From the Mises Blog, March 13, 2009

(Archived comments below)

Revisiting Argumentation Ethics

[From my Webnote series]

Related: Standing Threats

• Perfect Restitution is Impossible; An Unreachable Goal
• Stalking and Threats as Aggression
• Legal Foundations of a Free Society (Houston, Texas: Papinian Press, 2023):
  • ch. 5, “A Libertarian Theory of Punishment and Rights,” n.42,
  • ch. 10, “Inalienability and Punishment: A Reply to George Smith,” the section on Standing Threats and notes 7 and 13;
  • ch. 19, “Knowledge, Calculation, Conflict, and Law,” the section “Preventative Force”, notes 87-90

Related

• Libertarian Answer Man: On Restitution going Beyond Two Teeth for a Tooth
• “Compensation Ratio” Restitution vs. Block’s “Two Teeth for a Tooth”
• The Problem with “Fraud”: Fraud, Threat, and Contract Breach as Types of Aggression (July 17, 2006)
• The Limits of Armchair Theorizing: The Case of Threats
• Benjamin Ferguson, “Can Libertarians Get Away With Fraud?“, Economics and Philosophy 34 (2018): 165–184
• On the Obligation to Negotiate, Compromise, and Arbitrate
• “solatium“: “compensation for emotional rather than physical or financial harm”; ¹ sometimes in reference to eminent domain takings. ²

See also a scene in L. Neil Smith, The Probability Broach, as I mention in this query to Grok:

Query: “In one these books I recall a scene where a character is arrested but because of the legal system’s presumption of innocence he is not put in jail while awaiting trial, but housed in a luxury hotel to as to reduce any damage done to him in case he turns out to be innocent. Can you find that scene?”

The scene you recall appears to be from The Probability Broach, in Chapter XII: “Necktie Party.” It describes the alternate universe’s privatized legal and detention system, where bonds are posted for restitution rather than to ensure court appearance, and holding facilities are privately operated (in this case, rented cells from a safe and vault company). This aligns with the theme of strong protections for the accused to minimize harm or unjust punishment, though the specific detail of a “luxury hotel” isn’t present—it may be a misremembered element, as the holding is in a basic rented cell. The relevant excerpt from page 98 is below:

Most Confederate crooks post bond, not to assure appearance in court, but restitution to their victims. Such arrangements are seldom called for, though: Laporte feels safer than London, which made me ponder Clarissa’s lecture all over again. England has very little crime; guns are strictly forbidden. But Switzerland has even less, and by law, everybody’s armed to the teeth. Someone said it once: guns cause crime like flies cause garbage.Valentine was in the hoosegow biz sort of by accident. Some client had ordered up a pair of cells, intended for the rare bird who wouldn’t make bond, then had gone bankrupt before the goods were delivered. Valentine had tried to make up the loss by renting them out. That was a decade ago, and the damned things still hadn’t been amortized.Penology’s scarcely a science here, but Valentine hadn’t taken precautions any two-bit county calaboose would consider elementary. Our prisoner, subcontracted to Valentine’s by his insurance company, had torn up a bedsheet and hanged himself in the night.

From the Mises Blog, Feb. 3, 2009. Archived comments are here.

***

Fraud, Restitution, and Retaliation: The Libertarian Approach

02/03/2009

Stephan Kinsella

In, Bryan Caplan’s EconLog post Fraud and Punishment, Caplan comes down on the pro property side while Hayekian Will Wilkinson proclaims that “libertarianism is not Rothbardism” and chides Caplan and others for “conflating” the two. Leaving aside this dispute about who should be thrown out of the libertarian “church,” I noted a few points made that were worth responding to at length. My comment there is reproduced below.

***

Regarding the contention that libertarianism doesn’t prohibit fraud.

This was argued years ago by non-libertarian James Child. In this post, The Problem with “Fraud”: Fraud, Threat, and Contract Breach as Types of Aggression, the “Fraud” section, I explain what is wrong with standard libertarian views on fraud (and with the criticisms of libertarianism in this regard, based in part on loose talk about “fraud). The problem is that people use fraud to mean basically “dishonesty,” and in this usage it’s hard to see why it’s a type of aggression. If one has a coherent understanding of the nature of contract (a title-transfer theory along the Evers-Rothbard line) and property rights, then one has to understand fraud as some kind of misrepresentation that vitiates the consent needed for a title transfer to be effective. But I go into this in greater detail in that post, and in the articles linked therein.

(Regarding the term “coercion,” I think this too is a term misused by libertarians–coercion is not a synonym for or even a subset of aggression; it’s a type of force, and force can be justified or not. SEe my post “Coercion” is annoying, but coercion is neutral.)

Regarding the contention of Cowen “that not only punishment, but even requiring restitution, is contrary to libertarianism”, because it’s impossible to get restitution in some cases. Thus, punishment is unlibertarian, since it does not make the victim whole–so the argument goes.

The problem here is a common libertarian mistake of making restitution the goal of justice. Then someone like Cowen quite rightly points out that restitution really means making someone whole, but that this is a utopian, unattainable goal; and therefore, there’s nothing to be done in such cases.

The mistake is in thinking restitution is primary and punishment is only secondary, or even impermissible–that the only force that is permissible is that used to enforce some kind of restitution, or perhaps as some kind of extended self-defense (putting down a standing threat, as Randy Barnett argues (see pp. 80- and n. 11, in the section “Standing Threats,” in my Inalienability and Punishment); or as some kind of incapacitation)–but never pure “retribution” or punishment.

As I have laid out in detail elsewhere (Punishment and Proportionality: The Estoppel Approach; also Inalienability and Punishment; Defending Argumentation Ethics; and New Rationalist Directions in Libertarian Rights Theory), I believe the proper approach is to realize that justice is about giving someone their due, and what a victim is due is being allowed to respond in kind to the aggressor, within the limits of proportionality.

That is, libertarianism opposes aggression, the initiation of force. But it does not hold that the opposite of aggression is unjustified. The opposite of aggression–the initiation of force–is not “defensive” force, or “force used to enforce restitution”–but rather, “responsive” force–force in response to aggression. Force is thus either initiated, or it is in response to intiated force. “Responsive force” is justified; aggression is not.

Responsive force may also be referred to as retaliation, even punishment or retribution, but the latter concepts are probably best viewed as a type of responsive force, or one possible purpose of responsive force. As I note in Inalienability and Punishment (see the section “The Right of Proportional Punishment,” at p. 84; see also Punishment and Proportionality),

an individual has a right to use force against an aggressor in response to aggression. This right to use force can be utilized for a variety of purposes: for self-defense during or before the act of aggression, for revenge, to obtain restitution, to prevent the aggressor from committing further crimes, or to deter others from committing crimes. What the victim wants to use the right for is his business. But the reason why a victim has a right to retaliate or defend against an aggressor is that the aggressor cannot sensibly withhold his consent to retaliatory, defensive, or restitutive force (these may be considered different types of responsive force, that is, non-initiated force, force which is in response to initiated force). To use related legal terminology, the aggressor is “estopped,” or precluded, from denying the victim’s right to use (proportional) responsive force, since such a denial would contradict the aggressor’s view that the use of force is permissible (the view demonstrated by the act of aggression).

In other words, it is retaliation–the right to respond with proportionate force against the aggressor–that is the primary right the victim has under libertarian justice. Restitution is then seen not as some utopian, unattainable goal of making the victim whole (which is impossible), but simply the ransom paid by the aggressor pursuant to negotiation backed by the victim’s threat of imposing the rightful amount of responsive force he is entitled to impose.

Thus, in the example given about the stolen and destroyed painting, the victim has the right to do something similar to the aggressor–take the aggressor’s property and destroy it (or not–up to the victim). This does not rest on any fallacious notion that there are property rights in value (there are not, as Hoppe shows–see here and here). But there is no reason to take into account the consequences to the victim, that are a result of an act of trespass (aggression), when determining the proportionality of the response.

Finally, let me note that just because the right to forcefully respond, including use of force for not only defensive or restitutive purposes, but also for retaliation or retribution, does not mean that we would expect a libertarian society to actually employ punishment often in practice. As I argued in Knowledge, Calculation, Conflict, and Law, a review essay of Randy Barnett’s The Structure of Liberty, “It is … more costly to seek punishment than to seek restitution. For this and other reasons, restitution would probably become the predominant mode of justice in a free society.”

See Stephan Kinsella, “Knowledge, Calculation, Conflict, and Law,” in Legal Foundations of a Free Society (Houston, Texas: Papinian Press, 2023), the section “Restitution vs. Retribution”:

One interesting argument that Barnett makes, with regard to enforcement error and abuse, is that all criminal justice should be restitutive, not punitive or retributive. As I have argued elsewhere,^[79 I believe Barnett is mistaken that retribution (punishment) violates the rights of (actually guilty) aggressors.^[80] However, in keeping with his consequentialist approach, which avoids questions of justification of fundamental norms, Barnett does not pretend to make a strong theoretical case for the rights of aggressors to be free from punishment.^[81]

Indeed, most of Barnett’s concerns regarding punishment are warranted: he opposes it because he believes it may deter crime less than would a restitution-based system and also because the unavoidable possibility of error can lead to “infliction of harm on the innocent.”^[82 Like Barnett, I am concerned about the unavoidable possibility of mistakenly punishing the innocent, and thus admit the appeal of a restitution-based system in order to avoid punishing innocents. Moreover, Barnett makes a powerful and original argument for why the standard of proof should be higher if a victim seeks to punish a purported aggressor rather than merely obtain restitution.^[83] Thus, a victim seeking to punish the aggressor must prove guilt beyond a reasonable doubt, whereas the lower standard of preponderance of the evidence is more appropriate for a civil trial for damages. It is therefore more costly to seek punishment than to seek restitution. For this and other reasons, restitution would probably become the predominant mode of justice in a free society.

Nevertheless, acknowledging (and justifying) the theoretical legitimacy of punishment can be useful. For example, punishment (or a theory of punishment) may be utilized to reach a more objective determination of the proper amount of restitution,^[84] because a serious aggression leads to the right to inflict more severe punishment on the aggressor, which would thus tend to be traded for a higher average amount of ransom or restitution than for comparatively minor crimes.^[85] Especially offended victims will tend to bargain for a higher ransom; and richer aggressors will tend to be willing to pay more ransom to avoid the punishment the victim has a right to inflict, thereby solving the so-called “millionaire” problem faced under a pure restitution system (where a rich man may commit crimes with impunity, since he can simply pay easily-affordable restitution after committing the crime).

Moreover, even if punishment is banned (de facto or de jure) and is not an actual option—because of the possibility of mistakenly punishing innocents, say—an award of restitution can be based on the model of punishment. To-wit: a jury could be instructed to award the victim an amount of money it believes he could bargain for, given all the circumstances, if he could threaten to proportionately punish the aggressor. This can lead to more just and objective restitution awards than would result if the jury is simply told to award the amount of damages it “feels” is “fair.” Barnett nowhere specifies any objective standards or criteria by which a judge or jury is to determine the amount of restitution a victim is to receive for a non-economic crime like murder, rape, and the like. He specifies only that the aggressor must “compensate” the victim for the “harm caused,” to “restore” the victim.^[86] Thus, a retribution-based system, even if used only as a model to help determine the amount or standard of restitutive damages, supplements Barnett’s theory of a restitution-based justice system.

^[79] “Inalienability and Punishment: A Reply to George Smith” (ch. 10); for more on the theory of inalienability, including discussion of Barnett’s views in this regard, see “A Libertarian Theory of Contract: Title Transfer, Binding Promises, and Inalienability” (ch. 9). See also Walter E. Block, “Toward a Libertarian Theory of Inalienability: A Critique of Rothbard, Barnett, Smith, Kinsella, Gordon, and Epstein,” J. Libertarian Stud. 17, no. 3 (Spring 2003; https://perma.cc/79AC-34BZ): 39–85, and my discussion of Block’s views in “Selling Does Not Imply Ownership, and Vice-Versa: A Dissection” (ch. 11).

^[80] For justification of the right to punish aggressors, see “A Libertarian Theory of Punishment and Rights” (ch. 5); “Dialogical Arguments for Libertarian Rights” (ch. 6); and Hoppe, A Theory of Socialism and Capitalism, p. 157 et pass.

^[81] As Barnett acknowledges, “this analysis cannot conclusively prove that no combination of compensation or punishment can ever address effectively the compliance problem.” Structure, p. 237. And further: “I do not claim to have completely demonstrated this proposition [that justice requires restitution, no punishment] either in my earlier writings, or in this book.” Ibid., p. 185 n.36. See also pp. 228 & 320, and p. 321: “If men were gods, then perhaps imposing rewards and punishments on the basis of desert would be a workable theory.” Also: “It has been noted that one who wishes to extinguish or convey an inalienable right may do so by committing the appropriate wrongful act and thereby forfeiting it.” Randy E. Barnett, “Contract Remedies and Inalienable Rights,” Social Pol’y & Phil. 4, no. 1 (Autumn 1986; https://perma.cc/P8JL-KAT2): 179–202, p. 186, citing Diane T. Meyers, Inalienable Rights: A Defense (New York: Columbia University Press, 1985). As I noted in “Inalienability and Punishment: A Reply to George Smith” (ch. 10), Smith is incorrect in claiming that Barnett’s writings support Smith’s view that all rights, even those of a murderer, are inalienable. See George H. Smith, “A Killer’s Right to Life,” Liberty 10, no. 2 (November 1996; https://perma.cc/AF2J-RAL9): 46–54. For more on forfeiture or waiver of rights, see also Herbert Morris, “Persons and Punishment,” in On Guilt and Innocence: Essays in Legal Philosophy and Moral Psychology (Berkeley: University of California Press, 1976), pp. 31, 52, et pass., discussing the right to bodily integrity and the waiver of this right; also “A Libertarian Theory of Punishment and Rights” (ch. 5), n.88 and Appendix: The Justice of Responsive Force.

^[82] Structure, p. 228, emphasis added; also pp. 197, 228.

^[83] Ibid., p. 212.

^[84] On the issue of determination of the proper amount of damages, see Bruce L. Benson, “Restitution in Theory and Practice,” J. Libertarian Stud. 12, no. 1 (Spring 1996; https://mises.org/library/restitution-theory-and-practice): 79–83, and Murray N. Rothbard, “Punishment and Proportionality,” in The Ethics of Liberty (https://mises.org/library/punishment-and-proportionality-0), pp. 88–89.

^[85] For further discussion of criminals buying their way out of punishment, see “Inalienability and Punishment: A Reply to George Smith” (ch. 10); “A Libertarian Theory of Punishment and Rights” (ch. 5); Rothbard, “Punishment and Proportionality,” pp. 86, 89; Roger Pilon, “Criminal Remedies: Restitution, Retribution, or Both?” Ethics 88, no. 4 (July 1978): 348–57, at 356.

^[86] Structure, pp. 159, 185.

(See also “A Libertarian Theory of Punishment and Rights” and “Inalienability and Punishment: A Reply to George Smith,” both in in Legal Foundations of a Free Society.)

This latter point (“This can lead to more just and objective restitution awards than would result if the jury is simply told to award the amount of damages it “feels” is “fair.” ) is significant because, as noted above, restitution based on the idea of restoring the victim is, as Cowen notes, often impossible, so meaningless; for this reason, those advocating restitution usually are vague about the proper standard (since there is no proper standard), or just “punt” it to the juries or courts, much like Congress does when it uses vague terms in statutes or Constitutions such as “accommodate” in the Americans with Disabilities Act or “privileges or immunities” in the Fourteenth Amendment.

One final note. To claim that a murderer who is imprisoned is there unjustly is a confusion. It does not violate his rights, as I argued in Inalienability and Punishment. It is unjust for other reasons–for one, it’s done by the state, which is inherently criminal and unjust; for another, it’s paid for by tax dollars stolen from citizens; for another, it violates the rights of the victim by depriving them of either personal vengeance or a type of restitution.

Update: See also Stateless Justice: A Response to Mario Demolidor (2020). Some excerpts:

All this being said, I do have some opinions on this matter, which I summarized previously in “Fraud, Restitution, and Retaliation: The Libertarian Approach.” I have argued extensively in my “estoppel” based theory of libertarian rights (The Genesis of Estoppel: My Libertarian Rights Theory) that, in principle, an act of aggression entitles the victim to retaliate with proportionate, responsive force against the aggressor. Thus, in principle, punishment of (retribution against) an aggressor is, in theory, justified.

And yet I am skeptical that institutionalized punishment would be feasible or necessary in a free society, for several reasons. First, unlike today’s society, in which the “state” is seen as the victim of a violent crime, in a free society, it is the actual victim (or his heirs or family) would would be the plaintiff.

The state can punish aggressors — or, more often, it punishes or jails “criminals” who have violated state legislated positive law, but not actually committed any crime (see Another Problem with Legislation: James Carter v. the Field Codes) — and can force the taxpayer to pay for the costs of incarceration. And the state can, and often does, make mistakes. Incarcerating a malfeasor usually does no good for the victim; no restitution is made.

The criminal is made worse off by his time in jail. As noted by Michael Malice on a recent “YOUR WELCOME” episode, one thinker (whose name I forget) has pointed out, the only people who should be in prison are people you never want to let out — i.e., the only really justifiable use of punishment or prison is to “incapacitate” dangers people — to prevent them from continuing to harm people. But incarceration rarely serves other supposed goals of the justice system — to provide restitution or to rehabilitate the offender.

So the fact that there can be the possibility of mistake combined with the fact that a punitive system is not likely to lead to restitution for the victim or rehabilitation of the offender leads me to believe that a restitution-based model would likely prevail in a free society — probably handled by custom, local tradition, or standards of insurance companies or regional agreements. In some cases of especially dangerous criminals or heinous crimes, there would probably be some kind of “street justice” (the family or others simply kill the bad guy and everyone “turns a blind eye”), or physical ostracism, ³ or perhaps even permanent incarceration or enslavement. But by and large I would expect a private restitution system to prevail.

Now as to the question of such courts, tribunals, or agencies exerting jurisdiction over the malfeasor: Many libertarians think one defect of a stateless order is that without the defendant’s consent, he could not be tried, or punished. I think this is somewhat mistaken.

As argued in my estoppel theory of rights (Punishment and Proportionality: The Estoppel Approach), by committing aggression, the aggression consents to punishment by the victim or his agents. Therefore, I do not believe the victim’s agency would violate the rights of the aggressor by hauling him into court, arresting him, trying him, or even punishing him — even if he never “contractually” agreed to the court’s jurisdiction.

For one, he has already “agreed” by virtue of committing aggression. For another, even if he had agreed “contractually”, this would not be dispositive, since rights are contractually inalienable (as I argue here A Libertarian Theory of Contract: Title Transfer, Binding Promises, and Inalienability and Inalienability and Punishment: A Reply to George Smith).

But finally, I think in virtually all cases, it is not necessary to compel someone to show up for trial. Most people in a civilized, advanced, free society would find it necessary to have insurance; it would be difficult to find a place to live and engage in commerce and social interaction without it. And these insurers would have inter-agency agreements and so on.

Anyone who refused to have insurance would in effect be an outlaw or ostracized, and certainly marginalized and usually not a serious threat. And thus arbitral tribunal decisions would tend to be respected, since this is the only way for the malefactor to earn his way back into society and refusal to cooperate would result in his shunning and effective ostracism, if not a more severe form of “street justice” on some occasions.

In the cases where the malfeasor is penniless or runs off or disappears or refuses to cooperate, the victim’s insurer would make a payment to him, which would give the insurers an incentive to prevent crime in the first place. Similarly, the issue of cloudy title to real property would tend to be handled by property title insurers (see Property Title Records and Insurance in a Free Society).

***

The Death Penalty

And finally, as for death penalty: as suggested above and as noted in my estoppel theory, in principle, lethal force is justified defensively during the commission of almost any serious, violent crime. And technically, I believe it is justified in response to any significantly serious violent crime, so long as bounds of proportionality are taken into account.

For difficult or “gray area” cases, I have posited that the “dilemma” here is caused by the aggressor, and therefore, the burden of argumentation and “theorizing” falls on the defendant and his attorneys to prove why the victim is not entitled to execute him (see Punishment and Proportionality: The Estoppel Approach, pp. 71–72).

That said, as noted above, it is difficult to imagine the private legal systems of an advanced, civilized, wealthy, free society having widespread institutional punishment, much less capital punishment, because, this generally provides no restitution to the victim, and there are huge costs of error. But on the other hand, we could expect to occasionally see “street justice” where an outraged family or friends simply assassinate or murder the malfeasor.

This might be risky for the family members because it might jeopardize their own standing in the community or insurability, but it’s easy to imagine situations where most people shrug and say “he had it coming” and let the matter pass. Or in cases where someone’s crimes are so heinous or repeated that they are determined to be a continual, “standing threat” to the community, we can expect in some cases there be some kind of serious force, possibly even lethal, used against the aggression — whether it would be “ad hoc” or institutionalized is hard to predict, but in any case we can imagine this problem to be relatively rare.

***

See also KOL338 | Human Action Podcast Ep. 308 with Jeff Deist: Rothbard on Punishment, Property, and Contract:

00:21:49

And so if you stop conflict, you have to presume that the possessor of something is the rightful possessor and is therefore the owner.  So if you physically oust someone, you’re acting like with self-help like a vigilante.  Even if you’re the owner, you should go through the right processes so that people know that what you’re doing is reliable and you’re not being biased in your case and all kind of things like that.

…

00:33:36

And ultimately I do think that should be – my personal view is that while there is a right to retaliate with force especially in defense but even after the fact and that is the theoretical grounding of all rights.  I do think that in a civilized world, institutionalized punishment would be very rare, and incarceration would be very rare because it’s just so expensive, and it’s risky.  And I do think the burden of proof should be high for that, and it would be hard to solve.  And if you accidentally punished an innocent person, then you’re committing a crime yourself, or at least a lot of damages.

