact same things through different financial instruments. Therefore, your critique of current corporations is the far weaker claim of “You should structure your financial arragements with different names.”

By the way, the term is “without”. No one’s impressed by your ability to pepper your posts with French.

Mark Brabson September 26, 2006 at 12:53 pm

Person:

My opposition to corporations doesn’t spring from my views on torts. It springs from the simple fact that corporations are NOT of the marketplace, but are of the state. As a Libertarian, I must oppose distortions of the marketplace by the state, so by principle I must oppose corporations. No inconsistenties in my position. I can’t speak for others, of course, just myself.

Mark Brabson September 26, 2006 at 1:05 pm

I am not sure one French term constitutes peppering. Now mises.org, they are peppered with foreign words.

David Spellman September 26, 2006 at 1:37 pm

The nominal reason for the invention of the corporation was to limit the financial liability of investors to what they put into the corporation. It was an asset protection scheme at its conception.

Although it quickly became a device for shielding investors from criminal liability, that was not its theoretical foundation. The operation of modern corporations isolate owners from being responsible for all kinds of malfeasance, but there is no moral basis for granting such protections. The classic two-level arrangement of an LLC owning a corporation to shield a sole propietor or partners from any legal action is reprehensible since it is obvious that the purpose is to act in any manner desired with impunity.

Corporations can and do defraud lenders and investors. People should loan or invest money carefully when dealing with a non-entity since its purpose is to shield real people from being financially liable. Corporations can and do empower agents to commit all manner of criminality and malfeasance.

But corporations do not commit crimes; people commit crimes–using corporations! Anyone who can be shown to have authorized or perpetrated a crime should be liable and punished. That includes officers, employees, agents, shareholders, lenders, or anyone else no matter what their relationship.

quasibill September 26, 2006 at 2:07 pm

Person:

“Also, opponents of incorporation are remarkably inconsistent. Yes, it’s true a corporation could commit a tort it couldn’t compensate. But then, so could most poor people today”

Person, here are two more important foreign terms to wrap your mind around so you can see your analogy is less than meaningless: de facto and de jure.

Poor people can’t compensate, but are still held liable. Shareholders may or may not be factually able to compensate, they are just legally insulated from liability regardless of their ability to pay.

Your whole argument, as usual, is a red herring. The question is, are corporations, as they currently exist, the product of principled legal reasoning, or are they the product of privileges granted by the state. Step one: Read the statutes on every state’s books that create them. (hint, that actually answers the question).

Now, as noted above, contractually limited liability is nothing novel – it is explicitly a matter of contract law. No libertarian should be against it being legal (although there are certainly arguments against the wisdom of buying into certain business arrangements). Further, it does provide a bit of a shorthand to what would otherwise require up-front disclosure during every contract negotiation – however, that’s such a minor point that it really is no big deal.

On the other hand, it’s really clear to anyone who spends more than 2 minutes actually researching the concepts of agency law and piercing the corporate veil that corporations currently provide statutory privileges that go beyond any common law privilege against tort liability.

Do I think it’s a major impetus behind current incorporation? No – quite likely, the contractually limited liability is the driving force. But that doesn’t somehow magically change the fact that corporations do enjoy state granted privileges that are not fundamentally sound.

Stephan Kinsella September 26, 2006 at 2:33 pm

Lee–God help me, I have to agree w/ Person here, re Van Eeghen’s paper. May the gods forgive me!!
Mark et al.: “My opposition to corporations doesn’t spring from my views on torts. It springs from the simple fact that corporations are NOT of the marketplace, but are of the state.”

But this argument could be used to say that marriage is not libertarian. After all, who cares whether there “would” be marriage still, absent the state–? the fact is, that “now”, the status of marriage “is” a creation of the state now. So it must be opposed.

quasibill September 26, 2006 at 3:05 pm

“But this argument could be used to say that marriage is not libertarian. After all, who cares whether there “would” be marriage still, absent the state–? the fact is, that “now”, the status of marriage “is” a creation of the state now. So it must be opposed.”

Uh, okay. How about this – nothing about voluntarily choosing your intimate or business partners should be illegal in a libertarian society. However, the legal ramifications attached to your decisions may or may not be consistent with a libertarian society. Hence –

“marriage” and “shareholder common ownership agreement” are never objectionable. Granting certain legal privileges to either arrangement, on the other hand, can be debated thoughtfully.

You gotta be careful agreeing with Person – you pick up his sloppy habit of focusing on red herrings. Next you’ll be complaining that everyone else is out to get you because they don’t understand your sloppy reasoning…

Person September 26, 2006 at 3:27 pm

quasibill:

Okay, maybe I wasn’t clear. There are two separate issues at play here: 1) whether corporations unfairly expose others to risk they can’t cover, and 2) whether a person should be held liable for a specific tort. In my original post, I was addressing the general sentiment that (with respect to 1) ) corporations expose others to risk they can’t cover by noting that if they do, they do it to a far less extent than poor people, whom these ardent opponents of incorporation on the left (not surprisingly) give a free pass. You don’t necessarily endorse this point, so it may not apply to you.

Then, regarding 2), you’re claiming that as a shareholder, liability for (a certain set of) corporate torts inheres in my position. But my point here (and I believe Stephan’s) is that if I can achieve the exact same relationship with the corporation as currently stands, with some kind of bond (that I described above) — a bond which you agree does not put me on the hook for the corporation’s wrongdoing — then your claim just reduces to “corporations are bad because they use the wrong names for financial instruments in their dealings”. Not exactly a biting indictment.

Stephan said:the fact is, that “now”, the status of marriage “is” a creation of the state now. So it must be opposed.”

quasibill responded: Uh, okay. How about this – nothing about voluntarily choosing your intimate or business partners should be illegal in a libertarian society.

Hold on — you’ve already missed Stephan’s point. We all understand that you can go through an dileneate which parts of marriage are compatible with libertarianism and which aren’t. That wasn’t in dispute. The point is, by singling out an objectionable part of corporations, and using that to attack “corporations” as such (when so many parts of them are not objectionable), you’re making a statement exactly as useful and true as Stephan’s hypothetical statement about marriage.

And I’d drop the little jabs against me, if I were you.

Kristian Joensen September 26, 2006 at 6:13 pm

“a bond which you agree does not put me on the hook for the corporation’s wrongdoing — then your claim just reduces to “corporations are bad because they use the wrong names for financial instruments in their dealings”. Not exactly a biting indictment.”

Person(and Stephan for that matter), this is exactly right.

Wouldn’t Quasibill also have to concede that CONVERTIBLE bonds do not “put me on the hook for the corporation’s wrongdoing.

You can even have bonds that can be converted to stock and back again.

Lee September 26, 2006 at 8:58 pm

To up the ante, can Stephan or any one (or any person ) explain why such a thing as a “corporation” would be necessary from a strictly commercial standpoint? I can’t see one and joke with clients all the time that sole proprietorship is the way to go — unless you want to defraud public, in which case a corporation is THE way to go.
Also, someone once referred me to a very interesting paper on how Amex was once a pass through liability corporation. (Don’t Leave Home Without It: Limited Liability and American Express by Mark I. Weinstein)
That’s right, it was publicly traded with the understanding that owners of shares could be hit with a big bill a la Lloyd’s in the 80′s. Amex was also monsterously profitable during this time and its shares were considered desireable. Interesting, eh?

Lee September 26, 2006 at 9:53 pm

A learned friend has suggested that I correct my spelling of monstrously and desirable. Done.

Paul Edwards September 26, 2006 at 11:09 pm

Lee,

The reason why such a thing as a “corporation” would be necessary from a strictly commercial standpoint (in anarchy) is that it would facilitate faster and more efficient formation and accumulation of capital while at the same time accommodating the need for contractual agreements between property owners.

The corporation is a shorthand for a limited liability towards creditors, employees, clients, customers and whatever. It says basically if we are a limited company, and you agree to do business with us, you agree not to go after more than the worth of the assets of the company if you sue as a creditor, or as an unsatisfied customer. This could be accomplished in other ways, such as individual contracts but such an approach would be unnecessarily cumbersome and expensive. Limited corporations relieve groups of capitalists from having to pay for that particular administrative/legal overhead.

Obviously, capitalists will be much less likely to take equity positions in any given venture if the liability they take on for such an undertaking is unlimited. Any attempt at restricting contract making between property owners can only be deemed unlibertarian and aggressive. There can be no justification for disallowing market participants from coming up with innovations in contractual arrangements such as this. All that is required is proper notification and clarity of what a limited corporation means, and buyer beware.

