StephanKinsella.com

Tom, of course we libertarians favor the separation of economy and state, but this is no leftist notion, it’s a libertarian one.

“A corporation, from its birth, is a creature of the state. Absent the intervention of government on its behalf, no such entity could exist.”

This is like saying public roads are creatures of the state and could not exist without the state. Sure, public roads could not; but roads could. Likewise, as Hessen has shown, a corporation could be formed absent the state. It is a contractual arrangement among a number of individuals. The shareholders could have contractual limited liability with any customers, vendors, etc., by way of contract. As for limited liability for torts, as Hessen and others have argued, there is no libertarian reason why passive shareholders should be vicariously responsible for torts committed by others in the first place, so limited liabiltiy for torts is not some privilege granted by the state; this would be the default position absent the state anyway. Legitimizing the Corporation and Other Posts.

“What we call a “corporation,” stripped of its government-bestowed benefits, is nothing more than a joint stock company — a partnership whose owners can trade their stakes in the company, partially or wholly, as unitized shares. Such a company is certainly an advantageous instrument through which to do business, but its mutation into a “corporation,” courtesy of the state, makes it something more.”

I think this is wrong. The state decrees that limited liability is a privilege; it grants it, on conditions; it says that the fiction of “legal personality” is needed, and it grants this as a privilege too. This is all nonsense, state propaganda. State privilege is no more needed for corporate formation or limited liability than state intervention is “needed” for roads or healthcare or justice.

“With the issuance of a corporate charter, what was once a partnership receives an estimable benefit in the form of “limited liability.””

Wrong. This is not a grant by the state. As noted above, contractual limited liability is a result of contract. Tortious results from the fact that we are no responsible for others’ actions vicariously, but only our own.

“It becomes, in effect, an “artificial person” whose body is composed of its stock shares.”

This is just state myth. We don’t need it. The state also says that you consent to its jurisdiction by staying here, or by “receiving” its “benefits,” or that we all agree to the social contract…. so thus it’s justified in conscripting or taxing you. All nonsense. The left-libertarians are opposed to the state; why repeat its statism-justifiying propaganda?

“Liability for the actions of this “person” — even though those actions are in reality the actions of its owners — is limited to those shares.”

The corporation does not have separate personality, as you note. The state’s fiction that it does is just an excuse to regulate and tax it. Actions are always the actions of individuals. If there is a contractual debt then the debtee can be limited to a defined set of “corporate assets”-this is compatible with libertarianism. As for torts–they are committed by people, yes. Usually employees–say, a negiligent FedEx truck driver. Or they are committed by managers, perhaps, who direct some negligent or tortious behavior be committed (to hold the manager responsible requires a libertarian theory of causation, which Pat Tinsley and I tried to sketch out in our paper on causation. To be clear, I think you can make such a case for managers, but you need a theory to connect their actions to that of employees–to hold the manager responsible for actions of others. But I do not see how you can (as a general matter) make this case for shareholders, any more than you could for other people with passive connections to the business–vendors, other employees, creditors, customers.

“Imagine that you and I build a robot, program that robot to murder people at random, and set it loose. Further, imagine that we receive government recognition of that robot not as our creation, but as a “person” in its own right.”

But people are not robots. If I loan you money and you use that money to survive, and then you murder someone, am I responsible for what you did? No, not unless I was collaborating with you on the murder. Likewise, all a shareholder does is (maybe) give the corporation a bit of money (but so do customers and creditors, and even employees confer an economic benefit on the corporation–are they all responsible for what it does?); have a right to receive any paid dividends and a pro-rata share of assets upon winding up (how does having a right to receive money mean you are responsible for what the corporation does? If Amazon owes you a refund, are you responsible? If you receive a paycheck from FedEx, are you responsible for torts of your co-workers?). Finally, the shareholder *might* have the right to vote for directors (not necessarily: there are non-voting shares); but the right may not be exercised, or maybe you vote against the current directors. In any event how does having the right to vote for directors who appoint officers who hire employees mean you are responsible for what those employees do? Does having *any* influene on who the directors are mean you are liable? What if you have a son who you encourage to be a director? What about creditors who “suggest” a given director? What if you appoint a director to appease a given customer or even vendor? Or to appease the local left-libertarian watchdog group? Are they now responsible for tortious actions of employees supervised by managers hired by officers hired by directors appointed at the suggestion of the left-libertarian watchdog group?