00:34:13

So you’d have to get insurance.  That would be expensive, and you’ve already been victimized by the crime.  Why would you want to pay twice for a risky liability?  So I think that restitution would tend to be the primary mode of implementing our rights combined with – in a few rare cases, combined with lethal self-defense, which everyone would accept, ostracism, or just expelling someone from the community or vigilante justice, just killing someone if they have to be killed, ⁴ and everyone just sort of lets it go, or an occasional execution of someone that’s just so heinous that there’s nothing else you can do with them.

And KOL345 | Kinsella’s Libertarian “Constitution” or: State Constitutions vs. the Libertarian Private Law Code (PorcFest 2021):

M: What about on the other side?  Is there any scenario where you have to show you’ve encountered economic harm or some other harm?

00:48:42

STEPHAN KINSELLA: So I think what would happen in – if you want justice, you have to count on the support of your community because – unless you want to self-help every time.  If you pull your gun out and you blast the kid, people are going to regard you as a murderer, and you’re going to be outcast or punished or killed by the parents of the kid.  So if you want help getting justice done, you have to be reasonable because, at a certain point, people are going to wipe their hands of you.

00:49:07

They might not deny that you have a right to charge someone with trespass for stepping on your lawn, but they’re not going to become jurors to help you out.  The insurance company that you hire to give you insurance might raise your rates because you’re a troublemaker. I could see de minimis requirements like people say, listen if there’s literally no damage, go away.  This is not what the legal system is for.  It’s for serious issues that we – because the whole purpose of the legal system is to avoid disputes and avoid conflict.  If it’s such a minor thing, there’s really no conflict to avoid.  It’s already done.  You didn’t suffer any damage.

Update: As mentioned in “Compensation Ratio” Restitution vs. Block’s “Two Teeth for a Tooth”,

• • Matthew, “If C (criminal) damages V (victim), the restitution to be paid is the exact amount such that if V could rewind time and choose whether to relive being victimized and repaid, or to instead bypass that fate, then it would be an ambiguous decision for V because the two destinies would be equally advantageous. Any less repayment would not make V whole, and any more would qualify as revenge rather than justice. How to calculate said amount is another matter.”I agree with you to some extent in your criticism of restitution. This is discussed here on the forum: esp. my comments: here, here, here, here.
• I paste here those comments (which are from this forum):
•  nskinsella:It either makes someone whole, restores them, or it doesn’t. It doesn’t, since it’s not possible. If it doesn’t do this, I’m not sure what it is.
• You’re continuing to insist on your false utopian conception of restitution. I don’t accept it. It seems to be a sticking point for you in defending your theory and criticizig mine.
•  nskinsella:
  IN any event, it’s not primary, as I explain below.
• You mean your estoppel theory that I already objected to and you haven’t defended? I don’t agree that an arbitrary right to punishment from which all of justice flows is primary. You can’t deduce all of libertarian justice from such an alleged right.
•  nskinsella:if it’s not based on some coherent standard like the right to proportional punishmet, it’s purely arbitrary and has little to do with justice, IMO.
• This supposed standard of yours is no more coherent, no less arbitrary, than any restitution standard. It just adds an extra level of complexity, and yes, even a level of arbitrariness. You have no basis for what counts as a proportional punishment that is more coherent, less arbitrary, than any restitution standard. As you know, from previous debates on this subject, simply using the criminal act of the aggressor as the basis does not work.  The same thing applied in retaliation to the aggressor will not necessarily cause equivalent harm, suffering, costs, etc. And at any rate, this raises the question of whether such retributive punishment is justified in the first place. But this aside, you then have the problem of translating this extra step that isn’t present in restitution theories into a monetary settlement that is not arbitrary. Your supposed solution to effect this transmogrification is the bargaining negotiation (which you’ve admitted doesn’t even have to actually take place; it can merely be hypothetical (sounds a bit like social contract theory’s implicit/hypothetical consent by a “reasonable” man)). So your supposedly non-arbitrary standard is simply the whim of the victim (or of the jurors/judge) and what he can extract from the criminal with the threat of some (at least somewhat) arbitrary retributive punishment hanging over his head. Contrast this with the standards of a restitution theory (see below).
•  nskinsella:In proportional punishment, if we are punishing a minor crime, we know that capital punishment is too severe. So there are limits, that constrain where we place the line in the gray zone.
• This is true, but you have to admit that there is no exact standard for hitting upon the right or perfectly proportional and appropriate punishment. People are different. Given things are going to affect them differently. Assuming punishment is seen as legitimate, you can expect individuals, judges, juries, particularly through the evolution of legal precedent over time, to tend to settle on general ranges that are perceived to be acceptable for given crimes. This is no more precise than settling on monetary settlements. See? But you’ve added the extra steps of determining a proportional punishment and translating that into a monetary settlement, with all the complications that go along with that, including the problem of having an unequal coercive bargaining situation biasing the outcome. Why should just monetary settlements be based on such a bargaining situation?
•  nskinsella:for mundane theft of a homogenous owned object, it might
• Well, at least you admit that your arguments don’t work against crimes involving economic goods. That gives up quite a lot of ground right there. But as I pointed out above, you’ve already given up the game by admitting (if unintentionally) that hitting upon a precisely proportional and appropriate punishmeent is not an exact (apriori) science.
•  nskinsella:
  I think the standard is: however much money the victim can–or could, if punishment is not literally permitted–bargain away with *this aggresor* his right to punish.
• Why? This strikes me as very arbitrary, arguably more so in the hypothetical scenario than in the actual scenario since you have an individual or group of individuals simply imagining what could be extracted from the criminal under threat of punishment (what the criminal would be willing to give up that at least meets the minimum the victim would be willing to accept, all within the bounds of some non-exact proportionality standard).
•  nskinsella:We are left with the rihgt to proportionally retaliate as the appropriate way to gauge how much money damages to award. Since you reject this, and since the other possible standards are inappropriate–“making the victim whole” or “what you would have agreed to before the crime”–you are left with literally *no standards*, Geofff
• You didn’t try very hard to articulate any others and refute them. Note that both your alternatives are straw men. Convenient.
•  nskinsella:so unless you can articulate one, instead of just punting it to the courts as if their arbitrary, standardless decisions amount to justice–then you are off base in thinking restitution can be primary.
• Oh, come now. For a libertarian who favors a competitive, free market legal system, you display an unnusual lack of confidence in private courts. Must your Libertarian Law Code be handed down from on high by someone who has deduced it entirely from apodictic axioms? But wait, you’ve aleady as much as admitted that this cannot be the case even with proportional punishment. You’ll need to rely upon the arbitrary, standardless decisions of the courts to determine what the victim and aggressor would agree upon in a hypothetical, unequal, coercive bargaining scenario. This is no real, objective standard. In fact, it’s more problematic than alternatives. What you’ll probably end up with in practice is just a mix of decisions based on arbitrary criteria and standard restitution criteria.
• Also, I never claimed that restitution is primary. I’ve pointed this out before, elsewhere.
•  nskinsella:the right to punish, which must logically therefore be primary.
• But nor is the right to punish primary.
•  nskinsella: 

   

   

  Sure, some things are hard to put a monetary reward to, like a person’s life. But your retribution standard suffers from the same difficulties and adds more, even violates the legal principle that someone should not judge his own case.

   

   

  I completely disagree, for the reasons given above, and as adumbrated at length in my JLS Estoppel piece.

   

• In this very post you’ve as much as admitted that your retribution standard suffers from the same difficulties. See above where I’ve pointed this out. And in  the case of an actual bargaining scenario, you are to a significant degree making the victim the judge in his own case.
•  nskinsella:It’s not tendentious, it’s sincerely my view, since I don’t think idealized, real restitution is possible.
• Well, it’s sincerely my view that your conception of restitution is unrealistic and therefore not real. Of course, it’s impossible. It realies upon a stubbornly literal and simultaneously idealized interpretation of the various definitions of the term, interpretations that violate common sense and common uses of metaphor. You refuse to acknoledge my dissent from your conception and persist in basing much of your defense of your position and criticism of mine on your conception. Where can we go from here?
•  nskinsella:There is NO “reward” to the victim of murder, Geoff. There is no real restitution possible.
• Sure, there is tragedy in life, even great tregedy. But there is no “reward” for the victim of murder in the form of punishment of the criminal either. The victim is dead, he gets nothing at all out of it. Your theory solves nothing in this regard. To bemoan these facts and criticize a theory of justice for not overcoming reality is similar to socialists bemoaning the fact that people have to produce, save and invest in order to survive and flourish and criticizing capitalism for not immediately overcoming these “flaws” and eliminating poverty and satisfying all wants.
•  nskinsella:And you are wrong to think that there are no boundaries on proportional punishment. There are. Given the constraint that it’s legitimate to punish an aggressor in a manner proportionate to his aggression, reasonable people can identify upper and lower boundaries, and work to draw a line between them. There are standards and bondaries.
• First of all, I never claimed (or did not mean to claim) that there are NO boundaries on proportional punishment. Sure, what you say here is correct; as I pointed out above, you admitted as much earlier in your post. But notice that what you have here is no apriori or exact standard. It’s vague, general, dependent upon the development of legal precedent based upon countless decisions by judges and juries and the communities at large for what specification is possible in the real world. This is no better, is arguably worse, than the standard criteria arrived at and used for restitution.
•  nskinsella:But there are NONE for your floating abstraction of “restitution” unanchored to any standard whatsoever.
• This is complete and utter nonsense. I am truly surprised someone trained in law and familiar with legal history, including the history with which libertarians tend to be familiar and mainstreamers ignorant, would make such an absurd claim. You’ve admitted there are acceptable standards at least for economic goods. We can refer to prevailing market prices for stolen, damaged and lost property. But we can go beyond this. We can refer to past and recent earned incomes of victims as well as reasonable expectations for future or lost income had the crime not occured. We can determine to a reasonable approximation how much someone values their lost time. We can reference the prices that people tend to place on goods and services related to accidental dismemberment and death, such as in the form of insurance premiums and payments. These are not perfect analogs, sure. And sure nothing can restore a life, lost time or (at least for now) a lost limb as good as new. Nothing can completely undo the crime as if it had not really occured. To a large extent this is simply railing against reality for not fitting your utopian conception of justice, however. Why not have a conception of justice that fits what is possible in the real world? Some compensation can be acquired, and yes upper and lower limits on monetary settlements can be discovered that are no more arbitrary than your upper and lower limits on proportional punishment. And this can be done without recourse to your arbitrary standard and extra steps in the form of a bargaining negotiation based on a supposed right to punish.
• As you note in another post, even in a legal system that does not endorse retributive punishment there may at times be instances of ad hoc retributive punishment being carried out. This would by definition be illegal within that context, taking place outside the legal system and in violation of the law. A society could choose to passively condone this isolated behavior by not taking legal action or it could take legal action. That such illegal actions can be forgiven in some circumstances does not in and of itself justify them. That this can occur does not mean retributive punishment should be enshrined formally in a legal system. It most certainly does not mean or imply that realistic restitution is arbitrary.
•  nskinsella:I have explained this in detail in the articles linked. It is simply because if the aggressor uses the victim’s body as a means, if he invades the borders of th victim’s body, if he uses the victim’s body or property despite the victim’s objection, he is endorsing the rule that doing this is permissible; and it is thus inconsistent of him to rely on an incompatible rule, which he must do, if he himself objects to being punished. In short, he is estopped from complaining.
• But this is (1) false and (2) inadequate for your purposes as I have argued in this thread and elsewhere.
• 1) It does not follow from the fact that someone endorses aggression for a given circumstance that he necessarily endorses by that very action aggression in any and all circumstances or the circumstances of the victims choosing. If he’s got a democratic majoritarian theory of justice, then that implies the endorsement of aggression under a certain set of circumstances but not in others, thus allowing the aggressor to complain coherently if wrongly under the latter set of circumstances. Sure, we don’t think such a theory is valid, but estoppel itself does not show this. You’ll no doubt say that AE does show this, but as you know I disagree. At any rate, estoppel is much more limited in what it can establish than is usually let on.
• 2) It doesn’t matter if he can’t coherently complain. This doesn’t justify, in and of itself, the victim punishing him. You are in essence basing all the criteria of justice on facts about the moral recipient (that he can’t coherently complain because of his actions) rather than the moral agent (what virtue requires of him). What a moral agent is justified in doing cannot be derived solely from what others do. Sadistic child abuse and killing does not by itself justify the same or equivalent in return. Being the victim of atavistic barbarism justifies doing what is necessary to end the rights-violation, but it does not by itself justify descending into atavistic barbarism as well in return. Yours is a theory of anything goes, no matter how sadistic or depraved, so long as it is within some in-exact approximation of proportion to what the other guy did first: hey, if our opponents act like inhuman monsters then we are justified in doing so as well, for no other reason than that they did so first. I don’t buy this moral-legal arbitrariness at all. The obligation to respect rights can only ultimately be grounded in the requirements of virtue (which of course take into account the actions of others but are not based solely on them). A right is a legitimately enforceable moral claim against a prior obligation not to threaten or use initiatory physical force. It can very well be a vice, even a legitimately prohibited one (as the vices involved in theft and murder are so prohibited), for me to do something to you about which you cannot coherently complain. A theory of virtue ethics and natural rights blocks estoppel without even having to deny it.
• Yours in liberty,
  Geoffrey Allan Plauché, Ph.D.
  Adjunct Instructor, Buena Vista University
  Webmaster / Articles Editor, LibertarianStandard.com
  Founder / Executive Editor, Prometheusreview.com
• ***
• ReplyGeoffrey Allan Plauché replied on Thu, May 21 2009 4:24 PM
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   nskinsella:

   

  First, my argument is not limited to restitution. In fact, I think restitution is largely a chimera. It is not possible to make the victim of rape or murder “whole.”

   

   

  Kinsella, your notion of “restitution” is unrealistic/utopian magical nonsense. A realistic conception of “restitution” does not make this mistake that all crimes can be undone completely as if they had never happened. You set up a straw man.

   

   nskinsella:

  I believe retribution is primary.

   

  Why?

  ***

  wilderness replied on Thu, May 21 2009 4:48 PM
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   Geoffrey Allan Plauche:

   

   

   wilderness:

   

  Yeah, without retribution this is as far as I could get in my own thinking.  It would be a frightening world:

   

   

   wilderness:

   

  Now say this criminal lives next door.  I would not want to live next to somebody or deal with somebody that murdered and tends to become an animal.   They are in plain sight.  So if they don’t leave, then I might have too or else the property line might turn into the North-South Korea border region.  I wouldn’t sleep well otherwise.  So if they force me to move cause I know they killed somebody, but nothing can be done about it cause it’s no longer a self-defense situation makes living uneasy there anymore so yes, I would move and feel that person forced me to move due to the threat I see.

   

   

   

   

  I think you’re conflating retributive punishment with restraint. The purpose of retributive punishment is vengeance, to inflict harm and suffering on the criminal. What you’re looking for above is a justification for restraining a standing threat, such as by means of ostracism.

   

   

  So ostracism, as Giles said – eviction from the community.  I see the difference now between retribution and restraining a threat.  I was wondering how far retribution could go without actually killing the person, but since they are still alive I still find them a threat in the community.  Eviction would take care of this, but wouldn’t this be considered off-loading a criminal onto potential other communities?  Is this simple a consideration of potential at this point?  Cause I understand the argument against potential is anything is potential so it’s not really an argument, but we do know this particular person in question is a criminal so not really a potential anymore.

  wombatron, that article you linked me, does it discuss this?

• ***

• nskinsella replied on Thu, May 21 2009 4:49 PM

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•  Geoffrey Allan Plauche:

   

   

   nskinsella:

   

  First, my argument is not limited to restitution. In fact, I think restitution is largely a chimera. It is not possible to make the victim of rape or murder “whole.”

   

   

  Kinsella, your notion of “restitution” is unrealistic/utopian magical nonsense. A realistic conception of “restitution” does not make this mistake that all crimes can be undone completely as if they had never happened. You set up a straw man.

   

• Restitution is quite commonly held up as the ideal, and is stated to be “making the victim whole” or “putting him in the position that he was before the crime.” I agree that it is unrealistic and utopian. In fact, it is impossible, since crimes cannot be undone.
• If you can give a coherent, realistic, justifiable explanation of what restitution short of this is, please share it. But as it is, restitution is just sum of money paid to the victim or his estate. If the sum of money were sufficient to make him whole, I’d agree this would be just. But as it cannot, then the award of money is utterly arbitrary and without any standards whatsoever. There are simply no boundaries to it. It’s just “some amount of money”. Fine; but why call this “restitution” then; and why assume that “paying some sum of money” is all that the victim is entitled to?

•  

   

   nskinsella:

  I believe retribution is primary.

   

  Why?

   

   

• I have explained this in detail in the articles linked. It is simply because if the aggressor uses the victim’s body as a means, if he invades the borders of th victim’s body, if he uses the victim’s body or property despite the victim’s objection, he is endorsing the rule that doing this is permissible; and it is thus inconsistent of him to rely on an incompatible rule, which he must do, if he himself objects to being punished. In short, he is estopped from complaining. Because he is estopped from objecting, the victim may proceed since he is not getting any objection–the inabiltiy of the aggressor to coherently object is what satisfies the victim and the relevant civilized, justification-seeking community that the victim’s use of responsive force based on the same maxim that the aggressor himself has promulgated, is justified.
• It really does not matter if it does not satisfy the aggressor, or the rest of the uncivilized outlaws–or if it does not satisfy you. It is the victim who seeks to act, and it is the civilized community to whom he seeks to demonstrate that his actions are indeed not aggression but warranted. It is my view that reflecting on the aspects of the aggressor-victim relationship as noted above will as a matter of fact satisfy justice-seeking libertarians, and that is all that one can ask of any theory–they cannot be self-enforcing, after all, and failure to persuade someone is not an indicia of falsity.
• Stephan Kinsella [email protected] www.StephanKinsella.com
• ***

• Brainpolice replied on Fri, May 22 2009 9:04 AM

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  1) It does not follow from the fact that someone endorses aggression for a given circumstance that he necessarily endorses by that very action aggression in any and all circumstances or the circumstances of the victims choosing. If he’s got a democratic majoritarian theory of justice, then that implies the endorsement of aggression under a certain set of circumstances but not in others, thus allowing the aggressor to complain coherently if wrongly under the latter set of circumstances. Sure, we don’t think such a theory is valid, but estoppel itself does not show this. You’ll no doubt say that AE does show this, but as you know I disagree. At any rate, estoppel is much more limited in what it can establish than is usually let on.

   

  In fact, such a line of argument is little more than a rhetoric trick. It purposefully ignores any argument I may present and ends up being a nice driveby “I win” sort of thing. “You did bad thing X, therefore you cannot have a rational argument against anyone in the world doing bad thing X to you”. This quickly devolves into a sea of hypocrisy and regress. Apparently we don’t even have to provide a positive case for using violence on people as “punishment”, we can simply make a sophisticated “he did it” argument. But the fact that “he did it” is not really relevant to whether or not it is justified for you to do it in turn. The effect of this argument is actually to avoid having to rationally justify punishment by merely shifting all burden of proof to the punished and then trying to claim that the punished cannot even meet such a burden of proof because “they did it”.

  I have no problem calling this argument sophistry – for it takes the form of a carte blanch justification in the absence of an actual justification by ruling out the possibility of rationally argueing with the would-be-justifier in the first place. The justification is simply presupposed as if it was “self-evident” – which means that no formal justification as actually given. The appeal to the offender thus becomes a distraction from the fact that the proponent of punishment has not provided a justification for punishment. These purely “negative proofs” of the Hoppean form aren’t really proofs at all, they take the form of drive-by argument winners. But when one thinks deeply about it, it isn’t even a legitimate argument. It constitutes “proof by ruling out the possibility of you argueing against me in the first place, so I can ignore your arguments completely and just declare that you implicitly justify my position”. Hence, the wielder of such arguments doesn’t even have to really prove anything.

  Their correctness is presupposed!

   

  • | Post Points: 50
• 

  

  

  Posts 136

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  nskinsella replied on Fri, May 22 2009 9:47 AM

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   Geoffrey Allan Plauche:

   

   

   nskinsella:

  It either makes someone whole, restores them, or it doesn’t. It doesn’t, since it’s not possible. If it doesn’t do this, I’m not sure what it is.

   

  You’re continuing to insist on your false utopian conception of restitution. I don’t accept it. It seems to be a sticking point for you in defending your theory and criticizig mine.

   

   nskinsella:

  IN any event, it’s not primary, as I explain below.

   

  You mean your estoppel theory that I already objected to and you haven’t defended? I don’t agree that an arbitrary right to punishment from which all of justice flows is primary. You can’t deduce all of libertarian justice from such an alleged right.

   

   nskinsella:

  if it’s not based on some coherent standard like the right to proportional punishmet, it’s purely arbitrary and has little to do with justice, IMO.

   

  This supposed standard of yours is no more coherent, no less arbitrary, than any restitution standard. It just adds an extra level of complexity, and yes, even a level of arbitrariness. You have no basis for what counts as a proportional punishment that is more coherent, less arbitrary, than any restitution standard. As you know, from previous debates on this subject, simply using the criminal act of the aggressor as the basis does not work.  The same thing applied in retaliation to the aggressor will not necessarily cause equivalent harm, suffering, costs, etc. And at any rate, this raises the question of whether such retributive punishment is justified in the first place. But this aside, you then have the problem of translating this extra step that isn’t present in restitution theories into a monetary settlement that is not arbitrary. Your supposed solution to effect this transmogrification is the bargaining negotiation (which you’ve admitted doesn’t even have to actually take place; it can merely be hypothetical (sounds a bit like social contract theory’s implicit/hypothetical consent by a “reasonable” man)). So your supposedly non-arbitrary standard is simply the whim of the victim (or of the jurors/judge) and what he can extract from the criminal with the threat of some (at least somewhat) arbitrary retributive punishment hanging over his head. Contrast this with the standards of a restitution theory (see below).