Araglin September 27, 2006 at 2:04 am

Quasibill,

I think that you’re on to something here about the way in which the law unevenly distributes vicarious liability across different forms of business organization. That is to say, the law holds the “owner” of a sole proprietorship vicariously liable for the tortious acts of his employees so long as they are committed in the scope of employment, whereas it does not hold corporate shareholders, who are thought to be the “owners” of corporations, liable for the same.
This poses a real problem – the extent to which this differential treatment distorts the structure of production is unclear, but would seem to lead to different patterns of organization than would otherwise obtain. However, the problem of inconsistency may be resolved in one of two ways: either by eliminating the vicarious liability of the sole proprietor or by extending vicarious liability to the corporate shareholder. Which of these alternatives is appropriate depends upon whether or not the doctrine of Respondeat Superior is itself justifiable (if it is, it has not as of yet been satisfactorily justified).
I am still trying to work through this and other issues pertaining to libertarian agency law (Randy Barnett’s piece on Agency Law got me started along the lines I am currently sketching out). I think, though, that Mr. Kinsella is absolutely correct that the default position has to be that an actor (and only that actor) is liable for the torts that he personally causes (i.e. there is neither immunity, nor collective guilt). Others (employers, parents, etc.) may be held jointly and severally liable for those same acts, but this “may” only becomes an “are” upon demonstration of the proper connection between the two persons (here, I would probably want to see some showing of complicity — this would perhaps extend from the clear case of ordering the tortious act to quietly condoning and profiting from an act which one has the power and right to control and thereby prevent).
I think that even under agency law as it currently exists in Ango-American law, for a principal-agent relationship to exist at all, three requirements must be met: consent, benefit, and right of control. If the putative master has neither the power nor the right to control the agent’s actions, then no agency relationship exists. The question is, does a non-controlling shareholder in a publicly-traded corporation meet this basic control requirement? I think that’s a doubtful proposition.
Also: Even if the requirements for a bare agency relationship are met, the doctrine of Respondeat Superior only applies in a certain type of agency relationship known as master-servant relationship. Beyond a mere right to control ends, the putative master must have the right to physically control and select the means employed by the putative servant to accomplish those ends. It seems quite obvious to me, that the limited voting rights that inhere in ownership of a share of common stock do not by a longshot empower a shareholder to wield such control (if one possessed a controlling interest, of course the situation might be very different).
As for your response to the doubt Mr. Kinsella expressed in the bottum portion of his original post, it is my understanding that you are quite right about how the corporate form shields the shareholder from vicarious liability for torts (unless the shareholder used the corporation as a mere instrumentality or as an alter ego, so allowing for veil piercing); however, insofar as the shareholder is not vicariously, but directly responsible for committing harm, the corporate form does not shield him from liability therefor.
Cheers,
Araglin

lee September 27, 2006 at 11:22 am

Briefly, my understanding is that corporations became somewhat popular when merchants would undertake one-shot ventures with a fixed terminus. Think of a ship sailing from London to India loaded with metals and expecting to return full of spices. At the conclusion of the venture, all investor/owners would receive a pro-rata share of the proceeds, minus costs. The corporation as such would end, and then another formed for yet another venture, etc.
As a business enterprise this made perfect sense. Each investor/owner had a pro-rata ownership interest that would be liquidated at the conclusion of the venture. He would invest knowing that his potential downside was the amount of investment, and his potential upside was whatever profits could be brought about by the traveling merchant manager and the intrepid ship captain.
It also neatly seperated liability according to the fairly commonsensical idea that if it’s captain and traveling merchant who will “act” while far far away, it shouldn’t be the shorebound investor/owners who pay for misdeeds of the traveling merchant or captain.
Prior to the advent of the corporation one had choice of lending money (no liability but limited upside) or being partners (big liability and potential big upside). Corporations made perfect sense and, indeed, allowed for the accumulation of larger sums of money allowing for “longer structures of production” in the form of ever-bigger ships and longer voyages, etc. (More spice spice, baby.)
The problem was that cunning conmen immediately saw the potential for making this otherwise harmless social fiction of a ‘corporation’ into a money-making machine. Let’s make the corporation immortal, they thought. It lives forever. Investor/owners give us money, we buy lots of assets, make the corporation look profitable, watch as ownership shares rise in value on the secondary market, and then rip everyone off! I can almost see the gleam in the eyes of our early railroad and shipping barons, et al.
On a more serious note, there is no a priori reason why corporations should be a more efficient or effective means of raising large sums of money for capital-intensive ventures. I believe many of our glorious capitalists of the past were quite capable of raising capital by other means, such as limited-life partnerships, hybrid loans with partial promise of share of profits, traditional bank loans, internal financing through cashflow generated by other ventures, etc.
It is, I think, a myth that the corporate form was necessary for anything, save making conmen rich. It’s like the myth of government — but if we don’t surrender our sovereign rights to the king/elected officials/fuhrer then anarchy will prevail. This is a lie. As is the claim that corporations ever were “necessary” for anything but fleecing the public.
Finally, as to liability, of course Stephan is right (as usual). If it is the act that causes the effect, we should follow the chain of action back to the actor. The path can be a twisted one (eg, Stephan tells me to shoot patent office clerk who denied his patent for Cajun Martini Blender), but the concept seems clear. Afterall, there can be but two basic categories, action and thought. Punishing the latter is rather unfair (think of difference between spouse denying you meatloaf because you said he/she looked fat in that outfit versus the denying you meatloaf because he/she thinks you thought he/she looks fat…ponder that).

quasibill September 27, 2006 at 12:42 pm

Person:

“And I’d drop the little jabs against me, if I were you.”

Coming from the king of personal jabs (often pre-emptively), that’s rich.

“then your claim just reduces to “corporations are bad because they use the wrong names for financial instruments in their dealings”.”

No. I’m saying that if you hold an equity share, meaning you a) claim ownership of the res, and b) maintain a claim to profits from the res, essentially unlimited in an absolute sense by any contract term, you are not a mere creditor. Once again, we can play all sorts of games, calling a duck a frog, so long as we have an asterisk and all sorts of legalese afterwards, but if we want to ground this discussion in a meaningful way, we have to recognize there is a difference between claiming ownership and being a creditor. And if shareholders don’t own the assets of the corporation, who does?

“The point is, by singling out an objectionable part of corporations, and using that to attack “corporations” as such (when so many parts of them are not objectionable), you’re making a statement exactly as useful and true as Stephan’s hypothetical statement about marriage.”

And once again reading comprehension fails you. My point was merely that those who reflexively defend corporatins AS THEY CURRENTLY EXIST, are akin to those defending the entity that is state regulated marriage. I’ve noted that I agree with Stephan’s ultimate point – that causation is really the important question. My post was merely to point out that “fictitious personhood” as it currently exists, actually does not accomplish what Stephan thought it did.

Araglin,

good points. I agree that an argument can be made that liability for sole proprietors may be the area where there is a problem with current law from a libertarian standpoint. My default position, though, is that anything developed through hundreds of years of common law with respect to business practices is the default right answer, that must be shown to be wrong. In the same vein, I view any recent (100 years or so) statutory law in the same area very suspiciously, with an assumption that it is the result of some social engineer.

“Even if the requirements for a bare agency relationship are met, the doctrine of Respondeat Superior only applies in a certain type of agency relationship known as master-servant relationship.”

I tended to shy away from respondeat superior, because it’s actually somewhat different from the point I was trying to make, and I actually believe that RS isn’t entirely fundamentally sound. Under traditional agency law, an agent can have several types of authority, including “apparent”, and with that authority bind the principal by his acts. Now in terms of contracts, quite clearly those who understand corporations understand that agents are limited in their authority. But in the case of where the agent uses his apparent authority to commit a tort, traditionally the principal could be held liable for the tort.

To me, the question is whether the principal has acted responsibly with respect to how his property is utilized. RS, corporations, and even to a small extent agency law, all add confusing legalese that detracts from, instead of clarifying, this basic issue.

Note that this is different from being a creditor in that a creditor has a contractually defined absolute return. Any “loan” instrument that allows for an unlimited absolute return is not a loan, it’s a share in ownership. A loan is a temporary surrender of ownership of property, where as a share of a corporation is a surrender of the right of possession of property while retaining ultimate ownership.

“The question is, does a non-controlling shareholder in a publicly-traded corporation meet this basic control requirement?”

Where no shareholder has a controlling stake, who is the principal? Who owns the corporation? Not the managers, clearly – we refer to them as agents, of course to a fictitious person, but that’s the problem. A real person must actually be an owner somewhere along the chain. So the only logical place for ownership is shareholders.

So you challenge control. Okay, minority shareholders can’t control anything directly, but then again, who put themselves in that position? Where they no claim of control over something they claim to own? Should we reward them for such careless behavior with a blanket immunity? Or should we just treat them like any other owner of property owned commonly (joint tenants and tenants by the entireties also)?

In the end, as you note, the problem is that this differential legal treatment is not based on a reasoned foundation, and therefore distorts capital structure. I prefer levelling the playing field with the simple question, like Stephan in his original article, to “did D’s negligence cause the injury stated?” No need to drown in legalese about master/servant, corporate veils, etc. In the absence of that, I’ll take either shielding sole proprietors like shareholders, or exposing shareholders like sole proprietors. It’s more important in the big picture that the law treats owners equally.

Stephan Kinsella September 27, 2006 at 2:46 pm

Quasibill: God help me, I tend to agree w/ Person here (except you are right about his jabs in many cases).

Person: “then your claim just reduces to “corporations are bad because they use the wrong names for financial instruments in their dealings”.”

QB: No. I’m saying that if you hold an equity share, meaning you a) claim ownership of the res, and b) maintain a claim to profits from the res, essentially unlimited in an absolute sense by any contract term, you are not a mere creditor.