“That’s corporate “limited liability” in a nutshell. Without that second step of getting our creation endowed with “personhood” by government fiat we’d be screwed. Our victims would come after us for everything we had — our bank accounts, our houses, our 1974 Ford Pintos. They’d get their restitution to the full extent of our assets.”

For torts you commit, yes. But why are you, Tom the owner of a share of stock in Corp X, vicariously responsible for torts committed by employees of Corp X?

In the left-libertarians hostilty to corporations, big business, etc.–some of it understandable if your ire is focused on state-intermixed corporations–you are assuming too much about vicarious liability and causation without a carefully developed theory. You are giving the state’s con-job cover story about legal personality and the “privilege” of limited liability too much credence. Down with the state and with the state’s propaganda. In your zeal to bash modern business practice per se, you are groundlessly presupposing a theory of causation; your criticism is too general: you are justified in criticizing state-subsidized or aided business–fascist corporatism–but you are wrong, in my view, in using this fairly narrow libertarian (not left-libertarian) observation to condemn modern capitalism and corporations in general.

Regarding your argument’s inappropriately relying on invalid state distinctions and concepts and assumptions such as legal personality and limited liability as a “privilege,” see also my post The Over-reliance on State Classifications: “Employee” and “Shareholder”.

Stephan,

I’m not sure how you manage to get from the fact that I identify and condemn “invalid state distinctions and concepts and assumptions” to the conclusion that I “inappropriately rely” on them, unless that’s some corollary to your … um … novel estoppel/argumentation ethics theories.

Q: What distinguishes a “corporation” from a “partnership” or a “joint stock company?”

A: “Invalid state distinctions and concepts and assumptions” which manifest by fiat as what I refer to as “privilege” — “a particular law, or a particular disposition of the law, which grants certain special prerogatives to some persons, contrary to common right.” — Bouvier’s Law Dictionary, Revised 6th Ed (1856)

As far as your objections to vicarious liability are concerned, how consistent are they? Is, for example, POTUS only liable as a thief for restitution for the salary, food, lodging and transportation he steals while in office, or is he also at least partially liable for restitution for actions taken by people acting on some transmitted/modified/extended versions of orders he gives?

Tom, I don’t understand how your post is supposed to be reply to the substantive points I made. I gather you don’t like argumentation ethics.. okay.

My objections to vicarious liability are very consistent. I have laid out very carefully in the Causation article w/ Tinsley linked above, a theory rooted in praxeology and libertarian legal theory, how and why you can be responsible for “ordering” the perpetration of crimes, or for being a causal part of a criminal enterprise. Some libertairnas say you cannot hold the ringleader responsible for actions of the underling. They wrongly think that if you impose liability on the principal then it’s removed from the agent; nonsense; it’s not a fixed pie. Both hitman and his boss can be 100% responsible. Or, they’ll say that the hitman is not responsible b/c he only used words–he’s “merely” “inciting”. Or they will say that the boss is liable *only* if he pays or coerces the underling–these are ad hoc categories. I have a coherent theory as to how and why you can and should be liable for actions of others–and it applies in the case ofa President.

But it does not apply in the case of shareholders. The burden of proof is not met. You have not even tried ot meet it, as far as I can see: you just assert that of course they are liable, relying on loose analogies and I suppose laymen’s presuppositions about strict liability and the law (not-carefully-thought-out formulations like “you should be responsible for your property” etc.). I don’t think this cuts it. Libertarianism prima facie holds only the actor responsible for his actinos. The shareholder in his capacity as shareholder is not the actor who commits any torts. If you want to impute liability to him for actions of others you need a good reason. What is it? Noting that heads of criminal gangs (like the President of the US) are liable doesn’t prove anything. Laymen bromides about “you have to take the pain with the gain” are not any kind of serious argument. Utilitarian law-and-economics style reasoning about incentives etc. is irrelevant to principled libertarian reasoning. I mean what is the argument? I have yet to hear one. I’m open to hearning one. If you can show shareholders ought to be causally responsible, then I agree, the state grant of immunity is a privilege, and should be revoked (and would simply lead to D&O style insurance being extended to shareholders, changning nothing systematically in the business world, so what’s the point?). What is your argument? If you don’t have one, we are left with the libertarian presumption that shareholders are not resposnible for torts of employees.

