1. Skip to navigation
  2. Skip to content
  3. Skip to sidebar
Source link: http://archive.mises.org/13919/ecofascism-in-the-name-of-fending-off-ecofascism/

Ecofascism in the Name of Fending Off Ecofascism

September 16, 2010 by

Micah White at The Guardian writes of the growing danger of ecofascism or environmental authoritarianism. Some environmentalists, like James Lovelock and Pentti Linkola, want to put democracy on hold and/or return humanity world-wide to a primitive state of existence in order to combat global warming. Ironically, his proposal to fend off this growing danger is itself an example of the very thing he fears, though perhaps his proposal is motivated not entirely by environmental concerns but also by an independent dislike of consumerism.

White’s solution is to end the culture of rampant consumerism in the West. How does he propose to do this? Ah, now there’s the rub.

White’s own ecofascist solution is three-fold: the criminalisation of advertising, the revocation of corporate power, and the “downshifting” of the global economy.

The nature of criminalizing advertising is clear. But he no doubt has equally authoritarian means in mind for implementing his two other proposals.

How does he plan to revoke corporate power? By eliminating limited liability. By “reviving the possibilty of death penalties for ['misbehaving'] corporations.” And presumably by other government means.

How does he plan to “downshift” the global economy? He offers some apparently voluntary examples here, at least, but I doubt he’d be satisfied with purely voluntary means.

It’s an awfully convenient rhetorical strategy to juxtapose authoritarian environmental and anti-market proposals with the most extreme examples of ecofascism. It makes his own proposals seem downright reasonable in comparison.

The extreme ecofascists are perhaps making a strategic blunder too in attacking the sacred cow of democracy. White is more clever. He is catering to the widespread religious devotion to democracy and demonization of market activity, crying: No need to put democracy on hold! We’ll just put the economy on hold instead!

Does White call for an end to, or even mention, government policies and rhetoric that encourage rampant consumerism? such as artificially low interest rates, inflation, stimulus checks and other forms of subsidies, taxes on savings and investment, targeted tax credits for various forms of spending, various social-welfare programs, indoctrination in public schools to be good consumerist citizens, calls from political leaders to spend spend spend, and so on.

No, he does not.

Instead, he calls for a softer ecofascism in the name of fending off ecofascism. Consumption is a compulsion and is harming the environment; only corporations are to blame and government is the solution. Where have I heard that before?

{ 141 comments }

Seattle September 16, 2010 at 12:11 pm

The only way to end war is to kill everyone.

Capn Mike September 16, 2010 at 3:30 pm

LOL

Bill in StL September 16, 2010 at 12:19 pm

Although I disagree with the other points presented, how can any libertarian possibly oppose the end of limited liability?

Limited liability is as bogus as pretending all your debts are really owed by your invisible friend.

J. Murray September 16, 2010 at 12:28 pm

It’s becuase shareholders of a company aren’t actually owners. Sure, there may be a small input on a board of directors, but in the end, no benefit of ownership extends to anyone who buys a share in a company. You have no say in its operations, cannot utilize it as you see fit, and few even allow you to see any return from operations (fewer and fewer companies provide dividends anymore). The only way to get any kind of return on your “investment” is the hope that someone else will buy your token from you at a later date. A stock share is barely anything more than gambling tokens you play in the casino called Wall Street.

Shareholders are, at best, low-priority debt holders as they’re the last in line if the company goes belly up.

Jon Leckie September 16, 2010 at 12:47 pm

J. Murray, isn’t what you’re saying really directed only at publicly listed companies, which only form a small percentage of the total number of limited liability entities out there? Publicly listed companies are outweighed by the number of privately held companies (no stats, sorry, happy to be corrected but would be shocked) and in my view, the advantages and benefits to an economy of limited liability are clear: I made some comments and asked some questions on a previous blog (http://blog.mises.org/13733/the-story-of-stuff/#comment-719732) which are similar to Ed Plant’s reply to Bill in Stl, and I am really interested in this topic. I wonder if a forum exists or could be set up to discuss limited liability in Austrian economics. I’ve never used the forums, would you or any regulars have some feedback or advice on pursuing this course?

J. Murray September 16, 2010 at 12:52 pm

I would agree with you if it was a case where there was a single shareholder. Simply converting into a corporation and holding 100% of the shares shouldn’t allow the owner to dump debts because the corporation ran out of cash. The thing is limited liability itself isn’t a problem if the actual perpetrator of the failures is targeted for appropriate recourse. Going after personal holdings of a president who is also the sole shareholder makes sense, going after Grandma who has 100 shares with BP doesn’t.

Jon Leckie September 16, 2010 at 1:13 pm

I’m not sure I can follow you there, JM. Companies are used for an enormous range of purposes, from single shareholder setups where the shareholder’s also the sole director to big plcs, and I’d say that in no situation should the corporate veil (between the company and the shareholders) be pierced except where there’s fraud – the law sets out these circumstances pretty clearly. In every other situation, it’s caveat emptor: third parties dealing with a limited liability entity ought to check that the entity is properly capitalised to meet its obligations. Then it’s a case of private contract. If you go after the equity investors behind failed companies, you’re going to retard a lot of people from mobilising their resources to have a go at success as the potential downside is unlimited.

The key commercial difference between debt and equity is of course that debt ranks ahead in a windup, but the returns are fixed: you get your principal back plus the interest. Whereas while equityholders get whatever is left over on a failure, the upside is potentially unlimited and the downside is fixed to the equity invested. It’s a great form for startups and established companies alike, as well as mom-and-pop shopowners looking to protect the family home. I gotta say I’m a fan.

Berle & Means, Coase, Jenson & Meckling, Williamson are all really interesting here. I know there’s been some articles on this site on Williamson (someone kindly pointed this one out to me a few weeks back (http://mises.org/daily/3784)), and their connections with Austrian Economics seems like a real fertile ground for an academic (I’m quietly pining for a career change….)

Jon Leckie September 16, 2010 at 1:19 pm

Bahh caveat emptor was the wrong phrase: hopefully you’ll take my meaning.

newson September 16, 2010 at 9:58 pm

lifting the corporate veil exposes directors to recovery actions or charges (eg. trading whilst insolvent), but not shareholders in limited liability companies.

Jon Leckie September 17, 2010 at 2:56 am

Hi newson, bit of an ego driven response from me here, but my copy of Gower & Davies Principles of Modern Company Law says otherwise, it is in fact shareholders to whom the phrase refers, eg. p.199: “We shall look at each of these strategies in turn, beginning, in this chapter, with judicial efforts to lift the veil and render shareholders personally liable”.

newson September 16, 2010 at 10:16 pm

actually, in some jurisdictions and circumstances (small private companies and companies set up expressly to defraud) the shareholders can also be exposed, but i can’t think of any public companies where shareholders have been exposed.

newson September 17, 2010 at 11:01 pm

to jon leckie:
you’re right, i’m wrong. i think my second comment is closer to the mark.

Gil September 17, 2010 at 12:22 am

I believe Libertarians don’t believe in Limited Liability because when you buy shares you ARE buying co-ownership of a company hence you should have no right to avoid any liabilty that the company incurs. Hence all owners of BP would be forced to pay their share of the damages in an alternate dimension. If Grandma gets screwed because the big wigs put the shares in their spouses’ names who happen to have next to no personal assets (which tends to be the case where there’s unlimited liability entities) then that’s her tough luck.

Jon Leckie September 17, 2010 at 3:29 am

But Gil, when you buy a share in a company, that’s EXACTLY what you are buying: a right to avoid any liability that the company incurs beyond the purchase price of the share absent fraud. That’s why you’ve invested in a company and not (eg) a partnership.

There is an important difference between publicly listed companies versus privately held companies, and that is that when you buy a share of a private company, the company receives the purchase price, whereas with a plc, the company only gains indirectly by having a liquid market in its capital and an efficient means of raising further equity should it require it and market circumstances allow it. But the arguments against personal liability of shareholders apply equally.

Your BP example is flawed, in my view, on at least two respects: (1) any regime where the shareholders of BP would be liable personally for the damages for the Gulf spill, then you’d be unlikely to have a BP: and you can all pay significantly higher petrol prices as a result, and (2) BP has enormous cash reserves and a strong cash flow. If it can pay the damages and continue business, good, but the shareholders will suffer a loss on their shares until such time as the price recovers. If BP did not have sufficient resources to cope with the damages imposed on it, it would be forced into liquidation, and the shareholders would risk a total loss. Under neither scenario is personal liability of shareholders in issue.

The law of unintended consequences applies to discussions of limited liability as much as any other interference with the market, and I have to say I agree with Stephan Kinsella below when he says that a lot of libertarians simply have not thought through their opposition to limited liability.

TokyoTom September 20, 2010 at 10:53 am

“(1) any regime where the shareholders of BP would be liable personally for the damages for the Gulf spill, then you’d be unlikely to have a BP: and you can all pay significantly higher petrol prices as a result, ”

Jon, this concern is overstated, but would be a feature, not a bug: you’re essentially conceding that corporations mask massive risk-shifting – some purchasers get great prices, so what if fishermen get shafted?

Jon Leckie September 20, 2010 at 10:56 am

Hey Tokyo, scoot to the bottom for my view on that question. I might come over to your blog to keep talking, I can’t stand this michael guy, he almost makes me physically ill. He’s found this page and made it his own, just like the rest of this site. Post a link if you like and I’ll come visit you.

Ed Plant September 16, 2010 at 12:33 pm

Can’t Limited Liability be accomplished (in a free society) by contract? Rothbard says the same thing about corporations. Basically the company would include in all its contracts something to the effect of “you may not sue us for our personal assets if we go out of business”.

Stephan Kinsella September 16, 2010 at 2:03 pm

From what Iv’e seen, most libertarians who oppose “limited liability” don’t really understand how it works or really know what they are criticizing. To oppose limited liability means there should be liability in the first place. But should there? For whom? For what? Shareholders should be liable for torts committed by employees of a company the shareholder owns stock in? But why? That is vicarious responsibilty. Why is the shareholder liable for the torts of another person, any more than the tortfeasor’s mom, sister, roommate, co-worker is, or stakeholder, creditor, debtor, supplier, contractor, customer of the corporation is? For more on this see: http://www.stephankinsella.com/?s=hessen+pilon

Jon Leckie September 16, 2010 at 2:10 pm

Great, a whole bunch of links to follow! Very helpful, much obliged Stephan.

TokyoTom September 17, 2010 at 10:04 am

Stephan, I think you know that SOME libertarians who oppose “limited liability” understand very well how it works and know what they are criticizing; I have commented extensively on the very un-libertarian state grant of limited liability to shareholders and the pernicious consequences in fuelling the growth of statist, risk-shifting corporations, of pressures by ordinary citizens to rein in corporations, and of the federal regulatory state that the big corporations manipulate and welcome as a massive barrier to entry:

http://mises.org/Community/blogs/tokyotom/search.aspx?q=limited

It is obvious that state grants of limited liability are not justifiable, are crucial in the overwhelming choice by investors to use the corporate form, have led to lax oversight of corporate management by shareholders and to a massive shifting of risks by corporations to the public as a whole, and to the growth of the massive federal regulatory state to “check” corporate abuses and to oversee “public” corporations.

Not only have corporations been the driving factor in elevating federal power (via expansive interpretations of the Equal Protection and Commerce Clauses) over the states that create corporations, but it is easy to see (and a number of commentators have noted) the negative role that corporation-enabled rent-seeking, lax management and moral hazard have played in the financial crisis and in the Gulf oil spill.

It is perverse that ANY libertarians seek to defend either the state grant of limited liability or the mess that it has clearly triggered and enabled.

A Cliff Notes’ version of my view is here:
http://mises.org/Community/blogs/tokyotom/archive/2010/07/06/the-cliff-notes-version-of-my-stilted-enviro-fascist-view-of-corporations-and-government.aspx

Regards,

TT

Stephan Kinsella September 17, 2010 at 10:21 am

Tom, when you say the state grant of limited liability is not justifiable, this is a disingenuous way of trying to reverse the burden of proof. This very statement is relevant ONLY if the grant changes what would be the case anyway. That is, if shareholders would be vicariously responsible under a libertarian theory of cause for torts of employees of corporations they owned shares in. I’ve yet to see anyone develop a careful, libertarian-compatible theory of causation and responsibility that would (a) implicate shareholders for torts of employees; and (b) not implicate co-employees, vendors, suppliers, customers, lenders, stakeholders, in short everyone.