The problem I have with this is that you are relying too heavily on terminology. What does it *mean* to “own the res”? Why is this relevant anyway? Because of what ownership itself means–which is the *right to control*. It makes perfect sense to focus on this, when trying to find causal responsibility for what someone else does directly. If I have some kind of signficant influence or control over the others’ actions, then yeah, maybe I’m implicated. But it’s because of the right to control–whatever you call it.

Once this is realized, then you see there are many forms of “right to control” which the law does not classify as ownership (e.g., a significant customer or creditor can pressure a company or even have contractual covenants); and many things the law calls ownership that have little right to control (the “naked owner” (owner of the residue or estate in reversion) of a piece of land that someone else has a life usufruct (life estate-life tenant) over has very little control of it). It is putting form over substance to fixate on the legal terminology used to describe certain relationships–especially the legal terms flowing from state positive law.

“I tended to shy away from respondeat superior, because it’s actually somewhat different from the point I was trying to make, and I actually believe that RS isn’t entirely fundamentally sound.”

Right–that’s why I said (as Gabb quoted me) that you have to first show RS is libertarian to have liability in the first place. The responsibilyt of the employer or the owner of the company-employer for the actions of the employee rests on RS.

“To me, the question is whether the principal has acted responsibly with respect to how his property is utilized.”

Maybe. But without RS, in order to hold the owner of property liable for torts committed by a third party using that property, you would have to say that loaning to someone is itself negligent, which is ridiculous. If I rent a car from Hertz and use it to ram into a crowd, why should Hertz be liable?

I believe many libertarians have some kind of bizarre, yet unstated and unjustified, assumption that Hertz should be. Why? Why? It needs to be shown, not just assumed.

“Note that this is different from being a creditor in that a creditor has a contractually defined absolute return. Any “loan” instrument that allows for an unlimited absolute return is not a loan, it’s a share in ownership.”

Nonsense. Or: it does not matter. You are trying to pigeonhole things as either being “officially” ownership, or “not” ownerhsip, and then making a decision based on this determination. Why not just focus on the underlying reality instead.

“Okay, minority shareholders can’t control anything directly, but then again, who put themselves in that position?”

But when you buy a share from another shareholder you don’t cause anyhting to happen. the company already exists; you don’t even give them money.

Roger M September 27, 2006 at 3:02 pm

Is there a form of libertarianism that allows for differences on issues like this? In other words, could one society allow corporations and another not and both be considered equally consistent under libertarianism?

The reason I ask is that people have two ways of thinking about law: 1) One groups says that nothing is permitted except what is in the law. Europeans tend to lean this way. 2) Another group says everything is permitted except what the law forbids, which is more American.

It seems to me that the discussion above tends toward #1. Does a libertarian group that follows #2 exist?

quasibill September 27, 2006 at 3:24 pm

“Because of what ownership itself means–which is the *right to control*. ”

Yes, a form of property right. Hence, it describes a person as well. Who owns the property rights in corporate property? Who can assign the right to possess, or control? As I’ve noted, it can’t be the managers, as we automatically refer to them as agents. Agents of who? Well, the fictitious person, of course! So a fictitious person owns property? hello, State, welcome to my house…

“right to control” which the law does not classify as ownership (e.g., a significant customer or creditor can pressure a company or even have contractual covenants”

Are you seriously arguing that a customer has a property right in the property of a seller? It’s the difference between “right” and “influence”. Leftists make that mistake all the time – I expected more from you. The customer can influence the seller by offering enough money to encourage the seller to agree to a term. He has no property right until the seller transfers it.

“If I rent a car from Hertz and use it to ram into a crowd, why should Hertz be liable? ”

Funny you used this example, as I was thinking along similar lines when I made my argument. Here’s my re-statement:

QB is locking his car door as W, the town drunk approaches. W, reeking of alcohol and somewhat twitchy with white powder around his nose, asks QB for the keys to his car so he can pick up his friend at the airport. If QB gives W the keys to the car, can QB be held liable for W’s act in driving through the line of schoolchildren at the next intersection?

Does your answer change if QB first performs the magical incantations, calls himself QB taxicabs, Inc., grants equal shares to his next door neighbors, and then signs W to an employment agreement to be the director of QB taxicabs, with full management authority, before giving W the keys to the car (which of course, QB has assigned to the corporation)?

“But when you buy a share from another shareholder you don’t cause anyhting to happen. the company already exists; you don’t even give them money. ”

So? When I buy the dam on the river upstream, I don’t cause anything to happen – it already exists, and I don’t add any capital to the dam. However, I AM now owner of it, and CAN be held liable for a subsequent breach that causes damage down stream.

It’s really quite amazing to see you make Marxist arguments about property ownership. That it’s just some metaphorical construct, that abstractions can have rights, etc. Property rights are held by someone or someones in common to any owned property. Until you define who owns the property, it must be unowned. Who, by your tortured definitions, owns the corporate property, if not shareholders?

Stephan Kinsella September 27, 2006 at 3:42 pm

Somewhat bill:

“right to control” which the law does not classify as ownership (e.g., a significant customer or creditor can pressure a company or even have contractual covenants”

Are you seriously arguing that a customer has a property right in the property of a seller?

Depends. They can–they can have contractual guarantees that force the seller to do certain things or not, w/ their own property. Is this not a form of co-ownership? It’s divided right to control. Same w/ creditors.

It’s the difference between “right” and “influence”. Leftists make that mistake all the time – I expected more from you.

But if I were exploring a theory of ownership, maybe so. The issue is *causation*. For that, we look at relevant factors. One of them is influence or control. Owenrship is relevant *only* because and to the extent it means control. In my view.

The customer can influence the seller by offering enough money to encourage the seller to agree to a term. He has no property right until the seller transfers it.

First, why does there have to be an ownership-based influence for it to matter for responsibility? If a wife pays a hit-man to kill her husband, she is responsible not b/c she owns the gun used or the hit-man. But beause of her role–her influence, her causal role. I discuss the importance of causation here: http://mises.org/journals/qjae/pdf/qjae7_4_7.pdf

Or what if she seduces her boyfriend or otherwise persuades him to kill her husband? She’s still liable (IMO).

Second–the customer can have property rights–there might be a contract having many obligations on waht the seller does with his property.

QB is locking his car door as W, the town drunk approaches. W, reeking of alcohol and somewhat twitchy with white powder around his nose, asks QB for the keys to his car so he can pick up his friend at the airport. If QB gives W the keys to the car, can QB be held liable for W’s act in driving through the line of schoolchildren at the next intersection?

Maybe–but you changed the context. Here QB is more involved. It’s like handing a gun to someone who is obviously likely to immediatley use it to go on a shooting rampage, and selling one to a hunter.

It’s really quite amazing to see you make Marxist arguments about property ownership. That it’s just some metaphorical construct, that abstractions can have rights, etc.

It’s not Marxist to say property means the right to control. It’s not Marxist to believe responsibility for others’ actions requires a coherent theory of causation; and that in order to prove such causation, “ownership” might be relevant primarily if and to the extent the ownerhsip implies some kind of relevant control; and that if so, other types of control or influence might also be relevant for a causal analysis.

Property rights are held by someone or someones in common to any owned property. Until you define who owns the property, it must be unowned. Who, by your tortured definitions, owns the corporate property, if not shareholders?

Why do you keep assuming A is liable for any tort commited by a third party who is using A’s property? This is an assertion that needs a justification.

araglin September 27, 2006 at 4:13 pm

The problem here is in assuming that ownership of any particular asset must be unitary. It’s not. When a potential share-holder pays in capital to the corporation, he receives in return certain contractual rights: (1) to receive a pro rata share of any declared dividends; (2) to receive a pro rata share of assets minus liabilities upon liquidiation; and (3) the right to vote in certain situations. These contract rights (to the extent that they are enforceable) rest upon the parceling out of the various constituent parts of ownership among the parties of the corporate assets. If one has an enforceable right to insist that certain actions be/not be taken with certain property, under libertarian theory, that has to be because one or more of the “sticks” in the property “bundle” has passed into his hands. An asset isn’t unowned merely because no one possesses each and every one of the ownership rights.

Hope this finds all of you well,
Araglin

quasibill September 27, 2006 at 7:04 pm

“They can–they can have contractual guarantees that force the seller to do certain things or not, w/ their own property.”

At which point, the seller has sold that property right to the customer. But he did, in fact sell it. That right existed before he entered into the contract.

“he issue is *causation*. For that, we look at relevant factors. One of them is influence or control. Owenrship is relevant *only* because and to the extent it means control.”

I actually agree. The problem is you are arbitrarily ending the chain at a given point. Noone forced the shareholder to enter into the agreement he did. He did, in fact, have absolute control of the property he exchanged for the share, and in fact, had every right in the world to demand more control in return. The fact that he intentionally tries to shirk responsibility for how his newly acquired property is then used doesn’t exactly make him automatically blameless for how it is used, in my view. He can be seen as contributing to the action by supplying the necessary means. Again, you and your newfound soulmate are fighting a bit of a strawman – I am not arguing for automatice liability. I’m merely arguing against automatic immunity.

“Or what if she seduces her boyfriend or otherwise persuades him to kill her husband? She’s still liable (IMO).”