   

   nskinsella:

  In proportional punishment, if we are punishing a minor crime, we know that capital punishment is too severe. So there are limits, that constrain where we place the line in the gray zone.

   

  This is true, but you have to admit that there is no exact standard for hitting upon the right or perfectly proportional and appropriate punishment. People are different. Given things are going to affect them differently. Assuming punishment is seen as legitimate, you can expect individuals, judges, juries, particularly through the evolution of legal precedent over time, to tend to settle on general ranges that are perceived to be acceptable for given crimes. This is no more precise than settling on monetary settlements. See? But you’ve added the extra steps of determining a proportional punishment and translating that into a monetary settlement, with all the complications that go along with that, including the problem of having an unequal coercive bargaining situation biasing the outcome. Why should just monetary settlements be based on such a bargaining situation?

   

   

  This is all nonsense. The notion of proportionate punishment is ancient and people do have a good idea of what it means. Maybe it boggles your mind, but in a free society you pick a libertarian jury and they will converge on a reasonable solution.

  You have a different approach to me. Mine is very simple (as any approach to rights has to be, since rights have to be intuitive and easy to understand, otherwise they could not be rationally accepted by the bulk of society, which they must be to serve as practical guides to conflict-avoiding action). It simply asks: what am I entitled to do, if someone attacks me? And the answer, in abstract, is: you are entitled to do to the aggressor, “what he did to you”. Fleshing this out is the task of the justice system.

  In my articles on this I have emphasized over and over that the libertarian always keeps his eye on the victim; that is who we favor and who we want to protect and defend. The victim has already been harmed by aggression; any legal rules we endorse as just must not aggravate him or penalize him further for being a victim.

  Therefore, in my Punishment and Proportionality: The Estoppel Approach, for example (see section IV.C, “The Burden of Proof”), I argue that while the plaintiff-victim in court may have the burden of proof, once he proves that aggression did occur, then the burden of argumentation and theorizing itself switches to the defendant. As I wrote:

  We have established so far a prima facie case for the right to proportionately punish an aggressor in response to acts of violence, actions which invade the borders of others’ bodies or legitimately acquired property.  Once this burden is carried, however, it is just to place the burden of proof on the aggressor to show why a proposed punishment of him is disproportionate or otherwise unjustified.  The justice of this point is again implied by the logic of estoppel.  The aggressor was not put in the position of justifying how much force he could use against the victim before he used such force; similarly, the victim should not be put in the position of justifying how much force is the appropriate level of retaliatory force to use against the aggressor before retaliating.

  As pointed out above, because it is the aggressor who has put the victim into a situation where the victim has a limited variety and range of remedies, the aggressor is estopped from complaining if the victim uses a type of force against the aggressor that is different from the aggressor’s use of force.  The burden of proof and argument is therefore on the aggressor to show why any proposed, creative punishment is not justified by the aggressor’s aggression.  Otherwise an additional burden is being placed on the victim, in addition to the harm already done him.  If the victim wants to avoid shouldering this additional burden, the aggressor is estopped from objecting because it was the aggressor who placed the victim in the position of having the burden in the first place.  If there is a gray area, the aggressor ought not be allowed to throw his hands up in mock perplexity and escape liability; rather, the line ought to come down on the side of the gray that most favors the victim, unless the aggressor can further narrow the gray area with convincing theories and arguments, for the aggressor is the one who brings the gray into existence.

  Similarly with the issue of proportionality itself.  Although proportionality or reciprocity is a requirement in general, if a prima facie case for punishment can be established (as it can be whenever force is initiated), the burden of proof lies with the aggressor to demonstrate that any proposed use of force, even including execution, mutilation, or enslavement, exceeds bounds of proportionality.  As mentioned above, in practice there are several clear areas:  murder justifies execution; minor, non-armed, non-violent theft does not.  Exceeding known appropriate levels of retaliation makes the retaliator an aggressor to the extent of the excess amount of force used.  But there are indeed gray areas in which it is difficult, if not impossible, to precisely delimit the exact amount of maximum permissible punishment.  However, this uncertain situation, this grayness, is caused by the aggressor.  The victim is placed in a quandary, and might underpunish, or underutilize his right to punish, if he has to justify how much force he can use.  Or he might have to expend extra resources in terms of time or money (e.g. to hire a philosopher or lawyer to figure out exactly how much punishment is warranted), which would impermissibly increase the total harm done to the victim.

  It is indeed difficult to determine the bounds of proportionality in many cases.  But we do know one thing:  force has been initiated against the victim, and thus force, in general, may be used against the victimizer.  Other than for easy or established cases, any ambiguity or doubt must be resolved in favor of the victim, unless the aggressor bears his burden of argument to explain why the proposed punishment exceeds his own initial aggression.49

  … We know that it is permissible to employ violence against an aggressor. How much? Let the aggressor bear the burden of figuring this out.

  49 Many crimes would have established or generally accepted levels or at least ranges of permissible punishment, for example as worked out by a private justice system of a free society, and/or by specialists writing treatises on the subject, and the like. … No doubt litigants in court or equivalent forum, especially the defendant, would hire lawyers to present the best arguments possible in favor of punishment and its permissible bounds. In a society that respected the general libertarian theory of rights and punishment developed herein, one could even expect lawyers to specialize in arguing whether a defendant is estopped from asserting a particular defense, whether a given defense is universalizable or particularizable, when the burden of proof for each side has been satisfied, and the like.

  With regard to the concept of making a prima facie case and switching the burden of proof from the plaintiff to the defendant, Richard Epstein has set forth a promising theory of pleadings and presumptions, whereby one party who wishes to upset the initial balance must establish a prima facie case, which may be countered by a defense, which may be met with a second round of prima facie arguments, etc.

   

   

   

   nskinsella:

  for mundane theft of a homogenous owned object, it might

   

  Well, at least you admit that your arguments don’t work against crimes involving economic goods. That gives up quite a lot of ground right there. But as I pointed out above, you’ve already given up the game by admitting (if unintentionally) that hitting upon a precisely proportional and appropriate punishmeent is not an exact (apriori) science.

   

   

  I have given up nothign. It is not as if I have granted that we have to restrict the victim’s options to restitution “where it can be defined.” No. The victim has a general right to “do things to the aggressor,” as noted above. In fact, in keeping with my focus on the victim, I explicitly have argued that the victim ought to be able to choose within a range of options. As I wrote (SEction IV.B, “The Victim’s Options”):

  A victim who has been shot in the arm by a robber and who has thus lost his arm is clearly entitled, if he wishes, to amputate the robber’s own arm. But this, of course, does not restore the victim’s arm; it does not make him whole. Perfect restitution is always an unreachable goal, for crimes cannot be undone.

  This is not to say that the right to punish is therefore useless, but we must recognize that the victim remains a victim even after retaliating against the wrongdoer. No punishment can undo the harm done. For this reason the victim should not be artificially or easily restricted in his range of punishment options, because this would be to further victimize him. The victim did not choose to be made a victim, did not choose to be placed in a situation where he has only one narrow punishment option (namely, eye-for-an-eye retaliation). On the contrary, the responsibility for this situation is entirely that of the aggressor, who by his action has damaged the victim. Because the aggressor has placed the victim in a no-win situation where being restricted to one narrow type of remedy may recompense the victim even less than other remedies, the aggressor is estopped from complaining if the victim chooses among varying types of punishment, subject to the proportionality requirement.

  In practice this means that, for example, the victim of assault and battery need not be restricted to only having the aggressor beaten (or even killed). The victim may abhor violence, and might choose to forego any punishment at all if his only option was to either beat or punish the aggressor. The victim may prefer, instead, to simply be compensated monetarily out of any (current or future) property of the wrongdoer. If the victim will gain more satisfaction from using force against the aggressor in a way different than the manner in which the aggressor violated the victim’s rights (e.g. taking property of an aggressor who has beat the victim), the aggressor is clearly estopped from complaining about this, as long as proportionality is satisfied.

  In cases where the aggression is theft of some homogenous object that may be replaced with money, then if the victim wants to do to the aggressor what the aggressor did to the victim, then the victim may “take from the aggressor” something having a value in that range. It is not hard ot imagein a libertarian legal system using the market value of stolen objects as a standard when it is available. That in no wise implies restitution is primary or there is no right to proportionately retaliate.

   

   

   

   nskinsella:

  I think the standard is: however much money the victim can–or could, if punishment is not literally permitted–bargain away with *this aggresor* his right to punish.

   

  Why? This strikes me as very arbitrary, arguably more so in the hypothetical scenario than in the actual scenario since you have an individual or group of individuals simply imagining what could be extracted from the criminal under threat of punishment (what the criminal would be willing to give up that at least meets the minimum the victim would be willing to accept, all within the bounds of some non-exact proportionality standard).

   

   

  I explained in detail in the article. In theory the victim has a right to proportionately retaliate. But this is costly for a variety of reasons pointed out by various writers, eg. Barnett, and I agree; therefore I believe that in practice a system would tend away from punishemnt and toward some kind of monetary award. As it evolves however and as it is rooted in the right to punish the monetary awards will have some realtion to this, naturally.

   

   

   

   nskinsella:

  so unless you can articulate one, instead of just punting it to the courts as if their arbitrary, standardless decisions amount to justice–then you are off base in thinking restitution can be primary.

   

  Oh, come now. For a libertarian who favors a competitive, free market legal system, you display an unnusual lack of confidence in private courts. Must your Libertarian Law Code be handed down from on high by someone who has deduced it entirely from apodictic axioms?

   

   

  Geoff we are talking about what the standards should be. You cannot even define your “restitutiN” without some standards the courts are supposed to apply. You can’t just wave your hands and punt it to the courts.

   

   

  Sure, some things are hard to put a monetary reward to, like a person’s life. But your retribution standard suffers from the same difficulties and adds more, even violates the legal principle that someone should not judge his own case.

   

   

  I never said people should be a judge in their own case or that a legal system would not tend to frown on self-help. What are you talking about?

  Retribution does not suffer the same difficulties as “valuing” a person’s life. In any event, you seem to keep assuming that IF you can obectively define “restitution” then that gives you the rihgt to deny the victim’s right to punish. It doesn’t. IT’s one of his options.

   

   

  In this very post you’ve as much as admitted that your retribution standard suffers from the same difficulties. See above where I’ve pointed this out. And in  the case of an actual bargaining scenario, you are to a significant degree making the victim the judge in his own case.

   

   

  Untrue; we are talking of the arguemnts presented to some kind of institutional justice system, to one’s peers and community.

   

  Sure, there is tragedy in life, even great tregedy. But there is no “reward” for the victim of murder in the form of punishment of the criminal either. The victim is dead, he gets nothing at all out of it. Your theory solves nothing in this regard.

   

  I agree. Nothing can undo injustice done. The only question is: when there is injustice, when someone is victimized, what is he entitled to do in response?  He is entitled to retaliate. This is true regardless of the undeniable fact that the retaliation will not undo the harm done.

  In some cases, the crime is such that most of hte harm can be undone (or so the victim subjectively views it)–e.g. if your car is stolen and lost, you might prefer to take $10k from the thief to replace your car, rather than exercise your right to beat the hell out of him. If htat is your preference–fine, go for it. If your child is murdered, or you are raped, you might prefer to execute the criminal than to get money from him.

   

   

   

   

   nskinsella:

  But there are NONE for your floating abstraction of “restitution” unanchored to any standard whatsoever.

   

  This is complete and utter nonsense. I am truly surprised someone trained in law and familiar with legal history, including the history with which libertarians tend to be familiar and mainstreamers ignorant, would make such an absurd claim. You’ve admitted there are acceptable standards at least for economic goods. We can refer to prevailing market prices for stolen, damaged and lost property. But we can go beyond this. We can refer to past and recent earned incomes of victims as well as reasonable expectations for future or lost income had the crime not occured. We can determine to a reasonable approximation how much someone values their lost time. We can reference the prices that people tend to place on goods and services related to accidental dismemberment and death, such as in the form of insurance premiums and payments. These are not perfect analogs, sure. And sure nothing can restore a life, lost time or (at least for now) a lost limb as good as new. Nothing can completely undo the crime as if it had not really occured. To a large extent this is simply railing against reality for not fitting your utopian conception of justice, however. Why not have a conception of justice that fits what is possible in the real world? Some compensation can be acquired, and yes upper and lower limits on monetary settlements can be discovered that are no more arbitrary than your upper and lower limits on proportional punishment. And this can be done without recourse to your arbitrary standard and extra steps in the form of a bargaining negotiation based on a supposed right to punish.

   

   

  Yes, Geoff, I’m aware of various positive law standards that have arisen in the past. Silly me, I thought we were talking about libertarian princples. Many of these rules of thumb would be adopted no doubt but none of this implies there is no right to proportionately retaliate nor that this is not the proper anchor of the subsidiary types of damage awards.

   

   

  A theory of virtue ethics and natural rights blocks estoppel without even having to deny it.

   

   

  Sounds like some kind of juvenile D&D move to me.

  Stephan Kinsella [email protected] www.StephanKinsella.com

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  nskinsella replied on Fri, May 22 2009 10:05 AM

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   Brainpolice:

   

   

  1) It does not follow from the fact that someone endorses aggression for a given circumstance that he necessarily endorses by that very action aggression in any and all circumstances or the circumstances of the victims choosing. If he’s got a democratic majoritarian theory of justice, then that implies the endorsement of aggression under a certain set of circumstances but not in others, thus allowing the aggressor to complain coherently if wrongly under the latter set of circumstances. Sure, we don’t think such a theory is valid, but estoppel itself does not show this. You’ll no doubt say that AE does show this, but as you know I disagree. At any rate, estoppel is much more limited in what it can establish than is usually let on.

   

  In fact, such a line of argument is little more than a rhetoric trick. It purposefully ignores any argument I may present and ends up being a nice driveby “I win” sort of thing. “You did bad thing X, therefore you cannot have a rational argument against anyone in the world doing bad thing X to you”. This quickly devolves into a sea of hypocrisy and regress. Apparently we don’t even have to provide a positive case for using violence on people as “punishment”, we can simply make a sophisticated “he did it” argument. But the fact that “he did it” is not really relevant to whether or not it is justified for you to do it in turn. The effect of this argument is actually to avoid having to rationally justify punishment by merely shifting all burden of proof to the punished and then trying to claim that the punished cannot even meet such a burden of proof because “they did it”.

  I have no problem calling this argument sophistry – for it takes the form of a carte blanch justification in the absence of an actual justification by ruling out the possibility of rationally argueing with the would-be-justifier in the first place. The justification is simply presupposed as if it was “self-evident” – which means that no formal justification as actually given. The appeal to the offender thus becomes a distraction from the fact that the proponent of punishment has not provided a justification for punishment. These purely “negative proofs” of the Hoppean form aren’t really proofs at all, they take the form of drive-by argument winners. But when one thinks deeply about it, it isn’t even a legitimate argument. It constitutes “proof by ruling out the possibility of you argueing against me in the first place, so I can ignore your arguments completely and just declare that you implicitly justify my position”. Hence, the wielder of such arguments doesn’t even have to really prove anything.

  Their correctness is presupposed!

   

   

  I am continually mystified by fellow libertarians, who already (for some reason) believe in the objective superiority of libertarian ethics over competing ethics, reach with horror at a libertarian argument based … on the idea that libertarian ethics are indeed objectively superior to alternatives. Whatever.

  Oh, well, I guess there is an aversion on the part of some to “knock-down” arguments–to them, everything has to always be an on-going, open-ended “conversation”. (See Hoppe’s discussion of “knockdown” arguments in the Intro to Ethics of Liberty; also various comments in A Theory of Socialism and Capitalism re positivism, linked below.) Modernists are big skeptics/relativists, and have an aversion to any argument that even purports to “prove” something definitive.

  Stephan Kinsella [email protected] www.StephanKinsella.com

1. Scotland: Damages Act, §4(3)(B): “The sums of damages are–– (a) such sum as will compensate for any loss of support which as a result of the act or omission is sustained, or is likely to be sustained, by the relative after the date of A’s death together with any reasonable expenses incurred by the relative in connection with A’s funeral, and (b)such sum, if any, as the court thinks just by way of compensation for all or any of the following–– (i) distress and anxiety endured by the relative in contemplation of the suffering of A before A’s death, (ii)grief and sorrow of the relative caused by A’s death, (iii)the loss of such non-patrimonial benefit as the relative might have been expected to derive from A’s society and guidance if A had not died.” Explanatory notes: “These damages are in addition to the damages that a victim is entitled to claim under the general principles of the common law of delict or under statute for solatium, that is damages for the pain and suffering that the victim endures as a result of the injuries, and for patrimonial loss that such a victim has suffered or is likely to suffer in the period up to the expected date of death.” South Africa: “a solatium is “[a]n award for non-financial deprivation, irrespective of what form it takes”. Outside the context of restitution, an award of a solatium is similarly defined as an award for sentimental damages that is “intended to neutralise the wounded feelings of the plaintiff of having to suffer a wrongful act.” Florence v Government of the Republic of South Africa [2014] ZACC 22, n.8; see also Shah and Others v Minister of Rural Development and Land Reform and Others (LCC93/2014) [2024] ZALCC 41 (6 December 2024), p.9: “Solatium is compensation awarded for injury to the feelings.” [↩]
2. India: SC Upholds Retrospective Application of 2019 Ruling on Solatium; Umamaheswari and Latha, “Doctrine of Eminent Domain in India,” International Journal of Pure and Applied Mathematics 120, no. 5 (2018): 1771–1780. [↩]
3. Update: someday need to mention Robert Heinlein’s story “Coventry.” [↩]
4. Re a reported exchange “many years ago between the Chief Justice of Texas and an Illinois lawyer visiting that state. ‘Why is it,’ the visiting lawyer asked, ‘that you routinely hang horse thieves in Texas but oftentimes let murderers go free?’ ‘Because,’ replied the Chief Justice, ‘there never was a horse that needed stealing!’” —People v. Skiles, 115 Ill.App. 816, 827, 450 N.E.2d 1212, 1220 (1983) (quoted here). [↩]

From Mises blog. Archived comments below. Update: the journal concluded in 2018, after 10 years of issues.

***

To Authors, Readers, and Potential Libertarians:

A new libertarian journal–a new type of libertarian journal–is born today. Libertarian Papers is an exclusively online peer-reviewed journal. Its home is this elegant, fast, easy-to-use website. Please feel free to browse around.

Publishing online has allowed us to break free of many of the constraints faced by paper-based journals. Scholars working in the libertarian tradition will find dealing with us to be a refreshing change. For instance, we publish articles consecutively, online, as soon as they are peer-reviewed and a final copy is submitted. No waiting for the next issue or printing delays. We have also done away with arbitrary space limits. And we don’t care what citation style you use, as long as it is consistent, professional, and enables the reader to find the work referenced. Neither our time nor the author’s need be wasted converting from one citation style to another, or wondering whether “2nd. ed.” goes here or there, or whether it should be “2d. ed.” instead. In a digital age, old forms must give way to new forms.

And as our publications are online and open, you won’t find our authors furtively posting a scanned copy of their paper articles on their own sites, while their article is trapped in musty paper on a dark shelf–but if they want to, they are free to do so, since to the extent possible everything here is published under a Creative Commons Attribution 3.0 License. Want to republish your piece in a book? No need to ask us for permission. We want to spread the ideas of liberty, not impose DRM on them.

And of course readers will love the ease of access. Subscription is by RSS feed, and free. Follow us on Twitter or Facebook, or other social media to come. And unlike other academic journals, we allow comments on our articles, via the blog posts announcing them. Libertarian Papers is completely free and open, because readers’ being willing to devote time to studying the ideas of liberty is payment enough for us. It is the profit we seek. And we think having readers who love to use our site and read our articles is what authors want, too.

A few words of thanks are in order. The assistance and support of Jeff Tucker of the Mises Institute, web designer Aristotle Esguerra, and Lew Rockwell and the Ludwig von Mises Institute have been invaluable in getting the website set up and the first non-issue out. Libertarian Papers is also proud to have an outstanding Editorial Board, with world-class scholars working in the libertarian tradition. Their help and commitment was also indispensable in helping this project come to fruition. And various loyal and devoted friends in the libertarian cadre, such as Gil Guillory, Manuel Lora, and Anthony Gregory, helped in various ways behind the scenes. A hearty thanks to them all.

That brings us to our first issue–or non-issue, rather. We’re very proud of our first set of published articles–the seven articles that are being published today, immediately after this post is published (and then rolling them out about one hour apart, consecutively, throughout the day). These pieces include articles by two eminent libertarian thinkers, Jan Narveson (writing on Nozick, justice, and restitution) and Robert Higgs (on depressions and war). Also being published today is a previously unpublished memo from Ludwig von Mises to F.A. Hayek, relaying Mises’s concerns and advice about the then-nascent Mont Pèlerin Society, followed by a previously unpublished memo from Murray Rothbard to the Volker Fund, about libertarian tactics and strategy. The last three articles to be published today–about four hours from now–are a fascinating three-part exchange between Nicolás Maloberti and Joshua Katz about libertarianism, positive rights, and “Possibility of the Legitimate State.”

Several more articles are in the works. We expect to publish throughout the year–and beyond. Stay tuned.

Archived comments:

Comments (6)

• Dennis
• Mr. Kinsella,

  Will the “Journal of Libertarian Studies” still be published, or is “The Libertarian Papers” replacing it?

  Thanks.