And people almost always confuse limited liability of shareholders with that of managers. and they don’t understand the role of shareholders, or directors, contrasted with managers. And they mix in unprincipled incentive concerns. It’s just a mess.

If you have a coherent theory of why shareholders should be liable, please point me to it. If not, I don’t know how you are immune from my criticism.

Jon Leckie September 17, 2010 at 12:15 pm

Stephan Kinsella, I’d be very interested in your views on this question that I ask below: how would tortious liability exist without a state?

I’m having trouble conceptualising how any form of liability other than contract could arise without the state. Why would anyone accept tortious liability, and how could one private actor force another to pay under such liability? Surely you need a state to enforce tortious liability.

TokyoTom September 18, 2010 at 6:40 am

No, Stephan; what’s perverse is that YOU think it’s incumbent on libertarians to jump through a lot of hoops before they can argue that the state grant of limited liability to shareholders is unlibertarian and ought to be done away with.

The very fact that you protest so loudly is itself evidence that limited liability MATTERS — on top of the piles of evidence that the limited liability grant is crucial to investors in choosing organizational form and has played a key role in the growth of the destructive corporate statism that has shifted risks from managers and owners to the public at large, trampled states rights and led to calls for the regulatory state that corporations both are advantaged over citizens in influencing and which in part keeps corporations subject to political and bureaucracy whim.

A key reason that corporations have become so important, powerful and ubiquitous is that they are risk-shifting machines, reflecting moral hazard both within shareholders and within the managerial class, and because many of them are extremely capable rent-seekers.

Tell me honestly: do you think partnerships, sole proprietorships and the few unlimited liability corporations out there pose anywhere near the risks to society that corporations do? It is corporate status that has enabled the growth of shareholder and managerial anonymity and nearly severed the corporate organizations from communities of people whom they affect. Without corporate status and limited liability, the simple risk of potential liability means that shareholders have much greater incentives to monitor and oversee the risks that corporate business activities pose to others. This risk they could mitigate by using insurers expert in their lines of business.

In the absence of this, we have a managerial class that is largely free from shareholder oversight and that insulates itself from risk via corporate indemnification and D&O insurance, and reams of federal and state laws and regulations that struggle to manage the risks that corporations pose to the public (but serve chiefly as barriers to entry and to further protect management).

The “mess” that you speak of – the confusion over who should be responsible for “corporate torts” – is not only one that you yourself manifest when you say that the Gulf oil spill is “just a tort” (by whom, pray tell?) but is itself a consequence of the grant of limited liability and corporate status, which encourages citizens, judges and juries NOT to look at the real people INSIDE of corporations who should be held responsible for their own behavior. Limited liability has created grand buck-passing machines.

Regards,

Tom

michael September 19, 2010 at 12:12 pm

Tom: It’s comments like this that make the blog worth reading for content.

panika2008 September 17, 2010 at 12:31 pm

State does not grant anything positive in this case, at least on a basic level of commercial law. It does not force anyone to deal with LLCs at all. What might be true in the critique of LLCs is that the state itself is unable and/or unwilling to judge the risk involved in dealing with LLCs while e.g. giving grants, which – in quite a subtle and rarely appreciated way – transfers a lot of business risks onto taxpayers. But this is not an issue of LLCs per se, but rather the usual state favorism.

panika2008 September 17, 2010 at 12:24 pm

“Limited liability is as bogus as pretending all your debts are really owed by your invisible friend.”

Nah. Limited liability is just a simple juristic construct to make default what would otherwise result in a substantial growth of legal homeorrhage, namely specifying in all and every contract of the company the exact limits and conditions of liability. This is impractical, especially for small firms, so they are given the option to incorporate using the “default” set of rules. It’s a part – quite sensible at that – of our common (sense) law tradition – make good/popular practices into codexes. If only all legislation would proceed basing on this pattern!

TokyoTom September 18, 2010 at 7:21 am

Panika, the libertarian issue is not about default rules for what could otherwise be voluntarily contracted for – namely, agreements between firms, their shareholders and their voluntary creditors or customers to limit the liability of the firm to its certain assets.

Rather, it is about whether governments should be gifting shareholders with limitations on liability vis-a-vis persons who become INVOLUNTARY creditors of the firm because of corporate actions (via managers, employees or agents) that damage them.

TT

panika2008 September 19, 2010 at 10:08 am

How can anyone become an involuntary creditor of anyone otherwise than by criminal action (extortion?) or government subsidy? I don’t quite understand what you mean.

TokyoTom September 20, 2010 at 10:40 am

Panika, “involuntary ” creditors is fancy legalese designed to distinguish (1) those who VOLUNTARILY to do business with a corporation (or other company, person or association) and to which the business owes money, and (2) those who have not contracted with the business, but have a claim because they have been INVOLUNTARILY injured by it.

Because of ability of parties to freely negotiate contracts, the parties in category (1) do not need a state grant of limited liaibility; rather, the chief effect of limited liability is to allow corporations to make profits for shareholders, lenders and managers, while passing risks on to those who made NO choice to be injured.

Guard September 16, 2010 at 1:22 pm

The net effect of corporations can only be bad. That is their basic nature.

Jon Leckie September 16, 2010 at 1:28 pm

How can a legal fiction have a basic nature? Jon Leckie Limited does not have original sin. He can have $1 in his capital account and incur obligations of $100 that he cannot pay, but that’s counterparty risk and they should’ve asked for a personal shareholder guarantee from Jon Leckie. If the director(s) knew there was no way that the company could pay the $100, that would constitute insolvent trading and the director(s) would be personally liable for the $100.

It’s all about using contract to allocate risk, and ranking risk against return. That’s an exercise every libertarian should prefer to leave in the hands of the individual. No?

michael September 19, 2010 at 10:21 am

JL: I think the “basic nature” Guard refers to is the fact that as a matter of basic corporate structure, its directors are free to pursue no end other than profit. That is, they can screw their long-time employees out of promised retirement funds, they can abruptly fire all their employees and move the operation off to Vanuatu, they can fill the water table with toxins like PCBs, as they did in Anniston, they can kill tens of thousands of the neighbors in industrial accidents arising from negligence, as they did in Bhopal, they can bribe Congress and subvert every value we uphold but one: the freedom to prosper.

That’s all fine with the investors. But let them do one nice thing, spend one dollar in pursuit of more human goals, and the executives can legitimately be fired by the Board that directs their actions… for not fulfilling the corporate mission.

Humans would mostly call that kind of organization evil in its essence. Corporate units, on the other hand, see that as being the natural order of things.

Jon Leckie September 19, 2010 at 10:37 am

You again? I thought I told you to quit crapping on my rug. Don’t bother engaging with me, you’re an insufferable troll.

michael September 19, 2010 at 10:54 am

This kind of thing doesn’t really add to the discussion, JL. If you have something interesting to say about the nature of corporations and their role in our society, please let us in on it.

But with the kind of slime you’re spewing at us most of the time, I suspect you don’t. It’s blog pollution. Worse, it’s ignorant.

Let’s try to raise the level of debate, shall we?

Jon Leckie September 19, 2010 at 10:58 am

If you’re interested in my views, they’re posted all over this page for you to read at your leisure. I’ve learnt what it’s like to engage with you, and I’d rather just find a brick wall. Condescending horse’s ass.

Jon Leckie September 19, 2010 at 11:29 am

God damn it I was really enjoying this page, michael free as it was. It was a really good exchange of views. Now this nitwit is going to pollute it and it’s going to be the michael show, like every other god damn page on this website. You’ll all patiently and accurately set out the errors in his reasoning, and he’ll patiently repeat himself over and over again, refusing to take anyone else’s view on board, complaining how it’s everyone else’s fault that he can’t be convinced to take his head out of his own ass.

michael September 19, 2010 at 12:29 pm

“God damn it I was really enjoying this page, michael free as it was. It was a really good exchange of views. Now this nitwit is going to pollute it..” etc.

Jon: I am sincerely sorry to have marred the elegance and simplicity of your page. I didn’t realize its function was to only reflect the views of the choir.

In future, please do yourself the favor of skipping over my intemperate comments.

Jon Leckie September 19, 2010 at 1:13 pm

That’s EXACTLY what I’ve been doing. The only point to soiling my hands with you on this occasion is to ask that you do the same, you intellectual fraud.

Matthew Swaringen September 19, 2010 at 11:19 am

michael, everything you’ve said about corporations could be applied to the government as well:

The special interest groups are free to pursue no other end than their own profit. They can run up deficits, debt, and print money ruining the value of everyone’s dollars and destroying retirement income in order to support their inefficient businesses and welfare programs. They can preside over horrible ecological disasters and out of them gain more power to “prevent” future disasters. They can kill hundreds of thousands and occupy many countries on the basis of thousands being killed in the homeland. They subvert every value we uphold, including the freedom to prosper.

That’s all fine with the voters. But let those who govern do one nice thing, and stop pointing the gun at more people by repealing someone’s pet subsidy, and they can legitimately be fired by the voters, for not fulfilling the democratic mission.

Humans should mostly call that kind of organization evil in it’s essence. Governments, on the other hand, see that as being the natural order of things.

michael September 19, 2010 at 12:21 pm

Matthew: I like your comment, and think it cries out for expansion. I think what you’re saying is that it’s the same people who artfully manipulate, seduce and subvert the American system in the furtherance of their own designs. And that two of their tools are (a) corporations as presently legally defined and (b) government. Correct so far?

But I think you’re running off the track when you extrapolate that someone’s making money by destroying the value of everyone else’s money. Aren’t we all using the same money? George Soros, the Koch Brothers, Bill Clinton? All rich, as demarcated in US dollars?

It’s both parties, obviously. Office holders want to remain in office, and so are rewarded for their good behavior by rich capitalists. It should be unsurprising, then, that our policies tend to award benefits to large corporations at everyone else’s expense. I’m just not sure we’ll actually be better off once they’ve all been replaced by ill-educated housewives and guys who would look more appropriate carrying signboards about alien invasions. I have a suspicion this whole “Tea Party” thing will prove to be a flash in the pan, and America will be quickly cured of such easy wish-fulfillment by a dose of these guys actually coming to Congress to wreck the ship of state.

Matthew Swaringen September 19, 2010 at 12:38 pm

I think it’s incredibly naive to imagine that a system based on a monopoly on force is designed to do anything other than reward an elite, whether that elite be “rich capitalists” as it is in our current crony capitalist/corporatist regime or in the totalitarian rule by intellectual elites that was desired by Stalin/Lenin/Hitler/etc. (Which is basically just a horrifying reiteration of kings and nobles with different titles).

I’m still not sure, given your comments, why you think a monopoly on the use of force is so great.

“But I think you’re running off the track when you extrapolate that someone’s making money by destroying the value of everyone else’s money. Aren’t we all using the same money? George Soros, the Koch Brothers, Bill Clinton? All rich, as demarcated in US dollars?”

Via the inflation system many are able to accumulate not only more wealth nominally, but also in real terms. Why? Because people are unable to save their dollars since they can’t depend on the value. At a 3% rate of inflation 50% of your dollars worth is lost every 24 years. So you are forced to try and gain that back through the stock market. Who gains in that system? Large hedge fund managers, CEOs, etc. and this is particularly true where the government bails out institutions in order to “prevent failure.”

You’ve talked about this yourself in the past, the fact that the wealth “gap” has grown, but you attribute the gap to the desire to profit, when the gap exists because of the inflation created by the Federal Reserve system.

michael September 19, 2010 at 4:48 pm

“I think it’s incredibly naive to imagine that a system based on a monopoly on force is designed to do anything other than reward an elite, whether that elite be “rich capitalists” as it is in our current crony capitalist/corporatist regime or in the totalitarian rule by intellectual elites that was desired by Stalin/Lenin/Hitler/etc.”

Perhaps. But it would certainly be naive to believe there might ever be a society with no such system. There’s no such thing as a vacuum of power without new groups rushing to fill it.

I’m still not sure, given your comments, why you think a monopoly on the use of force is so great.”

Surely you know by now it’s not that. I think a monopoly by the strongest group can not be avoided. That’s human history.

A didactic story. Genghis Khan conquered China and prepared to slaughter everyone in the kingdom, down to the last man, woman and child. A Chinese bureaucrat, whose name escapes me for the moment, asked to have a word with the mighty conqueror.