Exactly. Or how about the situation where the teacher seduces a student, provides him a gun, and then blithely mentions that she can’t continue the relationship as long as her husband is alive? She has no control over what the student then does, and she hasn’t exercised any direct control over him, but she can still be found liable (IMO). Of course, if she incorporated herself and merely hired the student as a director and gave the equivalent information (here’s a nuclear plant, but unless we can find a cheap way to dispose of the waste so I can make a profit, I’ll have to fire you), current law saws – immunity! Wonderful, ain’t it?

“Here QB is more involved. It’s like handing a gun to someone who is obviously likely to immediatley use it to go on a shooting rampage, and selling one to a hunter.”

I see no change of context. You were claiming that there could never be liability for merely lending property to another. I showed that quite clearly there is an argument that there can be such liability. Shareholders voting in a CEO with a record of putting profits ahead of any concern for third parties are perfectly analogous – if the director then proceeds to violate 3rd party rights in pursuit of higher profits, can you honestly say that the shareholders had no causal connection?

What was the referrent to my “marxist” comment was your intimation that there is no real owner of corporate property – that an abstraction (such as “the proletariat” or a fictitious person) had property rights. I say, some real, living, individual has the property rights, individually or common with other real, living individuals. They do, in fact, delegate these rights when they make contracts. And, in fact, they can arguable be held liable for delegating those rights in a non-responsible manner.

“Why do you keep assuming A is liable for any tort commited by a third party who is using A’s property? This is an assertion that needs a justification.”

See above comment regarding the Ray Bolger you keep bringing to the table.

Araglin,

“The problem here is in assuming that ownership of any particular asset must be unitary.”

I think the only people assuming this are Kinsella et al. I’m merely saying that each right exists, and that in most pertinent situations, it originated as unitary ownership rights, either in an individual or in a group. The original unitary owner then delegated or sold some rights to others. These are, in fact, actions. It doesn’t just happen magically. Humans actually act to accomplish the transfer. The manner in which this transfer occurs *may* give rise to liability on the part of the transferor. NOthing more, nothing less.

Stephan Kinsella September 27, 2006 at 10:18 pm

pseudo-bill:

“he issue is *causation*. For that, we look at relevant factors. One of them is influence or control. Owenrship is relevant *only* because and to the extent it means control.”

I actually agree. The problem is you are arbitrarily ending the chain at a given point. Noone forced the shareholder to enter into the agreement he did. He did, in fact, have absolute control of the property he exchanged for the share, and in fact, had every right in the world to demand more control in return. The fact that he intentionally tries to shirk responsibility for how his newly acquired property is then used doesn’t exactly make him automatically blameless for how it is used, in my view. He can be seen as contributing to the action by supplying the necessary means. Again, you and your newfound soulmate are fighting a bit of a strawman – I am not arguing for automatice liability. I’m merely arguing against automatic immunity.

No, I’m saying it could be either way too. Some shareholders could clearly be liable. For their particualr actions or role.

I simply say taht as a general matter, someone is responsible for another’s direct actions only if you can establish a sufficient causal link. Now, if you think *merely owning shares* in the company that pays money to someone to do something (an “employee”) is necessarily liable for any tort committed by that employee, I simply think it needs to be established. The burden is on you; and if you think it’s “obvious” or “obviously followS” from the fact that he’s a shareholder–it doesn’t. You have the burden. I don’t see how you can satisfy it but you are welcome to try.

That brings up another issue: “employee” is also an artifical concept; economically, waht’s teh difference between paying an independent contractor, or an “employee,” to do a task for you? Or even outsourcing something to another company?

I think the problem is some people have a general hostility to corporatism either b/c they have a left-libertarian aspect, or a paleo-agrarian one, or b/c they dislike the intertwining of global capitalism with government. So they come up with the limited liability complaint. But it’s not set in any carefully articulated, coherent theory of responsibilty.

I mean, let’s hear it: in a private joint stock company in your version of libertopia, what *exactly* is your theory of what liability shareholders should have? Are you saying they should have unlimited liability, for … what? any actions performed… by whom? By “employees’ of the company? or only by employees, performed in the couse of their employment? What about outsourced tasks done by “other” companies? what about the actions of “independent” contractors? Does the action have to be done “with” “property” owned by the shareholders/company? Or does merely being paid by the company implicate the company?

SEe, not only do you guys fail to set forth a careful theory of resonsibility and causation, you fail to even specify *what* you are trying to justify. I believe you need to carefully show what liability you think shareholders *should* have (that the law is currently somehow immunizing them from), and also what is the *justification* for this theory.

Or how about the situation where the teacher seduces a student, provides him a gun, and then blithely mentions that she can’t continue the relationship as long as her husband is alive? She has no control over what the student then does, and she hasn’t exercised any direct control over him, but she can still be found liable (IMO). Of course, if she incorporated herself and merely hired the student as a director and gave the equivalent information (here’s a nuclear plant, but unless we can find a cheap way to dispose of the waste so I can make a profit, I’ll have to fire you), current law saws -immunity!

I am not so sure you are right. But if so, that part is not justifiable. I have pointed out repeatedly that if someone is causally responsible, fine. In this case, it’s easy to make the case.

But notice: she is not responsible *merely because she is a shareholder*, but because, as yo uset up the hypo, she was orchestrating the whole thing.

This example does NOT show that a *mere* shareholder of a company is necessarily responsible for all torts committed by individuals the company pays to do things.

I see no change of context. You were claiming that there could never be liability for merely lending property to another.

Did I? I believe I was pointing out that if you say a shareholder is necessarily liable, it must be based on *something*. It has to be because he gave money to, or has control over, the company. In the former case, if you base it on this–then you would implicate all lenders too. Surely we don’t want this.

This dos not imply no lender could be liable. I can conceive of situations where they would. Where they pressure the company into committing a crime, etc.

Shareholders voting in a CEO with a record of putting profits ahead of any concern for third parties are perfectly analogous

Perhaps–but that is not merely because they are sharehodlers–it’s b/c of particualrthings they did in this case–and how would this theory implicate those who voted against the CEO, or who didn’t vote (anyway shareholders elect the directors, who hire the CEO).

– if the director then proceeds to violate 3rd party rights in pursuit of higher profits, can you honestly say that the shareholders had no causal connection?

Of course in some cases this can be shown. Sure, why not? I just say it’s not automatic.

What was the referrent to my “marxist” comment was your intimation that there is no real owner of corporate property

Of course it has an owner. Or owners. It’s divided; it does not rest all in the hands of shareholders (or not necessarily). As I pointed out: can the shareholders use the corporate jet? No. CAn the company sell all its assets? No, not if the bank has covenants or liens preventing it. Etc. Ownership–the right to control–is spread among many entities. Deal with it.

See above comment regarding the Ray Bolger you keep bringing to the table.

What?

“The problem here is in assuming that ownership of any particular asset must be unitary.”

I think the only people assuming this are Kinsella et al.

Im not assuming this. The opposite, if anything.

Person September 28, 2006 at 12:17 am

quasibill: are you going to address the issue of convertible bonds that Kristian brought up or the variable bonds that I brought up?

quasibill September 28, 2006 at 7:43 am

Stephan,

Let’s step back and see if you agree with my summary so far, and see what you disagree with:

uncontested:

1. sole proprietorships and corporations are treated differently with respect to liability for employee actions. Sole proprietors have respondeat superior, while shareholders have limited liability.

2. Limited liability has no connection to the concept of causation. Piercing the corporate veil is not based on determining whether there was control or causation, rather it merely attempts to determine if the shareholder didn’t respect the corporate identity.

3. Respondeat superior may or may not be justified as to sole proprietors (and therefore corporations as well) – but if you believe it isn’t, RS should be changed, instead of granting artificial privileges to shareholders in corporations. There is no valid reason to distinguish between the two forms of ownership in this respect. What holds for one as a general rule should hold for the other.

Any problems with that?

(Ray Bolger had an important role in the Wizard of Oz)

All of which leads us to:

“I believe I was pointing out that if you say a shareholder is necessarily liable”

Strawman – I never, not once, claimed automatic liability. In fact, I have, from the beginning, only argued AGAINST automatic immunity, which is what current corporate law provides. You keep trying to rotate the positions, but it doesn’t work. YOU are defending an absolute position. I’m merely arguing that corporations, as they exist, posess privileges that they wouldn’t absent the state.

“Perhaps–but that is not merely because they are sharehodlers–it’s b/c of particualrthings they did in this case–and how would this theory implicate those who voted against the CEO, or who didn’t vote (anyway shareholders elect the directors, who hire the CEO).”

Exactly. And under current law, none of this is considered. You can only get this far if you first jump through the hoops of “piercing the corporate veil.”

“Of course it has an owner. Or owners. It’s divided; it does not rest all in the hands of shareholders (or not necessarily). As I pointed out: can the shareholders use the corporate jet? No. CAn the company sell all its assets? No, not if the bank has covenants or liens preventing it. Etc. Ownership–the right to control–is spread among many entities. Deal with it.”

I have dealt with it. You can’t seem to get past the point that you are defending an entity, as it currently exists, that doesn’t. As in this statement:

“I am not so sure you are right.”