• Published: January 22, 2009 8:35 AM

• jeffrey
• The Libertarian Papers is the successor journal for new times. I’m super excited about what Stephan has done. It is an amazing case of intellectual entrepreneurship. I can tell you that he has been on fire for this idea and he saw it through from concept to implementation in an amazingly short period of time.

  We’ve faced a real dilemma with how to get out in front on the issues of scholarly publishing in the digital age. The old rules don’t work. We can see this all around us as print publications go belly up every day, and old-school hard copy journals lose all their subscribers and are folded into massive state-university library databases.

  We needed a journal that would immediately reach everyone who is interested–academics or non-academics. We needed something for maximum access that anticipated trends, not merely caught up to them.

  The JLS was a pioneering publication in its time, and we are now starting work on putting out complete volumes in hard copy, and I’m certain that they will sell well and continue to have influence. But for the future, Kinsella is really on to something here. There is energy to this and incredible clarity.

  The resources go to getting the information out there rather than all the waste that comes with old-world mailings and subscriptions.

  Meanwhile, the JLS will take on new life as a brilliant archive that will be circulated the world over.

  I can only offer my highest congratulations to Kinsella for his daring and innovative project.

• Published: January 22, 2009 9:01 AM

• Dna Mahoney
• Speaking of the JLS, and QJAE, have there been any new issues since early last year? That seems to be the last time they were updated online.

• Published: January 22, 2009 10:29 AM

• Kathryn Muratore
• I just want to correct this statement:
  

  And unlike other academic journals, we allow comments on our articles, via the blog posts announcing them.

  I know that PLoS, a science journal whose model is somewhat similar to Libertarian Papers and is certainly a leader in the open-source academic publishing world, has a comments section on articles (I’m not certain that they have this for all of their journals, but they definitely have it for PLoS ONE). Nonetheless, I suspect that Libertarian Papers is joining a very short list of journals that allow comments.

• Published: January 22, 2009 1:18 PM

• Stephan Kinsella
• We launched at 7:00 a.m. CST today. We’ve gotten tremendously positive comments and buzz already–see., e.g., . The site has been live just over 6 hours, and we have already had over 2000 visitors, and 5000 page views (which means visitors are looking around). Many of them coming to the site from announcements on LRC andMises.org, but also from announcements on Liberty & Power, The Independent Institute’s The Beacon, Ron Paul’s Campaign for Liberty, Let Liberty Ring, and many others.

  We also have a growing number of followers so far on Twitter, and 40 people have joined our Facebook group already. And more articles are still to come, today!

• Published: January 22, 2009 1:28 PM

• Vanmind
• Bookmarked, for sure.

  I’m curious about the content management strategy. I’ll bet I could help, considering I’m an AIIM-certified ECM Master (http://www.aiim.org/Education/ECM-Enterprise-Content-Management-Training-Courses.aspx). I don’t charge much, especially when it’s a good cause.

• Published: January 22, 2009 5:34 PM

Congrats, Marvel. You’ve turned Spider-Man into a drooling statist product of goverment education. See the nauseating Early Look: Spider-Man Meets Obama; Comic stores donating Spider-Man/Obama profits to charity; Zeb Wells – Writing the Spider-Man/Obama Meeting; Advance Peek at Spiderman/Obama Comic; Spider-Man, Obama team-up comic sells out. The vapid writer intones, “‘I have a lot of respect for President Obama and how he ran his campaign,’ the writer said. ‘I like how he never shied away from who he was, and always answered tough questions about mistakes in his past with candor. He didn’t try to be everything to everyone, and that takes a lot of character … more character than I have. I like being able to say that about my President.'”

The comic strip nauseatingly shows Spider-Man doing a “fist-dap” with Obama, each telling the other, “Thanks … partner…” And in one of the panels, as Spider-Man observes the inaugural festivities, he thinks to himself, “It looks like Washington is in capable hands.”

[LRC blog cross-post]

Sean Gabb, director of the UK’s Libertarian Alliance, has penned a quite interesting and eloquent Christmas Greeting, unlike others “from religious and political leaders from around the world,” which “range from the vacuous (Her Majesty the Queen), to the impressively malevolent, so long as the volume is turned down (the Bishop of Rome), to the plain stupid (the Archbishop of Canterbury).”

Gabb’s column is quite remarkable and full of subtle insights and sound, sober reasoning. He seems to be have the appropriate mixture of pessimism and optimism, and many of his suggestions mirrored or crystallized some thoughts I’ve had–on China and the relative prosperity of the West, and other matters.

I liked Gabb’s observations about the possibility and hope that technological progress can help to continue to drive the underlying engine of economic prosperity despite the state’s regulations and parasitism:

[continue reading…]

From IMDB: Hannibal Lecter: “You know what you look like to me, with your good bag and your cheap shoes? You look like a rube. A well scrubbed, hustling rube with a little taste. Good nutrition’s given you some length of bone, but you’re not more than one generation from poor white trash, are you, Agent Starling? And that accent you’ve tried so desperately to shed: pure West Virginia. What is your father, dear? Is he a coal miner? Does he stink of the lamp? You know how quickly the boys found you… all those tedious sticky fumblings in the back seats of cars… while you could only dream of getting out… getting anywhere… getting all the way to the FBI.”

Phil Hendrie’s character Bobbie Dooley (or was it Margaret Gray?) used to use this quote against callers to hilarious effect.

Update: see Corporate Personhood, Limited Liability, and Double Taxation

I’ve been involved lately in several debates about the referenced issues lately. Links to my own posts, other posts related to mine, and other related ones are linked below:

• Dyslexic Vandarchists of the World–Untie! (NSK on LRC)
• In which little heads pop up for air (leftlibertarian.org)
• Kinsella on the Chicago Sit-in: “Shoot ’em” (Freedom demonrats)
  • Shoot the looters!, LewRockwell.com (Sept. 22, 2008)
• The Republic Windows and Doors factory occupation (Brad Spangler) (and my comments)
• Dialogue of the Damned: Corporate Limited Liability (again) (Brad Spangler)
• Long on the Corporation (Peter Klein)
• Cato Institute Publishes Leftist Screed!, Pars Septa (Roderick Long)
• Cato Institute Publishes Leftist Screed!, Pars Nona (Roderick Long)
• Cato Institute Publishes Leftist Screed!, Pars Decima (Roderick Long)
• Against Destruction (Freedom Democrats)
• Corporations and Limited Liability for Torts (NSK on Mises blog)
• Left-Libertarians on Corporations “Expropriating the Efforts of Stakeholders” (NSK on Mises blog)
• The Conflation Conflict (Kevin Carson)
• The Conflation Conflict, Continued: Part V: Stephan Kinsella vs. Kevin Carson (Kevin Carson)
• Left-Libertarians and the Corporate Income Tax (NSK on LRC)
• Vaguely Defined Property Rights Indeed (Instead of a Blog)
• Open the Borders, End the Housing Glut (NSK on LRC)
• Lawyers without Borders (Roderick Long’s reply)

From Mises Blog (archived comments below)

Corporations and Limited Liability for Torts

12/10/2008•Mises Wire•Stephan Kinsella

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There’s been a good deal of discussion lately of the legitimacy of corporations: see my posts Left-Libertarians on Corporations “Expropriating the Efforts of Stakeholders” and In Defense of the Corporation. Various types–anti-industrialists, socialists, left-libertarians–make a variety of criticisms of the corporation. Some oppose it because they oppose “capitalism”; or because it is invariably in bed with the state; or because it exploits workers; or because they dislike “bigness”. Most of these are wrongheaded or off point.

Another very common criticism is that corporations receive special privileges from the state–”limited liability”. This concerns two basic issues: the limited liability of shareholders for contractual liability of the corporation; and for torts committed by employees of the corporation. The former is easily dealt with–see Hessen (more on this below).

The most controversial issue is the tort issue. This is bizarre for a number of reasons. In the typical case, the victim injured by the tort of an employee of the corporation can of course sue the employee who committed the tort; but he usually just sues the company because it has deep pockets. He is not usually affected by the inability to sue the shareholders, since he would not anyway. The corporate assets, or its insurance, would cover it. But it bugs anti-corporate types that shareholders can’t be sued for torts of employees of a company they own shares in.

Lately I’ve begun to emphasize that the anti-corporatists, in characterizing limited liability as a privilege, have to assume that on the free market shareholders should have liability. But this is a dubious assumption. First, it rests on the idea of respondeat superior (master is liable for torts of his servant), which itself dubious. Second, it rests on an undeveloped notion of strict liability which assumes that you are liable for torts committed “with [or by?] your property.” But property does not commit crimes or torts–people do. Property serves as means. If you borrow my car and run over someone, it is not obvious to me that I am responsible for your negligent action–just because I owned the car. Second, as I discussed in The Over-reliance on State Classifications: “Employee” and “Shareholder”, this rests too much on state definitions of ownership. Marriage, shareholder, owner, adult, citizen, money, bank, employer, employee, hobby, …. — so many things are keyed off their classifications. It irks me when libertarians build up their arguments and concepts based on these, as if they are objective and valid distinctions.

Looking at reality: ownership is the right to control a resource–in a company it’s distributed, since shareholders can’t just walk in and use the assets of the company (drives its cars; use its HQ to throw a party). As a practical matter, people with control over property are distributed in complex ways.

Second, it’s often assumed that shareholders are “investors”–people who gave money to the company. This seems to implicitly assume that you are responsible for aiding and abetting the company. Several problems here. (a) shareholders are not necessarily investors (if you buy Exxon stock from another shareholder, you give him money, but not Exxon); (b) other people give Exxon much more money, like customers; (c) the control exerted by shareholders is minimal–they can vote for board members, who in turn appoint officers, who hire managers and employees. Others–creditors, vendors, contractors, employees, unions, “stakeholders”–often exert more influence over what the company does than any given shareholder or even the whole class of shareholders.

I believe the only way to sort this out is to apply a carefully developed and libertarian-compatible theory of causation. Whenever you want to attribute responsibility to A for actions of B, you have to have a good reason. This area is underdeveloped but my approach is laid out in Causation and Aggression. I am not even sure if respondeat superior is justified; much less stretching it to cover shareholders–stretching it so far would make so many other parties potentially responsible for the actions of one tortfeasor. Libertarians want to just point to the rules developed in the common law and take this for granted, as if it’s unquestionably legitimate. It’s not. We are libertarians, not positivists.

I just recalled, in correspondence with Brad Spangler, that there is a great pity excerpt from Hessen, pp. 18-21 of his classic book In Defense of the Corporation. He grants (a bit too generously, perhaps) the application of respondeat superior to the company itself, but argues very concisely–and without a carefully developed theory of causation but with sound insight and good intuition–why shareholders should not be liable for torts of employees. I highly recommend you read pp. 18-21. (N.b. left-libertarians: at pp. 20-21, Hessen explains that if anything, the state takeover of corporate law benefits not large companies, but small, one-man and “close” corporations since they would normally be liable for their actions, unlike shareholders of a large company.)

Bottom line: libertarians who claim that limited liability for torts is a state privilege have the burden of proving that shareholders should be liable for torts committed by employees of a company the shareholder owns a share in–and to show why creditors, suppliers, employees, and other “aiders and abetters” are not liable. And don’t just point to the common law rules and respondeat superior–we are libertarians. Show why this rule is libertarian.

I went over this in a 2004 LRC post, Legitimizing the Corporation, which I excerpt below:

***

… most people don’t even realize that if a FedEx truck runs you over negligently you can sue the driver. They think he is immune from suit or something. But it is the other way around; if a FedEx truck negligently hits you, it is of course the driver that is responsible. His employer is responsible for its employee’s own negligence and liability only because of the doctrine of respondeat superior; but if the employee is found to be non-negligent, the employer-corporation is off the hook too. This is in fact why corporations usually defend their employee and themselves when sued for the employee’s actions.

 

But opposition does not always stem from ignorance of the law or leftism: for example, one critique comes from two libertarian-Austrian attorneys: “De-legitimizing the Corporation: An Austrian analysis of the firm”, Jeffrey F. Barr & Lee Iglody, Austrian Scholars Conference 7, March 30-31, 2001, Auburn, Alabama.

Robert Hessen’s (a Randian) In Defense of the Corporation is a good defense of corporations. He shows that they don’t require privilege from the state to exist; they can be constructed from private contracts. One of Hessen’s articles nicely summarizes some of his views. Some excerpts are pasted below. My view is that corporations are essentially compatible with libertarianism. As for voluntary debts being limited to the corporation’s assets; this is no problem since the creditor knows these limitations when he loans money. What about limited liability for torts or crimes? As mentioned, the person direclty responsible for a tort or crime is always liable; sometimes the employer (which is often a corporation) is also liable for the employee’s actions, via respondeat superior. Who else should be responsible? In my view, those who cause the damage are responsible. Shareholders don’t cause it any more than a bank who loans money to a company causes its employees to commit torts. The shareholders give money; and elect directors. The directors appoint officers/executives. The officers hire employees and direct what goes on. Now to the extent a given manager orders or otherwise causes a given action that damages someone, a case can be made that the manager is causally responsible, jointly liable with the employee who directly caused the damage. It’s harder to argue the directors are so directly responsible, but depending on the facts, it could be argued in some cases. But it’s very fact specific. Perhaps the rules on causation should be relaxed or modified, but this has nothing to do with there being a corporation or not–for the laws of causation should apply to any manager or person of sufficient influence in the organization hierarchy, regardless of legal form of the organization (that is, whether it’s a corporation, partnership, sole proprietorship, or what have you).

Excerpts from the Hessen article—

The actual procedure for creating a corporation consists of filing a registration document with a state official (like recording the use of a fictitious business name), and the state’s role is purely formal and automatic. Moreover, to call incorporation a “privilege” implies that individuals have no right to create a corporation. But why is governmental permission needed? Who would be wronged if businesses adopted corporate features by contract? Whose rights would be violated if a firm declared itself to be a unit for the purposes of suing and being sued, holding and conveying title to property, or that it would continue in existence despite the death or withdrawal of its officers or investors, that its shares are freely transferable, or if it asserted limited liability for its debt obligations? (Liability for torts is a separate issue; see Hessen, pp. 18-21.) If potential creditors find any of these features objectionable, they can negotiate to exclude or modify them.

Economists invariably declare limited liability to be the crucial corporate feature. According to this view the corporation, as an entity, contracts debts in “its” own name, not “theirs” (the shareholders), so they are not responsible for its debts. But there is no need for such mental gymnastics because limited liability actually involves an implied contract between shareholders and outside creditors. By incorporating (that is, complying with the registration procedure prescribed by state law) and then by using the symbols “Inc.” or “Corp.,” shareholders are warning potential creditors that they do not accept unlimited personal liability, that creditors must look only to the corporation’s assets (if any) for satisfaction of their claims. This process, known as “constructive notice,” offers an easy means of economizing on transactions costs. It is an alternative to negotiating explicit limited-liability contracts with each creditor.

Creditors, however, are not obligated to accept limited liability. As Professor Bayless Manning observes; “As a part of the bargain negotiated when the corporation incurs the indebtedness, the creditor may, of course, succeed in extracting from a shareholder (or someone else who wants to see the loan go through) an outside pledge agreement, guaranty, endorsement, or the like that will have the effect of subjecting non-corporate assets to the creditor’s claim against the corporation.” This familiar pattern explains why limited liability is likely to be a mirage or delusion for a new, untested business, and thus also explains why some enterprises are not incorporated despite the ease of creating a corporation.

Another textbook myth is that limited liability explains why corporations were able to attract vast amounts of capital from nineteenth-century investors to carry out America’s industrialization. In fact, the industrial revolution was carried out chiefly by partnerships and unincorporated joint stock companies, rarely by corporations. The chief sources of capital for the early New England textile corporations were the founders’ personal savings, money borrowed from banks, the proceeds from state-approved lotteries, and the sale of bonds and debentures.

Even in the late nineteenth century, none of the giant industrial corporations drew equity capital from the general investment public. They were privately held and drew primarily on retained earnings for expansion. (The largest enterprise, Carnegie Brothers, was organized as a Limited Partnership Association in the Commonwealth of Pennsylvania, a status that did not inhibit its ability to own properties and sell steel in other states.)

External financing, through the sale of common stock, was nearly impossible in the nineteenth century because of asymmetrical information–that is, the inability of outside investors to gauge which firms were likely to earn a profit, and thus to calculate what would be a reasonable price to pay for shares. Instead, founders of corporations often gave away shares as a bonus to those who bought bonds, which were less risky because they carried underlying collateral, a fixed date of redemption, and a fixed rate of return. Occasionally, wealthy local residents bought shares, not primarily as investments for profit, but rather as a public-spirited gesture to foster economic growth in a town or region. The idea that limited liability would have been sufficient to entice outside investors to buy common stock is counterintuitive. The assurance that you could lose only your total investment is hardly a persuasive sales pitch.

No logical or moral necessity links partnerships with unlimited liability or corporations with limited liability. Legal rules do not suddenly spring into existence full grown; instead, they arise in a particular historical context. Unlimited liability for partners dates back to medieval Italy, when partnerships were family based, when personal and business funds were intermingled, and when family honor required payment of debts owed to creditors, even if it meant that the whole debt would be paid by one or two partners instead of being shared proportionally among them all.

Well into the twentieth century, American judges ignored the historical circumstances in which unlimited liability became the custom and later the legal rule. Hence they repeatedly rejected contractual attempts by partners to limit their liability. Only near midcentury did state legislatures grudgingly begin enacting “close corporation” statutes for businesses that would be organized as partnerships if courts were willing to recognize the contractual nature of limited liability. These quasi-corporations have nearly nothing in common with corporations financed by outside investors and run by professional managers.

Any firm, regardless of size, can be structured as a corporation, a partnership, a limited partnership, or even one of the rarely used forms, a business trust or an unincorporated joint stock company. Despite textbook claims to the contrary, partnerships are not necessarily small scale or short-lived; they need not cease to exist when a general partner dies or withdraws. Features that are automatic or inherent in a corporation–continuity of existence, hierarchy of authority, freely transferable shares–are optional for a partnership or any other organizational form. The only exceptions arise if government restricts or forbids freedom of contract (such as the rule that forbids limited liability for general partners).

archived comments:

Comments (72)

• Brent
• If you want to get into it, the workers comp exemption from normal liability rules requiring negligence or fault is a much clearer violation of libertarianism than is the limiting of tort actions against shareholders.

• Published: December 11, 2008 12:26 AM

• Matias Forss
• On the question of respondeat superior: without statutory or common law enforcement of this doctrine, most FedEx employees would probably want some kind of protection from liability as part of their contract of employment, just so they wouldn’t be enslaved for their debts if they happen to run over someone. An alternative would be a postal workers union insurance pool.Large-scale industrial activities would need some kind of respondeat superior -rules. It just doesn’t seem right that only the pilot would be responsible for an oil tanker accident, for instance.

• Published: December 11, 2008 12:53 AM

• Brad Spangler
• My related blog post detailing the discussion Stephan and I had can be found here:Dialogue of the Damned: Corporate Limited Liability (again)
  http://www.bradspangler.com/blog/archives/1113

• Published: December 11, 2008 2:08 AM

• MHC
• Okay, Kinsella and Spangler have gotten into a debate about this, so I’m posting my thoughts.Spooner suggests that a good way to go about determining natural law is to perform a comparative analysis and go for the common ground by eliminating all of the unique peculiarities of each system. Kinsella takes that approach here. Other’s should follow suit.Spooner’s method is vastly superior to the blind adherence to the common law that many libertarians exhibit. Thankfully things are common around, Benson demonstrated in his great book, The Enterprise of Law, that the common law is a wholly statist endeavor. Additionally No serious student of comparative law would claim that the common law is a good or even representative legal system.In fact, is decidedly outside of the mainstream of western law. Substantially all of our concepts, including basic things like “ownership”, “property”, and “contract” come from the Romans. Most of our doctrine comes from private medieval lawyers who wrote commentaries and glosses on Roman texts. (For more on this see Gordley, 88 Calif. L. Rev. 1815). Much of family law originated in the Cannon Law of the Catholic church, and much of mercantile law was reintroduced to Europe via the Rabbinic courts.

  A serious consideration of any libertarian legal point, out to take in all of these sources and, as Spooner advocates, attempt to find a common ground.

  As to this specific issue:

  Respondeat superior exists only at common law. In other jurisdictions you have to prove general causation, in some causation cannot be proved as a matter of law even when the superior explicitly commanded an employee to violate someone’s rights. The legal arguments for these alternative positions are every bit as compelling as those for the common law’s pet approach (if not more so.) And Kinsella rightly rejects the unique and quirky common law rule.

  As for the view of the corporation as property owned by the shareholders. This is also a traditional common law view. It is much better to view the corporation as a species of the wider genus “company” and to view each company as a nexus of contracts. This approach dramatically clarifies the situation and also allows for the analysis of the far more complicated organizational structures exhibited by modern companies.

  Essentially, stock holders should not be viewed as “owners”, but as “investors”. Consequently they should not be held anymore responsible than silent partners (who are also shielded from tort liability for reasons of causation).

• Published: December 11, 2008 2:32 AM

• TokyoTom
• By the way, Stephan, I don’t consider myself an “anti-corporate type”, or an “anti-industrialist”, “socialist” or “left-libertarian” either.I’m just an anti-uncontracted-for-limited-liaibility-for-torts” type. There are plenty of my type in the world of corporate lawyers, as I noted on the other thread.Here are a few links on law and economics to aid those who want to refer to the academic discussion in the legal profession:Hansmann, H and Krackman, R, Towards Unlimited Shareholder Liability for Corporate Torts, 100 Yale Law J. 1879 (1991). http://www.law.yale.edu/documents/pdf/Faculty/Hansmann_Toward_Unlimited_Shareholder_Liability_for_Corporate_Torts.pdf

  Hansmann, H and Krackman, R, Do the Capital Markets Compel Limited Liability?, 102 Yale L.J. 427 (1992). http://www.law.yale.edu/documents/pdf/Faculty/Hansmann_Do_the_Capital_Markets_Comple_Limited_Liability.pdf

  Nina A. Mendelson, A Control-Based Approach to Shareholder Liability for Corporate Torts, 102 COLUM. L. REV. 1203, 1205-06 (2002).