Stephan,

You write: “I don’t understand how your post is supposed to be reply to the substantive points I made.”

Well, I think I replied reasonably to the whole “what is a corporation” question. You seem to be hung up on the idea that a “corporation” could somehow exist in a stateless society. I don’t see how an entity which is and always has been differentiated from other businesses on the sole basis of state recognition/chartering could exist without that differentiation. Absent the state recognition/chartering, it would simply be a partnership or joint stock company. Even if your case for limited liability is correct, it wouldn’t apply to an entity which by definition could not exist.

As to your arguments on vicarious liability, I find them contradictory:

On the one hand, you hold that the head of a criminal gang is vicariously liable for the actions of his agents/proxies.

On the other hand, you hold that the partial owner of an entity chartered, recognized and privileged by that criminal gang is not vicariously liable for the actions of his agents/proxies, and that that same owner, were his business not a creature of the state, could also disclaim such liabilities.

So, to put it bluntly, I don’t understand your foundational logic, since it seems to produce contradictory conclusions.

As far as revocation of limited liability privileges leading to D&O style insurance, the point is pretty simple: State-granted limited liability is an economic distortion for precisely that reason. It illegitimately externalizes part of the cost of investment (the cost that would go to that insurance) to the victims of prospective torts.

Tom:

Absent the state people could pool their assets, and arrange them similarly to how “corporations” do now. they could let all contracting parties know any claims are limited to a defined set of assets, but not personally against “shareholders”. And I submit “shareholders” would not be held to be vicariously responsible for acts of employees and agents of this “corporation.”

Whether it would be called “a corporation” or not I have no idea, and it’s irrelevant. do you agree so far?

You dismiss the significance of the fact that shareholders can easily be covered by D&O insurance. Sure, it would internalize costs, but it’s trivial, dude, and in any event many of the things left-libs complain about corporations for are structural or incentive features that would easily still exist if all you did was make the corporation pay a small insurance premium for shareholder coverage.

An to be clear: we all here favor the state dropping the legal fiction of legal personality and other laws including limited liability, and just getting out of the area. We all here oppose the state and corporate fascist intermixtures. So I am not really sure to what extent we disagree, so long as we agree on this.

Stephan,

You write:

“Absent the state people could pool their assets, and arrange them similarly to how ‘corporations’ do now.”

Absolutely.

“they could let all contracting parties know any claims are limited to a defined set of assets, but not personally against ‘shareholders’.’

Yep.

“And I submit ‘shareholders’ would not be held to be vicariously responsible for acts of employees and agents of this ‘corporation.'”

And I submit that this claim seems, in the absence of any explanatory/transtionary material, to directly contradict your own theory of vicarious liability (if POTUS is responsible/liable for the acts of his proxies/agents, why is a stockholder not?).

“Whether it would be called ‘a corporation’ or not I have no idea, and it’s irrelevant.”

No, it’s not irrelevant. To call it a “corporation” would be fraudulent, since the very term is defined as “A body politic or corporate, formed and authorized by law to act as a single person … a society having the capacity of transacting business as an individual” [Webster’s 1913 ed.]

A group of people is not “a single person,” and no act can make it one.

“do you agree so far?”

Partially, as previously detailed.

“You dismiss the significance of the fact that shareholders can easily be covered by D&O insurance.”

They can be, but they aren’t. They aren’t because they don’t have to be. They don’t have to be because the state has artificially exempted them from liability for actions they take through proxies/agents.

“Sure, it would internalize costs, but it’s trivial, dude”

If it’s so trivial, see how far you get with a law to revoke limited liability so that it happens.

“and in any event many of the things left-libs complain about corporations for are structural or incentive features that would easily still exist if all you did was make the corporation pay a small insurance premium for shareholder coverage.”

I would never suggest “making the corporation pay” such a premium. If some or all of the company’s stockholders prefer to leave their assets unshielded from seizure for tort restitution, that’s their prerogative (unless the terms of the contract under which they buy their shares specifies otherwise by either requiring them to insure their shares themselves or including purchase of a policy in the stock price).

Not being as wise or far-sighted as you are, I choose not to a) make any assumptions as to what some other left-libertarian might complain about; or b) speculate as to what exact effects the revocation of state fiat limited liability might have on other structural or incentive features of partnerships/joint stock companies. I’ve simply pointed out that that state fiat privilege produces an economic distortion in a certain direction (artificial augmentation of profits through artificial externalization of costs).