After you spent your first several paragraphs excoriating leftist and agrarians for their supposed inability to present a coherent defense of their vision, you come up with that? You’re going to the mat to defend corporations as they exist based on that? Okay…

Let’s put out there again, nice and slowly –

Shareholders currently have no liability for how they use their share rights, unless they fail to respect the corporate identity. You consistently claim that this is just peachy in your world, while out the other side of your mouth claiming that the only issue should be causation (“Of course in some cases this can be shown. Sure, why not? I just say it’s not automatic.”) Surprise! – I agree with the second statement (“I am not arguing for automatice liability. I’m merely arguing against automatic immunity.”) (nice spelling on my part, BTW). Just not the first. In that vein, as I’ve already clearly stated above, both RS and limited liability serve only to confuse the question.

Person –

Answered several times. In fact, just re-read the exchange between NSK and myself, and it is addressed at least 3 times over. In fact, I have clearly stated several times what my standard would be (hint, that helps other people actually determine what you mean when you argue – I know someone who fails to do this repeatedly in the IP context…)

Person September 28, 2006 at 8:34 am

quasibill: No, you did not address convertible or variable bonds. You may have given a standard, but you never applied it to those cases. And considering how hard your position is to follow, no, you can’t count that as an explanation. Earlier in the thread you said, essentially, “managers ‘are considered’ agents, so obviously they can’t be owners” — that’s right, because of how economists describe the principle-agent problem, that determines the relationships between the actors. So, no, it’s a bit hard to get answers out of you. Try to explain how convertible bonds and variable bonds fit into your narrow framework.

Stephan Kinsella September 28, 2006 at 11:01 am

Not-quite-bill:

1. sole proprietorships and corporations are treated differently with respect to liability for employee actions. Sole proprietors have respondeat superior, while shareholders have limited liability.

I think I see what you’re trying to get at here. You see a sole proprietor as responsible for employees’ torts; yet you think there is an artificial exemption for “joint owners”. If they just “stand in the shoes” of a sole proprietor, why aren’t they collectively liable?

But a sole proprietor is liable because he directs the actions of the negligent employee, and actually runs the company–sets policies, controls is, manages it. In a joint stock company, the shareholders don’t do any of this. They elect the board, which appoints managers. In my view, the managers are more analogous to the sole proprietor than the shareholders are.

Let me also ask you: have you read Robert Hessen’s by-now classic work on this, In Defense of the Corporation? It’s a very thorough, learned defense, based on libertarian principles. I really think anyone wanting to weigh in on this needs to be familiar with this pioneering work. He handles tons of these kinds of objections.

Before proceeding further, let me list here some good resources on this that really should be studied by anyone seriously interested in this issue:

my blogposts, In Defense of the Corporation and Legitimizing the Corporation
The NRA Gets It Wrong (section “Corporations and the state”), by Sheldon Richman, Freedom Daily
The Theory of the
Corporation, by Norman Barry, Ideas on Liberty
Killing Corporations:
The movement to revoke corporate charters has gotten its history confused, by Jesse Walker, Reason
Corporations and Rights: On Treating Corporate People Justly, by Roger Pilon
summary of the Pilon article in Literature of Liberty

Richman notes:

What about torts, or actions that harm people who are not parties to any contract? (We’re primarily concerned with unintentional torts here.) Partners in an unincorporated firm can personally be sued by someone, say injured by a company vehicle, but not so a shareholder. This seems to confirm that corporate status is a privilege.

Hessen explains that in England long ago the “principle of vicarious liability” was established, holding that a master was liable for the torts of his servant. This was reasonable because the master hired, trained, and supervised the servant. Later the same principle, reasonably, was “extended to sole proprietorships and general partners.” However, he says, it doesn’t follow that it should be applied to all holders of corporate stock. Hessen writes,

Vicarious liability should only apply to those shareholders who play an active role in managing an enterprise or in selecting and supervising its employees and agents. The tort liability of inactive shareholders should be the same as that of limited partners â€” that is, limited to the amount invested â€” and for the same reason; namely, inactive shareholders and limited partners contribute capital but do not participate actively in management and control.

I had forgotten this but must have absorbed it when I read Hessen long ago. Hessen here is making the same basic causation point I have made here: that vicarious liability must be relied on to hold someone liable for the servant’s actions–and in the case of a sole proprietorship, it is reasonable to do so because the proprietor/master is hiring, training, supervising the servant/employee. But in the case of a joint stock company, the same idea applies only to those sharehlolders who “play an active role in managing an enterprise or in selecting and supervising its employees and agents”.

This makes sense to me. Merely being a shareholder is not sufficient. It’s having control. I believe most of the corporation opponents have some view that inherently connects liability to property. I think this is confused and wrong. Liability flows from one’s actions–from control–from causing the harm to occur.

2. Limited liability has no connection to the concept of causation. Piercing the corporate veil is not based on determining whether there was control or causation, rather it merely attempts to determine if the shareholder didn’t respect the corporate identity.

Look. The point is this. Le’ts not stray. Libertarian critics of the corporation base this criticism on certain features, namely limited liability. The question is: in a private society, with no state privilege, could private actors form the basically same type of arrangement that had the features you guys complain about. We have shown that contractual limited liability is no problem. What about torts? See above.

3. Respondeat superior may or may not be justified as to sole proprietors (and therefore corporations as well) – but if you believe it isn’t, RS should be changed, instead of granting artificial privileges to shareholders in corporations. There is no valid reason to distinguish between the two forms of ownership in this respect. What holds for one as a general rule should hold for the other.

See Hessen’s comments above re vicarious liability. I think this is a sound analysis.

Bottom line: Hessen solved all this back in the 1970s. Critics usually ignorant of what has gone before keep reinventing the same critiques, that have already been addressed.

“I believe I was pointing out that if you say a shareholder is necessarily liable”

Strawman – I never, not once, claimed automatic liability. In fact, I have, from the beginning, only argued AGAINST automatic immunity, which is what current corporate law provides.

Does it? If an employee–say a truck driver of FedEx–is also a shareholder, and negligently runs over someone, does his status as a shareholder immunize him? Nope.

You keep trying to rotate the positions, but it doesn’t work. YOU are defending an absolute position. I’m merely arguing that corporations, as they exist, posess privileges that they wouldn’t absent the state.

Shareholders *per se* do not seem to exert enough control to be liable vicariously. The shareholders that do exert enough control, ought to be liable.

“Perhaps–but that is not merely because they are sharehodlers–it’s b/c of particualrthings they did in this case–and how would this theory implicate those who voted against the CEO, or who didn’t vote (anyway shareholders elect the directors, who hire the CEO).”

Exactly. And under current law, none of this is considered. You can only get this far if you first jump through the hoops of “piercing the corporate veil.”

But I am not defending this aspect of corporations. So long as people would be free in private society to (a) limit shareholder’s contractual liability for debts of the corporation; and (b) not be held to be automatically responsible vicariously for actions of the company’s employees merely becuase they are shareholders, then we have the seed of a simalcrum of a corporation.

You can’t seem to get past the point that you are defending an entity, as it currently exists, that doesn’t.

You seem to not be able to get past the convenient use of legal fictions. It’s just a way of conceptually dealing wtih something. It’s not like it hast o have a platonic essence.

Shareholders currently have no liability for how they use their share rights, unless they fail to respect the corporate identity. You consistently claim that this is just peachy in your world,

No. What i claim is that in a free society I see no problem with shareholders having a form of limited liability, even for torts, becuase being a shareholder does not in and of itself mean you are necessarily actively controlling what the tortfeasors do. I also see no problem holding a particular shareolders–or director, or manager, or lender, or customer, or vendor, or employee, or wife of the CEO–liable vicariously for the acts of a particular employee, if it can be shown that there is sufficient causal connection. I only maintain that merely being a shareholder is not sufficient. The libertarian critics of the corporation implicitly rest their critique on the idea that *merely* being an “owner” is sufficient. that is what i deny. ARe you now retracting this? Note that Gabb, above, does imply this.

In any event–as Hessen also points out:

Regardless of one’s view about limited liability for torts, the whole issue is irrelevant to giant corporations, which either carry substantial liability insurance or possess sizeable net assets from which claims can be paid.

Lee September 28, 2006 at 11:31 am

Let’s be clear, certain “libertarian critics” of the corporation don’t focus on limited liability as much as they focus on how useless and meaningless the corporate form is. The mistake made by many (I have yet to digest 126 pages of Pilon’s thinking on this), is that they assume the corporate form serves a legitimate purpose. It doesn’t, it can’t and it never has (contrary to popular myth — similar to the myths of “rights granted to us by constitution” and “government is necessary to secure our rights, build roads, provide justice, secure patent rights,” bla bla). That’s the illusion we need to dispense with, and then we can lollgag around on issues of liability in a world of disjointed actions and perfect freedom.

quasibill September 28, 2006 at 11:35 am

Person –

forgive me if I fail to respond to your posts – its clear we have a communication problem. You have, in the past, claimed to have clearly refuted certain arguments. I see your alleged refutations, and they are as clear as mud to me. The opposite appears to be true as well. What to me is a clear answer to your point, you don’t understand. We seem to speak different languages. I gain nothing from our exchanges, and its clear my posts aren’t useful to you. In the end, we degenerate to name calling, which is not beneficial to either of our positions.