  Timothy P. Glynn, Beyond “Unlimiting” Shareholder Liability: Vicarious Tort Liability for Corporate Officers, 57 Vanderbilt L.Rev. 330 (2004). http://law.vanderbilt.edu/publications/vanderbilt-law-review/archive/volume-57-number-2-march-2004/download.aspx?id=2983

  David Millon, Piercing the Corporate Veil, Financial Responsibility, and the Limits of Limited Liability,
  Washington & Lee Public Law Research Paper No. 03-13 (2003), http://papers.ssrn.com/sol3/papers.cfm?abstract_id=932959

• Published: December 11, 2008 4:54 AM

• P.M.Lawrence
• ‘Another very common criticism is that corporations receive special privileges from the state–“limited liability”. This concerns two basic issues: the limited liability of shareholders for contractual liability of the corporation; and for torts committed by employees of the corporation.’Bluntly, that’s wrong, which makes this a straw man. Those are the two main special privileges in ordinary circumstances, deplorable to the extent that they are sustained by such intervention, but there is another, even deeper special privilege: entity status, which (short of a judge finding “failure of substratum”) gives a corporation a quasi-life of its own and allows it freedom from the inherent internal limits that other kinds of firm face – even partnerships that achieve Hessen-style limited liability or limited liability in other ways (elsewhere I describe how silent or sleeping partners can lie low, so achieving de facto limited liability). Without those limits, they gain the sort of advantage that an animal without size and lifespan limits would achieve in an ecology – they crowd out other entities, including natural persons.

• Published: December 11, 2008 6:44 AM

• Dick Fox
• P.M.Lawrence,Excellent post.A corporation is a creation of government. Because it becomes a virtual person there is very limited recourse when a corporation(sic) violates the law. If the individuals in a corporation were actually liable as Stephan implies there might not be a problem, but the primary reason people incorporate a business is to limit liability.

• Published: December 11, 2008 7:25 AM

• scineram
• And why the hell should they be liable?

• Published: December 11, 2008 8:12 AM

• JA
• A corporation is a creation of governmentFlesh-and-blood people are registered with the state through birth certificates.Hence, people are creations of the state.Parents register with the state when they give birth to a child.

  Hence, parents and families and children are creations of the state.

  A man and woman who marry register with the state.

  Hence, marriages are creations of the state.

  But remember…Left-libertarian “logic” is anti-statist (heh!)

  but the primary reason people incorporate a business is to limit liability.

  Yes, liability from creditors, as mentioned a million times already. Not from torts. Do we need to re-post the wikipedia dictionary definition of “corporation” again? So what else have you got?

• Published: December 11, 2008 8:20 AM

• JA
• Without those limits, they gain the sort of advantage that an animal without size and lifespan limits would achieve in an ecology – they crowd out other entities, including natural persons.Maybe because incorporation is a superior form of organization, even in a free market?This seems to be the argument:Libertarians: Corporations are libertarian for x, y, and z in a free market.

  Socialists: Corporations are not libertarian because of x and z in today’s statist world.

  Libertarians: Corporations would likely be the dominate form of firm structure in a free market because of x, y an z.

  Socialists: Corporations would not exist at all because they are un-libertarian because of x and z in today’s statist world.

• Published: December 11, 2008 8:26 AM

• whittaker
• “And why the hell should they be liable?”For the same reason anyone else is liable, directly or vicariously, for negligent or intentional torts.If you’re arguing for the abolition of tort law, or just of vicarious liability in general, that would be a separate subject, having nothing to do specifically with corporations.

• Published: December 11, 2008 8:32 AM

• JA
• but the primary reason people incorporate a business is to limit liability.I also would like to see a citation for this claim.This claim completely disregards the other benefits of incorporation…Selling shares to finance, selling the business, adding new investors, allowing for shareholders to die or sell off their part of the business, etc.

• Published: December 11, 2008 8:46 AM

• Dick Fox
• JA,I assume from your posts that as long as it is a creation of government it is ok. There does not need to be any tangible existence.

• Published: December 11, 2008 8:57 AM

• whittaker
• TokyoTom,Many thanks for the links. I now have my homework assignment for tonight.

• Published: December 11, 2008 9:06 AM

• JA
• I assume from your posts that as long as it is a creation of government it is ok.Not even close. I dispute that “corporations = government creation” simply because they are registered by the State.The corporate form, like families and marriages, pre-exists prior to the state as a nexus of voluntary relationships.That the State registers and regulates this voluntary organizational form is the problem with the state, not the form itself.

• Published: December 11, 2008 9:11 AM

• fundamentalist
• whittaker: “For the same reason anyone else is liable, directly or vicariously, for negligent or intentional torts.”Kinsella has already established that the master is responsible for the actions of his servant, so corporations are responsible for employees. Anti-corps want the responbibility to go even further to the stockholders. But why stop there? Why not make the customers responsible too? And let’s throw in the bond holders. Then let’s add the suppliers. How about the relatives of stock and bond holders?Of course I’m being ridiculous. My point is where do you draw the line of responsibility for the actions of coroporate employees? Stopping with the stockholders is an arbitrary judgement. You need some principle that can delineate who is responsible for the actions of another. Traditionally, that line is drawn where control of the actions of the other party ends. If I don’t control the actions of another then I’m not responsible for his actions. This principle is most clearly seen with children. Parents are responsible and can be held liable for the actions of their children up to a general age of the children. After the children reach that age, the parent is no longer responsible because they no longer control the child.

• Published: December 11, 2008 9:47 AM

• J Cortez
• Shareholders responsible?Why?Unless they are officers active in the corporation’s day to day operations and have stock, there is no reason for a shareholder to be liable.Most shareholders in IBM, Google, Starbucks, Pepsi and Toyota have no idea what the day to day operations are because they aren’t involved in any way outside of providing capital. How could someone, having not acted in and without any knowledge of, an accident/incident be held responsible?

  If Corporation XYZ has a faulty factory floor, it is human resources, the factory manager and the CEO that is liable, not the shareholder.

• Published: December 11, 2008 10:12 AM

• TokyoTom
• Stephan, I had two earlier posts linking back to my posts on the other thread, neither of which has come through (too many links?).Let me try once once more, without links.My last post responded to you fully; I look forward to your further comments.My closing comment was as follows:

  “The grant of limited liability to involuntary creditors cannot be justified on libertarian grounds, and arguments I have noted regarding efficiency, moral hazards, equity, the disincentives for shareholders to closely monitor firms, the relative freedom of managers and executives to loot, and the related rise of citizen pressure groups to seek to have governments provide checks are all substantial and important.

  “While there are many cases where injured persons are compensated, there are many cases where corporations have generated widespread risks and failed, leaving countless others holding the bag, while investors (and managers) may have profited and then exited without substantial loss. The limited liability grant actually encourages such behavior.

  “You say that, if victims could “sue shareholders individually”, in which case “shareholders could simply purchase shareholder-liability-insurance, no biggie”. I heartily agree – a system of pro rata shareholder unlimited liability would work (as one of the law journal articles argues), as well as being more just. I appreciate the concession – so [why] haven`t] you stopped fighting this point?

  Regards.

• Published: December 11, 2008 10:15 AM

• Stephan Kinsella
• Matias Forss:
  

  On the question of respondeat superior: without statutory or common law enforcement of this doctrine, most FedEx employees would probably want some kind of protection from liability as part of their contract of employment, just so they wouldn’t be enslaved for their debts if they happen to run over someone.

  Agreed. But this would not imply shareholder liability.

  MHC
  #

  TokyoTom: “I’m just an anti-uncontracted-for-limited-liaibility-for-torts” type. There are plenty of my type in the world of corporate lawyers, as I noted on the other thread.”

  The question is why and when shareholders should be vicariously liable for actions of employees. If you can show they should be, then their liabiltiy should not be “limited”. but until you can show this, limited liability can be viewed as the refusal to impose liabiilty where there is none.

  Here are a few links on law and economics to aid those who want to refer to the academic discussion in the legal profession:

  Be careful of mainstream reasoning by law professors–they almost always build their case by assuming the validity of a host of positivist and mainstream (and not libertarian) assumptions.

   

  P.M.Lawrence:

  ‘Another very common criticism is that corporations receive special privileges from the state–“limited liability”. This concerns two basic issues: the limited liability of shareholders for contractual liability of the corporation; and for torts committed by employees of the corporation.’

  Bluntly, that’s wrong, which makes this a straw man. Those are the two main special privileges in ordinary circumstances, deplorable to the extent that they are sustained by such intervention,

  I don’t see why they’re “deplorable”. That’s question-begging.

  but there is another, even deeper special privilege: entity status, which (short of a judge finding “failure of substratum”) gives a corporation a quasi-life of its own and allows it freedom from the inherent internal limits that other kinds of firm face – even partnerships that achieve Hessen-style limited liability or limited liability in other ways (elsewhere I describe how silent or sleeping partners can lie low, so achieving de facto limited liability). Without those limits, they gain the sort of advantage that an animal without size and lifespan limits would achieve in an ecology – they crowd out other entities, including natural persons.

  Hessen and I are against the entity theory: see pp. 19-21 of the book that I linked/cited earlier.

  BTW my view is that the primary reason people like the corporate form is limited liabilty for *contractual* debts of the company. And this is uncontroversial (or should be). If shareholders were liable only for torts, then this could be taken care of by an insurance policy, so would be no big deal.

  whittaker:

  “And why the hell should they be liable?”For the same reason anyone else is liable, directly or vicariously, for negligent or intentional torts.

  But under libertarianism A ought to be vicariously liable for B’s actions only if there is a good reason–A is a co-conspirator or joint actor, etc. It’s hard to find a good reason why a shareholder is vicariously liable.

  If you’re arguing for the abolition of tort law, or just of vicarious liability in general, that would be a separate subject, having nothing to do specifically with corporations.

  I’m arguing for a careful application of vicarious liability; and it has everything to do with the controversy over shareholder limited liability–for without vicarious liabiltiy, there is no way they’d be liable in the first place and you guys would have no basis for whining about limiting this non-existent liability.

  fundamentalist:

  whittaker: “For the same reason anyone else is liable, directly or vicariously, for negligent or intentional torts.”Kinsella has already established that the master is responsible for the actions of his servant, so corporations are responsible for employees.

  Well, my view is that a master is responsible for actions of his servant *that he directs him to do*. I think a case can be made that in some cases he is liable for negligence of the servant committed during the course of his employ, but this would be a limited doctrine (and in any event needs to be justified by a careful treatment of this issue–using the type of causal analysis Tinsley and I laid out in our Causation and Aggression paper). But this would not ensnare the shareholders, as far as I can tell.

  Anti-corps want the responbibility to go even further to the stockholders. But why stop there? Why not make the customers responsible too? And let’s throw in the bond holders. Then let’s add the suppliers. How about the relatives of stock and bond holders?

  Great point.

• Published: December 11, 2008 10:17 AM

• Stephan Kinsella
• TokyoTom:
  

  “You say that, if victims could “sue shareholders individually”, in which case “shareholders could simply purchase shareholder-liability-insurance, no biggie”. I heartily agree – a system of pro rata shareholder unlimited liability would work (as one of the law journal articles argues), as well as being more just. I appreciate the concession – so [why] haven`t] you stopped fighting this point?

   

  But this is damaging to your side, not mine. The anti-corporatists jump up and down about shareholder limited liability. If it’s for contracts, this concern is misguided. If it’s about torts, then the criticism groundlessly assumes shareholders should be liable for torts in the first place. You assume that without this limited liability corps could not exist. But this is wrong. Even if you imposed this liability, it could be gotten rid of with insurance. The corporation’s insurnace policy would just cover not only the company and officers, but also shareholders. Then life would go on. This shows that the concern over limited liability is a canard.

• Published: December 11, 2008 10:33 AM

• jp
• Kinsella: “shareholders are not necessarily investors”?
  I almost stopped reading after that comment. What are they then, consumers of shares? Just because you buy a share in the secondary market doesn’t mean you’re not investing.Hessen: “Creditors, however, are not obligated to accept limited liability.”In many cases they are. For instance, when the state legislates that all banks must adopt limited liability, depositors and lenders are obligated to accept LL.

  see comment here: http://blog.mises.org/archives/009070.asp#comment-483017

• Published: December 11, 2008 11:04 AM

• Stephan Kinsella
• jp:”Kinsella: “shareholders are not necessarily investors”?
  I almost stopped reading after that comment. What are they then, consumers of shares? Just because you buy a share in the secondary market doesn’t mean you’re not investing.”They are holders of shares–people who have certain rights with respect to a corporation. They may have been given the share as a gift–are they inevstors then?

  If they buy it from an existing shareholder sure they are investors–but the point is they never contributed money to the corporation (which is what I thought was supposed to be the significance of anti-corpos calling them “invstors”–implying they are liable for the company’s actions b/c they aided and abetted them by giving them money).

  “Hessen: “Creditors, however, are not obligated to accept limited liability.”

  In many cases they are. For instance, when the state legislates that all banks must adopt limited liability, depositors and lenders are obligated to accept LL.”

  In many cases, a bank will require the president or major shareholder to personally guarantee a loan.

• Published: December 11, 2008 11:17 AM

• Nick Bradley
• I know this is about limited liability, but would large corporations even exist (or be a little more than a rarity) if it weren’t for access to centralized credit?As Jörg Guido Hülsmann pointed out in “Deflation and Liberty”, financing must come from private savings in a non-Fractional Reserve Banking system.Large (and even medium)-sized corporations depend on access to centralized credit for their existence, and it is unclear how their operations would be financed in a free market banking system.

• Published: December 11, 2008 11:40 AM

• Nick Bradley
• I know this is about limited liability, but would large corporations even exist (or be a little more than a rarity) if it weren’t for access to centralized credit?As Jörg Guido Hülsmann pointed out in “Deflation and Liberty”, financing must come from private savings in a non-Fractional Reserve Banking system.Large (and even medium)-sized corporations depend on access to centralized credit for their existence, and it is unclear how their operations would be financed in a free market banking system.

• Published: December 11, 2008 11:47 AM

• Nick Bradley
• I know this is about limited liability, but would large corporations even exist (or be a little more than a rarity) if it weren’t for access to centralized credit?As Jörg Guido Hülsmann pointed out in “Deflation and Liberty”, financing must come from private savings in a non-Fractional Reserve Banking system.Large (and even medium)-sized corporations depend on access to centralized credit for their existence, and it is unclear how their operations would be financed in a free market banking system.

• Published: December 11, 2008 11:48 AM

• whittaker
• Mr. Kinsella,I’m not sure whether we really disagree on substance, or just on priorities and procedure, but I feel compelled to respond to some of your points.”libertarians who claim that limited liability for torts is a state privilege have the burden of proving that shareholders should be liable for torts committed by employees of a company the shareholder owns a share in–and to show why creditors, suppliers, employees, and other “aiders and abetters” are not liable.”Books have been written about this sort of thing. My concern is over the exemption from the normal rules that corporations enjoy.

  Let me ask you this. Suppose that, as a result of my intensive lobbying, the legislature passes a law that persons whose names begin with “Wh” are exempt from the normal rules of evidence, and that anything they say in court is to be taken at face value, with no cross-examination or contradiction allowed. Is the burden of proof now on YOU, a non-Wh person, to analyze the entire law of evidence from a libertarian viewpoint, before maintaining that my narrowly tailored exemption is unjust?

  Your (and Hessen’s) defense of limited liability seems to boil down to saying “it does no harm” or “any harm it does is minor”. IMO this is not a good enough justification for a statute, especially one that runs to thousands of pages. In Pennsylvania, the law of corporations occupies one title of the state statutes (3 volumes, approximately 2000 pages total). This does not include court cases, regulations, treatises, forms or law review articles, and is ONLY for Pennsylvania. Why does it take such massive state intervention simply to make the point that people can voluntarily form associations in any way they wish?

• Published: December 11, 2008 12:04 PM

• JA
• Why does it take such massive state intervention simply to make the point that people can voluntarily form associations in any way they wish?Why does family law? Because “families” are creations of the state?

• Published: December 11, 2008 12:09 PM

• whittaker
• fundamentalist:”You need some principle that can delineate who is responsible for the actions of another. Traditionally, that line is drawn where control of the actions of the other party ends. If I don’t control the actions of another then I’m not responsible for his actions.”I believe that corporate personhood and limited liability encourages shareholders to *disavow* the control of management that they should rightfully have, for the purpose of gaining financial returns without the moral restraints that would normally operate on businesses. I think that these are the root causes of the irresponsible behavior of which the Naderites, et al. complain.

• Published: December 11, 2008 12:13 PM

• Mike
• “If they buy it from an existing shareholder sure they are investors–but the point is they never contributed money to the corporation (which is what I thought was supposed to be the significance of anti-corpos calling them “invstors”–implying they are liable for the company’s actions b/c they aided and abetted them by giving them money).”I think you were misreading the complaint, then. The common understanding is that “the corporation” is the shareholders. I think you’ve made a strong case that that reading is (at least somewhat) lacking, but if someone asserts that point, they would not describe an investor as “giving money to” the corporation. When you buy a pair of shoes, you don’t give money to your shoes.

• Published: December 11, 2008 12:14 PM

• whittaker
• “Why does it take such massive state intervention simply to make the point that people can voluntarily form associations in any way they wish?Why does family law? Because “families” are creations of the state?”It doesn’t, really. I would be fine with repealing most of family law as well.

• Published: December 11, 2008 12:16 PM

• JA
• I would be fine with repealing most of family law as well.Would this repeal erase “families” from existance then?

• Published: December 11, 2008 12:18 PM

• Inquisitor
• If shareholders are liable, why not customers? Creditors? Suppliers? Distributors? Unions? Etc. As Kinsella notes, they are as vital to a firm as it’s more or less passive shareholders…

• Published: December 11, 2008 12:19 PM

• whittaker
• “I would be fine with repealing most of family law as well.Would this repeal erase “families” from existance then?”No.

• Published: December 11, 2008 12:32 PM

• fundamentalist
• Whittaker: “I believe that corporate personhood and limited liability encourages shareholders to *disavow* the control of management that they should rightfully have…”The control of management is specified in the stock purchase agreement. It’s not a matter of what should they have, but what they have agreed to in the contract. The sanctity of contract is important. Stockholders have agree to limit their control to electing board members. Lack of control means lack of ownership, too, so stockholders should not be called owners.Whittaker: “I think that these are the root causes of the irresponsible behavior of which the Naderites, et al. complain.”The root causes of irresponsible behavior result from the nature of mankind, not from the structure of society or of business. You can get rid of all corporations and you won’t see a diminution of irresponsible behavior at all because it has nothing to do with the corporation and everything to do with human nature.

• Published: December 11, 2008 1:48 PM

• Mike
• “If shareholders are liable, why not customers? Creditors? Suppliers? Distributors? Unions? Etc. As Kinsella notes, they are as vital to a firm as it’s more or less passive shareholders…”The difference, I think, is ownership. Stephan was right when he defined ownership as “right to control,” but wrong, I think, if he is conflating that with “ability to control.” If I own my house, I have a right to control it. I can paint it yellow, or install windows or knock it down if I want to. If you are my neighbor, you might have some (very limited) ability to control my actions, by applying social pressure, or refusing to do business with me if I paint my house a color you don’t like. But ultimately the right to make those decisions is mine and mine alone. So there’s a difference between the contractually guaranteed right to control a resource (like that of the executives or employees of the corporation) and the ability to indirectly pressure them to control resources in a certain way (like that of customers).Of course, Stephan is right that customers may have certain contractual guarantees, but this is irrelevant. Their right of contract is independent of their status as a customer.

• Published: December 11, 2008 2:22 PM

• Mike
• “The control of management is specified in the stock purchase agreement. It’s not a matter of what should they have, but what they have agreed to in the contract. The sanctity of contract is important. Stockholders have agree to limit their control to electing board members. Lack of control means lack of ownership, too, so stockholders should not be called owners. “But they do have some degree of control, as you yourself just admitted. Shareholders elect the board, board members appoint the CEO, and the CEO runs the company. Sure, it’s limited, far removed control, but it is contractually guaranteed control, which is clearly very different from the type of control customers or non-controlling creditors have. So, I’m not sure we should be so quick to dismiss the idea of the shareholder as owner.Of course, there do exist companies with non-controlling shareholders. Obviously, this would be a different scenario.

• Published: December 11, 2008 2:33 PM

• Stephan Kinsella
• Mike: “But they do have some degree of control, as you yourself just admitted. Shareholders elect the board, board members appoint the CEO, and the CEO runs the company. Sure, it’s limited, far removed control, but it is contractually guaranteed control, which is clearly very different from the type of control customers or non-controlling creditors have. So, I’m not sure we should be so quick to dismiss the idea of the shareholder as owner.”Of course, there do exist companies with non-controlling shareholders. Obviously, this would be a different scenario.”The problem is the anticorpos have no clear theory of causation or responsibility, so they cannot clearly explain exactly what it is about being shareholder that makes them vicariously responsible for the actions of employees. Thus they rely on the state’s classification of the shareholders as “the owners”–and on an inchoate, simplistic, implicit theory that “owners are responsible for any harm done using property they own”.This will not do. A shareholder is someone how (a) has the right to vote for directors; and (b) a contractual right to receive dividends IF the board decides to pay them, and (c) a contractual right to receive a share of the assets of the corporation upon its liquidation. And sometimes, (d) they gave money to the corporoation by buying shares from them.