How did he divert the Khan’s attention from slaughter? He merely showed him that China would be a profitable enterprise if it were run with all its economy intact, and all its people as vassals of the great Khan. So they ended up with slavery as opposed to death.

We would have much the same set of choices in a post-apocalyptic world. And the position of the American citizen now is far above the existence of a slave. We’re more prosperous than any group has been in the history of the world. You’re going to destroy all that, in the name of an untried experiment?

Jay Lakner September 19, 2010 at 11:21 am

Michael wrote:
“That is, they can screw their long-time employees out of promised retirement funds”

No they can’t. That would be a contract violation. If they do this and get away with it, then that is the fault of the (state-monopolised) legal system.

“they can abruptly fire all their employees and move the operation off to Vanuatu”

As long as they don’t violate any contracts, there is no problem with this.

“they can fill the water table with toxins like PCBs”

No they can’t. That would be a property rights violation. If they do this and get away with it, then once again that is the fault of the (state-monopolised) legal system.

“they can kill tens of thousands of the neighbors in industrial accidents arising from negligence”

Sorry nope. Proaperty rights violation.

“they can bribe Congress”

Once again, this is a problem with the state. Your pure-of-heart politicians should never accept a bribe.

Michael at some point you are going to have to face the facts. All the problems you have mentioned are not due to the existence of corporations. They are all symptoms of state intervention.

michael September 19, 2010 at 12:25 pm

It’s a matter of record that the old “defined benefit” plans were underfunded by corporations, and that as a consequence legislation was enacted to curb them. But that said legislation was watered down to the point of being ineffectual, and the process proceeded to unfold.

It’s also a matter of record that the Federal Pension Guarantee Corporation just added a dimension of moral hazard to the affair. It rapidly became apparent that such a fund would never be so large as to be able to fund all those underfunded company pension plans.

And finally it’s a matter of plain common sense that if the government had stayed out of the issue completely, every company in America would just have welshed on their promises to their career employees, with no further ado.

So the government comes in for some blame. Just not the primary blame.

Matthew Swaringen September 19, 2010 at 12:45 pm

Why should it be the job of companies to fund pensions for their employees? Why should the employees not fund their own retirement through savings?

Is not the moral hazard created by demanding through unions that companies fund long-term programs that don’t work because they go against the grain of any business which is designed to make profit and is not interested in taking on future obligations that they cannot accurately assess against future conditions?

Companies do not live forever. In the free market the whims of consumers will cause a company to rise and then fall within only a few years. The idea of pension plans is ridiculous in this type of environment.

michael September 19, 2010 at 4:54 pm

“Why should it be the job of companies to fund pensions for their employees? Why should the employees not fund their own retirement through savings?”

The denseness exhibited in this comment is appalling. First, they were promised pensions as a part of their total compensation package. To de-fund their pension plan would be exactly like not paying them at payday. It’s an exchange of labor for benefits, entered into as an agreement.

Also, anyone who’d ever been employed would know that the typical salary or wage doesn’t include enough money to pay for ongoing expenses and fully fund one’s own retirement. Before the adoption of Social Security and employer-contribution pension funds, hardly any American could afford to live after he couldn’t work any longer, except in a state of extreme poverty.

I note that during the period when pension funds were not being maintained, the employee portion of the total contribution was still being deducted from his wage… just not the employer-funded portion.

Jay Lakner September 20, 2010 at 12:41 pm

Michael,

If companies regularly get away with committing major contract violations, then it is the legal system that is to blame.

And who runs the legal system? The government.

It’s amazing the amount of useless information you are capable of spewing without actually addressing the argument at hand.

This is public schooling at its finest. It has taught you how to memorise boatloads of information without forming a fundamental understanding of any of it. You’ve learnt how to memorise the (popular, yet fallacious) story and recite it over and over again.

The only advice I can give is for you to go right back to the fundamentals. Forget (temporarily at least) everything you have ever learnt and start at the fundamental building blocks of human behaviour. It’s only once you have dropped all of your assumptions and preconceieved notions about the topic that you will actually be able to absorb and understand any of it.

I think Yoda said it well: “You must unlearn what you have learnt”.

P.S. Just in case you think my advice is derogatory, you should probably know that this is my own personal approach to any topic I study … particularly when I’m researching viewpoints that directly oppose my beliefs.

G8R HED September 20, 2010 at 1:04 pm

I think Yoda said it well: “You must unlearn what you have learnt”.

No, it was –
“What learnt you have unlearn you must.” ;)

Jay Lakner September 20, 2010 at 1:17 pm

lol :)

michael September 20, 2010 at 3:28 pm

I’m savoring the logic in this:

“If companies regularly get away with committing major contract violations, then it is the legal system that is to blame.”

By the same logic, a mugger or a rapist can say that the system allowed them to do the crime, so it’s the system’s fault. They were just doing what they thought they could get away with.

“And who runs the legal system? The government.”

Ipso facto. It’s not the mugger but the government who held the gun.

“It’s amazing the amount of useless information you are capable of spewing without actually addressing the argument at hand.”

The discussion has been both lengthy and detailed. If I’ve omitted something that was your argument, please let me know what it is.

“This is public schooling at its finest. It has taught you how to memorise boatloads of information without forming a fundamental understanding of any of it. You’ve learnt how to memorise the (popular, yet fallacious) story and recite it over and over again.”

A big miss there. I don’t memorise anything. Between Google, the public library and my own library I’ve got access to all the facts I need when I want to understand something. What I’ve learned how to do is to process empirical information and come to correct conclusions.

Surprisingly, my own conclusions more often than not coincide with those of the informed consensus. But my thinking is original.

“The only advice I can give is for you to go right back to the fundamentals. Forget (temporarily at least) everything you have ever learnt and start at the fundamental building blocks of human behaviour. It’s only once you have dropped all of your assumptions and preconceieved notions about the topic that you will actually be able to absorb and understand any of it.”

This is classic 20th century thinking: the pursuit of the irrational, dressed up in dense philosophic garb. Knowledge is the enemy and all that.

Peter Surda September 20, 2010 at 3:39 pm

Jay:

If companies regularly get away with committing major contract violations, then it is the legal system that is to blame.

Michael:

By the same logic, a mugger or a rapist can say that the system allowed them to do the crime, so it’s the system’s fault. They were just doing what they thought they could get away with.

Right. So Jay refutes you, but instead of admitting you were wrong, you start talking about something else. Shame on you.

Jay Lakner September 21, 2010 at 12:58 am

I should probably stop feeding the troll at this point, but it’s too hard to resist.

Michael wrote:
“What I’ve learned how to do is to process empirical information and come to correct conclusions.”

To work out the underlying mechanics of any situation, you must isolate each factor and look at them individually.
When my computer stops working, I test each individual component in turn to ascertain the problem.
When trying to understand the mechanics of something as complex as the market, it is impossible to isolate each factor.

If you observe that corporations regularly violate contracts, how can you possibly ascertain the reasons why? There are so many factors contributing to the scenario and it is impossible to isolate each factor and test them individually. Your approach is very unscientific. You see correlation and confuse it with causation. You have no idea whether you have rightfully concluded the reasons why corporations behave the way they do or if you are simply observing symptoms of a more fundamental cause. Your approach amounts to randomly guessing which of the correlating events is the cause.

However there is an approach that can overcome this problem.
You can begin with the fundamental component of the market (the individual), ascertain its fundamental nature (the action axiom), and deduce how a market absent all those factors will operate. Once this has been done, you introduce each known factor of the situation at hand and deduce the consequences.
This is the Austrian approach. It has allowed Austrian economists to greatly understand something as complex as the market and explain the underlying reasons for empirical observations.

michael September 21, 2010 at 5:45 pm

Jay: “If companies regularly get away with committing major contract violations, then it is the legal system that is to blame.”

Michael: “By the same logic, a mugger or a rapist can say that the system allowed them to do the crime, so it’s the system’s fault. They were just doing what they thought they could get away with.”

Peter, in both cases you would be blaming the system because a perp got away with the crime. My comment went to that point.

You might explain to us how companies would never try to violate contracts if there were neither laws nor enforcement. I think it’s obvious that we need good laws and good enforcement to make society work honestly. Otherwise we have no basis for trust in our dealings with one another.

michael September 21, 2010 at 6:01 pm

Jay: I think you’ve really gone off the deep end with this one. I went all the way back to the start of the thread, to see what possible connection your Moebius comment might have to do with anything. And I find that the subject we began with was this:

Guard: “The net effect of corporations can only be bad. That is their basic nature.”

J Leckie: “How can a legal fiction have a basic nature?” etc.

And me: “JL: I think the “basic nature” Guard refers to is the fact that as a matter of basic corporate structure, its directors are free to pursue no end other than profit.” etc.

What could that possibly have to do with a reply like this? “To work out the underlying mechanics of any situation, you must isolate each factor and look at them individually. When my computer stops working, I test each individual component in turn to ascertain the problem. When trying to understand the mechanics of something as complex as the market, it is impossible to isolate each factor.”

If anyone, not just a corporation but any individual, reneges on a contract the reasons are usually obvious. Self-interest, or perhaps inability to perform. You are trying to lead us all astray with your extended discourse on troubleshooting analysis.

And you come to this ENTIRELY false conclusion: “…how can you possibly ascertain the reasons why? There are so many factors contributing to the scenario and it is impossible to isolate each factor and test them individually.”

No, the world is not utterly unknowable. It’s usually fairly easy to figure out, once the full set of facts have become known. All you need to understand is (a) human nature and (b) the mechanics of the specific situation.

Jay Lakner September 21, 2010 at 11:01 pm

Michael wrote:
“If anyone, not just a corporation but any individual, reneges on a contract the reasons are usually obvious. Self-interest, or perhaps inability to perform.”

There are two points here that you fail to understand.

1. “Human nature” is defined by the action axiom. People employ means to achieve ends in accordance with their scale of values. With every single action performed, every individual acts in their own self-interest, ie they seek to maximise their satisfaction. Basically everyone is trying to pursue “profit” at all times. (Be aware that “profit” in this case is to mean the satisfying of their goals, whatever they should be. For corporation executives, that means making money). You try to make “pursuing profit” out to be some great evil when all it really is is human nature playing out.

2. Breach of contract is a form of property rights violation. Yes it’s a big “no no”. If corporations can regularly get away with these acts, then that demonstrates flaws in the legal system which fails to punish those who commit these crimes. If people regularly murder other people and then go free, yes the murderers have done something wrong, but their continued freedom is the fault of those responsible for catching them and locking them up. Once again, the legal system.
If the legal system regularly fails to punish murderers, what is going to happen? People are going to regularly murder each other.
If the legal system fails to punish theft, what is going to happen? People are going to regularly steal from each other.
If the legal system fails to punish contract violation, what is going to happen? Uhh … let me see … people are going to regularly violate contracts with one another.

Corporations know the legal system is broken. They know they can manipulate it in ways to avoid being punished for violating contracts. So it should clearly not be any surprise to discover that they regularly violate contracts.
The cause of the problem is the legal system. The symptom is the proliferation of lawless behaviour from corporations.

Peter Surda September 22, 2010 at 1:50 pm

Peter, in both cases you would be blaming the system because a perp got away with the crime. My comment went to that point.

No Michael, you’re just making shit up, as usually. I don’t know if you are incapable of logical thought or just toying with us. Jay did not say that the perpetrator is not to blame, but that the institution who’s purpose according to you is to prevent the perpetration and/or punish the perpetrator did not in fact fulfil the purpose, thereby refuting your claim. Trivial, really.

You might explain to us how companies would never try to violate contracts if there were neither laws nor enforcement.

First of all, you are committing here the error of conflating “laws and enforcement” with “the state”. Furthermore, the sentence is a non-sequitur. As I explained a couple of days ago and you agreed, the state does not have capabilities that other institutions organised by men do not have either. Therefore, it does not logically follow that in order to provide a service, including formulating laws and enforcing them, a state is necessary. It especially does not follow if a demand for such services is widespread.

There might, of course, be other reasons why a service is not provided, or under-provided (assuming a certain normative scale), in the absence of a state, but that is not the claim you are making.

Trying to wiggle out of your former claims does not work here.

michael September 23, 2010 at 5:48 pm

Jay: The pursuit of profit at the expense of others is a source of great evil in the world. Yes, we need to compete on some level. But there also need to be referees, so when the game gets out of hand the players can be separated before things get ugly.