Stephan,

“But a sole proprietor is liable because he directs the actions of the negligent employee, and actually runs the company–sets policies, controls is, manages it.”

But that is not all. He is also the ultimate owner, who has the right to decide that someone else will run the company. For example, the common practice of franchisees to hire a location manager, who in actuality is responsible for all day to day operation. But the manager ultimately derives his authority from the owner, who has non-permanently delegated it to him. This delegation is, in itself, an act that has consequences in the world. For this act, the sole proprietor can be held responsible, including a situation where the sole proprietor hired a dangerous manager because that manager was likely to yield higher profits.

As I’ve noted, the shareholder’s decision to hire a director is, in fact, absolutely immune as long as they follow some statutorily defined rituals. They ARE the ultimate owner involved, and they ARE the one(s) that delegate the right to control to the managers. This delegation IS an action for which liability can possibly accrue, under a libertarian theory. Under current law, it can’t, unless the shareholder disregards a fictitious concept.

I have at some time or another, read all of those sources, although, like you, I don’t have handy recall to all of the points contained therein.

As for Hessen, I don’t agree entirely with his analysis of vicarious liability with respect to inactive shareholders. To the extent that they are inactive by legal inability, his analysis is fine. To the extent they have the right to be inactive, but fail to exercise that right, they can be held liable for their failure to use their right in a responsible manner. Other than that, his analysis seems to agree with everything else we seem to have agreed upon.

“Does it? If an employee–say a truck driver of FedEx–is also a shareholder, and negligently runs over someone, does his status as a shareholder immunize him? Nope.”

Strawman. He is not liable in his identity as a shareholder, he is liable in his identity as an employee. Again, the point is that to the extent he has exercised a right that can be linked in the causal chain to the harm caused, there is an argument that he should be liable. Current corporate law arbitrarily protects shareholders from the possible consequences of their actions.

“So long as people would be free in private society to (a) limit shareholder’s contractual liability for debts of the corporation; and (b) not be held to be automatically responsible vicariously for actions of the company’s employees merely becuase they are shareholders, then we have the seed of a simalcrum of a corporation.”

Well, I’d limit (a) to “contractual debts” in the sense that at least one *real* person would have to be responsible for its tortious debts – that would be a matter of contract (indemnity, etc.) between the shareholders, but they could not extinguish the rights of non-parties to their contract.

And 2nd, “simalcum” is a good description. It is not, in fact, what we currently have. The extent of the difference in practice is impossible to predict with certainty.

“You seem to not be able to get past the convenient use of legal fictions”

Maybe because legal fictions are a front for defrauding the less sophisticated. Look, I have no problem (legally) with hucksters swindling the unsophisticated out of their money, but I prefer that they are actually forced to spell it out up front, during dickering. Can you honestly argue that a person who doesn’t understand the meaning of “inc.” consented to limited contractual liability? To me, you only can by using arguments akin to you consenting to the current Constitution.

“The libertarian critics of the corporation implicitly rest their critique on the idea that *merely* being an “owner” is sufficient. that is what i deny. ARe you now retracting this?”

Not totally. I think you are too glib as to the concept of who delegates the rights of control, but beyond that, I think we agree.

As far as Gabb’s critique, I agree with much of his criticism of the cultural effects, but I don’t trace the problem to corporations per se, but to the “public” markets as established by states as well as the central banks. “Close” corporations absent Fed currency manipulations, would, in fact, probably not have created so many cultural negatives.

Stephan Kinsella September 28, 2006 at 11:55 am

Lee:

Let’s be clear, certain “libertarian critics” of the corporation don’t focus on limited liability as much as they focus on how useless and meaningless the corporate form is. The mistake made by many (I have yet to digest 126 pages of Pilon’s thinking on this), is that they assume the corporate form serves a legitimate purpose. It doesn’t, it can’t and it never has (contrary to popular myth — similar to the myths of “rights granted to us by constitution” and “government is necessary to secure our rights, build roads, provide justice, secure patent rights,” bla bla). That’s the illusion we need to dispense with, and then we can lollgag around on issues of liability in a world of disjointed actions and perfect freedom.

What is the purpose of arguing that a corporation has no purpose? What is the relevance? Even if this were right, it has nothing to do with libertarianism.

Bit-of-Bill:

“But a sole proprietor is liable because he directs the actions of the negligent employee, and actually runs the company–sets policies, controls is, manages it.”

But that is not all. He is also the ultimate owner, who has the right to decide that someone else will run the company.

for some reason you guys see some relevance in being able to Name that sommeone is the Ultimate Owner. I think you’re putting the cart befor the horse; you are failing to provide an *argument* for why mere ownerhsip interests give rise to *vicarious liability*.

For example, the common practice of franchisees to hire a location manager, who in actuality is responsible for all day to day operation. But the manager ultimately derives his authority from the owner, who has non-permanently delegated it to him. This delegation is, in itself, an act that has consequences in the world. For this act, the sole proprietor can be held responsible, including a situation where the sole proprietor hired a dangerous manager because that manager was likely to yield higher profits.

I believe the world has nuances. Context and facts matter. Not all cases are alike. I think there is a difference between what a sole proprietor does and what a shareholder does. Apparently you do not. I think the manager is more analogous to a sole proprietor. They have similar control in making policy, hiring and directing employees. You think the shareholder and proprietor have more in common–becuase they are both “owners”. I focus on control and causation as elements of what determins “vicarious” responsibility. I have given reasons why (in my paper on Causation). You by contrast seem to focus on the Officail Deeming that someone is an Ultimate Owner. I have yet to see a reason given for connecting Ownership with vicarious liability.

As I’ve noted, the shareholder’s decision to hire a director is, in fact, absolutely immune as long as they follow some statutorily defined rituals.

I don’t agree that they should be. I can conceive of some cases where there might be liability. Perhaps.

They ARE the ultimate owner involved,

So??

and they ARE the one(s) that delegate the right to control to the managers.

No, they select the Board of Directors. The Board hires managers. Managers then supervise employees or contractors.

This delegation IS an action for which liability can possibly accrue, under a libertarian theory. Under current law, it can’t, unless the shareholder disregards a fictitious concept.

to the extent this is true, I would agree, that would not be teh case under libertarian law. But this is minor.

“Does it? If an employee–say a truck driver of FedEx–is also a shareholder, and negligently runs over someone, does his status as a shareholder immunize him? Nope.”

Strawman. He is not liable in his identity as a shareholder, he is liable in his identity as an employee.

It’s not a strawman; I’m trying to make sure the description you are resting your critique upon is accurate.

Again, the point is that to the extent he has exercised a right that can be linked in the causal chain to the harm caused, there is an argument that he should be liable.

Yes. I just say mere ownership is not enough to show this. Do. You. Agree?

“So long as people would be free in private society to (a) limit shareholder’s contractual liability for debts of the corporation; and (b) not be held to be automatically responsible vicariously for actions of the company’s employees merely becuase they are shareholders, then we have the seed of a simalcrum of a corporation.”

Well, I’d limit (a) to “contractual debts” in the sense that at least one *real* person would have to be responsible for its tortious debts – that would be a matter of contract (indemnity, etc.) between the shareholders, but they could not extinguish the rights of non-parties to their contract.

sure, by (a) I am refering to contractually acuiqred obligtions wtih third parties. They are on notice they can only pursue the assets of the company, not the shareholders individually.

And 2nd, “simalcum” is a good description. It is not, in fact, what we currently have. The extent of the difference in practice is impossible to predict with certainty.

Yes but you people are critiquing features we say are not problematic about corporations. I find in fact the whole obsession w/ corporations to be crankish and kind of leftist or something.

Maybe because legal fictions are a front for defrauding the less sophisticated.

Oh. Now it’s an argument for fraud. Sheesh.

Can you honestly argue that a person who doesn’t understand the meaning of “inc.” consented to limited contractual liability?

? I don’t frankly care. If people parties to an agreement don’t take the time to specify it carefully enough, they are to blame. If enough people are harmed by the wrong legal presumption, then practices will change.

As far as Gabb’s critique, I agree with much of his criticism of the cultural effects,

Sure. But I find that a-libertarian. Interesting, but irrelevant.

quasibill September 28, 2006 at 12:44 pm

“I think you’re putting the cart befor the horse; you are failing to provide an *argument* for why mere ownerhsip interests give rise to *vicarious liability*.”

No, you put the cart before the horse, as you must determine who is delegating a power before you can determine whether there can be vicarious liability. No person who does not have superior rights to the property can be found to be vicariously liable. Quite simple, no? Then, you move on to whether the delegation was a responsible use of that property right. Apparently it’s okay to just assume someone might have a property right and then begin the vicarious liability analysis. I say it flows the other direction.

And that’s important, because you need to know where the corporate manager’s authority comes from. It’s not an inherent right – in most cases, his powers are revokable at will by someone else. Who might that someone else be? Were they responsible in their delegation to that manager in the first place? Were they responsible in not revoking the delegation earlier?

You seem to be arguing that these questions aren’t relevant, because you don’t like identifying who actually owns the property rights at stake. I say that that is the first question that must be answered.

“I believe the world has nuances. Context and facts matter. Not all cases are alike”

I agree. Which is why blanket immunities (and for that matter, blanket liabilities) given to distinct classes are *always* problematic.