Stephan,

You write:

“An to be clear: we all here favor the state dropping the legal fiction of legal personality and other laws including limited liability, and just getting out of the area. We all here oppose the state and corporate fascist intermixtures. So I am not really sure to what extent we disagree, so long as we agree on this.”

Well, that much is certainly true. Our disagreement on those things is not a disagreement on principle, but a predictive disagreement as to some likely effects of implementing the principle. That’s a relatively minor kind of disagreement, but the kind that can be fun to argue about.

nskinsella· 262 weeks ago

““Whether it would be called ‘a corporation’ or not I have no idea, and it’s irrelevant.”

Who is defrauded, exaclty? If it’s known in a free society there is no such thing as legal persoanlity then the word would be understood as shorthand for something else. Libertarians are too careless in how they throw out the “fraud” charge, IMO. SEe my posts Fraud, Restitution, and Retaliation: The Libertarian Approach and The Problem with “Fraud”: Fraud, Threat, and Contract Breach as Types of Aggression.

“I would never suggest “making the corporation pay” such a premium.”

me neither.

“Our disagreement on those things is not a disagreement on principle, but a predictive disagreement as to some likely effects of implementing the principle.”

I think this is primarily correct. Some left-libs take it so far that they say a world without fascist corporatism would be one of agrarian localist coops with an occasional dirt road, or some such, and thus, they decry all modern international and big business as obviously unlibertarian by contrast. Or, at the least, they think that modern commerce is a distortion of the pastoral craftsman’s life we would lead. I, on the other hand, believe we would have a far more prosperous and thriving industrial life absent the state, with far more trade, even international, and with extensive use of the “soul-killing,” “ailenating,” division of labor and mass production employer-employee factory system. And I believe this is perfectly libertarian.

“Not being as wise or far-sighted as you are, I choose not to a) make any assumptions as to what some other left-libertarian might complain about;”

Well, I’ve heard my share of leftist attacks on “‘capitalism'”. But, if the shoe doesn’t fit, it doesn’t fit. Fine by me.

“b) speculate as to what exact effects the revocation of state fiat limited liability might have on other structural or incentive features of partnerships/joint stock companies.”

I tend to agree here–I say, just repeal it and let’s see what happens. I have no need to speculate. I view my speculating as merely to counter that of leftists, who do speculate, at least implicitly, that in a market free of state “privilege” the entities known as “corporations” today would all but be unable to persist (okay, let’s say they change their names to satisfy you).

“I’ve simply pointed out that that state fiat privilege produces an economic distortion in a certain direction (artificial augmentation of profits through artificial externalization of costs).”

Sure. And we both agree this should be internalized by removing any state props.

“And I submit that this claim seems, in the absence of any explanatory/transtionary material, to directly contradict your own theory of vicarious liability (if POTUS is responsible/liable for the acts of his proxies/agents, why is a stockholder not?).”

Take a look at my causation paper and you’ll see why the cases are distinct. In the POTUS case he intends to (say) bomb Nagasaki, and uses the bombadier and pilots and military itself as a means to accomplish this goal. If you own a share of Wal-Mart stock, you are not using its stockboy as an agent to negligently mop the floor to cause a woman to slip and fall. You are no more causally responsible for the stockboy’s actions than are a host of other individuals in society who also have various causal ties to Wal-Mart, including other employees, the unions, vendors, customers, creditors, even debtors. Why single out that one class of people? You can envision a complicated web of interconnections. It’s arbitrary to single one person out just because the state classifies them “as owners”–again, it’s why I linked to my post The Over-reliance on State Classifications: “Employee” and “Shareholder”, above. Just because of the state’s crude feudalist-based legal conceptual framework which puts that residual rights holder as “owner”, we don’t have to accept this substantively. If you own a share of Wal-Mart stock can you go use its boardroom for your kid’s birthday party? Are you even entitled into its offices? Can you direct an employee to drive a truck negligently, or carefully? Can you drive the truck yourself? No. forget the state’s classification. You can say they are an owner but ownership is the right to control. The right to control what? The assets of Wal-Mart? Not directly, as a normal owner could, that’s for sure; and even if you could, why does that make you responsible for employee actions? You don’t hire the employees. You don’t supervise, manage, or direct them.