That’s a basic function of government. We succeed at this to a greater or lesser degree. But few besides this crowd would say that the game would really be more fun for everyone if the referees were sent from the field and the brass knuckles were allowed to come out.

I like the old Hebrew rules. Every fifty years there would be a Jubilee declared. All the slaves would be freed and all debts forgiven. Then the players could proceed to the next round unencumbered.

Matthew Swaringen September 23, 2010 at 6:09 pm

“The denseness exhibited in this comment is appalling. First, they were promised pensions as a part of their total compensation package. To de-fund their pension plan would be exactly like not paying them at payday. It’s an exchange of labor for benefits, entered into as an agreement.”
How can you talk to me about being dense, when you just jumped to the assumption that I was saying companies should fail to fulfill promises they’ve made?

I was not. I was questioning the validity of the promise being made IN THE FIRST PLACE. This was clarified by the fact I said these promises are made in accordance with union demands, and it’s very unlikely they would be made without collective bargaining.

“Also, anyone who’d ever been employed would know that the typical salary or wage doesn’t include enough money to pay for ongoing expenses and fully fund one’s own retirement. Before the adoption of Social Security and employer-contribution pension funds, hardly any American could afford to live after he couldn’t work any longer, except in a state of extreme poverty.”
So now you are assuming I’ve never been employed… Do you really expect me to take you seriously when you jump from one conclusion to another? It’s also incredibly silly of you to claim that employers have all this extra money to pay for pensions that they mysteriously won’t give in extra wages such that employees can contribute to retirement.

Whether retirement is realistic is a function of whether or not it’s desirable enough for people to forego current consumption to the necessary extent to allow for it. Personally, I have no plans to ever really retire. I’ll gladly drop dead after years of working. If I do retire it’ll be well after any government provided age, or I’ll have plenty saved for it and still work on the side.

“I note that during the period when pension funds were not being maintained, the employee portion of the total contribution was still being deducted from his wage… just not the employer-funded portion.”
I don’t think this part of your statement has anything to do with what I was saying, but I can’t figure it out from the context of the post you made prior to it either.

michael September 23, 2010 at 9:20 pm

“No Michael, you’re just making shit up, as usually. I don’t know if you are incapable of logical thought or just toying with us. Jay did not say that the perpetrator is not to blame, but that the institution who’s purpose according to you is to prevent the perpetration and/or punish the perpetrator did not in fact fulfil the purpose, thereby refuting your claim. Trivial, really.”

Hi Peter. Someone’s in a very bad mood today..

Here’s Jay: “If companies regularly get away with committing major contract violations, then it is the legal system that is to blame. And who runs the legal system? The government.”

Sounds pretty plain to me. He’s saying that it’s the cop’s fault if the crook gets away with something. In fact if we didn’t have a government of laws to protect us and prevent mob rule our only recourse would be to shoot people if they tried to renege on a contract. You wouldn’t find that world to be optimal either.

Laws and enforcement, in our system, are the purview of the state. We don’t get to write our own laws… unless we bribe the lawmakers. I’m afraid you’ll either have to live with the system we have or lump it. It’s not about to change, just because you’re unhappy with it.

Peter Surda September 24, 2010 at 4:00 am

Michael, I don’t know which aspect of your posts is more objectionable: making stuff up (=lying), or contradicting yourself. I have a passionate disrespect for both, you don’t seem to be bothered by either.

Peter Surda September 24, 2010 at 4:22 am

The pursuit of profit at the expense of others is a source of great evil in the world.

Another one of vague and deceptive formulations. What is “profit at the expense of others”? It’s a phrase devoid of meaning. “Expense” is a subjective concept. Any action whatsoever has effects that some dislike, you cannot avoid it. That is why there is another concept, that of property: it allows to distinguish which actions are considered legitimate and which are not, and separates “expense” into property violations and contract violations on one hand (which are considered illegitimate), and negative externalities (which are considered legitimate, although outside of Austrian school this phrase is used inconsistently also for some property violations).

The beauty of a system with private property and free trade is that only those activities for greed satisfaction are legitimate which do not violate property of others. Not only that, but the ability to satisfy greed is directly proportional to the ability to satisfy the needs of others.

That’s a basic function of government.

However, you also said yourself that a government has no capabilities distinct from other people, so there is no reason why it should be able to perform such a function better than anyone else. So this is another pointless, deceptive phrase, a non-sequitur, paradoxically one that you yourself acknowledge.

I don’t expect a reasonable reaction from you, I have become accustomed to you not being capable of it. I just want to provide a complement to your confused babbling and illogic, so that readers can compare the arguments and make a decision for themselves.

Jay Lakner September 25, 2010 at 12:05 pm

Michael wrote:
“He’s saying that it’s the cop’s fault if the crook gets away with something.”

If a man murders someone and the court finds him not guilty and lets him go free, even though it is abundantly clear he committed the crime, then the court system has failed.
If a corporation commits a contract violation and the courts decide not to force them to fulfill their contractual obligations (or compensate the victim), then the court system has failed.

How you are utterly unable to understand and acknowledge this very simple point is beyond me. But then again, you don’t even understand the broken window fallacy so I probably shouldn’t be too surprised.

michael September 25, 2010 at 4:58 pm

“How can you talk to me about being dense, when you just jumped to the assumption that I was saying companies should fail to fulfill promises they’ve made? I was not. I was questioning the validity of the promise being made IN THE FIRST PLACE. This was clarified by the fact I said these promises are made in accordance with union demands, and it’s very unlikely they would be made without collective bargaining.”

Sounds like a valid point, Matthew. But let’s take a look from one step further back.

The capitalists are looking for a good return on investment. So their strategy in the game is toward that end. And labor is looking for the same thing: a good return on their investment of time, skills and sweat. What makes the one set of motivations noble and the other vile?

The two sides long ago made a deal so they could continue working together. And labor upheld their end of the deal by continuing to work. You’re saying that capital should be able to renege whenever they feel like they can get away with it?

Lemmywinks September 16, 2010 at 2:15 pm

“Authoritarian environmentalists fail to imagine a world without advertising, so they dream of putting democracy “on hold”. ”

I like how crazily this reads. It implies that ending advertising will have some substantial environmental benefit, that it isn’t a form of fascism, and that the “real” eco-fascists only propose extreme solutions because they are not convinced that we can end all advertising…..This is a columnist trying to take up space.

michael September 19, 2010 at 12:38 pm

It shows that some of the crazies on the left are every bit as crazy as those on the right.

“It is a revolution which is already budding and is marked by three synergetic campaigns: the criminalisation of advertising, the revocation of corporate power and the downshifting of the global economy.”

Doesn’t that seem as unlikely and as unrealistic a revolution as the one that wants to destroy all government, destroy the dollar, overturn all the laws and let everyone have justice by subscription to a for-profit legal service, and just let everyone live by gentleman’s agreement?

I would predict a very solid majority among us would hold equally low opinions of both these approaches. But the article was fun reading.

OD September 16, 2010 at 3:06 pm

Typical Guardian.

newson September 16, 2010 at 10:08 pm

the rag’s only worth the film reviews.

Jack September 16, 2010 at 10:39 pm

“White’s solution is to end the culture of rampant consumerism in the West. ”

Aren’t leftists always caught between a rock and a hard place? I mean, they hate “overconsumerism” – whatever that even means (and how is that measured?), but they always want to “stimulate demand”, a la Keynes.

Lemmywinks September 17, 2010 at 8:23 am

Yeah….it’s pretty ironic since they want to ban advertising. Advertising is a pretty good way to stimulate demand for useless things…..and it’s much cheaper than subsidies and stimuluses (the preferred choice).

There’s a video connected to the guardian article where it shows “renegade artists” in their fight against advertising. I’m sure the starving, disenfranchised people of the world can be proud that these “activists” are saving first-world people from viewing coca-cola commercials.

TokyoTom September 17, 2010 at 10:19 am

Geoffrey:

Aaah – “ecofascists”?! How great to see so much use of this venerable, stirring and productive ad-hom!

http://mises.org/Community/blogs/tokyotom/search.aspx?q=watermelons

But you missed me on how White’s suggestion that corporate “limited liability” by eliminated is “ecofascist”. Care to help stupid misanthropes like me to see why preserving fundamental ways that government interferes with liberty in a manner that cannot be contracted for is crucial AND libertarian?

Best regards, your Twitter pal,

TT

PS: Please note my comments to Stephan above: http://blog.mises.org/13919/ecofascism-in-the-name-of-fending-off-ecofascism/comment-page-1/#comment-724652

http://twitter.com/Tokyo_Tom

Jon Leckie September 17, 2010 at 11:40 am

TT, can you clarify whether by libertarianism you mean anarchism? If you’re asking how limited liability can survive absent the state, can I ask for your view on how tortious liability would survive?

Sorry if this is a naff question, I’ve not read into the field yet. It just seems to me that the only kind of liability that can exist absent the state, is contractual liability. Limited liability can be contracted for and so could exist under anarchy, but how would tortious liability exist without a state?

Geoffrey Allan Plauché September 17, 2010 at 12:06 pm

A good point regarding contractual limited liability, Jon. Tom must think that limited liability cannot exist contractually in a free market. But I’ll bet you White’s desire to end limited liability would extend to prohibiting contractual limited liability. Does Tom’s?

In any case, surely there are bigger fish to fry when it comes to corporatist laws and regulations. The liability cap on deep sea oil drilling being one that comes to mind. But then wasn’t this cap put in place to balance the greater risks of deep sea oil drilling, which oil companies engage in because they are prohibited from to shore? I assume Tom is in favor of eliminating both of these laws/regulations.

TokyoTom September 18, 2010 at 4:04 am

“Tom must think that limited liability cannot exist contractually in a free market.”

It must be that Geoff cannot be bothered to go to any trouble to figure out what Tom might think and wants to ascribe rather bizarre thoughts to him. (Gee, links are hard!)

“But I’ll bet you White’s desire to end limited liability would extend to prohibiting contractual limited liability. Does Tom’s?”

I’ll bet White’s desire to end limited liability would NOT extend to prohibiting parties to a contract to agree to potential caps on their potential liability to each other. But as for what Tom thinks, heaven forbid we ask!

TT

PS: Boy, isn’t using the third person so nice and chummy?

TokyoTom September 18, 2010 at 5:16 am

Jon, absent a state, even if contractual liability existed, enforcement would depend on a host of institutions and moral suasion. I imagine the same or similar institutions would be available or arise to handle torts.

But clearly the state grant of limited liability to shareholders/investors as to the unwilling victims of torts is not something that could be voluntarily contracted for.

TT

Jon Leckie September 18, 2010 at 5:22 am

Thanks TT, I posted below to you, please read if you’re interested. Probably too messy to have two threads going, but on your first paragraph, I think you need to think it through a bit more. Contractual liability won’t rely on moral suasion or a host of institutions, just an agreed judicial forum, which can be provided by a private provider of such services, agreed between the parties and set out in the contract. But tortious liability presupposes a coercive authority capable of determining and imposing duties on private actors, the breach of which gives rise to liabilities.

I’ve only just started thinking about this since I visited your blog yesterday, but I think you need to think through these issues if you’re to maintain your environmentalist/anarchist position. If you were to modify your stance to minarchism, the problem dissolves because you’ve got a state apparatus to rely on, but you’re still under Kinsella’s obligation to justify shareholder liability for tortious acts of the company, as I go into more detail below.

And I’ll just add a line I posted above: to me, limited liability is fully consistent with libertarianism, including anarchism, because it’s all about using contract to allocate risk, and ranking risk against return. That’s an exercise every libertarian should prefer to leave in the hands of the individual. No?

TokyoTom September 18, 2010 at 8:31 am

As I’ve said elsewhere, I have no problem with people and business associations negotiating with their voluntary creditors over who if anyone has responsibility if the assets of a business are insufficient to satisfy its debts, so the application of a state-mandated default rule (that can be varied by contract) is hardly troubling.

It’s the notion that the state can tell an ownership class (or other class of counterparties) that they have NO liability in the event that corporate action injure involuntary third parties that I object to as non-libertarian (and grossly counter-productive).

Jon Leckie September 18, 2010 at 8:53 am

I understand, TT. And I guess you would say that it’s non-libertarian because the property rights of those involuntary third parties are infringed and their ABILITY to recover (as opposed to their RIGHT to recover, which is as good as against an LLC as against a real person) is limited to the assets held by the LLC.