“I think the manager is more analogous to a sole proprietor. They have similar control in making policy, hiring and directing employees. You think the shareholder and proprietor have more in common–becuase they are both “owners”. I focus on control and causation as elements of what determins “vicarious” responsibility. I have given reasons why (in my paper on Causation). You by contrast seem to focus on the Officail Deeming that someone is an Ultimate Owner. I have yet to see a reason given for connecting Ownership with vicarious liability.”

You’re skipping right over it. By what right does the corporate manager have control? By what right does the sole proprietor have control? Hint – corporate managers don’t have a “right” at all, but a “power under authority”, just like the day to day manager under a sole proprietor does. This is where you are constantly returning to a Marxist conception of property rights being held by some abstract entity. The entity does not exist. It is in fact composed of individuals who must act for it to have any ability to actually act.

“But this is minor.”

Ah, well there it is. You value it to be minor, whereas I see it as non-trivial. Can we resolve this conflict? Well, you, as a Randroid type, probably think so. We’ll just have to agree to disagree on your valuation. But it’s nice to finally have the concession.

“Yes. I just say mere ownership is not enough to show this. Do. You. Agree?”

I. am. saying. that. mere. ownership. is. enough. to. ask. the. question. whether. the. owner. delegated. his. property. rights. in. a. responsible. manner. The rest of the analysis flows from there. If the owner wasn’t negligent (or worse) in this decision to delegate, and that is the only link in the causal chain to the owner – no.liability.

“Yes but you people ”

Can I pick up anything written by Rand and state that “you people” argue [x]? Please, stop with the collectivism. I’ve made my individual argument. Don’t ask me to defend positions I have not taken, and I’ll do the same for you.

“Oh. Now it’s an argument for fraud. Sheesh”

Read carefully, and you’ll note that I’ve declined to call it legal fraud. I’m not using the term in the technical sense in that sentence, and again, I’m not claiming that it should be illegal.

“I don’t frankly care. If people parties to an agreement don’t take the time to specify it carefully enough, they are to blame. If enough people are harmed by the wrong legal presumption, then practices will change. ”

I agree. I just find it funny that some libertarians (not you, but IIRC it was PE in this thread) claim the need to create legal privileges to make it easier for a given class to accomplish its objectives. I merely suggest that if you want contractually limited liability, it is fairly easy to include a standard clause in every contract you make. Then there can be no argument that the parties weren’t aware of some convenient legal fiction. It would revert back to standard contract analysis. However, I will agree to the extent that this is, in general, not a very big deal. But it is important to note that it isn’t fundamentally sound.

“Sure. But I find that a-libertarian. Interesting, but irrelevant.”

Fine – but you were the one to post his article. And further, as noted above, I’m clarifying my position contra the “you people” that you seem to confuse me with.

Lee September 28, 2006 at 1:09 pm

As an aside, if we argue liability in situations involving corporations, we shouldn’t forget that corporations are persons at law. As legal creatures it must act through physical beings, ie, corporate managers and employees. As such, imputing liability from managers and employees to corporation is very easy and commonly accepted today.

Further, pass-through liability to a corporation by necessity implies direct liability of employee and manager. So if I am hurt by employee of corporation, I get my compensation from employee and corporation, jointly and severally.

Directors can also be liable. (If employees and managers are arms and legs, then directors are brains — as hard as it may be to swallow while witnessing the Hewlett Packard fiasco involving the ladies who ran board, ran in-house counsel and used to run corporation…). Directors usually have something in their contract that says corporation will pay all bills unless director intentionally and knowingly acted in an illegal manner, etc.

Shareholders can only be liable to extent of their capital contribution to enterprise or money paid for shares.

That said, in libertania, if corporations existed (which I maintain would not be the case any more than cow pie pizza would exist in libertania), attributing liability to shareholders would be be difficult even without grant of immunity by ___________. This is because shareholders are not technically on site for the wrongdoing. But beware, if you are a shareholder of a corporation and, while in the course and scope of your duty as an employee of the corporation, you commit a tort, you are on the hook for the whole kit and kabooble notwithstanding your shareholder status.

But if you only own shares and are kicking back in Houston eating cow pies when the tort is committed by the corporate employee in Oklahoma, of course there is no liability to you. (Some may argue that giving the employee instructions to commit the tort somehow imposes liability on our cow pie loving shareholder, but I doubt that for many reasons, beginning with the concept that shareholders don’t give order to corporate employees, managers do, and managers get their instructions from directors, and directors almost NEVER ask for shareholder approval first.)

Oh, and corporations serve no purpose in real life. At all.

Stephan Kinsella September 28, 2006 at 1:53 pm

Oh, and corporations serve no purpose in real life. At all.

Dude, I have trouble believing you are serious here. This is just bizarre.

As an aside, if we argue liability in situations involving corporations, we shouldn’t forget that corporations are persons at law.

I assume you have actually read Hessen and are familiar w/ his extended discussion of this issue?

As legal creatures it must act through physical beings, ie, corporate managers and employees. As such, imputing liability from managers and employees to corporation is very easy and commonly accepted today.

This does not imply that it’s justified to automatically hold a shareholder vicariously liable for the actions performed by other people (which actions? which people?).

Further, pass-through liability to a corporation by necessity implies direct liability of employee and manager.

liability for what, exactly? For what actios? For those of some monk in timbuktu?

Directors can also be liable.

Sure, why not–if and to the extent it is establihsed they are vicariously responsible for the tort in question?

That said, in libertania, if corporations existed (which I maintain would not be the case any more than cow pie pizza would exist in libertania), attributing liability to shareholders would be be difficult even without grant of immunity by ___________. This is because shareholders are not technically on site for the wrongdoing. But beware, if you are a shareholder of a corporation and, while in the course and scope of your duty as an employee of the corporation, you commit a tort, you are on the hook for the whole kit and kabooble notwithstanding your shareholder status.

Lee, what in the world are you talking about?

But if you only own shares and are kicking back in Houston eating cow pies when the tort is committed by the corporate employee in Oklahoma, of course there is no liability to you.

Uhhh…. so you are disagreeing w/ us how?

All we are maintaining is this. First, by contrat people can become limited liability “shareholders” liable only to the extent of their initial investment, to third parties who contract with the company. Second, *merely holding shares* does not appear to involve the shareholder in enough active control of what employees of the company do to make them vicariously liable for whatever the company is vicariously liable for in tort. That is all. I think you people are all very confused about what it is you are arguing against.

Lee September 28, 2006 at 2:24 pm

Stephan,

Okay, I am having some fun here, but I don’t mean to be obtuse.
—
You say:

“All we are maintaining is this. First, by contract people can become limited liability “shareholders” liable only to the extent of their initial investment, to third parties who contract with the company. Second, *merely holding shares* does not appear to involve the shareholder in enough active control of what employees of the company do to make them vicariously liable for whatever the company is vicariously liable for in tort. That is all. I think you people are all very confused about what it is you are arguing against.”
—
Assuming contract law in libertania allows for this, I agree with this statement. I only ask whether corporations as we now undertand them to be would exist in libertania. And the answer has to be nay. There may be some creature similar to corporation, but not corporation.

As for my example of shareholder who is also employee, surely you agree that if I create “Cow Pie, Inc.” and then hop in the cowpie-mobile and run Person over on the highway, my shareholder status would not reduce my liability to Person in the slightest. I just mentioned this point in passing because some people think the corporate shield shields actual acts by individuals. Not so. Person would be entitled to judgement against me and my corporation.

Stephan Kinsella September 28, 2006 at 2:27 pm

Lee: “Assuming contract law in libertania allows for this, I agree with this statement. I only ask whether corporations as we now undertand them to be would exist in libertania. And the answer has to be nay. There may be some creature similar to corporation, but not corporation.”

But this is ridiculous. marriage as we now konw it would not exist in libertania, since it would not be a creature of the state. Does that mean there would be no marriage in a free society?

“As for my example of shareholder who is also employee, surely you agree that if I create “Cow Pie, Inc.” and then hop in the cowpie-mobile and run Person over on the highway, my shareholder status would not reduce my liability to Person in the slightest.”

Uh— of course not. It does not NOW.

Lee September 28, 2006 at 3:16 pm

Ridiculous? You jest.

Alternative forms of marriage will exist. It will likely be Christian in nature, but maybe it will be Muslim or something else. In modern civil law marriage has a different meaning and effect than in, say, classical Christian communities. Today, I can get a marriage certificate from the state that has a fixed set of rights/obligations (if you are male, it’s mostly obligations, but I digress…as eddie murphy joked “eddie, I want half!”). In libertania things will be different. So, too, with business entities.

What’s so ridiculous about that?

Greg September 28, 2006 at 4:05 pm

Score so far:

QB: 10
NSK: 1

It would be closer but QB scores multiples for making the same logical point over and over but NSK simply can’t comprehend. NSK scores one big point (the first point) for saying that “corporations” could exist without a state and no libertarian rule could prevent it.

araglin September 28, 2006 at 6:51 pm

Mr. Kinsella and Quasibill,

I’ve been quite pleased to see something approaching a consensus emerging on these issues, but have one technical point to make about terminology, which I think is important:
The drunken truck driver employee who runs over the child is “directly liable.”