  Which of these characteristics implies responsibilty for acts of employees? If it’s (a), what about non-voting shareholders–shareholders who have no right to vote (these do exist), or who choose not to? Or who voted for a director who lost? If it’s (b) or (c)–but lots of people have rights to receive money or property from the company–creditors and vendors and employees all do. What about (d)–but lots of people give money or other benefits to the corporation: customers, even employees. So is everyone in the world liable for the actions of Wal-Mart? We’re all “stakeholders” now.

• Published: December 11, 2008 3:18 PM

• Stephan Kinsella
• whittaker”””libertarians who claim that limited liability for torts is a state privilege have the burden of proving that shareholders should be liable for torts committed by employees of a company the shareholder owns a share in–and to show why creditors, suppliers, employees, and other “aiders and abetters” are not liable.””Books have been written about this sort of thing.”Are any based on a well-developed, sound, libertarian-compatible theory of causation?

  “Your (and Hessen’s) defense of limited liability seems to boil down to saying “it does no harm” or “any harm it does is minor”. IMO this is not a good enough justification for a statute,”

  I konw. The statute is not justified. I have been explicit about this. It is just that your criticism of “limited liability” is a *general* one that would apply to the free market too, and is therefore worng.

• Published: December 11, 2008 3:29 PM

• Stephan Kinsella
• whittaker”””libertarians who claim that limited liability for torts is a state privilege have the burden of proving that shareholders should be liable for torts committed by employees of a company the shareholder owns a share in–and to show why creditors, suppliers, employees, and other “aiders and abetters” are not liable.””Books have been written about this sort of thing.”Are any based on a well-developed, sound, libertarian-compatible theory of causation?

  “Your (and Hessen’s) defense of limited liability seems to boil down to saying “it does no harm” or “any harm it does is minor”. IMO this is not a good enough justification for a statute,”

  I konw. The statute is not justified. I have been explicit about this. It is just that your criticism of “limited liability” is a *general* one that would apply to the free market too, and is therefore worng.

• Published: December 11, 2008 3:29 PM

• fundamentalist
• Mike: “But they do have some degree of control…Sure, it’s limited, far removed control, but it is contractually guaranteed control, which is clearly very different from the type of control customers or non-controlling creditors have.”Exactly! Now we’re getting to some principles. Customers and non-controlling creditors have no liabilities because they have no control. Now, should the stockholders have unlimited liabilities even though they have very limited control? Or should the liability be proportional to the control? In other words, doesn’t limited control suggested limited liability?

• Published: December 11, 2008 3:41 PM

• Mike
• “The problem is the anticorpos have no clear theory of causation or responsibility, so they cannot clearly explain exactly what it is about being shareholder that makes them vicariously responsible for the actions of employees. Thus they rely on the state’s classification of the shareholders as “the owners”–and on an inchoate, simplistic, implicit theory that “owners are responsible for any harm done using property they own”.”Well, sure, lots of people make lots of silly arguments, but I didn’t make any of those arguments, so when you’re analyzing my claims, please try to stick to debating me, and not the “anticorpo” boogeyman in the other room. Owners are obviously not always responsible for what someone else does with their property, but in certain cases they are, whether they instructed them to do so or not.”This will not do. A shareholder is someone how (a) has the right to vote for directors; and (b) a contractual right to receive dividends IF the board decides to pay them, and (c) a contractual right to receive a share of the assets of the corporation upon its liquidation. And sometimes, (d) they gave money to the corporation by buying shares from them.Which of these characteristics implies responsibilty for acts of employees? If it’s (a), what about non-voting shareholders–shareholders who have no right to vote (these do exist), or who choose not to? Or who voted for a director who lost? If it’s (b) or (c)–but lots of people have rights to receive money or property from the company–creditors and vendors and employees all do. What about (d)–but lots of people give money or other benefits to the corporation: customers, even employees. So is everyone in the world liable for the actions of Wal-Mart? We’re all “stakeholders” now.”

  I think it’s pretty clearly A. Like I said before, it’s limited control, and it’s far removed control, but it’s control nonetheless. And since it’s contractually guaranteed control, it is the control of an owner, not an outside agent.

  As for non-voting shareholders, I think I made myself pretty clear before, but I see little reason to hold them liable. Shareholders who choose not to vote, or vote for a director who lost, well, I think that’s a gray area, and I’m not sure.

  So, I’m not saying that shareholders should always be liable for torts, or even that they should usually be liable. I just don’t think they should be shielded from liability when the degree to which they do have control has negative repercussions on a third party.

  Yes, that control is limited. Yes, their liability is therefore limited. But it is limited by the degree of their control, not by arbitrary corporate fiat. And it is not necessarily limited to the price of their stock at a given moment. Probably in most cases it will not exceed that. Maybe in almost all cases. But if you want a 100% satisfaction guaranteed promise that you will not be held responsible for any torts at all, I think you have to cede even any at all control over your holdings. At that point, you are not an owner, but a creditor.

• Published: December 11, 2008 4:03 PM

• Mike
• “But if you want a 100% satisfaction guaranteed promise that you will not be held responsible for any torts at all, I think you have to cede even any at all control over your holdings. At that point, you are not an owner, but a creditor.”Sorry, that should have read “But if you want a 100% satisfaction guaranteed promise that you will not be held responsible for any torts at all beyond the price of your holdings…”

• Published: December 11, 2008 4:07 PM

• Stephan Kinsella
• Mike:”Owners are obviously not always responsible for what someone else does with their property, but in certain cases they are, whether they instructed them to do so or not.”What cases should they be? What factors determine it? In Causation and Aggression, Pat Tinsley and I tried to set forth the way to approach this. What would your approach be?””This will not do. A shareholder is someone how (a) has the right to vote for directors; and (b) a contractual right to receive dividends IF the board decides to pay them, and (c) a contractual right to receive a share of the assets of the corporation upon its liquidation. And sometimes, (d) they gave money to the corporation by buying shares from them.

  “”Which of these characteristics implies responsibilty for acts of employees? If it’s (a), what about non-voting shareholders–shareholders who have no right to vote (these do exist), or who choose not to? Or who voted for a director who lost? If it’s (b) or (c)–but lots of people have rights to receive money or property from the company–creditors and vendors and employees all do. What about (d)–but lots of people give money or other benefits to the corporation: customers, even employees. So is everyone in the world liable for the actions of Wal-Mart? We’re all “stakeholders” now.”

  “I think it’s pretty clearly A. Like I said before, it’s limited control, and it’s far removed control, but it’s control nonetheless.”

  So, it’s not ownership, but the right-to-vote-for-directors that gives you liability? Is it merely *having* the right, or exercising it–that is, voting? It is the status of having-the-right-to-vote, or the act of voting? If the latter, is it voting for the person who was elected (successful voting), or any voting at all? Do you have to prove a shareholder voted to hold him liable? What if a secret ballot is used?

  “As for non-voting shareholders, I think I made myself pretty clear before, but I see little reason to hold them liable.”

  So then we both agree: there are a class of shareholders who ought not to be held liable. We just quibble over how large this class should be. But you would agree then that when the state grants *these* shareholders limited liabilit, it’s NOT a grant of privilege?

  “Shareholders who choose not to vote, or vote for a director who lost, well, I think that’s a gray area, and I’m not sure.”

  Ah.

  “So, I’m not saying that shareholders should always be liable for torts, or even that they should usually be liable.”

  Oh. So limited liability is not always a privilege, then?

  “I just don’t think they should be shielded from liability when the degree to which they do have control has negative repercussions on a third party.”

  But shareholders by definition are passive and basically only vote once a year or so for directors, who themesvels don’t even run teh company–they just appoint officers. Seems to me this is a class of people who are generally not liable. Oh, maybe in some exceptional case, but as a rule–not liable. So then you agree that limited liability is not a privilege?

  “if you want a 100% satisfaction guaranteed promise that you will not be held responsible for any torts at all, I think you have to cede even any at all control over your holdings. At that point, you are not an owner, but a creditor.”

  I see, I see, the contours of your theory are developing before our eyes. Yet you were so opinionated before, even before you had even even this much of an embryonic theory worked out. Interesting.

• Published: December 11, 2008 4:19 PM

• Mike
• “So, it’s not ownership, but the right-to-vote-for-directors that gives you liability?”This distinction makes no sense to me. You yourself said “ownership is the right to control a resource.” The right to vote for directors is a form of the right to control the resources of the corporation. So the right to vote for directors is ownership. I feel like we just keep going in circles on this.”It is the status of having-the-right-to-vote, or the act of voting? If the latter, is it voting for the person who was elected (successful voting), or any voting at all? Do you have to prove a shareholder voted to hold him liable? What if a secret ballot is used?”I’m not sure. I’m leaning toward the status of having that right. I’m also not sure that shielding the decisions of controlling agents behind numerous levels of bureaucracy eliminates your responsibility for those decisions.

  Let’s consider this: A group of 101 investors decides to pool their resources together and build a power plant. But, instead of forming a board and appointing a CEO, they run their company democratically, voting on every major decision (yes, I understand the irony of invoking a co-op style of management for this debate, but bear with me). For all decisions, majority rules, and policy is determined by a vote of 50%+1.

  At some point, a vote comes up on safety standards. Rather than install up-to-date safety equipment, they decide to cut costs. Months later, due to this negligence, the factory explodes, taking out a dozen homes with it. The damages far exceed the capital holdings of the company.

  So, who is liable? Oh, and just to further complicate matters, all ballots are secret.

  Now, instead of voting on decisions directly, say the shareholders decide to vote for one person per decision. It can be one of their own or not, it doesn’t really matter. Are they less liable now? Why? What if they vote for one person to make all the decisions? They can fire him at any point, and he has to report every decision to them. They don’t officially have to approve the decision, but they can fire him before he implements it. Are they liable now? What if he doesn’t have to report his decisions? What if they vote to keep him in for a year at a time, and can’t fire him until his tenure is up. Now they’re not liable?

  Now say they vote for someone to appoint the person who makes the decisions. Surely this is far removed enough. Now they can’t be held responsible.

  But it’s all the same. They have the ultimate control. They have just delegated through enough channels to have plausible deniability.

  Now, I understand that this is not typically how corporations work. This is an extreme example. But I still think it needs to be addressed if we are to form a coherent analysis of limited liability.

  As for this:

  “I see, I see, the contours of your theory are developing before our eyes. Yet you were so opinionated before, even before you had even even this much of an embryonic theory worked out. Interesting.”

  Well, yeah. My theory is developing. I’m attempting to develop it through a dialogue. I’m sorry if I gave you some other impression, or if I came off as confrontational.

• Published: December 11, 2008 4:50 PM

• Mike
• “Well, yeah. My theory is developing. I’m attempting to develop it through a dialogue. I’m sorry if I gave you some other impression, or if I came off as confrontational.”Oh, and I should add: “lol, internet.”

• Published: December 11, 2008 5:01 PM

• Mike
• Or, to put it a much simpler way, with control comes responsibility, I think. Generally, this would mean shareholders are not responsible for the actions of corporate management or employees since their control is highly limited, but this is by no means set in stone. Not all corporations are created equal, I’m afraid.So if the question is “Is limited liability for torts a creation of the state?” I think the response has to be “It depends on what you mean by that.” If by “limited liability for torts” you mean “liability is limited to the degree of control,” then, no, limited liability is not a creation of the state. If it means “liability limited to ammount X for factors that were within your control,” then I think it is.

• Published: December 11, 2008 7:01 PM

• Stephan Kinsella
• Mike:””So, it’s not ownership, but the right-to-vote-for-directors that gives you liability?””This distinction makes no sense to me. You yourself said “ownership is the right to control a resource.” The right to vote for directors is a form of the right to control the resources of the corporation.”You (and the state) are the ones calling shareholders “owners’. I’m just focusing on the reality of what their status means.

  “So the right to vote for directors is ownership.”

  Really! So you are an owner of America, since you can vote for Prsident! Congrats! You are now responsible for what his military does, since you are the owner.

  “”It is the status of having-the-right-to-vote, or the act of voting? If the latter, is it voting for the person who was elected (successful voting), or any voting at all? Do you have to prove a shareholder voted to hold him liable? What if a secret ballot is used?”

  “I’m not sure. I’m leaning toward the status of having that right.”

  Wow.

  “Now, I understand that this is not typically how corporations work.”

  Really!

• Published: December 11, 2008 7:04 PM

• stephan Kinsella
• Mike:”with control comes responsibility, I think.”Are you sure? Is it the *exercise* of control (that is: action), or merely having the *right* to control, that has responsibility “attach” to it? Think about this carefully…”Generally, this would mean shareholders are not responsible for the actions of corporate management or employees since their control is highly limited, but this is by no means set in stone. Not all corporations are created equal, I’m afraid.”

  I am not sure you really have any clue what you are talking about. I don’t mean offense, but you sound like a college freshman with no experience in business pontificating on how they are and should be run. It’s okay to be a naif. But why naifs are determined to have vociferous opinions about matters they know little about, is a mystery.

• Published: December 11, 2008 7:12 PM

• Mike
• “I am not sure you really have any clue what you are talking about. I don’t mean offense, but you sound like a college freshman with no experience in business pontificating on how they are and should be run. It’s okay to be a naif. But why naifs are determined to have vociferous opinions about matters they know little about, is a mystery.”Okey dokey. I’m trying to engage in a discussion, you resort to insults and name calling. I’m being immature. I get it.

• Published: December 11, 2008 7:21 PM

• Mike
• “Are you sure? Is it the *exercise* of control (that is: action), or merely having the *right* to control, that has responsibility “attach” to it? Think about this carefully…”Say I build a house on the edge of a cliff. After a few years, I slack on the upkeep, and the house starts to get crummy. I want to sell the house to you, and you see an opportunity in a fixer upper, so you want to buy. Before I sell, though, I say “You know, the house is on the edge of the cliff. If you don’t fix it soon, it will crumble and fall onto the town below.” You say, “Don’t worry, it’ll be my house, and my responsibility. I’ll fix it.” We complete the sale, and I go on my way.When it comes time to actually make the repairs, though, you get lazy, and put it off. After a few weeks, the house crumbles onto the town below, killing someone.In this situation, you had the right to control the house, but you did not exercise it. Yet, are you not liable for the damage?

• Published: December 11, 2008 7:38 PM

• Mike
• Or should I refrain from asking questions like this since, after all, I’ve never built a house?

• Published: December 11, 2008 7:54 PM

• Chad Rushing
• Mike: “Okey dokey. I’m trying to engage in a discussion, you resort to insults and name calling. I’m being immature. I get it.”As long as someone is trying to engage in honest discussion and is open to correcting any weaknesses his viewpoints may have if given sufficiently clear reasons for doing so, I think that person should be given the benefit of the doubt and be engaged in instructive debate rather than be subjected to derision.After all, all of us started out as totally ignorant babies, and we largely have the knowledge we do because of the passive input (literature) or the active input (instruction or debate) of our intellectual betters who were patient enough to try to teach others what they had learned themselves, something for which we should all be immensely grateful.

• Published: December 11, 2008 8:43 PM

• MJP
• “Really! So you are an owner of America, since you can vote for Prsident! Congrats! You are now responsible for what his military does, since you are the owner.”False analogy. The “right” to vote for President was foisted upon me without my consent. The shareholder, on the other hand, actively purchased the right to vote in the corporation. The only case in which he might have a credible claim to have had that right foisted upon him is in the unfree market!

• Published: December 11, 2008 9:16 PM

• TokyoTom
• Stephan, since you haven’t responded on the other thread I am copying here my last post from there:http://blog.mises.org/archives/009070.asp#comment-483223Stephan, allow me to clarify further:TT: “Is there any libertarian argument that the state OUGHT to step in and allow investors to unilaterally shift a portion of the risks of their business venture to others who might be damaged by the activities of the business?”

  SK: No, and the state should not exist. But people criticize corporations as being *mere* creatures of the state on the grounds that the state gives them privileges that would not exist in the free market.

  TT: My point is simply that there is no libertarian argument that the state OUGHT to step in and allow investors to unilaterally shift a portion of the risks of their business venture to others who might be damaged by the activities of the business. I’m glad that you agree, and am puzzled that you do not acknowledge that the state grant of limited liability to investors (and to transferees of such investors) in corporations constitutes an uncontracted-for shifting of risks to investors from victims of corporate torts.

  TT: “Without the act of state in creating limited liability for shareholders, such limited liability would not exist – except perhaps vis-a-vis creditors and business counterparties who might otherwise agree to limited their claims to the assets of the company, in exchange for agreed methods of risk control or higher prices. However, such limited liability could not otherwise exist as to Involuntary (or “tort”) creditors who without their consent are injured by the corporation, who have not agreed to assume the risk of corporate insolvency and shareholders’ limited liability, and who have neither received ex ante compensation for doing so nor had the opportunity to bargain for contractual safeguards.”

  SK: Again: the question is, absent the state, should shareholders be vicariously liable for torts committed by employees, or not? The presumption is they should not, since they did not commit the acts–unless you can come up with a sound argument for why they should (and pointing to the way it’s been done before doesn’t cut it).

  TT: Stephan, again you refuse to actually advance a justification for the government grant of limited liability to shareholders (indeed, you concede that, there is no libertarian argument for such a state grant), but simply argue for the status quo, on the grounds that shareholders don’t typically themselves do not commit the torts.
  If there is no libertarian grounds for the use of government fiat to limit the liability that shareholders bear for the risks that the activities of the business might injure others, then surely the “presumption” you offer should be reversed, and you should advance a case that whether those who are injured by business enterprises should justly be forced to assume the risk that their ability to make claims against the assets of the business owners depends upon whether the business happens to be a sole proprietorship, a partnership or limited liability corporation.

  You state that “the question is, absent the state, should shareholders be vicariously liable for torts committed by employees, or not?”, presume that shareholders should have no liability as principals for acts of the corporation “because they did not commit the acts”, and then ask me to advance arguments that shareholders should be held responsible for the acts of corporations. I disagree, note that your formulations dodge a number of issues, and note further that you have completely ignored the arguments that I and others have advanced for unlimited shareholder liability (prominently, the two Yale LJ articles and the Vanderbilt L Rev article).

  Time for you to start doing some of the work.

  TT: “My point is that limited liability lets investors entirely off the hook for damages that the wrongful acts of the corporation and its employees. While a few employees might individually be held responsible for their actions, this still may leave many injured persons uncompensated for injuries cause by a corporation’s business activities”

  SK: You are assuming the “business activities” are “the cause”. This is question begging.

  TT: Well said, Artful Dodger, but it’s not me who’s begging the questions. Putting aside (i) the question of the scope of vicarious liability WITHIN the firm and (ii) cases where there is a only one a single injured party and a single employee committing an unauthorized tort, it is undeniable that small, medium and large corporations have in the past and continue from time to time to commit large-scale torts – in the form of pollution, dumping of waste, defective products, other personal injuries, slander and the like – that arise directly from their business activities. In most such cases, no single individual tortfeasor within the corporation can be identified. Clearly, in some such cases a few employees might individually be held responsible for their actions, this still may leave many injured persons incompletely uncompensated for injuries caused by a corporation’s business activities.

  TT: “Before limited liability corporations were established, the common law doctrine of respondeat superior required investors to bear responsibility for the acts of a business, just as individual proprietors and partnerships remain so liable today.”

  SK: Why should they be? Because the common law says so?

  TT: No; sole proprietors and partnerships have been and remain liable for the acts of a business because it is unjust to allow them to externalize a significant portion of the risks of their activities, while capturing the benefits of those risks. The state, by providing the corporate form, allows the externalization of such risks on a vast scale, and continues to do so by further making limited liability available for those who prefer to be taxed as partners. But to reverse the question, perhaps you care to point to libertarian principles or a common law doctrines (which libertarians frequently point to as a valid basis for determining the scope of ownership rights and who should be responsible for injuries caused to others) that would justify a position that those who own and operate businesses ought NOT to be responsible for the damages those business activities cause, beyond the assets of the business?

  TT: “Again, you simply …. presume that the state action that leaves shareholders free to shift business risks to others is valid and justifiable. Even as you remain unwilling to make your case, I am happy to expand my argument that limited shareholder liability is an unlibertarian grant by the state to shareholders.”

  SK: You need to explain why shareholders should be liable. You keep calling them investors–shareholders are usually not investors.

  TT: Again, you are nonresponsive. Perhaps you should pick fewer nits and acknowledge the bigger picture. For small corporations, start-ups, and corporations raising capital, the shareholders typically are investors. Moreover, for small firms, closely-held firms (including large LBOs) and even for many large firms, there are major shareholders that are also clearly “owners”. You have advanced no libertarian or other argument that justifies limiting the liability of investors and owners at all for the torts of corporations; much less for your implied position that investors and owners should be able to freely slough-off any vicarious responsibility for damages to victims of corporate acts by the simple expedient of selling their shares to others (who, while they do not directly fund the company, are certainly investing in ownership of the same set of assets and liabilities as the initial investors).

  TT: “The chief point, of course, is that the creation by the state of corporations limits tort liability to individual tortfeasors”

  SK: It limits state-imposed vicarious tort liability. If the state stops taxing you, this is good, because it should not be taxing you in the first place. If the state stops imposing vicarious tort liability on shareholders, this is also good, if it should not be doing this in the first place. You seem to assume they should. why?

  TT: Where does “the state” impose vicarious tort liability? Respondeat superior is largely an old and evolving part of the common law. I don’t agree with all cases, but individual judgments are hardly the same as the state acting by law to free shareholders from liability above the amount they paid for the shares for the risks generated by corporate activities.

  TT: “This reduces the likelihood that victims will receive full compensation for corporate acts.”

  SK: If a FedEx driver negligently crashes into you, why arey ou calling it a “corporate act”? He was not directed to do this by FedEx, was he? Why is his negligence theirs?