Well it’s an interesting case. Thanks for an interesting exchange.

michael September 19, 2010 at 12:41 pm

“Limited liability can be contracted for and so could exist under anarchy, but how would tortious liability exist without a state?”

Just a question, Jon. How could liability of any sort be enforced without a state? Wouldn’t everyone be free to renege on any contract they found inconvenient?

Peter Surda September 19, 2010 at 1:03 pm

Where does the government get the capability to enforce liabilities? Magic? Divine blessing?

michael September 19, 2010 at 4:57 pm

Consent of the governed, Peter. No force is involved, only consensual activities between adults.

Matthew Swaringen September 19, 2010 at 5:10 pm

I’m not consenting to the government stealing from me to support it’s monopoly of violence which goes to war in order to gain power, dishonestly scares people into ceding freedom so it grow even more or any of the other horrible things it does to prevent consensual activities…

I guess you are calling it consent solely because some majority votes for the outcomes, but what gives them the right to vote on my behalf?

Peter Surda September 19, 2010 at 5:37 pm

Actually you missed the question completely. The “Consent of the governed” (if it even existed) does not give government capabilities. It would explain whether the actions of the government are legitimate. However, legitimate or not, it does not gain supernatural abilities.

michael September 19, 2010 at 7:01 pm

“I guess you are calling it consent solely because some majority votes for the outcomes, but what gives them the right to vote on my behalf?”

Matthew: You enjoy the same right to cast one vote as anyone else. If you don’t choose to vote, you have no effective say in the outcome.

And if the vote doesn’t go your way? You always have the right to emigrate. Each of my grandparents came from Europe to look for better opportunities than they were able to find in the land of their birth. And today it doesn’t cost us nearly what it cost them back in 1902.

There are remedies to your complaint. Avail yourself of them.

And Peter:

“The “Consent of the governed” (if it even existed) does not give government capabilities. It would explain whether the actions of the government are legitimate. However, legitimate or not, it does not gain supernatural abilities.”

Very good. The consent of the governed does give our government legitimacy.

And no supernatural abilities? I would agree. Our government does not possess any supernatural abilities of which I’m aware. The tools they use to sanction behavior are more in the area of indictments, subpoena power, powers of arrest and the like.

Peter Surda September 19, 2010 at 7:22 pm

So, you now switched your argument. You don’t claim that government is better anymore, you just claim it’s inevitable. You realise this contradicts 99% of your previous posts?

michael September 20, 2010 at 3:32 pm

Peter: Nowhere have I ever said that government is either “better” or that it is “inevitable”. What I say is that I prefer working with the government we have as opposed to striking it down by revolutionary force. Revolutions normally make things much worse than they were before. Not to mention that they’re normally succeeded by dictatorships.

Changing our currently incompetent government will not be easy. But we either change it or we go down the tubes of history. If we bring it down, the Deluge follows.

Peter Surda September 20, 2010 at 3:43 pm

And now you switch the topic yet again. Shoo shoo troll.

Jon Leckie September 20, 2010 at 3:51 pm

The prevailing mental condition is controlled insanity. The essential act of [michael] is to use conscious deception while retaining the firmness of purpose that goes with complete honesty. To tell deliberate lies while genuinely believing them and to forget any fact that has become inconvenient, and then, when it becomes necessary again, to draw it back from oblivion for just so long as it is needed, to deny the existence of objective reality and all the while to take account of the reality which one denies – all this is indispensably necessary. Even in using the word doublethink it is necessary to exercise doublethink. For by using the word one admits that one is tampering with reality; by a fresh act of doublethink one erases this knowledge; and so on indefinitely, with the lie always one leap ahead of the truth.

Matthew Swaringen September 19, 2010 at 1:17 pm

You really should be able to answer the question yourself at this point michael. We shouldn’t have to re-iterate every time how controls work without the state. You’ve only discarded alternatives rather than dis-proven them.

michael September 19, 2010 at 5:03 pm

The choices come down to the club or the carrot. And I can think of no carrot that can halt rapacious behavior. People can easily steal more than they can ever be rewarded with. If strong entities don’t want to honor their commitments, only the club will repair their lapsed morals.

And if we permit the use of the club, do you not think that everyone will just wield their own? Where do you get the idea that we’re all gentlemen?

Matthew Swaringen September 19, 2010 at 5:06 pm

So your first solution is to say that “only one group can legitimately use clubs.” And this makes it all better because the rapacious people go away and don’t just join the group that can use clubs???

michael September 19, 2010 at 7:03 pm

I’d rather deal with the way our government uses its clubs. Because I know just what it will club you down for and what it won’t. I keep a low profile relative to the law, still manage to live a full life, and have never once been clubbed by a jackbooted thug in the pay of Uncle Sam.

Nor have you.

Geoffrey Allan Plauché September 17, 2010 at 11:56 am

Tom,

Did you not read the original article, or even the rest of my post? It was White who used the term “ecofascism,” so I simply turned it back on him. His fault for using an ad hominem in the first place. Do you chastise environmentalists for using terms like Climate Denier (evocative of Holocaust Denial) too? In any case, even if you disagree on limited liability, surely you agree that criminalizing advertising, dismantling businesses, and other government interventions in the market fit the bill.

TokyoTom September 18, 2010 at 4:42 am

Geoffrey, I read both the original article and your post, and chose to address what is a common penchant here – an easy demonization of those who are concerned with real problems that stem from government interventions into voluntary human interactions, in lieu of doing any of the heavy lifting of analyzing the problems complained of and throwing light on better solutions.

Do I do this to be mean, or to ask Miseseans to be productive?

Surely it’s permissible for me to focus my comments on areas of disagreement with you, rather than areas of agreement. So once again, can you kindly share your thoughts on how ending the state grant of limited liability (and a right to own subsidiaries, and amending the Constitution to eliminate court-granted rights to corporations under the 4th and 14th Amendments) would be anti-libertarian or fascist?

Jon Leckie September 18, 2010 at 5:08 am

Tokyo Tom, good morning. I’m willing to engage in a good dialogue with you on these interesting points.

I followed your links, and thought your two principal concerns were (1) limited liability allows the sponsors of corporate actors to avoid liability for the tortious acts of the company and (2) limited liability is inconsistent with anarchism because it’s only possible through state fiat.

It seems to me that tortious liability can’t exist without a state to impose the tortious duties by fiat, whereas limited liability can be created through contract (perhaps with initially high transaction costs, but standard contratual forms should emerge over time). Do you agree or disagree? What are your thoughts? It seems to me that if you think there’s any truth in this position, you have to engage in a rather deep rethink of the way you express your argument against limited liability.

And of course on top of that remains Stephan Kinsella’s absolutely proper request that you explain why equity investors should have additional duties imposed on them beyond other stakeholders.

Just for background, I have sympathy with your view, even though I no longer agree. When I was at school I applied for a scholarship for an LLM to explore the idea of piercing the corporate veil for companies that engage in human rights violations. The subset is small, mainly companies engaged in extractive industries in the developing world, and I thought that if you allow unlimited liability for such violations, you create incentives for companies engaged in such industries to implement and publish internal procedures designed to avoid such violations; otherwise no one will invest in them. So in preparing for the interview, I presented the idea to some colleagues at the research centre at which I was an assistant, one of them asked why shareholders should bear responsibility for the human rights violations of the company in which they invest. I didn’t think I needed to consider that, it was obvious, right? Whatever it takes to prevent such violations should be considered. I didn’t get the scholarship.

JL

TokyoTom September 18, 2010 at 8:16 am

Jon, thanks for your comments.

I think the arguments about anarchism vs. minarchism are a distraction in the face of the enormous problem we currently face of corporate risk-shifting, compounded by escalating and counterproductive regulation. Our goal should be to MOVE toward freer societies, not ignore real problems resulting from grants of corporate status/limited liability by assuming a true free market without governments and statist corporations.

But to engage somewhat, let me note that in an anarchic society even the enforcement of contracts may require moral sanction and a possible threat of force. I don’t see that claims by non-contracting parties that they have been injured would not also be subject to very similar “voluntary” court systems, in which injured parties may be supported by community associations, consumer associations, retail stores and the like, which business enterprises (or associations to which they belong) may contract with in advance in order to do business. Other counterparties to a business that engages in risky activities might also insist that the business submit to some type of judicial process regarding any tort claims.

I believe that many traditional societies, precisely to deal with issues of potentially damaging activities, require that people of stature in the community guarantee their behavior.

Let me note that while of course some types of limited liability can be created through contract , NO type of contract lets you say you have no liability to third parties whom you injure but who have not contracted with you in advance.

Stephan hasn’t requested that I explain why equity investors should have additional duties imposed on them beyond other stakeholders; he’s simply noted that, given the status quo, in which shareholders purchase shares based on a legal promise that they will have no liability for corporate acts (other than those they personally direct), it hardly seems fair for the state to impose such liability on them. I would certainly agree; I’m not seeking to use the state to unwind limited liability overnight.

However, that does not at all obviate my concerns about the key role that limited liability plays in our perverse cycles of risk-shifting, increasing regulation and statist rent-seeking and efforts by outraged/concerned/ecofascist citizens groups to apply political pressure and moral suasion.

It seems to me we ought to recognize the negative features of limited liability and to recognize that we can pare back the damage by rolling back the regulatory state in the cases of business entities that do NOT have limited liability for their main investor class: sole proprietorships, partnerships, unlimited liability corporations, corporations whose shares are only 10% paid-in (so a call remains on the remaining 90%). As I have noted in various blog posts, several astute observers have made very similar suggestions regarding banks, securities companies and firms engaging in mineral exploitation on public lands.

Regarding the problem you mention of extractive industries in the developing world, too few people (and far too few libertarians) note that the chief dynamic is one of the theft of indigenous resources by elites via the state, using conveniently amoral Western corporations (that are generally unable and uninterested in getting outright title to the land/resources in question) to complete the robbery and leave the natives with nothing but a mess. IOW, an “Avatar”-like problem, not at all dissimilar to the way our federal government claims ownership to marine resources, grants leases to BP and the like, and leaves fishermen with little to no control over their own livelihoods:

Too Many or Too Few People? Does the market provide an answer? – TT’s Lost in Tokyo http://bit.ly/8zlecI

My “Avatar” posts: TT’s Lost in Tokyo http://bit.ly/9s32uD

TT

michael September 19, 2010 at 12:49 pm

Tom, this comment seems provocative:

“let me note that in an anarchic society even the enforcement of contracts may require moral sanction and a possible threat of force”.

Obviously some enforcement mechanism is necessary for contracts to be worth anything. But once you admit that the threat of force, and then the actual use of force, may be required, don’t you have to set up some uber-structure for society? That is, a government?

Without some force-structure that everyone agrees has to stay on top and put its foot down on other interest groups, the admission that violence may be necessary at some point leads the way to groups that just employ violence directly for their own ends, whether justified by contractual disputes or not. They could just decide to take your stuff. They wouldn’t have to wait for you to step across any contracted line to initiate aggression.

Then it would just be their word against yours. It’s a problem.

Matthew Swaringen September 19, 2010 at 1:18 pm

Government is a monopoly on force over a geographical area. Force is always going to be necessary sometimes, but a monopoly on force is totally unnecessary and in fact, counterproductive.

michael September 19, 2010 at 1:45 pm

Mat, you just don’t get it. When no one has a monopoly on the use of force, what you get immediately is competing mafias, out to establish turf. It’s a highly profitable operation, to run your own vicious militia in a free-fire zone whenever there’s no established government. And to be more ruthless than the competition in gaining market share.

The winner becomes the new government. That’s the way it has always happened. In a word, Somalia.

Matthew Swaringen September 19, 2010 at 2:49 pm

It’s highly profitable when you have a monopoly, too.

TokyoTom September 21, 2010 at 7:30 am

michael, I think you’re asking good questions here. I don’t think there’s a clear case – given human nature and history – that an anarchic ‘society’ would be either peaceful or stable.

While Pinker points out that over the past few hundred years men are MUCH less likely to die from homicide than over previous periods, it’s clear both that (1) we cooperate within groups but compete between them, and (2) that large societies are prone to kleptocracy by elites.

mpolzkill September 17, 2010 at 12:01 pm

All over the place the concept of “Ad Hom” is being terribly abused. If one calls unelected wannabe masters of the economy who further their plans by using propaganda about the environment, ““ecofascists”, this is fairly truthful counter-propaganda. If instead all you talked about was how these men wear lady’s underwear, or some-such, *that* is “Ad Hom”.