Have you read Hessen on this? The excerpt (<a href=”https://web.archive.org/web/20150124022736/http://www.lewrockwell.com/blog/wp-content/uploads/2004/04/Hessen+corporation+tort+liability+excerpts.pdf” rel=”nofollow”>here) in the <a href=”https://web.archive.org/web/20150124022736/https://stephankinsella.com/2009/08/06/legitimizing-the-corporation-and-other-posts/” rel=”nofollow”>post I linked above? What do you disagree with about this?

P.M.Lawrence· 262 weeks ago

Stephan Kinsella, you wrote ‘…as Hessen has shown, a corporation could be formed absent the state. It is a contractual arrangement among a number of individuals… State privilege is no more needed for corporate formation or limited liability than state intervention is “needed” for roads or healthcare or justice… contractual limited liability is a result of contract.’

That has been amply rebutted, even refuted, in posts elsewhere, e.g. here, here, here, and here. Corporations could not be formed absent the state (apart from special cases like monasteries that have a cohesive internal dynamic of their own), and corporations are not mere contractual arrangements among a number of individuals because at most contractual arrangements could only give rise to a partnership. Doing that would not generate a continuing entity holding together by itself and doing that would not confer any of the particular privileges typical of a corporation, such as limited liability (although it could arrange to shelter anonymous sleeping partners and limit their liability de facto), because those would be beyond both the physical power and the moral authority of the founders.

Your later arguments have been brought out and countered before, in the posts linked to just above. These also counter Hessen’s arguments and assertions, that you linked to.

nskinsella· 262 weeks ago

PML: “corporations are not mere contractual arrangements among a number of individuals because at most contractual arrangements could only give rise to a partnership. Doing that would not generate a continuing entity holding together”

I disagree–I think it would be similar to the way restrictive covenants survive. All you need is creative lawyering.

“by itself and doing that would not confer any of the particular privileges typical of a corporation, such as limited liability”

It’s not a privilege, unless you prove that a shareholder is causally responsible under libertarian law for actions of employees. I’ve yet to see this proof.

P.M.Lawrence· 262 weeks ago

Stephan Kinsella, you wrote “I disagree [that at most contractual arrangements could only give rise to a partnership] – I think it would be similar to the way restrictive covenants survive. All you need is creative lawyering.”

The first sentence is absolutely correct, but the second is incorrect because it does not take into account that some outside holder together is needed, unless there happens to be some internal dynamic that does that. Without that, creative lawyering would not have any way to give effect to what it asserted – any more than restrictive covenants work once the people on the ground decide to do otherwise, unless something outside makes them obey.

“It’s not a privilege, unless you prove that a shareholder is causally responsible under libertarian law for actions of employees. I’ve yet to see this proof.”

The former sentence is false, because being a privilege does not require that sort of proof, any more than the fact that the moon is not made of green cheese requires proof. Demonstration of the fact would need proof, but the proof is not necessary to cause the fact. All proving it would do is demonstrate it, but the fact would remain true whether you acknowledged it or not. Even without someone proving it, the fact could be determined by anybody who took the trouble to see that there is indeed legislation that grants powers to corporations but not to others – companies acts, etc. – which is what privileges are; and that sort of proof would demonstrate the fact without even needing to jump through the artificial hoops you are raising.

The latter sentence is false, because as it happens you have been shown such proofs repeatedly, e.g. in the comments at the links I cited. Hint: who let go of control? That means that you have seen proofs; the fact that you refuse to accept them does not mean that they have not been shown to you.

nskinsella· 262 weeks ago

PML: “The first sentence is absolutely correct, but the second is incorrect because it does not take into account that some outside holder together is needed, unless there happens to be some internal dynamic that does that.”

sure. This is easy.

“The former sentence is false, because being a privilege does not require that sort of proof, any more than the fact that the moon is not made of green cheese requires proof.”

We all agree the state should grant no privilege. To me the real question is a substantive libertarian one: should shareholder be liable for acts of employees. Unless you show that they should, there is no basis for vicarious liability.

“The latter sentence is false, because as it happens you have been shown such proofs repeatedly, e.g. in the comments at the links I cited. Hint: who let go of control? That means that you have seen proofs; the fact that you refuse to accept them does not mean that they have not been shown to you.”

I have seen no coherent argument. It’s just a bunch of amateur Peter Parker “with power comes responsibility” nonsense, or talk about incentives, etc.