  In any event–this whole critique is ridiculous. Whenever a corporation’s employee commits a tort, the victim is compensated by the corporation or its insurer. IT’s almost always irrelevant that he can’t sue shareholders individually. Even if they could, shareholders could simply purchase shareholder-liability-insurance, no biggie.

  TT: “Ridiculous”? Nonsense! There, are we even now?

  The grant of limited liability [against] involuntary creditors cannot be justified on libertarian grounds, and arguments I have noted regarding efficiency, moral hazards, equity, the disincentives for shareholders to closely monitor firms, the relative freedom of managers and executives to loot, and the related rise of citizen pressure groups to seek to have governments provide checks are all substantial and important.

  While there are many cases where injured persons are compensated, there are many cases where corporations have generated widespread risks and failed, leaving countless others holding the bag, while investors (and managers) may have profited and then exited without substantial loss. The limited liability grant actually encourages such behavior.

  You say that, if victims could “sue shareholders individually”, in which case “shareholders could simply purchase shareholder-liability-insurance, no biggie”. I heartily agree – a system of pro rata shareholder unlimited liability would work (as one of the law journal articles argues), as well as being more just. I appreciate the concession – so have you stopped fighting this point?

• Published: December 11, 2008 9:26 PM

• Stephan Kinsella

• TT: “Is there any libertarian argument that the state OUGHT to step in and allow investors to unilaterally shift a portion of the risks of their business venture to others who might be damaged by the activities of the business?”SK: No, and the state should not exist. But people criticize corporations as being *mere* creatures of the state on the grounds that the state gives them privileges that would not exist in the free market.

  TT: My point is simply that there is no libertarian argument that the state OUGHT to step in and allow investors to unilaterally shift a portion of the risks of their business venture to others who might be damaged by the activities of the business.

  Of course the state should not do anything. Who said they should? But you say “shift” here, which smuggles in your presumption that shareholders have a natural or default liability. If they don’t, there’s no “shift.” Nice try, though.

  I’m glad that you agree, and am puzzled that you do not acknowledge that the state grant of limited liability to investors (and to transferees of such investors) in corporations constitutes an uncontracted-for shifting of risks to investors from victims of corporate torts.

  To me, what is wrong with it is that the state steps in and monopolizes a field, as it has done with transportation, power, education, defense, justice, money. Yet, the criticism of the anti-industrialists is not this; it is a criticism of limited liability per se–a criticism which would apply against the private form too.

  TT: “Without the act of state in creating limited liability for shareholders, such limited liability would not exist – except perhaps vis-a-vis creditors and business counterparties who might otherwise agree to limited their claims to the assets of the company, in exchange for agreed methods of risk control or higher prices. However, such limited liability could not otherwise exist as to Involuntary (or “tort”) creditors who without their consent are injured by the corporation, who have not agreed to assume the risk of corporate insolvency and shareholders’ limited liability, and who have neither received ex ante compensation for doing so nor had the opportunity to bargain for contractual safeguards.”SK: Again: the question is, absent the state, should shareholders be vicariously liable for torts committed by employees, or not? The presumption is they should not, since they did not commit the acts–unless you can come up with a sound argument for why they should (and pointing to the way it’s been done before doesn’t cut it).

  TT: Stephan, again you refuse to actually advance a justification for the government grant of limited liability to shareholders (indeed, you concede that, there is no libertarian argument for such a state grant), but simply argue for the status quo, on the grounds that shareholders don’t typically themselves do not commit the torts.

  As someone who opposes the state and favors for its abolution and destruction, it’s rich to say I am arguing for the status quo. All I am doing is pointing out flaws in your criticisms of limited liability. Your criticisms do not rest on the *state* doing it–they rest on your assumption that shareholders normally would or should have liability.

  If there is no libertarian grounds for the use of government fiat to limit the liability that shareholders bear for the risks that the activities of the business might injure others, then surely the “presumption” you offer should be reversed,

  No; because my presumption applies in a free market as well, even when there is no state involved.

  I disagree, note that your formulations dodge a number of issues, and note further that you have completely ignored the arguments that I and others have advanced for unlimited shareholder liability (prominently, the two Yale LJ articles and the Vanderbilt L Rev article).

  As a libertarian, I don’t think the positivist arguments of some mainstream law profs are going to be that mind-blowing.

  it is undeniable that small, medium and large corporations have in the past and continue from time to time to commit large-scale torts – in the form of pollution, dumping of waste, defective products, other personal injuries, slander and the like

   

  All these actions are done by individuals–and if done as decisions of the managers, then they and the corporate assets probably ought to be liable. But why the shareholders, if they didnt make this decision?

  – that arise directly from their business activities. In most such cases, no single individual tortfeasor within the corporation can be identified.

  Sure they can. If it’s a tort, then someone decided to do it–the directors, CEO, whatever.

  Clearly, in some such cases a few employees might individually be held responsible for their actions, this still may leave many injured persons incompletely uncompensated for injuries caused by a corporation’s business activities.

  If you’re going to just posit that the corporation “caused” it I will posit right back that per assumption we can identify the culpable individuals. But it will almost never be the shareholders.

  SK: You need to explain why shareholders should be liable. You keep calling them investors–shareholders are usually not investors.TT: Again, you are nonresponsive. Perhaps you should pick fewer nits and acknowledge the bigger picture.

  I dont tink it’s a nit. I assume you call them investors since you think giving money to the company is some kind of aiding and abetting that helps make them responsible. I’m pointing out they are not necessaril investors in the corporation.

  For small corporations, start-ups, and corporations raising capital, the shareholders typically are investors.

  True. AS Hessen notes, the entity theory helps to insulate liabiltiy most egregiously in the close corporation case. Another strike against the fervor agains bigness.

  Moreover, for small firms, closely-held firms (including large LBOs) and even for many large firms, there are major shareholders that are also clearly “owners”.

  I don’t konw what proving ownership status does. So waht? I will grant you that in some cases some shareholder wields such influence and direction over the firm that he ought to be as culpable as management for actions he helps direct. So what? My point is that *merely being a shareholder* is not by itself sufficient to attribute liability.

  You have advanced no libertarian or other argument that justifies limiting the liability of investors and owners at all for the torts of corporations;

  I do not want to. I am in favor of a nuanced and fact-specific approach, as I laid out in my Causation piece w/ Tinsley. If you can show in a given case that a shareholder is causally responsible for torts of the corporation, get ‘im. I’m just saying you have not shown that merely being a shareholder makes this case. It takes something more.

  much less for your implied position that investors and owners should be able to freely slough-off any vicarious responsibility for damages to victims of corporate acts by the simple expedient of selling their shares to others (who, while they do not directly fund the company, are certainly investing in ownership of the same set of assets and liabilities as the initial investors).

  Saying they invest in liabilities is a bit of question-begging. The question is: does the status of a person as a shareholder–having certain dividend and liquidation and director-voting rights–make you liable for what the corporation does? I don’t rest my own conlcusions on whether the state “officially” classifies the shareholder “as an owner.” I’m looking at the functional reality of what they are and do.

  TT: Where does “the state” impose vicarious tort liability? Respondeat superior is largely an old and evolving part of the common law.

  Yes, and we are a new and modern creature called “libertarian,” not tradition- or state-law-worshipping positivists.

  You say that, if victims could “sue shareholders individually”, in which case “shareholders could simply purchase shareholder-liability-insurance, no biggie”. I heartily agree – a system of pro rata shareholder unlimited liability would work (as one of the law journal articles argues), as well as being more just. I appreciate the concession – so have you stopped fighting this point?

  It’s not a concession. It’s pointing out that this is just a red herring on your part. You guys throw up limited tort liability as if it’s some huge advantage given to corps that allows them to survive. It’s not a huge advantage b/c removing it really doesn’t affect victims;a nd imposing it can easily be handled with a slight change of the already-existing insurance coverage. If we did this, not much would change, but I’m sure the anti-industrialist types would find something else to yap about. You are not *really* concerned with this–it’s just one of an arsenal of arguments you whip out to attack industry and busienss and “bigness” and capitalism and whatnot.

• Published: December 11, 2008 10:22 PM

• stephan Kinsella
• MJP:
  

  “Really! So you are an owner of America, since you can vote for Prsident! Congrats! You are now responsible for what his military does, since you are the owner.”False analogy. The “right” to vote for President was foisted upon me without my consent. The shareholder, on the other hand, actively purchased the right to vote in the corporation. The only case in which he might have a credible claim to have had that right foisted upon him is in the unfree market!

  So if my aunt dies and leaves me Exxon stock and I don’t know I own it, now I’m walking around carrying some spooky “liability”? Freaky!

• Published: December 11, 2008 10:30 PM

• Mike
• “I don’t konw what proving ownership status does. So waht? I will grant you that in some cases some shareholder wields such influence and direction over the firm that he ought to be as culpable as management for actions he helps direct. So what? My point is that *merely being a shareholder* is not by itself sufficient to attribute liability.”Doesn’t sound so naive when you say it, huh?

• Published: December 11, 2008 10:31 PM

• Mike
• Oh, please, Stephan. You’re a lawyer, you know how estate inheritance works.

• Published: December 11, 2008 10:42 PM

• Nathan Shepperd (scumble)
• Stephan: “Hessen and I are against the entity theory”Well hang on a minute – If P.M. Lawrence has brought this up as more significant than limited liability in inflating the size of a corporation, saying that you don’t support this doesn’t really answer the point he made.

• Published: December 12, 2008 4:12 AM

• P.M.Lawrence
• JA asks of my “Without those limits, they gain the sort of advantage that an animal without size and lifespan limits would achieve in an ecology – they crowd out other entities, including natural persons”, “Maybe because incorporation is a superior form of organization, even in a free market?“That is begging the question of whether they can exist, in a free market. The only sort that can, without state aid, is the sort that has its own internal dynamic, e.g. monasteries, sports clubs, etc. (that also answers his later claim that “[t]he corporate form, like families and marriages, pre-exists prior to the state as a nexus of voluntary relationships”.)Then he goes on to do some unjustified blanket categorising of people as Libertarians and Socialists according to their positions on the matter.Fundamentalist asks “My point is where do you draw the line of responsibility for the actions of coroporate employees? Stopping with the stockholders is an arbitrary judgement. You need some principle that can delineate who is responsible for the actions of another. Traditionally, that line is drawn where control of the actions of the other party ends. If I don’t control the actions of another then I’m not responsible for his actions.”

  I just answered this in a comment at the last Kinsella thread. If you were responsible and let go without passing responsibility to another who accepted it, responsibility stays with you. That also answers J Cortez and Inquisitor.

  Stephan Kinsella says of my “Those [the limited liability of shareholders for contractual liability of the corporation; and for torts committed by employees of the corporation] are the two main special privileges in ordinary circumstances, deplorable to the extent that they are sustained by such intervention”, ‘I don’t see why they’re “deplorable”. That’s question-begging.‘

  No, it isn’t question-begging, and if he had even bothered to read what he quoted he would have seen what was deplorable about it: “…to the extent that they are sustained by such [state] intervention”. Unless he thinks state privileges are OK?

  Stephan Kinsella writes “Well, my view is that a master is responsible for actions of his servant *that he directs him to do*. I think a case can be made that in some cases he is liable for negligence of the servant committed during the course of his employ, but this would be a limited doctrine (and in any event needs to be justified by a careful treatment of this issue–using the type of causal analysis Tinsley and I laid out in our Causation and Aggression paper). But this would not ensnare the shareholders, as far as I can tell…. The anti-corporatists jump up and down about shareholder limited liability. If it’s for contracts, this concern is misguided. If it’s about torts, then the criticism groundlessly assumes shareholders should be liable for torts in the first place.” See my reply to Fundamentalist for some grounds that certainly do apply to original investors, and arguably may pass to subsequent acquirers of their shares. ‘So if my aunt dies and leaves me Exxon stock and I don’t know I own it, now I’m walking around carrying some spooky “liability”?’ might be a case where responsibility did not pass – at any rate, until it did through some later action or inaction (nobody has to accept a bequest, say of a piece of land with a covenant requiring the owner to keep the lawn mowed, but he can’t take the bequest without the strings attached).

  Stephan Kinsella then ignores my further objections to artificial corporations, making observations that in fact apply to other less artificial structures as well – or even more closely.

  Anyhow, that means Stephan Kinsella is plain wrong when he asserts that “The problem is the anticorpos have no clear theory of causation or responsibility, so they cannot clearly explain exactly what it is about being shareholder that makes them vicariously responsible for the actions of employees.”, and what follows that passage. Did he bother asking for that, or did he just assume away any answer in advance?

  That’s also why there’s no “presumption” in the comment of TokyoTom’s of which Stephan Kinsella says ‘But you say “shift” here, which smuggles in your presumption that shareholders have a natural or default liability’. Stephan Kinsella is just assuming that there is a presumption TokyoTom is making, when he could simply have asked what grounds there were for that claim.

• Published: December 13, 2008 12:29 AM

• fundamentalist
• P.M.Lawrence : “If you were responsible and let go without passing responsibility to another who accepted it, responsibility stays with you.”I agree completely. But stockholders never had the responsibility in the first place. Their first contact with the corporation was to buy stock and the contract in the purchase of that stock limited their responsibility from day one. Without responsibility there is no liability.The idea that liability falls on a person only to the degree that they control the situation and are therefore responsible is just plain common sense. I doubt that you could find a time in history where it wasn’t applied. It’s implied in the concept of justice. So for stockholders to be liable for the actions of executives, you would have to show that at some time the stockholders exercised control over the actions of employees, gave it up and failed to pass it on to someone else. But clearly stockholders never had any control whatsoever over employees at any time. Nevertheless, they did pass control over actions of employees to someone, the board of directors and management.

• Published: December 13, 2008 7:25 AM

• stephan Kinsella
• Fundamentalist: “I agree completely. But stockholders never had the responsibility in the first place. Their first contact with the corporation was to buy stock and the contract in the purchase of that stock limited their responsibility from day one. Without responsibility there is no liability.The idea that liability falls on a person only to the degree that they control the situation and are therefore responsible is just plain common sense. I doubt that you could find a time in history where it wasn’t applied. It’s implied in the concept of justice. So for stockholders to be liable for the actions of executives, you would have to show that at some time the stockholders exercised control over the actions of employees, gave it up and failed to pass it on to someone else. But clearly stockholders never had any control whatsoever over employees at any time. Nevertheless, they did pass control over actions of employees to someone, the board of directors and management.”Good point. The doctrine of “piercing the corporate veil” actually gets to this somewhat (though it is muddled and confused due to the entity theory), e.g., this factor which can pierce the veil: “Was the corporation being used as a “façade” for dominant shareholder(s) personal dealings; Alter Ego Theory;”

• Published: December 13, 2008 9:24 AM

• post
• “The idea that liability falls on a person only to the degree that they control the situation and are therefore responsible is just plain common sense.”No, thats not common sense but wishful thinking.
  You don’t have to be able to directly control someones actions to be responsible for his crimes. It’s enough if you are willingly and knowingly financing his crimes for you to be guilty of this crimes, too.Now come on, it’s plain simple:Everyone who is knowingly supporting a crime is responsible for that crime. In different ‘weight’ but he is responsible.

  Imagine yourself being in the second world war: If someone was financing the Nazi system knowing what they did how could someone say that that person was not also (partially) responsible for their crimes?

  Other example: If you sell someone a weapon in the knowledge, that he is executing innocent people and you are continuing this support you ARE supporting his crimes. Therefore you as a contractor are responsible for these crimes and therefor guilty.

  The same goes for investors in corporations: If corporations are known to be criminal organizations than every investor is becoming part of that organization, if he has knowledge of that crimes and continues to finance this organization.

  How to determine the guilt and appropriate punishment? Just have a look on Walter Blocks essay “Radical Libertarianism: Applying Libertarian Principles to Dealing with the Unjust Government”
  The same applies to “unjust corporations”.

  For the definition of guilt in such involvements and the appropriate measures it is very important that the accused person has knowledge of the criminal actions of his supported organizations.

  And no: Guilt by association does not apply. That would be unjust.
  Guilt by knowingly supporting (in whatever way) criminals and therefor become part of criminal organization applies.

• Published: December 14, 2008 4:04 PM

• post
• @fundamentalist:Imagine there exists an executing device as a property of a corporation, which itself is financed by stockholders. This device is used as a means of executing regime opponents.The stockholders of that corporation in your opinion are not responsible if innocent people are getting killed by that device and they know of that fact? Because what?
  Because each one of them does not have the “power” to control the situation?
  So you mean it’s possible to justify crimes if only there are enough participants of said crime?And you call THAT common sense?

  Oh my…

  What difference is there between an employee of said corporation and a stockholder? None I say. Organizations cannot be defined by laws but by the actions of the persons that constitute them, So everyone who is acting in the name of a group and is accepted by the others (by their actions) is part of that group too and responsible for all their actions if he is knowing of them and supporting them.

  The same goes for the state.

  If one is not willing to apply the same critique to corporations as to the state one seems to be very much biased…

• Published: December 14, 2008 4:15 PM

• P.M.Lawrence
• Fundamentalist agrees with my “If you were responsible and let go without passing responsibility to another who accepted it, responsibility stays with you”, but believes “But stockholders never had the responsibility in the first place. Their first contact with the corporation was to buy stock and the contract in the purchase of that stock limited their responsibility from day one.”Only, it didn’t, morally speaking (of course, that is just precisely what the legal structure does for them – which is the state assistance). If A sells B a dangerous dog and either doesn’t tell B or tells B “it’s dangerous, but it’s not your problem”, A is claiming a certain authority to waive responsibility. But A never had that authority, so either the responsibility stays with A (if, say, A didn’t tell B) or it passes to B.As for “…But clearly stockholders never had any control whatsoever over employees at any time. Nevertheless, they did pass control over actions of employees to someone, the board of directors and management.”Only, they kept back a degree of control over those, and – to the extent they surrendered it – they have the moral responsibility for turning those others loose without keeping more control.

  Post gets it (Kinsella probably does too, but hides it).

• Published: December 14, 2008 7:49 PM

• TokyoTom
• Roger:Kinsella has already established that the master is responsible for the actions of his servant, so corporations are responsible for employees. Anti-corps want the responbibility to go even further to the stockholders. But why stop there? Why not make the customers responsible too? And let’s throw in the bond holders. Then let’s add the suppliers. How about the relatives of stock and bond holders?The corporation is a legal fiction. Are there any persons within it where the buck stops? Created in order to free investors from downside risks, the limited liability has removed incentives for investors to keep executives and managers under control and to monitor business risks. Although small corporations remain under investor control, the result has been the growth of large public companies that are owned but not controlled by shareholders, leaving discretion but limited downside risk to employees, managers and executives.Of course I’m being ridiculous. My point is where do you draw the line of responsibility for the actions of coroporate employees? Stopping with the stockholders is an arbitrary judgement. You need some principle that can delineate who is responsible for the actions of another. Traditionally, that line is drawn where control of the actions of the other party ends.

  As for line drawing, voluntary creditors are all able to investigate whom they deal with, and to negotiate risks and prices. Victims of torts are seldomly so situated. But the problem of corporations leaving real victims behind is precisely why governments have started to seek further pockets, such as lenders and suppliers (via Superfund laws, for example), to require firms to post bonds and maintain certain capital levels, and why governments have fallen to the temptation to heavily regulate “public” firms.

  As for what “tradition” was and where lines used to be drawn, surely you recognize that before limited liability corporations were established, investors had unlimited liability for losses – and risks for widespread torts were much lower? Unlimited shareholder liability was once more common than limited liability, and large markets like Lloyds until recently required that all Names bear unlimited liability for losses. It used to be that most small businesses and partnerships were structured with unlimited liability; now with LLCs and LLPs, there is a rush into structuring as limited members, precisely to limit liabilities.

• Published: December 15, 2008 5:02 AM

• fundamentalist
• Post: “Post: “It’s enough if you are willingly and knowingly financing his crimes for you to be guilty of this crimes, too.”I agree completely. Any stockholder who knew of crimes that the corporations was committing is liable. But that would include very few stockholders.

• Published: December 15, 2008 8:18 AM

• TokyoTom
• Stephan, I’ve responded on the initial post as well, but here’s a bit more on what you’ve written above.1. You: “But you say “shift” here, which smuggles in your presumption that shareholders have a natural or default liability. If they don’t, there’s no “shift.””I thinks it’s a fair and natural presumption that investors (as opposed to lenders, who have a claim only for interest and no residual claim for profits) have a natural default liability. This is still the case for sole proprietors and partnerships. “Shareholders” exist only because states created corporations as legal entities. Without such action, there would be at least one natural person to whom employees would have to answer and who would be responsible for risks posed by his business activities (loans and involuntary torts), up to the full amount of his personal assets.Yes, there is still the question of the range of vicarious liablity, but clearly even today business owners and partners are deliberately incorporating (using corporation, LLC and LLP forms) for the chief purpose of limiting personal liability for the acts of employees. And courts continue to pierce the corporate veil from time to time to reach shareholders as well.

  2. Me: “the state grant of limited liability to investors (and to transferees of such investors) in corporations constitutes an uncontracted-for shifting of risks to investors from victims of corporate torts.”

  You: “To me, what is wrong with it is that the state steps in and monopolizes a field, as it has done with transportation, power, education, defense, justice, money.”

  Me: I agree with what you think is wrong with state action, but in the case of granting the corporate form and granting limited liability, there have been a a number of pernicious consequences, one of which involves an externalization of risk of the kind I mention.

  This and other consequences all tend to encourage the further growth of the state, such as the pressures on the state to regulate corporations (with a vicous cycle of battles over control over government), and the use corporations as money and jobs banks.

  3. You: “As a libertarian, I don’t think the positivist arguments of some mainstream law profs are going to be that mind-blowing.”

  To each his own; they’re certainly relevant and provide useful background information.

  4. You: “All these actions are done by individuals–and if done as decisions of the managers, then they and the corporate assets probably ought to be liable. But why the shareholders, if they didnt make this decision?”