TokyoTom September 18, 2010 at 8:23 am

Okay, fair enough – but my point isn’t that there aren’t some people screaming that we have to use government to drastically reorder society and reduce personal/community freedom (or that we don’t have to worry about such people), but that calling them “ecofascists” or envirofascists, watermelons or the like is entirely unproductive and dodges the real work of that Mises and others have encouraged of trying to solve problems, when a little scratching will show that not evil enviros but government actions lie at the core of the problems.

Too bad we so much love our little partisan, tribal modes of perception.

TT

Stephan Kinsella September 17, 2010 at 1:53 pm

Tom, you avoid the issues. Nevermind.

TokyoTom September 18, 2010 at 4:45 am

Stephan, come on; I always try to respond, and at the soonest opportunity.

Shay September 18, 2010 at 8:29 am

I’d like to understand the point he’s making. It sounds like he’s saying that a non-LLC could do something that harms someone, and that someone could sue everyone involved for damages, but that an LLC doing the same wouldn’t allow him to sue everyone involved, only the corporation’s assets. Thus, if LLCs didn’t exist, the same could NOT be arranged through contract, since the damaged third-party would never have agreed to the contract.

I’m nearly ignorant on LLCs, so I hope I’m not sounding like an idiot or missing something basic about them.

Jon Leckie September 18, 2010 at 8:43 am

I think that’s right, Shay: TT’s point is that limited liabililty – whether authorised by the state or constructed by private agreement – is fine for private parties who agree to contract with the LLC, but shouldn’t be binding on third parties who have not agreed to the limitation of liability of the LLC for tortious acts committed by the LLC.

I’m not through thinking about this, but at this stage my response is that TT’s proposal to ban limited liability is a perfect case of throwing the baby out with the bathwater. I think TT’s concerns are valid, but that better solutions lie in questions of property rights, common goods, externalities etc, a literature with which I’m not very familiar (my list of such gaps of knowledge is rather long and constantly expanding). Limited liability is an extremely useful and common tool to manage risk that may be (deliberately cautious tone) essential to advanced economies and I think TT is putting too much blame at the foot of this institution. To blame the GFC on limited liability certainly seems a bridge too far.

(TT, sorry to use the third person here, please don’t feel excluded by it.)

TokyoTom September 18, 2010 at 10:45 am

Shay, since liability as to voluntary counterparties CAN be limited by mutual agreement, that is NOT at all what drives the use of the limited liability corporate form, but the ability of owners to shift risks to involuntary third parties. One of the KEY PURPOSES of using the corporate form is the promise to generate great returns to shareholders at the risk of great losses to involuntary third parties, who because of state action lose ANY right to claw back profits for the poor, innocent shareholders.

I suggest you look through my many other posts on limited liability, and that explore this and related topic in the context of the financial crisis and BP:

TT’s Lost in Tokyo http://bit.ly/4nr2Ay

Jon Leckie September 18, 2010 at 11:14 am

TokyoTom: You say “One of the KEY PURPOSES of using the corporate form is the promise to generate great returns to shareholders at the risk of great losses to involuntary third parties, who because of state action lose ANY right to claw back profits for the poor, innocent shareholders.”

That is a bald assertion, Tom. There’s never a guarantee of returns to shareholders, let alone great returns. There’s never any guarantee that a company will commit a tort, and there’s never a guarantee that any such tort will result in liability that exceeds the available assets of the company and thus leaves third parties bearing a great loss. These are all events that may happen, but are in no way guaranteed to happen. This is classic baby with the bathwater stuff.

You’ve identified a real problem, but you drastically overstate the extent of it and use it to support abolishing a very useful vehicle for mobilising and deploying capital for socially productive ends. There are other solutions that should be explored before abolishing limited liability should be considered.

Shay September 19, 2010 at 5:16 am

Jon Leckie, it seems the main point is that without the inability of third parties to sue for damages from all involved members, LLC would merely be something of legal convenience that could still be fully achieved by merely having more verbose contracts between those involved. A human generally avoids doing major damage to others because his life can be made very unpleasant, due to losing all his wealth, so he generally refrains. But a human having an LLC do major damage isn’t risking his own well-being. This is what I understand to be TokyoTom’s central point.

I’m trying to understand how it works for non-LLCs. What limit is there to who all one can sue for damages? Owners, OK. Shareholders (if that term even applies to non-LLCs)? Employees? Customers?

TokyoTom September 21, 2010 at 8:13 am

Jon, you accuse me of exaggeration, but understatement is really more like it.

Since limited liability could otherwise be achieved by contract it is clear that the chief effect of that grant is to protect shareholders (and whatever dividends they make) from claims by injured third parties. This is a clear primary intention of many who incorporate and is why lawyers, accounts, doctors and professionals have all pushed to get out of partnerships and into professional corporations.

And sure there’s “never a guarantee of returns to shareholders”, “any guarantee that a company will commit a tort”, nor “a guarantee that any such tort will result in liability that exceeds the available assets of the company and thus leaves third parties bearing a great loss.” But corporations choose to ring-fence all of what they see as risky businesses in separate subsidiaries, precisely to limit the size of the bag if the business fails and/or third parties are injured.

And there have been MANY cases of risks being manifested and damages to innocent parties exceeding corporate assets (and of parent companies working feverishly to make sure those injured get as little as possible). Ever hear of “Superfund sites”, for example?

The history of the limited liability corporate form has been one of a continuing stream of abuses that has led steadily to the aggrandizement of federal power over the states that create corporations, to a continuing cycle regulation in the wake of undermining of strong common-law protection of property (see Block) to protect workers and citizens (regulating health, safety, and welfare, public companies, banks, etc.), and to a steady weakening of shareholder influence over ensconced management.

Far from throwing the baby out with the bathwater, people have to start recognizing that the ‘babies’ have nearly totally slipped our control and, with the government that they have much greater influence over than any of us do, are destroying our communities and freedom.

Anybody who wants to pare back the regulatory state has to strike at the root of regulation and corporate statism – the grant of limited liability that motivates demands from citizens for the mirage of state control.

Contrary to your suggestion, trying to rein in limited liability would NOT mean an end to the corporate form; corporations with uncapped shareholder liability would simply mean shareholders that have far greater incentives to oversee managers and who would be motivated to purchase insurance to cover potential claims against shareholders – which insurers would be well-positioned to help shareholders in oversight. States (and the federal govt) could offer incentives to move in the right direction by reducing regulatory burdens on unlimited liability corps, which would also be in a position to market themselves as more careful and conservative than their competitors. Another way to pare back limited liability would be to provide that companies ensure that common shares are only 10% paid in (so that a call on the remaining 90% remains).

A related step would be to end the counterproductive and risk-shifting federal and state grants of limited liability for particular risky activities, such as nuclear power plants and offshore oil and gas drilling; some commentators, both here at LvMI and elsewhere, have called for a requirement that banks and securities companies be partnerships, precisely because partners have greater incentives to control risk (moral hazard ran rampant in Wall Street as soon as the securities firm went public, and so were playing at making high bonuses while shifting risks to shareholders and US taxpayers, via the “Greenspan-Bernanke put”).

I encourage you to investigate further at my blog.

TT

TokyoTom September 21, 2010 at 8:40 am

Shay: “What limit is there to who all one can sue for damages? Owners, OK. Shareholders (if that term even applies to non-LLCs)? Employees? Customers?”

Your uncertainty here is a manifestation of the confused discussion over liability for “corporate torts”that Stephan Kinsella refers to. His position is that only humans act, and not corporations (though they are given “legal entity” status), so only particular persons who actually injured someone else (and those who directed/ordered their actions) should be liable for any tort – not the corporation itself (and certainly not shareholders, unless they were personally involved somehow). I agree that granting corporate status has greatly confused discussions over whom should be liable for corporate torts, and think Stephan too lightly brushes back the enormous and anonymous torts that our now massive corporations commit — precisely what individuals, for example, is responsible for the BP disaster, for the damage to health and property caused by pollution, or for injuries resulting from faulty products?

Rolling back limited liability should not mean that shareholders SHOULD be held liable for corporate torts in the same way that executives, managers and employees (the first two benefiting from company-purchased insurance policies) and sometimes lenders are; it would just mean that they would get no government-provided “get out of jail free” card. In this way, common shareholders would be put on a similar footing to partners in a partnership that acts through paid managers.

Jon Leckie September 21, 2010 at 9:10 am

Hello Tokyo, thanks for a powerful reply. You say “accuse”, well that’s a perjorative word, I guess it’s technically correct (that I did so) but please credit me with good intentions. I apologise for my immediately preceding post being worded rather shortly, I’ve trying to strike a better tone here.

You and I are not going to reach agreement in the short run, but it’s been interesting and you’ve given me a lot to think about. I don’t agree with you that all of the evils you identify can be laid at the feet of limited liability. I remain of the view that the abuses of the corporate form must be set against the benefits of allowing investors to mobilise capital in such a way that the downside is limited to the assets originally invested. It may ultimately be demonstrated that the abuses outweigh the upside, but from I have seen you don’t seem to acknowledge any benefits to limited liability. You also don’t seem to consider what the costs of the extra compliance and risk to investors with personal liability: I can tell you from personal experience that compliance and monitoring is not costless and that the burden can sink an otherwise profitable and socially beneficial project. You might say “Well too bad!”, but that’s lost jobs for people, that’s products that won’t be made, that’s wealth foregone.

Ultimately, extraordinary claims require extraordinary evidence. You put so much responsiblity at the feet of limited liability that I don’t think it’s unfair of me to ask for more evidence, better arguments (I may find them on further reading of your blog :-) ). I think Stephan Kinsella’s request of you earlier on this page remains valid, to quote:

“Tom, when you say the state grant of limited liability is not justifiable, this is a… way of trying to reverse the burden of proof. This very statement is relevant ONLY if the grant changes what would be the case anyway. That is, if shareholders would be vicariously responsible under a libertarian theory of cause for torts of employees of corporations they owned shares in.”

I believe I understand your response: “no one else gets to avoid tortious liability to third parties based EITHER on the grant of limited liability of the state or by a private contract, so why should people who stand behind an LLC get to do so? The existence of limited liablity (at least vis a vis third parties) is not the default position, they’re a creation of the state.” (Is that right? I’ve tried to be fair, I’m not interested in strawmen). Nonetheless, I don’t think that is a satisfactory libertarian theory of cause for tortious liability for reasons I’ve tried to set out already (contractual liability can exist absent a state (and thus so can limited liability) how would tortious liability exist absent the state?) and so Kinsella’s request remains valid.

If you think that question is covered, my other objection remains: it must ultimately be demonstrated that the abuses outweigh the upside. The law of unintended consequences applies to every proposal for change, and I don’t think you give fair credit to the role that limited liablity entities play in an advanced economy.

I’ll come and see you at your site, or watch out for a reply here. You’ve helped me clarify my own thinking and I appreciate that a lot. Best, JL.

TokyoTom September 21, 2010 at 2:01 pm

Jon:

Thanks for your response. While my envirofascist skin remains somewhat thin, I am fine with your tone – even if I see you as exaggerating and not fully comprehending my position.

A few comments in response:

“I remain of the view that the abuses of the corporate form must be set against the benefits of allowing investors to mobilise capital in such a way that the downside is limited to the assets originally invested.”

What, if anything, is libertarian about your proposed cost-benefit calculation? In determining whether state-granted limited liability is justifiable, shall we engage in a utilitarian weighing of the advantages to investors against the disadvantages to others?

“you don’t seem to acknowledge any benefits to limited liability”

But I have; but I have also pointed out that most of the benefits could be achieved by contract. It’s the benefits that can ONLY be achieved by government fiat and at the cost of innocent third parties that I object to.

You seem to think that either the intrusion of government here is minor or the cost to innocent third parties is trivial, but I can assure you that it is not. Indeed, much of what is wrong with the US in particular and with the world more generally can be laid at the foot of wide-scale government-enabled risk-shifting and moral hazard of the type seen in grants of limited liability and the concomitant cycle of regulation (in which the losers are always a number of steps behind) that such grants have set off.

“compliance and monitoring is not costless and that the burden can sink an otherwise profitable and socially beneficial project.”

