Libertarian Answer Man: Do Corporations have “Privileges”?

by Stephan Kinsella on May 13, 2026

Q (lightly edited):

Hi Stephan,

This is [], teaching economics at a university in [China]. I love reading Hoppe’s and your articles and books. I am currently reading your great book Legal Foundations of a Free Society.

The book From Partisan Banking to Open Access: The Emergence of Free Banking in Early Nineteenth-Century Massachusetts ¹ tells exactly how bankers and politicians form cronyism relations after the Independence. The book collects data and shows that 70% of bank directors were legislators. I attach the book with this email and hope you would enjoy it.

I read your article on Corporations claiming that corporation is not a privilege. In my history writing it seems as a special charter which is a privilege created by state legislature. So I am thinking maybe the privilege of corporation disappeared as history evolved. I wonder what you think about the history of corporation.

When I am reading your book, I was constantly thinking of the concept of property rights in your book, and that of Coase’s and Alchian’s. I read Barzel and Allen’s Economic Theory of Property Rights, and they define the property rights as the economic rights which implies the actual use of property. I wonder whether you have written on the concepts of property rights comparing the new institutional definition.

If you would visit [] some day, please let me know and I am happy to meet and talk.

Best wishes,
[]

Kinsella:

I say it is not a privilege because shareholders should not have liability in the first place. I explain this here: Corporate Personhood, Limited Liability, and Double Taxation. In short: corporations do not have privileges because as argued by Rothbard, Hessen, and Pilon, there is no reason to attribute liability in general to a “shareholder” just because the state’s legal classification and sloppy reasoning equating ownership with control and possession and presupposing ownership is an obligation not a right calls him an “owner.” ² Sound libertarian causal analysis ³ would not attribute liability to the ownership status anyway but to actions. So there is no reason that someone state law arbitrarily classifies as an “owner” would be vicariously responsible for the actions or torts of “employees” of a “firm” or corporation in the first place merely by virtue of the state’s arbitrary and positive law classification schema. So the failure of the state to permit the victim of the agent or employee’s tort to sue the shareholder as being vicariously responsible is not a privilege since a just legal system would not make the shareholder liable in the first place.

As for freebanking my view is that fractional-reserve banking makes no sense at all and contributes nothing and would not exist in a free market. There would be private money such as gold or bitcoin, and 100% reserve banking. I believe the freebankers such as Selgin, White, etc. are wrong in their views about the need for fractional reserve practices. See The Great Fractional Reserve/Freebanking Debate.

As for the Coase stuff–not sure the relevance; property rights are normative support for possession or use of resources. ⁴ Economic analysis presupposes some facts about human nature, the world, and existing practices, behaviors, and institutions, ⁵ but these are all distinct matters. ⁶ As Hoppe observes,

Essentially, economic analysis consists of: (1) an understanding of the categories of action and an understanding of the meaning of a change in values, costs, technological knowledge, etc.; (2) a description of a situation in which these categories assume concrete meaning, where definite people are identified as actors with definite objects specified as their means of action, with definite goals identified as values and definite things specified as costs; and (3) a deduction of the consequences that result from the performance of some specified action in this situation, or of the consequences that result for an actor if this situation is changed in a specified way. And this deduction must yield a priori-valid conclusions, provided there is no flaw in the very process of deduction and the situation and the change introduced into it being given, and a priori—valid conclusions about reality if the situation and situation-change, as described, can themselves be identified as real, because then their validity would ultimately go back to the indisputable validity of the categories of action. ⁷

But to serve the function of actually reducing conflict and serving as normative guides the rules must reduce conflict, and to do this they must be normatively justifiable; this is only the case when the norms are compatible with the peaceful and practical normative presuppositions of discourse, which require users to be able to first use unowned resources (homesteading) and to maintain ownership until abandoned or contractually transferred. ⁸

The Coasean and law and economics approach is deeply confused. For example, while I believe Austrians have something to say about the upper limit of the firm, ⁹ I am skeptical of the Coasean argument that there is a lower limit, as a solution to “transaction costs” and so on, and that this explains the emergence of corporations or practices such as “employment” and so on. For one thing, these are legal classifications not economic ones. ¹⁰ From an economic point of view there is no difference between an independent contractor and an employee.

And for another, as I noted in On the Non Liquet in Libertarian Theory and Armchair Theorizing:

This reminds me of the idea of the law and economics crowd that if not for Coasean transaction costs, it would not matter where costs were initially allocated, such as whether the railroad should be liable to the farmer for fires caused by sparks from the railroad; if they are allocated incorrectly, then the parties will take this into account and move on. However, transaction costs cannot be neglected, so it does matter; justice matters. See Kinsella, KOL157 | “The Social Theory of Hoppe: Lecture 5: Economic Issues and Applications,” transcript at 01:15:48; Hoppe, “The Ethics and Economics of Private Property,” in The Great Fiction, in sec. VI, “Chicago Diversions” section; Adam Haman and Matt Sands on Immigration, Property Rights, and Hostile Encirclement; Rothbard, “Value Implications of Economic Theory,” in Economic Controversies (Auburn, Ala: Mises Institute, 2011), p. 246–47. ))

***

Followup:

By the way, Ron Harris points out that during the 17th and 18th centuries, English common law lacked a flexible legal framework capable of accommodating large-scale unincorporated associations. If a group of people engaged in business together, the law viewed them as a collection of specific individuals rather than a single entity.

I assume you are talking about Industrializing English Law: Entrepreneurship and Business Organization, 1720–1844 (Cambridge University Press, 2000). If you read the book by Hessen and other work linked in my post, you will see that as Hessen points out, and I agree: there should be no “legal personality.” This is an unnecessary fiction the state has created as an excuse to regulate and tax that entity–if it’s a separate legal person it can be taxed, meaning the shareholders are taxed twice, in effect (once as owners of the corporation that is taxed, and again upon sale of stock or appreciation of a dividend); and if entity status and limited liability are seen as privileges, the state can use this an excuse to regulate. The thing is holding yourself out under a group name is mostly for the benefit of creditors and others so they know who to sue for contract breach, torts, debts. As Hessen points out you don’t need the fiction of entity status or personhood to have perpetual duration or a name under which people can sue.

This meant that if you wanted to sue this “company,” theoretically, you had to sue every single partner. Conversely, if the company incurred debt, creditors could sue any individual partner and demand repayment using their entire personal fortune (unlimited joint and several liability).

This is just a practical detail. Libertarian principles of causal responsibility and contractual liability do not prevent someone from suing the appropriate owners and controllers of resources involved in a tort or contract. ¹¹ None of these practical details require the state or legal fictions of personhood or limited liability.

Harris explains why merchants were desperate for royal charters. It was fundamentally about obtaining “legal standing to sue and be sued” and achieving “asset lock-in.” Only a charter could grant a company an independent legal personality, ensuring that the ships and land under the company’s name truly belonged to the “corporate entity” rather than being merely the shared property of a group of individuals.

I see no reason that under a private law system something practical and convenient could not be worked out based on normal principles of ownership, contract, causation, and so on.

Can we say, by granting charters, the state lowered the transaction costs of collaboration and contract enforcement for merchants, and also created rent-seeking opportunities? Political parties chartered banks owned by their elites.

I suppose if you have blinkers on you can say some state action lowers some costs, but of course, this is at expense of other costs that inevitably come with the existence of the state; nothing is for free. And anyway the purpose of law is not to run around looking for market failures to “fix” or transactions costs to lower; it is to do justice by recognizing, identifying, and protecting just property rights. ¹²