The employer who knowingly sends the drunk employee out after smelling the stench of moonshine on him may be held liable on one of two theories:

-He is “indirectly liable” if he was negligent or somehow causally responsible in the sense that Mr. Kinsella (rightly) insists upon.

-He is “vicariously liable” if he is held liable automatically simply by virtue of the fact that he bears a certain relation to the employee. To the extent that we’re defending the possible responsible of those who did not physically cause the harm, we ought not to call that liability “vicarious” unless, perhaps it can be justifiably said, that a certain class of person’s always would in fact be causally responsible in situations where they did in deed bear a certain sort of relationship to the direct tortfeasor.

That’s all for now,

Araglin

Paul Marks October 13, 2006 at 3:10 pm

It is true that modern limited liability statutes only go back to the 19th century – but the concept itself is ancient (the idea of the corporation can be found, for example, in the idea of a church or a university college)

Regardless of the age of the concept (I accept that many evil things are old) there is the point of freedom of contract.

If a group of people (or even one person) say IN ADVANCE “if this business venture goes wrong, we will not sell all we own to pay your loss, we will only give you want we have put into the business” then a customer or supplyer has a choice.

They can refuse to do business with the business these people have set up (i.e. only do business with non limited liabilty concerns where the people who own the business are open to losing all their private wealth – their homes and so on), or they can accept this condition.

It is wrong to do business with something that clearly called itself “Limited” (in Britain) or “Incorporated” (in the United States) and then say “the business has gone bankrupt, but the shareholders still have homes and cars (etc) I demand they pay me!”

Only someone who did not know in advance that they were dealing with a limited liability organization (due to some deception) has a possible case against the shareholders.

Although I am disturbed by the quiet dropping of the term “Limited” (in Britian) and “Incorporated” (in the United States).

A corportaion should not just call itself “I.B.M.” (or whatever) it should be careful to call itself …… INCORPORATED (in the United States) or …….. Limited (in Britain).

After all some organizations are not limited liability (such as Lloyds insurance in Britian) and (on moral if not legal grounds) the practice of just giving their name (without having to state that they are limited liability) should be reserved for them.

No one should have to do business with a limited liability concern without knowing what it is – and be open about what it is should be the responsibility of the limited liability concern.

I am not asking that there should be a great sign outside every building of such an organization saying “If this place goes bust you do not get paid for you have sold us, and you get to watch the shareholders drive off in big cars to their nice houses”, but surely asking for the words “Limited” or “Incorporated” after the name is not asking for too much.

Joan October 14, 2006 at 3:42 am

Texas is one of the few regions which have greatly benefited from the tort reforms. Armed with billions of dollars from settlements in the tobacco lawsuits and other big money cases, trial lawyers are seeking to discredit and take away many of the benefits of tort reforms adopted around the country in recent years. Fortunately, a new Texas study is providing facts to combat their campaign of disinformation.
The study looked at inflation, personal income, job creation and other economic factors to determine the success of Tort Reforms, championed by George w. Bush and administration. The overall impact of tort reforms on the Texas economy is estimated to include $ 23.207 billion annual total expenditure for the year 2000. The benefits represent 5.64% of the total income growth, 5.32% of output expansion and 11.4% of the net job creation during 1995-2000. In addition to these specific effects, legal reforms also helped in creating a better environment for economic development within Texas.

Tort Reforms were responsible for creating almost 295,151 permanent jobs in Texas during the past few years. This shows that the tax reforms have had a direct and positive impact on the lives of the consumers. The savings to the typical Texas household in terms of lower prices and increased total personal income amount to $1078 annually, and those savings are projected to grow over time. Many of the cases lying unsolved in the courts have now been cleared, giving the citizens greater access to the courts. So the study confirms that tort reforms have benefited the consumers and businesses and also the courts with civil justice reforms.

Mr. http://www.pacificresearch.org/press/clip/2006/clip-05-24-06tlr.html

Jeremy October 14, 2006 at 1:16 pm

Quasibill makes precisely the argument I would make against corporations, and I would go further: the corporation – as it currently exists – is a mechanism by which this “minor” delegatory power is dehumanized by disinvesting responsibility from human actors. It allows the profit motive to attain a rational, dispassionate role disconnected from authentic, personal human agency – in much the same way that the State systematizes the exercise of power to hide what is otherwise naked coercion. Both corporations and the State reflect similar bureaucracies, and this is the product of more than coincidence – although I suppose that is also an “a-libertarian” viewpoint (much as senseless disparagement of “the Left” is, true?).

I also concur with Quasibill that if a business practice such as limited liability is so useful, it doesn’t make sense why it should be institutionalized by State fiat. I happen to think that the State rationalization of business by legal means in favor of certain parties IS a big deal. Simply dismissing unwitting consumers as unsophisticated is insufficiently libertarian. It ignores a massive and complicated corporate legal code that nobody fully understands – another way in which a “system” is substituted for authentic human conscience and masks otherwise unsavory activities.

R. Richard Schweitzer October 27, 2008 at 1:48 pm

Liability:

How does a form of enforcable liability arise other than via a “legal system” having coercive powers, usually derived through the political (and occasionally social) structure.

Thus to say how far and when that power shall be used is really a limit on powers.

On Torts: ever hear of absolute liability without fault?

R. Richard Schweitzer

Marshall August 22, 2009 at 12:51 am

I’m amazed that the concept of strict liability was completely ignored in this conversation until one person mentioned it two years later.

The overriding concern with tort is to see that the damaged parties are made whole again, as they never entered into a contract or otherwise took any willful risk.

This is why it is important to attach ultimate liability to the property owner, who happens to be responsible for the initial delegation of power.

For obvious reasons, liability should be applied first to the individuals (if any) found to be negligent or worse (although the corporation may be contractually obligated to cover its agents’ liability in certain predetermined circumstances), followed by, if necessary, the assets of the corporation itself. However, it remains imperative to recompense the injured party to the full extent of his damages, should the negligent individuals and the assets of the corporation be insufficient to recompense the damage done.

As was given in example in the related discussion on Kevin Carson’s blog, a corporation operating heavy, potentially dangerous machinery, inherently incurs elevated risk as a cost of doing business, outside the realm of actual negligence (or worse). Nearly everything in society entails a certain amount of risk, and that is generally OK, until someone is hurt. Such injury may be impossible to attribute to a specific act or acts of negligence, even though there remains an injured party in need of recompense and as well a party responsible for the property which incurred the liability. In this case it remains only proper that the injured party be “made whole” once again, at the expense of the owner of the property which bears the casual relationship to the tort.

Why the owner, in cases where their delegatory authority isn’t quite relevant, as there isn’t a specific act of negligence (or worse) to specify blame? Simple, it remains their property which caused the harm. They maintain the existence (and thus actions, if any) of their property, at their sole (presumable) benefit. Thus, they should bear ultimate liability if their property happens to damage someone in an unpredictable fashion outside the scope of negligence or aggression.

This, of course, assumes that you recognize the practical reality that a tortfeasor may be neither an aggressor nor substantively negligent, and yet still incur liability from the small but still real, societally accepted risk that so many actions (especially profitable ones) entail. We take these risks and are not (nor considered) negligent for doing so, yet we ought still to be responsible if we hurt others when those small risks pan out to be real.

I suppose the obvious example is the hypothetical case of a dog on a leash, with no demonstrated or suspected temperament or aggression issues, who, without provocation or forewarning, “snaps” and lashes out at a child passing by on the sidewalk, biting him in the process. Nobody would say such a dog owner is negligent merely for walking his apparently well-tempered dog. Yet, he should still be liable for the damages incurred by the attack. The child, who did not maintain a potentially dangerous chattel, accepted no willful risk, and has no resources to pay for his injuries, should certainly not have to bear damages sustained from an impossibly unpredictable attack while walking peacefully down the sidewalk.

Extrapolating from the example of “heavy machinery”, we see that the resources of a corporation may allow much greater potential harm at what remains an acceptable (read: non-demonstrative of negligence) miniscule risk than what may be redeemable by the assets of the corporation. This is when shareholders should bear ultimate distributive liability for the remainder of the damages, regardless of specific fault, and beyond the value of their initial investment, if necessary. This would simply be one of the risks of owning shares in a company. In reality, the risk would not be immense — proportionally no worse than the risk to random individuals incurred from the cumulative danger of all these societally acceptable miniscule risks which do not imply negligence — only the damages would fall on parties with some relationship to the property at fault.

mikeikon September 28, 2009 at 7:30 pm

All that matters in my mind is this:

It is not possible (under natural law) for multiple individuals to get together and write a contract that absolves ALL parties from liability. Liability may be divided equally, among several parties, or placed on one individual, but it /cannot/ be contracted away entirely. They cannot form a ‘collective person’ and place liability on it.

It doesn’t matter to me how many people are liable, as long as /someone/ is liable. That person will then have the incentive to make sure his business operates morally and responsibly (both socially and financially). If he does not, he will lose everything.

Naturally, contracts will be written so as to give those with greater liability greater ownership, as no one who is liable will want to forfeit his control (and his fate) to an individual who is not held liable.

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Corporate Personhood, Limited Liability, and Double Taxation