I’m quite aware that compliance and monitoring are not costless; you, however, see to think that shifting risks to others and thus easing compliance and monitoring costs IS costless and “socially beneficial”, while ignoring that there are clear winners and losers from such government favor. Did you miss the Gulf oil spill, the limits on liability, the poor planning and oversight, the lack of caution, and the costs being borne by quite a different class of people than BP’s shareholders? Of many cases of environment harms experienced throughout the US? Are you unaware of the massive and ongoing environmental damage similarly caused by “socially beneficial” oil and gas development in Nigeria and Ecuador?

You and Kinsella: “Tom, when you say the state grant of limited liability is not justifiable, this is a… way of trying to reverse the burden of proof. This very statement is relevant ONLY if the grant changes what would be the case anyway. That is, if shareholders would be vicariously responsible under a libertarian theory of cause for torts of employees of corporations they owned shares in.”

Au contraire; it’s you and Stephan who are shifting the burden of proof and trying to avoid yourselves to come up with any convincing libertarian arguments FOR the state grant of limited liability to corporate shareholders. Stephan has acknowledged elsewhere that the grant is NON-libertarian, could not be contracted for voluntarily, and that if it were not to exist that insurers would be offering to insure shareholders from downside risks, but like you stubbornly seeks to cling conservatively to a status quo that favors investors and the big government corporatism has produced.

Far from me having to make a libertarian case shareholders should be vicariously responsible under a libertarian theory of cause for torts of employees of corporations, I simply need to show that the grant of limited liability significantly CHANGES the structure of the market and the behavior of market participants. Clearly, limited liability MATTERS, as amply demonstrated not simply by looking at markets and cases where limited liability shields shareholders from damages in cases where partnerships would be liable, but also by your own deep reluctance (and Stephan’s) to do anything about it. Stephan makes a thin lawyerly dodge, while you offer utilitarian arguments.

Stephan’s desire for a libertarian theory of vicarious liability of shareholders in the case of “torts of employees” of corporations is commendable, but as I have already noted, such a desire is itself confused by the failure to recognize the state favors given to corporations and the massive scale at which they operate and can damage third persons. It appears that Kinsella would have us treat most damages caused by companies as “torts by [particular] employees”, thus denying any recourse by injured parties to corporate assets. Such an analysis may be appropriate in the case of small businesses where who acts and under what authority may be very clear (as in the case of partnerships and sole proprietorships), but hardly make any sense in the case of the large, anonymous and bureaucratized institutions that limited liability and legal entity status have directly led to.

Sorry, but it seems to me that your own approach to the issue of tort liability makes even less libertarian sense: you have concluded that in a stateless society institutions would arise only to enforce contracts, while individuals and firms would get away scot-free if they willfully or negligently harmed others. Surely a brief look at traditional societies would quickly inform you that such societies have very sophisticated and effective ways of controlling behavior that damages others.

“my other objection remains: it must ultimately be demonstrated that the abuses outweigh the upside. The law of unintended consequences applies to every proposal for change, and I don’t think you give fair credit to the role that limited liablity entities play in an advanced economy.”

Ahh, there’s your non-libertarian insistence on the need for cost-benefit analysis for a change in eliminating limited liability as to persons involuntarily injured by corporate acts again. Do I need to add up all of the people harmed in the BP spill and weigh them against the potential cost to BP shareholders?

“The law of unintended consequences” sounds suspiciously like the precautionary principle that enviros always argue for (precisely because corporations bare risk-shifting machines); bravo! Actually, I’m very well aware, not only of the very central and valuable role that corporate entities play in our economy, but of all of the negative unintended consequences that the grant of limited liability (and other favors) has entailed. Bu far from throwing the baby out with the bath water, I see reform in this area as both a sine qua non for any meaningful effort to reduce statism and something that is eminently achievable and with a net benefit in efficiency, risk-management and, last be not least, justice.

TT

Jon Leckie September 22, 2010 at 6:37 am

For what it’s worth, that’s a really strong post, Tokyo. Thanks for taking the time, it’s really been helpful to me and I think you’re making inroads against my views that I first had at the start of this discussion!

TokyoTom September 21, 2010 at 9:04 am

Geoffrey and Stephan, cat got your tongue?

I’m waiting to hear more about the libertarian wonders of state-granted limited liability (and the evil nature of those citizens groups who have started to figure out not only that our good-willed statist corporations are way ahead of them in the struggle to use government, but are catching on to the idea that Mises explored of laws that enable the externalization of costs).

Your friendly neighborhood envirofascist,

TT

J. Murray September 21, 2010 at 9:17 am

There is no such thing as a libertarian state-granted limited liability.

TokyoTom September 22, 2010 at 12:00 am

Agreed; that’s MY point exactly.

Jon Leckie September 22, 2010 at 4:40 am

Well hang on now guys, there’s very much a thing as libertarian state-granted limited liability – aren’t you conflating liberatarianism with anarchism? The two are not the same and I can find no definition of libertarianisn that requires the abolishment of the state.

There very much is such a concept of state-granted limited liability, it’s just that Tokyo sees proponents as being obligated to justify its continuance PRECISELY because it is a gift from the state, whereas – on this point – I view it as also capable of existing absent the state through private contract. Tokyo then asks how private contract can exclude third party tortious liability, and I respond with how can tortious liability even EXIST in a stateless environment? (Which might be a stupid question, but no one’s yet said anything on it, it must be a question addressed in the literature somewhere).

Tokyo, one discrete question on your response above: you say it’s non-libertarian to weigh costs and benefits, summing this up as a crude utilitarianism. Why is that not an approach I can take? I mean, on the BP example, one might read your post and wonder whether BP merrily skipped town, having destroyed the gulf completely, taken no remedial action and paid no billions of dollars into a compensation fund, plus remaining exposed to private civil claims? Ask British pensioners whose payments are reliant on BP’s dividends whether they’ve suffered or not. Yes those living around the Gulf have had a hell of a time, but that’s not enough of an argument: accidents happen. BP is being punished. So it’s not a crude balancing act between (a) environment destroyed, people suffering and (b) callous shareholders laughing to the bank. I’m saying that limited liability may be responsible for a vast amount of economic activity that otherwise may not take place due to the unlimited risk of personal liability. Surely you need to take this into account, no?

Oh, and I need to ask you to do me a favour: please don’t accuse me of supporting big government corporatism. I may not be an anarchist, but I am as resolutely against corporate welfare and crony capitalism as anyone else who enjoys these pages. Supporting limited liability as a vehicle for mobilising investment is NOT the same thing as supporting GE or GM, please acknowledge this.

J. Murray September 22, 2010 at 5:30 am

I’m not really confusing libertarianism with anarchism here. A state-granted limited liability would be violating the life, liberty, and property angle. I don’t see libertarianism compatible with a state granting immunity to a party for any wrongdoing. The general argument between minarchism and anarchism in libertarian circles is whether the state should exist to punish those who violate those three key tennents, not whether the state exists to protect the wrongdoer against just punishment.

Jon Leckie September 22, 2010 at 6:24 am

Thanks, J. Murrary: that’s helpful. It’s probably apparent enough, but I’ve a lot more reading to do and am picking up a lot as I go along.

Does it affect your view at all to stress that limited liability does not preclude recovery? There’s no immunity: but recovery is limited to the assets held in the vehicle and if damages are in excess of the value of those assets, the entity is dead. There seems to be remedies available beyond banning limited liability to prevent/minimise undercapitalised entities engaging in behaviour likely to give rise to torious liability (contrast BP with Mom&Pop LLC running a local hardware store): I’m really struggling to get across the line on limited liability as ipso facto in breach of the life, liberty and property standard (thanks again for clarifying the perspective there though). Maybe one day I’ll end up in his camp, I’m keeping an open mind (as much as one can try!). Lots to think about.

PS. Without a state to impose liability for and punish tortious acts against the property rights of another, how would liability for the tortious act be enforced against the tortfeasor?

TokyoTom September 23, 2010 at 12:30 pm

Jon, as for “how can tortious liability even EXIST in a stateless environment?”, I clearly addressed this above where I said:

Sorry, but it seems to me that your own approach to the issue of tort liability makes even less libertarian sense: you have concluded that in a stateless society institutions would arise only to enforce contracts, while individuals and firms would get away scot-free if they willfully or negligently harmed others. Surely a brief look at traditional societies would quickly inform you that such societies have very sophisticated and effective ways of controlling behavior that damages others.

Maybe this post with Bruce Yandle’s thoughts on how humans manage commons might be a good start: http://bit.ly/8V2q6R

Utilitarianism presumes both that it is possible to measure and aggregate conflicting preferences and that it is acceptable for government to do so and to intentionally benefit particular groups of individuals at the expense of others. Austrians say that the first is impossible and libertarians say that the the second violates basic principles.

As for BP and other corporations, I have little sympathy for shareholders, who have the benefit of their bargain (including dividends in good times that cannot be clawed back when risks materialize and the company is unable to fulfill its obligation), while persons injured by corporate actions have little or no ability to bargaining in advance whatsoever, or to get ready to get harmed. (The case of BP is compounded by the fact that government, by claiming to own “public” resources, deprives the fishermen harmed of any control over their livelihoods including any property right that they can claimed was harmed.) This just scratches the surface; I have commented extensively on BP on my blog and on other pages here: http://bit.ly/crTbEA

Yes, I see that you are “saying that limited liability may be responsible for a vast amount of economic activity that otherwise may not take place due to the unlimited risk of personal liability.” I see we agree that limited liability is very important – great! – but you seem to think either that, somewhat magically, such limitations on liability make risks simply disappear, or that such a shifting of risks by investors in particular firms (and the investor class generally) to innocent third parties class leads to improved risk management, or that such shifting or risks by those who fund and benefit from them to innocent third parties is justified on utilitarian or some other unspecified principled grounds. Surely you can see that “the unlimited risk of personal liability” is the default situation without state intervention?

By the way, I completely accept your good faith; please accept my pokes simply as attempt to get you to reflect on the implications of your positions.

You might think that you don’t “support[] big government corporatism”, but surely you ought to realizing that limited liability is a key factor in the rise of statist corporations. Supporting limited liability as towards innocent third parties might be effective in creating a vehicle for mobilizing investment, but it is also clear a vehicle of massive risk-shifting, theft and at destroying community in favor of fundamentally amoral governments and corporations.

You suggest you don’t support GE or GM, but if you can accept and support limited liability, then surely also you must accept its consequences.

TT

Jon Leckie September 24, 2010 at 4:51 am

Hello again TokyoTom. I actually didn’t think your explanation relying on traditional societies was at all adequate. I’m not interested in regressing to a simple economy without an extremely advanced division of labour: I enjoy the benefits of advanced civilisation and want to keep it! :-) If a complex division of labour is a requisite of advanced civilisation (and I believe it is) then we can’t rely on social norms developed in necessarily smaller, traditional communities (I say necessarily smaller because without a highly specialised division of labour, you don’t get the productivity required to produce the surplus to support large populations). In any case, my question on how tortious liability is imposed absent a state is a side-alley: it’s relevant to the way you MAKE your case, but not central to your case itself. It was just a question I had, and it may be a stupid question because no one else has had anything to say on it.

Your posts have made and are making me reflect on the implications of my positions, I’ve acknowledged this a couple of times now and expressed gratitude. I’m not sure whether I’m enjoying a similar success, but if I’m the only beneficiary that’s good enough haha. Now I do need to state again (I’ve also said this a few times): I do absolutely acknowledge that the interaction of limited liability with tortious behaviour damaging third party property rights creates a problem where the limited liability vehicle is inadequately capitalised and leaves the third party without full compensation (according to law). This is clear. Your solution, well I’m still a long way off it, but that’s not important: the exchange of ideas is.

Can you help me on a slightly different part of this problem? I still can’t see the ipso facto connection you draw between corporatism and limited liability. Whenever a state with sufficient coercive power arises, its cronies will always seek to leverage that power for their own benefit. Supporting limited liability as a concept is not the same as supporting corporate welfare. Please can you set out why these two …err.. concepts (for want of a better word) are so intrinsically related? Your penultimate paragraph above doesn’t set out your reasoning so I can’t get on board yet.

TokyoTom September 23, 2010 at 12:48 pm

“Accidents happen”? So do systematic trainwrecks due to mismanagement of risks.