  In many cases the shareholders ARE in a position of control; should they be able to escape liability merely because they use the corporate form, as is the rule today? I think not.

  I agree that it is difficult to argue that minority and non-controlling shareholders in public firms bear any responsibility for acts of the corporation, since that was not a part of the bargain they understood that they were making when they acquired their shares and they largely have no actual ability to affect decisions that end up causing injury to others.

  5. Me: “In most such cases, no single individual tortfeasor within the corporation can be identified. Clearly, in some such cases a few employees might individually be held responsible for their actions, this still may leave many injured persons incompletely uncompensated for injuries caused by a corporation’s business activities.”

  You: “Sure they can. If it’s a tort, then someone decided to do it–the directors, CEO, whatever.

  “If you’re going to just posit that the corporation “caused” it I will posit right back that per assumption we can identify the culpable individuals. But it will almost never be the shareholders.”

  6: You: “I dont tink it’s a nit. I assume you call them investors since you think giving money to the company is some kind of aiding and abetting that helps make them responsible. I’m pointing out they are not necessaril investors in the corporation.”
  Me: Stephan, I’m only discussing the difference a shareholder and an investor because you seem to think it’s importance. Anyone who acquires a newly issued share is an investor; anyone who buys one on a market is stepping into his shoes.

  7. Me: “For small corporations, start-ups, and corporations raising capital, the shareholders typically are investors.”

  You: “True. AS Hessen notes, the entity theory helps to insulate liabiltiy most egregiously in the close corporation case. Another strike against the fervor agains bigness.”

  Sorry, but I have no “fervor”. The insulation from liability is most obvious in the close corporation case, but some close corporations are huge (LBOs). But it’s the larger public co.s that are really shifting the greatest amount of risk to others, in the form of toxic torts and dangerous products.

  8. Me: “Moreover, for small firms, closely-held firms (including large LBOs) and even for many large firms, there are major shareholders that are also clearly “owners”.”

  You: I don’t konw what proving ownership status does. So waht? I will grant you that in some cases some shareholder wields such influence and direction over the firm that he ought to be as culpable as management for actions he helps direct. So what? My point is that *merely being a shareholder* is not by itself sufficient to attribute liability.”

  Thanks for the acknowledgment. The point’s obvious – “*merely being a shareholder* is not by itself sufficient basis to exclude a shareholder from liability. In addition there’s a larger point – without limited liability, shareholders would have had potentially unlimited liablility, and consequently would have been much more cautious about whom they invested in, and making sure that downside risk was closely managed.

  9. You: “I am in favor of a nuanced and fact-specific approach, as I laid out in my Causation piece w/ Tinsley. If you can show in a given case that a shareholder is causally responsible for torts of the corporation, get ‘im. I’m just saying you have not shown that merely being a shareholder makes this case. It takes something more.”

  I’m not opposed to a nuanced and fact-specific approach, but the fact is that the grant of limited liability has essentially eviscerated it.

  10. Me: “your implied position that investors and owners should be able to freely slough-off any vicarious responsibility for damages to victims of corporate acts by the simple expedient of selling their shares to others (who, while they do not directly fund the company, are certainly investing in ownership of the same set of assets and liabilities as the initial investors).”

  You: “Saying they invest in liabilities is a bit of question-begging. The question is: does the status of a person as a shareholder–having certain dividend and liquidation and director-voting rights–make you liable for what the corporation does? I don’t rest my own conlcusions on whether the state “officially” classifies the shareholder “as an owner.” I’m looking at the functional reality of what they are and do.

  I’m not begging any question; a shareholder who buys shares that aren’t fully paid up purchases may be required to contribute the rest of the capital, and a whole host of obligations may accompany shares in a close corporation. And I’m looking at the effect of the state grant of entity status and limited liability on what a shareholder’s bundle of rights and obligations is.

  11: Me: “Where does “the state” impose vicarious tort liability? Respondeat superior is largely an old and evolving part of the common law.”

  You: “Yes, and we are a new and modern creature called “libertarian,” not tradition- or state-law-worshipping positivists.”

  How about actually answering my question? Where does “the state” impose vicarious tort liability? The common law is not state-imposed. And surely you haven’t failed to notice that libertarians routinely refer to the common law as the reason why regulation isn’t needed (other than those like Rothbard who recognize that regulation is needed because corporations persuade judges to subvert it).

  12. Me: “You say that, if victims could “sue shareholders individually”, in which case “shareholders could simply purchase shareholder-liability-insurance, no biggie”. I heartily agree – a system of pro rata shareholder unlimited liability would work (as one of the law journal articles argues), as well as being more just. I appreciate the concession – so have you stopped fighting this point?”

  You: “It’s not a concession. It’s pointing out that this is just a red herring on your part. You guys throw up limited tort liability as if it’s some huge advantage given to corps that allows them to survive. It’s not a huge advantage b/c removing it really doesn’t affect victims;a nd imposing it can easily be handled with a slight change of the already-existing insurance coverage. If we did this, not much would change, but I’m sure the anti-industrialist types would find something else to yap about. You are not *really* concerned with this–it’s just one of an arsenal of arguments you whip out to attack industry and busienss and “bigness” and capitalism and whatnot.”

  Stephan, first, I’m disappointed by your dismissive and somewhat offensive talk of “you guys” and what you presume my motives to be. I’m not an “anti-industrialist type”, and I’m here on my own and making my own points (which must mean I’m “yapping,” in your book). Second, raising the issue of limited tort liability is not a red herring, at least for me, and it’s not something I think corporations need to survive. I do think it’s very important because I think that real shifting or risk, moral hazard, corporate governance and other issues are intertwined and that underlies the whole politicized struggle over corporate regulation.

  Courts rarely find individuals responsible, other than for very deliberate torts, in part because negligence is attributed to the firm (and managers and executives are generally excused from liability for the negligent acts of employees) but chiefly because those injured – particularly where the damges affect many people – don’t bother chasing those without substantial assets.

  That it will seldom be the shareholders is a result of the state grant of limited liability – given such a grant, shareholders have no interest in monitoring, and no ability control, corporate/employee acts. Without such a grant, it would be a different story – which is why business partners are still running to limited liability forms, and leaving unlimited liability partnerships and sole proprietorships behind.

  Regards,

  Tom

• Published: December 15, 2008 8:50 AM

• Stephan Kinsella
• TokyoTom:
  

  1. You: “But you say “shift” here, which smuggles in your presumption that shareholders have a natural or default liability. If they don’t, there’s no “shift.””

   

  I thinks it’s a fair and natural presumption that investors (as opposed to lenders, who have a claim only for interest and no residual claim for profits) have a natural default liability.

  Again: shareholders are not investors necessarily. In any case, you are question-begging. It’s not a fair presumption for the libertarian–that’s the issue here.

  This is still the case for sole proprietors and partnerships. “Shareholders” exist only because states created corporations as legal entities. Without such action, there would be at least one natural person to whom employees would have to answer

  Yeah, like you mean, the President or CEO, or manager or boss? Sure. These guys run the company. Not shareholders.

  and who would be responsible for risks posed by his business activities (loans and involuntary torts), up to the full amount of his personal assets.

  Why do you say it’s “his” business activities? Why this presumption?

  Yes, there is still the question of the range of vicarious liablity, but clearly even today business owners and partners are deliberately incorporating (using corporation, LLC and LLP forms) for the chief purpose of limiting personal liability for the acts of employees.

  I don’t think so. It’s primarily for contractual liability limitation, which would continue to exist in a free society. Tort liability could easily be handled by insurance.

  And courts continue to pierce the corporate veil from time to time to reach shareholders as well.

  Yep, when formalities are not followed or a shareholder is too dominant and really acts as a manager.

  Me: I agree with what you think is wrong with state action, but in the case of granting the corporate form and granting limited liability, there have been a a number of pernicious consequences, one of which involves an externalization of risk of the kind I mention.

  Well, if the state is abolished as we want, any “externalities” would go away.

  4. You: “All these actions are done by individuals–and if done as decisions of the managers, then they and the corporate assets probably ought to be liable. But why the shareholders, if they didnt make this decision?”In many cases the shareholders ARE in a position of control; should they be able to escape liability merely because they use the corporate form, as is the rule today? I think not.

  Right, I agree. Thoguh even in today’s law, if a shareholder is in a position of control, it’s either (a) because he’s also a manager or director; or (b) he goes beyond his passive shareholder role and pushes the company to do his bidding. In case (a), he’s not protected by limited liability. In case (b), well,l of ten in such cases the corporate veil would be pierced, again reaching his personal assets.

  I agree that it is difficult to argue that minority and non-controlling shareholders in public firms bear any responsibility for acts of the corporation, since that was not a part of the bargain they understood that they were making when they acquired their shares and they largely have no actual ability to affect decisions that end up causing injury to others.

  I actually think it’s got nothing to do w/ the bargain they thought they were entering, since A and B cannot contractually limit C’s tort-recover rights. However, I do agree w/ you that their ability to control is key. Now you appear to have swung in my direction on this.

  Me: Stephan, I’m only discussing the difference a shareholder and an investor because you seem to think it’s importance.

  I think they are *different*. The investor *gives money to* the company. The shareholder *votes for directors*. Both are different ways of having an affect on the company. The advocate of vicarious liability could make a separate argument based on each action for liability. Both are flawed, but in different ways.

  Anyone who acquires a newly issued share is an investor; anyone who buys one on a market is stepping into his shoes.

  “stepping into his shoes”–the idea of subrogation is just a positive law doctrine that begs the question here.

  it’s the larger public co.s that are really shifting the greatest amount of risk to others, in the form of toxic torts and dangerous products.

  Small companies cut all kinds of corners–tons of illegal dumpting etc. It’s decnetralized and harder to track. And of course the biggest polluter is the state–e.g., w/ its wars.

  In any event, I don’t see that teh danger of toxic torts implies that shareholders have vicarious liabiltiy for torts of others.

  You: I don’t konw what proving ownership status does. So waht? I will grant you that in some cases some shareholder wields such influence and direction over the firm that he ought to be as culpable as management for actions he helps direct. So what? My point is that *merely being a shareholder* is not by itself sufficient to attribute liability.”Thanks for the acknowledgment. The point’s obvious – “*merely being a shareholder* is not by itself sufficient basis to exclude a shareholder from liability.

  it’s not obvious to the anticorpo crusaders, who think it’s a Holy Crime to NOT impute liability to them! They “are” “owers,” after all!

  In addition there’s a larger point – without limited liability, shareholders would have had potentially unlimited liablility,

  Auugh! No, they wouldn’t. Not if they were merely passive shareholders.

  and consequently would have been much more cautious about whom they invested in, and making sure that downside risk was closely managed.

  I of course agree there ought to be no statutory rule insulating them from liability. And if there is any risk at all, a market for insurance would develop, and maybe hte insurers would hav higher premiums for riskier corps. Sure.

  I’m not opposed to a nuanced and fact-specific approach,

  Progress!

  but the fact is that the grant of limited liability has essentially eviscerated it.

  Probably; but none of us are in favor of a state grant of limited liability. We just think that the left’s focusing on this as the Root of All Evil is confused and misplaced.

  You: “Saying they invest in liabilities is a bit of question-begging. The question is: does the status of a person as a shareholder–having certain dividend and liquidation and director-voting rights–make you liable for what the corporation does? I don’t rest my own conlcusions on whether the state “officially” classifies the shareholder “as an owner.” I’m looking at the functional reality of what they are and do.I’m not begging any question; a shareholder who buys shares that aren’t fully paid up purchases may be required to contribute the rest of the capital, and a whole host of obligations may accompany shares in a close corporation.

  I don’t think you can just assert that they buy liabilities. tha’ts question-begging.

  You: “Yes, and we are a new and modern creature called “libertarian,” not tradition- or state-law-worshipping positivists.”How about actually answering my question? Where does “the state” impose vicarious tort liability? The common law is not state-imposed.

  sure it is; and in any event, it is not necessarily libertarian.

  And surely you haven’t failed to notice that libertarians routinely refer to the common law as the reason why regulation isn’t needed (other than those like Rothbard who recognize that regulation is needed because corporations persuade judges to subvert it).

  for two reasons: first, the common law is usually more libertarain than modern legislated law (see my 1995 JLS piece, Legislation and the Discovery of Law in a Free Society,” for my thoughts on this).

  Me: “You say that, if victims could “sue shareholders individually”, in which case “shareholders could simply purchase shareholder-liability-insurance, no biggie”. I heartily agree – a system of pro rata shareholder unlimited liability would work (as one of the law journal articles argues), as well as being more just. I appreciate the concession – so have you stopped fighting this point?”

   

  No. I still think it’s unjust for them to have liability where it’s not warranted–it’s just that it would make little difference, which shows that this is just a straw man for the left–it masques their real issue which is hostility to modern business and capitalism.

  Stephan, first, I’m disappointed by your dismissive and somewhat offensive talk of “you guys” and what you presume my motives to be. I’m not an “anti-industrialist type”

  Hey, you gets what you pays for 🙂

  , and I’m here on my own and making my own points (which must mean I’m “yapping,” in your book).

  I do have a way with words, don’t I?

  Second, raising the issue of limited tort liability is not a red herring, at least for me, and it’s not something I think corporations need to survive.

  Right. The main thing is limited liabiltiy for contractual debts–and this is perfectly legitimate–see Hessen.

  I do think it’s very important because I think that real shifting or risk, moral hazard, corporate governance and other issues are intertwined and that underlies the whole politicized struggle over corporate regulation.

  But the anticorpos act as if limited liabiilty is what lets corporations survive, and grow larger than they could on a free market. The problem wtih this reasoning is (a) limited *contractual* liability would exist on the free market; and (b) limited tort liability is trivial and no big deal. So neither can help boost the size of the corporation artificially.

• Published: December 15, 2008 2:35 PM

• P.M.Lawrence
• Where on earth does “But the anticorpos act as if limited liabiilty is what lets corporations survive, and grow larger than they could on a free market” come from, when entity status has been brought up over and over? We can see quite clearly from history that that is all it takes to do it, from examples like the mediaeval church. Not that limited liability isn’t involved; but it just pushes in the same direction. With just that by itself, firms would have internal limits that would eventually slow their growth to a halt or split them.

• Published: December 15, 2008 5:01 PM

• TokyoTom
• Stephan, thanks for the dialogue.You: Again: shareholders are not investors necessarily. In any case, you are question-begging. It’s not a fair presumption for the libertarian–that’s the issue here.
  While I would agree with you that there should be no presumption that shareholders SHOULD have tort liability – after all, that should be a decision that depends on the facts of particular cases – I think it’s pretty clear that the blanket grant of limited liability has in fact acted to shield shareholders (and initial investors) from tort liability.You: Yeah, like you mean, the President or CEO, or manager or boss? Sure. These guys run the company. Not shareholders.
  Yes, the guys who run the company ought to be liable, but in some cases, controlling shareholders as well. Most individuals simply don’t have the assets to cover all of the risks, so a blanket rule that stops tortfeasor liability with the firm is clearly wrong.. Note that there are no rules that require managers, executives or even firms to acquire insurance sufficient to cover all risks created by corporate activity.You: I don’t think so. It’s primarily for contractual liability limitation, which would continue to exist in a free society. Tort liability could easily be handled by insurance.
  Stephan, come on. The partnerships could contract for liability limitations without a limited liability form; they have been moving rapidly into LLCs and LLPs solely to slough off risk to their personal assets for torts; for the same reasons, big firms that are already corporations separately incorporate subs for dangerous activities in order to limit potential liability for damages (both for torts and to creditors).

  You: Yep, when formalities are not followed or a shareholder is too dominant and really acts as a manager.
  My point about veil-piercing is that such cases show that no general state grant of limited liability is justified. The doctrine itself is extremely inconsistently used, in part because given the legal grant of limited liability courts are reluctant to use their equity power.

  You: Well, if the state is abolished as we want, any “externalities” would go away.
  Yeah, “IF”. Until then, there is certainly a lot of externalization that takes place, which seems to excite a few people.

  You: Right, I agree. Thoguh even in today’s law, if a shareholder is in a position of control, it’s either (a) because he’s also a manager or director; or (b) he goes beyond his passive shareholder role and pushes the company to do his bidding. In case (a), he’s not protected by limited liability. In case (b), well,l of ten in such cases the corporate veil would be pierced, again reaching his personal assets.
  I am happy that you agree that shareholders in a position of control should not be able to escape liability merely because they use the corporate form.

  You: I actually think it’s got nothing to do w/ the bargain they thought they were entering, since A and B cannot contractually limit C’s tort-recover rights. However, I do agree w/ you that their ability to control is key. Now you appear to have swung in my direction on this.
  In any particular case, I agree with you that actual ability to control is key. But generally, the state grant of limited liability is wrong and should be repealed.

  Me: Stephan, I’m only discussing the difference a shareholder and an investor because you seem to think it’s importance.
  You: I think they are *different*. The investor *gives money to* the company. The shareholder *votes for directors*. Both are different ways of having an affect on the company. The advocate of vicarious liability could make a separate argument based on each action for liability. Both are flawed, but in different ways.
  I’m not sure that there’s a relevant distinction. If an investor provides money to a firm, he does so in exchange for a bargain of certain rights and liabilities; any purchaser simply steps into his shoes. Granted, if an investor or shareholder has separately taken actions that make him liable for a tort, that liability is not conveyed by a sale. I do not otherwise presume that a shareholder, by virtue of owning shares and having rights (and maybe an obligation to fully pay up shares), should become liable for the torts of others.

  You: Small companies cut all kinds of corners–tons of illegal dumpting etc. It’s decnetralized and harder to track. And of course the biggest polluter is the state–e.g., w/ its wars. In any event, I don’t see that teh danger of toxic torts implies that shareholders have vicarious liabiltiy for torts of others.
  I agree with you about small firms and the state, but large firms pollute – often as part of doing business with government – and generate risks too. The point is that the state grant of limited liability has as its purpose cutting off liability at the corporate level, thereby freeing shareholders. Without such a grant, investors and shareholders in firms would be much more careful about the risks that they generate.

  You: it’s not obvious to the anticorpo crusaders, who think it’s a Holy Crime to NOT impute liability to them! They “are” “owers,” after all!
  Thanks for the acknowledgement that *merely being a shareholder* is not by itself a sufficient basis to exclude a shareholder from liability. But there you go again, “yapping” about other people who aren’t on this thread!

  Me: In addition there’s a larger point – without limited liability, shareholders would have had potentially unlimited liablility,
  You: Auugh! No, they wouldn’t. Not if they were merely passive shareholders.
  I agree with you that merely passive shareholders probably would not have liability, but the potential risk is there that they would have to face. They could wall off the risk by insurance (which would put an insurer in a position to evaluate the riskiness of a business and the degree of insulation that a shareholder is afforded by how the rights of shareholders are structured), or self-insure by making a similar analysis. But absent the limited liability rule, no doubt some shareholders would opt for measures that ensure better management by the company of risks of injury to third parties.

  Me: I’m not opposed to a nuanced and fact-specific approach, but the fact is that the grant of limited liability has essentially eviscerated it.
  You: Probably; but none of us are in favor of a state grant of limited liability.
  Progress!

  You: We just think that the left’s focusing on this as the Root of All Evil is confused and misplaced.
  It does sound like it may be confused, but is it really misplaced? My own view is that without a state grant of limited liability on torts that we would see greater shareholder efforts to control the risks of injury to third parties, more responsible corporate behavior, more responsible management, fewer efforts by citizens groups to get government to impose asset/bonding requirements, to impose broader liability in pollution cases (Superfund), and to regulate. There would be less vilification of corporations generally.

  Me: “How about actually answering my question? Where does “the state” impose vicarious tort liability? The common law is not state-imposed.
  You: sure it is; and in any event, it is not necessarily libertarian.
  How about actually answering my question? Where does “the state” impose vicarious tort liability?

  You: No. I still think it’s unjust for them to have liability where it’s not warranted–it’s just that it would make little difference, which shows that this is just a straw man for the left–it masques their real issue which is hostility to modern business and capitalism.
  Again, I’m not “the left” (and off of this site I am considered radically right); it may be a strawman for some of them, but I actually think that the grant of limited liability has had serious pernicious affects and removing it would be a great positive step. Under libertarian principles, individuals are responsible to the full extent of their assets for their harms to others; the creation of legal entities with limited liability for torts has allowed for the massive generation of risks, without regard to whether such risks are backed by the assets of real individuals. Rather, such risks are cut off by fiat at the corporate level, allowing shareholders to take profits for the upside of gains but not having to bear downside risk.

  Regards,

  Tom

• Published: December 16, 2008 5:10 AM

• TokyoATom
• FWIW, I have further refined a list of legal resources concerning the evolution of limited liability, the consequences, proposals for reform and on vicarious liability:”Legal resources on state-created limited liability for shareholders, consequences and reform”
  http://mises.org/Community/blogs/tokyotom/archive/2008/12/16/legal-resources-on-state-created-limited-liability-for-shareholders-consequences-and-reform.aspx

• Published: December 16, 2008 5:22 AM

Mises blog, archived comments below.

On stupid and confused “thickism” see various posts under tag thickism, and Cory Massimino, “Libertarianism is More than Anti-Statism,” C4SS (April 8th, 2014).

Left-Libertarians on Corporations “Expropriating the Efforts of Stakeholders”

From LRC, Dec. 8, 2008:

Dyslexic Vandarchists of the World–Untie!

Laid-off workers occupy Chicago factory: Fired union thugs trespass on private property: time for the vandarchists to celebrate! After all, I’m sure they’re reaaal separated from their labor.

Re: Dyslexic Vandarchists of the World–Untie!

The Best of Stephan Kinsella

Mises blog:

The Over-reliance on State Classifications: “Employee” and “Shareholder”