Could government interventions that enable risk-shifting in banks, securities firms and corporations (and subsequent bailouts) have anything to do with engendering such mismanagement?

Massive kleptocracy in the third world differs little from what we see at home.

Jon Leckie September 24, 2010 at 5:05 am

On the penultimate sentence, I answer “Yes”: but (a) that form of intervention is not the same as limited liability, it’s actually the dead opposite: a guarantee from the state that limited liability WON’T be enforced in that any liabilities the LLC can’t fund will be funded by the taxpayer, which creates a massive moral hazard. I say let all insolvent institutions either restructure or die, and (b) limited liability can (and I say should) be contracted for privately absent the state. On the final sentence, I agree (without reservation).

But the first sentence. BP’s share price crashed, they spend billions of dollars fixing the spill, they’re on the hook for billions more, and their market standing in the US got smashed. They had and continue to have enormous incentives to put in place appropriate governance procedures. How many people lost their jobs at BP? Quite a head count I would guess, considering what 15 people? also died. Corporations are staffed by people who are concerned about their jobs, their careers, their reputations. None of that is impacted by limited liability (“oh what the hell we can afford to pay out $20b before the company’s existence is at risk, just do whatever the hell you like I’m off to lunch” – (apologies for the dramatics)). What evidence do you have that it was a failure of internal governance that led to the spill?

Beefcake the Mighty September 22, 2010 at 9:51 pm

“I agree that granting corporate status has greatly confused discussions over whom should be liable for corporate torts, and think Stephan too lightly brushes back the enormous and anonymous torts that our now massive corporations commit — precisely what individuals, for example, is responsible for the BP disaster, for the damage to health and property caused by pollution, or for injuries resulting from faulty products?”

What does this question have to do with limited liability? Why should shareholders be any more responsible for the disaster than people who filled their tanks with BP’s gas? They both gave the the company money, after all.

I’m having a hard time seeing what point, exactly, you’re trying to make here (beyond anti-corporatist bromides).

TokyoTom September 23, 2010 at 11:20 am

Lord Bungulous Bringer of Beefcake:

What, those who simply buy a company’s products should be treated on the same basis as those who invest in the company’s business model? Are you trying to clarify, or obfuscate? One offers money in exchange for goods or services, the other offers money for the profits he expects to gain from the company’s business model.

I’m having a hard time seeing what point, exactly, you’re trying to make here (beyond pro-statist-corporatist bromides).

What does the question of whether corporations should have any vicarious liability for the actions of its employees and agents have to do with limited liability? Thanks for the opportunity for me to be a bringer of light, but it’s not that complicated: without limited liability and corporate “legal entity” status, investors and corporate managers would care to make sure that employees are careful. The limited liability shield makes it the interest of shareholders NOT TO CARE, and the interest of managers to obscure who is responsible. Because incorporations make possible large, impersonal businesses without a clear locus of responsibility, on the behest of victims seeking recompense for damages suffered, courts tend to hold “the company” responsible.

In short, the confusion that Stephan raises and professes to be concerned about is a product of the very state grant of limited liability that he – like you – thinks is too unimportant to question, but important enough to defend.

Why don’t he and Stephan start a libertarian fan club for essential government interventions? You can start with limited liability for corporate shareholders generally, add the specific caps on liability granted to the oil+gas industry and nuclear industry, and include the preemption of strict common law protection of property from pollution, in favor of federal preemption and rights to pollute.

Or you could think a little more seriously about how we could replace corporate risk-shifting machines and the whole mass of federal and state regulation that are purported intended to curtail such risks (but instead create barriers to entry and ensconce management from shareholders, thus introducing another layer of moral hazard) with internal risk control and risk control via insurers acting for shareholders.

A number of conservative commentators have made the radical suggestion that banks, securities firms and offshore oil+gas cos should be allowed to act only through partnerships (or other unlimited liability entities); they are thinking too modestly and have overlooked the limited liability for corporate shareholders that drives our whole regulatory edifice and has set off our escalating cycle of statist rent-seeking and corruption.

TT

Beefcake the Mighty September 23, 2010 at 11:26 am

“One offers money in exchange for goods or services, the other offers money for the profits he expects to gain from the company’s business model.”

Yeah, what a critical distinction. Shocking I didn’t see it previously; thanks so much!

TokyoTom September 23, 2010 at 1:09 pm

Not sure whether I should be pleased that my comments are so pedestrian, or disturbed that you are content with government interventions that help to erase moral distinctions.

Prior to the creation of corporations, it was clear who was doing what … thank goodness for anonymity and lack of personal responsibility!

Are neither trees nor forests important to you?

Beefcake the Mighty September 23, 2010 at 1:40 pm

I like both trees and forests; you, however, I have little use for.

TokyoTom September 23, 2010 at 9:27 pm
TokyoTom September 23, 2010 at 9:39 pm

[apologies for whatever caused the sucky formatting above]

You can be pleased to illustrate the enduring importance at the Mises blog of not being earnest.

I, on the other hand, can be thankful that you provide an opportunity for me to help others examine the growing rot set off by the very non-libertarian grant of limited liability to shareholders regarding injury to involuntary third parties:

http://mises.org/Community/blogs/tokyotom/archive/2009/02/26/the-curse-of-limited-liability-wsj-com-executives-traders-of-big-financial-corporations-generate-risky-businesss-while-smaller-partnerships-are-much-more-risk-averse.aspx

http://mises.org/Community/blogs/tokyotom/archive/2010/06/29/limited-liability-financial-crisis-and-bp-someone-else-sees-the-obvious-quot-black-swan-quot-of-executive-trader-moral-hazard-after-investment-banks-went-corporate.aspx

http://mises.org/Community/blogs/tokyotom/archive/2010/04/22/finally-an-lvmi-commentator-points-out-the-elephant-in-the-room-effective-reform-to-rein-in-rampant-moral-hazard-at-banks-means-removing-limited-liability.aspx

http://mises.org/Community/blogs/tokyotom/archive/2010/08/18/in-a-shocking-moment-of-honesty-conocophillips-ceo-says-offshore-oil-isn-t-economical-without-government-gifts-of-limited-liability.aspx

Thanks so much for coming out to play, Lord Beefcake!

TT

PS: I’m very happy to hear you like forests and trees; looks like we got us a growing little group of “watermelons” around here.

The Kid Salami September 24, 2010 at 5:40 am

“One offers money in exchange for goods or services, the other offers money for the profits he expects to gain from the company’s business model.”

What about someone who hands his money to some third party to manage and this third party puts his money into BP? Is he more or less liable than someone who does it directly?

Your distinction is not helpful. “offers money for the profits he expects to gain from the company’s business model” – this is just having dividends stuck into your bank account. How is this different in your view from the “services” you mention in the first part?

Beefcake the Mighty September 24, 2010 at 7:55 am

You’re right. Not to mention another point I should have made originally: many shareholders don’t give the company money at all! They buy stock from a previous owner. Tommy-boy is full of shit here, and he’s studiously avoiding the central issue as laid out by Kinsella: provide a theory of liability that coherently distinguishes shareholders from any other patron of the company.

Jon Leckie September 24, 2010 at 8:15 am

Beefcake, Kid Salami: I’ve posted a lot on this page and have had a good interaction with Tom, but if you’ve got the time, any comments you have on my thoughts would be most welcome (although I can’t promise that my content is worth the effort :-)). I have a lot of reading left to do on anarchism and it may be that my perspective is really not sufficiently informed/sophisticated but it would be nice to get some feedback from folks who are not of the “ban-limited liability” camp.
JL

Beefcake the Mighty September 24, 2010 at 8:16 am

Also, don’t consumers, by buying the company’s products, contribute to the very profitability that is deemed to be critical to the distinction here?

TokyoTom September 24, 2010 at 11:43 am

TKS, thanks for your questions.

I am quite aware of the point that, as a consequence of the existing grant of limited liability, shareholders have little actual control over public companies in which they have shares of stock and thus – along with zero legal liability for corporate torts – very little moral responsibility for corporate behavior. But such observations of the status quo cannot serve to justify the state intervention that has so neatly divorced the supposed “owners” of a business from any such liability.

While the differences between shareholders and customers now may appear to be slight, this is a situation (where there re no human actually owning the business and any downside risks) created artificially by government; I can assure you that the differences between owners and customers is much more stark in partnerships and other forms of business enterprise where the owners are not given a liability shield by government and thus bear personal risk if things go wrong. While this largely as we think it should be, I have never heard a libertarian or legal argument that those who purchase products from an enterprise should have any legal liability for harms that the business causes to others (though it is not uncommon to see moral suasion pressure being put on customers as well as creditors and shareholders when an enterprise engages in harmful or objectionable activities).

Our courageous poo-flinging BS Almighty appears to have studiously missed it, but you might have noted that I have remarked several times that I am NOT arguing FOR a general rule that shareholders SHOULD be liable for corporate torts; rather, I have (1) pointed out that limited liability itself has served to muddle the question of whom, exactly, should be responsible for the very real harms that corporatons frequently cause, (2) noted that the limited-liability corporate form has enabled risk-generation and -shifting on a massive scale, with innocent third parties frequently being stuck holding the bag (not solely when liabilities exceed assets, but more generally since the cycle of escalating government interventions to rein in corporations perversely ends up raising barriers to entry and giving corporations “rights to pollute” that curtail recourse even when sufficient assets are available), (3) argued that libertarians should reconsider the grant of limited liability for torts (as opposed to limited liability as to those who contract with the corporation on a voluntary basis) not simply because it is clearly non-libertarian to begin with, but because it has had profound consequences – consequences at a serious enough level that state-loving libertarians concede simply by troubling themselves to argue against curtailing limited liability, (4) noted that the most efficiacious way to roll back the regulatory state lie in the direction of shifting ultimate responsibility fpr managing risks to enterprise owners (and ending the counterproductive regualtory risk-management experient), and (5) noted that a curtailment of limited liability for torts could be hedge by shareholders via insurance, and could be achieved by state governments and the federal government offering more lenient regulation to busness enterprises that operate as partnerships, unlimited liability corporations, or where shares are not fully paid up so that calls for signifcant additional capital could be made against shareholders if needed to pay claims.

IOW, the insistence by Kinsella and his fellow deep-thinkers that one must “provide a theory of liability that coherently distinguishes shareholders from any other patron of the company” BEFORE one can examine the justifications FOR and the consequences of the state grant of limited liability is both sadly non-libertarian and dangerously blind and shallow.

Beefcake the Mighty September 24, 2010 at 11:48 am

Whatever, Tommy-boy. You’re the only “deep-thinker” I see around here. And by “deep-thinker” I mean a self-important windbag with far too much time on his hands.

TokyoTom September 25, 2010 at 11:34 am

BM:

You persistently seem to have trouble reading or engaging in productive discourse.

Mises deserves better; kindly shape up or ship out.

William P October 1, 2010 at 3:57 am

This conspiracy plot stuff is ridiculous. Some people just can’t wait to make a secret political plot out of anything and everything.

Suggesting Lovelock is leader of Ecofascism goes considerably beyond ridiculous. Lovelock is first and foremost an accomplished scientist and inventor. He is frustrated by the lack of any credible effort by governments to curb global warming which is highly likely to cook us all and in the views of some scientists turn earth into a new Venus. A world dictator is better than death for 5 billion humans, would you agree. Or should we be fighting to keep democracy alive as it leads us to final destruction by global warming.

Worrying about our form of government at this late stage in global warming and CO2 in our atmosphere is truly like arguing about the arrangement of deck chairs on the Titanic. The word on how deadly serious global warming really is just has not gotten out – due mainly to efforts of big oil companies to create confusion and doubt – just like tobacco companies did for fifty years about cancer and smoking.

William P October 1, 2010 at 4:05 am

It would not surprise me if in the above comments we had some oil company plants sowing diversionary crap about Ecofascism to keep us from looking at the main problem. CO2 emissions are killing our planet.

So go argue your fine points of ecopolitics if you feel that is going to solve the basic change in our natural world.

Mother Nature has some firm rules about caring for our environment and planet. She cares not a wit about our fine political concerns. Follow her rules or die. No excuses. No second chances. No re-do of things. Follow her very rigid rules on maintaining your environment or perish.

J. Murray October 1, 2010 at 6:04 am

Yes, because “oil companies” have all kinds of incentives to come to a libertarian website to “plant” opposition to government regulation.

Comments on this entry are closed.

Previous post:

Next post: