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Source link: http://archive.mises.org/4269/in-defense-of-the-corporation/

In Defense of the Corporation

October 27, 2005 by

Piet-Hein van Eeghen’s article “The Corporation At Issue, Part I: The Clash With Classical Liberal Values and the Negative Consequences for Capitalist Practices,” in the latest issue of the JLS, argues that “the corporate form of business organization is inherently incompatible with the principles of classical liberalism.” (Further summary of van Eeghen’s piece reprinted below.)

I have elsewhere posted a brief reply to other libertarian critics of the corporation (that reply is reprinted below), and more or less defended the pro-corporation view of Objectivist Robert Hessen. Part II of van Eeghen’s article, to be published in JLS 19.4, will offer a critique of Robert Hessen’s defense of the corporation, but I will go ahead now and summarize some of my comments on Part I.

I found most of van Eeghen’s arguments to be beside the point, at least for what to me is the basic question, which is: does respecting corporate status violate anyone’s rights?

Van Eeghen implies it does, because of limited liability. It seems to me that the corporation basically says shareholders are not liable for contractual obligations of the corporation. Obviously this could easily be recreated solely using private contracts. The person or company who does a deal with ABC Corp. is in effect agreeing not to pursue the assets of the shareholders if the company owes him money. So whose rights are violated?

As for tort liability–well, I am not aware of corporate law limiting the liability of any person, shareholder or otherwise, for torts he commits. In libertarian law, if you have a complex organization or business, you need to show some given person is responsible for the tort committed by someone else if you want to hold them responsible. It’s a causation question (Pat Tinsley and I go into the issue of causation and responsibility in Causation and Aggression).If the FedEx truckdriver negligently runs over you, is the shareholder responsible? Well, why would he be responsible in the first place? Because he gave a bit of money to the company? But so do customers! And banks. And suppliers. (And actually, most shareholders never gave money to the company–they bought the shares from a previous shareholder.) Because they control the company’s actions? Well they had no more influence over the concrete decisions of the truck driver, or his direct supervisor, than an influential creditor or customer. The point is if you can make a case that a given person other than the one directly responsible (the truck driver) is causally, jointly liable, fine–then under libertarian principles this person is also liable. In such a case I am not aware that corporate law grants them immunity from suit; and if and to the extent it does, then it should not (I don’t think it does but would need to check this).

If there is a problem with the law in this regard, it is with the law’s failure to assign liability according to sound principles of causation. If some critic of the corporation thinks some managers, and perhaps some directors, in a given incident are causally responsible for the tort, then fine, say so, and make the case. I would not oppose this in general. I believe it’s very difficult in most cases to connect the actions of the shareholder to damage caused by an employee of a company in which the shareholder holds stock. But if it could be shown in a particular case, then fine, he is liable. What has this to do with corporate law, which as far as I know primarily is aimed at limiting the liability of shareholders for contractual debts of the company–which is perfectly libertarian.

***

From Roderick Long’s summary of the JLS issue:

Walter Block has argued in an earlier issue — JLS 16.4 (Fall 2002) — that “Henry Simons Is Not a Supporter of Free Enterprise.” In “The Corporation At Issue, Part I: The Clash With Classical Liberal Values and the Negative Consequences for Capitalist Practices,” Piet-Hein van Eeghen offers a qualified defense of Simons by taking up what he sees as one of Simons’s key insights: that the corporate form of business organization is inherently incompatible with the principles of classical liberalism.

The problem with the corporate form is that it grants to private business a distinctive governmental feature — legal personhood, and the accompanying privilege of limited liability — without the correlative burden of democratic accountability; granting such a status, van Eeghen argues, constitutes an un-libertarian surrender of individual responsibility, and confers the benefits of ownership without its corresponding costs, thus enabling corporations to concentrate power and externalize risk in ways to which libertarians should object. (Part II, to be published in JLS 19.4, will offer a critique of Robert Hessen‘s defense of the corporation as an institution.)

***

Legitimizing the Corporation [from LRC blog]

Marginal movements tend to draw their share of nuts and cranks; unfortunately, libertarianism is no exception. In addition to claims that we don’t (not “shouldn’t” but “don’t”) owe income tax, or “that hiring an attorney means abandoning personal sovereignty before the law, or that having a yellow-[or gold-]fringed flag in a room means you are under martial [or admiralty/maritime] law,” there are also a fair number of libertarians who view the modern corporation with suspicion. They are concerned that the corporation is viewed as a “person” and believe, erroneously, that corporations shield corporate employees from liability for negligence.

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

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

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

Excerpts from the Hessen article

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

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

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

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

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

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

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

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

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

Update: See further discussion and my list of resources on this in Sean Gabb’s Thoughts on Limited Liability.

Update: Roger Pilon’s Corporations and Rights: On Treating Corporate People Justly also has some very good stuff on why limited liability does not give any special privilege to shareholders. See also my post Legitimizing the Corporation and Other Posts.

{ 55 comments }

Gregory White October 27, 2005 at 10:13 pm

Stephan wrote:

“The person or company who does a deal with ABC Corp. is in effect agreeing not to pursue the assets of the shareholders if the company owes him money. So whose rights are violated?”

But how many firms of any size don’t use the goverment sanction that is a “veil of immunity,” otherwise called incorporating? I mean, if you can get a large immunity from debts just by the relatively smaller cost of incorporating, why wouldn’t a self-interested investor/owner do so?

So once every firm of any substantial size is incorporated, what real “agreement” (really choice) is there?

Stephan Kinsella October 28, 2005 at 1:25 am

White: “But how many firms of any size don’t use the goverment sanction that is a “veil of immunity,” otherwise called incorporating? I mean, if you can get a large immunity from debts just by the relatively smaller cost of incorporating, why wouldn’t a self-interested investor/owner do so?”

The question, it seems to me, as I already stated, is: whose rights are violated by incorporation? If no one’s rights are violated, what is the (liberarian) complaint? If you feel incorporation actually violates a given individual’s rights, please specify who and how. it it not clear from your amorphous question exactly who you think has their rights violated, and why exactly what action or institution or mechanism. Can you be explicit?

quasibill October 28, 2005 at 7:10 am

Seems like an awful lot of mental gymnastics to say that limited liability in the contractual arena is compatible with libertarian ideals, while admitting that it really has no place in the tort arena – proximate cause and actual cause analyses are all the limited liability anyone gets, corporation or no.

Or am I missing something?

billwald October 28, 2005 at 10:05 am

The talk radio ads about incorporating in Nevada claiming that a person with terrible credit can get it with no personal liability – this compatable with libertarianism?

Would a moral person want credit without liability?

Vince Daliessio October 28, 2005 at 10:25 am

billwald, that would be tantamount to fraud, and so it would not be compatible with libertarianism.

My reservation, and the reservation many of my far-left anticapitalist and anarcho-syndicalist frends have about corporations is with the special, government-conferred advantages enjoyed by certain corporate forms after the Santa Clara County v Southern Pacific Corporation case (http://www.ratical.org/corporations/SCvSPR1886.html), specifically with the differential tax treatment and conferring of an artificial corporate “personhood” upon the corporate entity as opposed to the individual stockholder’s real personhoods.

My own conviction is that if corporations were transparent to law except for their contractual limitation of liability, and the shareholders of the corporation obtained no legal advantage whatsoever over unincorporated businesses or individual persons, then I would have no objection to the corporate form at all. But just taking into account the egregious difference in taxation between a privately-owned business at its owners’ death and a corporation’s tax liability at corporate succession it should illustrate how the interaction of the corporate form with the law as we now know it confers assymetric advantages on stockholders that individuals are prevented from enjoying.

Georgist October 28, 2005 at 11:27 am

The problem with the complaints on the left is that the find this teensy weensy advantage corporations get and from that immediately conclude everything they do is 100% dependent on the state and there would be nothing remotely like them if not for this [tiny] advantage … which is really ridiculous. And, yes, it is pretty small. Whatever advantage corporations as corporations get is more than offset by the additional costs that corporations as corporations have to pay. Obscene jury awards, taxation of the corporate form itself, requirement to disclose information without a warrant that individualst do not meet… sorry, it’s really making a mountain out of a molehill. If a corporation received a $1 tax break on its $1 million tax bill, I can guarantee you someone would say “that corporation received huge government subsidies without which it would not exist!”

tz October 28, 2005 at 1:29 pm

But why form a corporation if not to get around some law – which may be just or unjust – which applies to persons?

You can do collective action via private contract.

When you create something called a corporation, it is normally to avoid problems like people dying (so a corporation could own something in perpetuity), or liability (instead of a real person, you have an amorphous blob to try to sue).

Lets say I incorporate myself. Should Me, Inc. have any greater or lesser rights or responsibilities than Me, the person? The corporation can’t marry. But what else is different? If nothing, then there is no reason to have corporations. If there is a difference, then it might be a method to violate rights. If I can protect Me, the person’s assets from a suit against Me, Inc. (can Me, Inc. be jailed?), then there is a problem.

Vince Daliessio October 28, 2005 at 4:30 pm

AHA tz – the corporation CAN marry – it’s called a merger, bua ha ha!

Seriously, the ideal of a corporation really does leave very little to quarrel with in an Austrian sense. But the Constitution, bless its founders hearts, is ostensibly written to protect the rights of individual PEOPLE, not GROUPS of people. Union Pacific v Santa Clara changed this, basically saying the rights allegedly guaranteed to individuals by the Constitution were also guaranteed to particular arrangements of people in groups. If we believe that the Constitution as such has any integrity (and I am not as ready yet as some to give up on it completely), then the supremes of that day should have remanded the case to the states, which is where corporation law and contracts was rooted until that time.

Georgist October 28, 2005 at 5:00 pm

I really don’t understand that complaint about “giving corporations rights”. I mean, if you want to talk about limited liability, fine. But other than that, I know of no legal right granted to corporations but not individuals. Any right people complain about corporations getting is equivalently expressible as an individual right. Don’t like corporations having free speech rights? Fine, pretend it’s all of their employees having free speech. Don’t like corporations having the right to donate to political parties? Fine, pretend it’s a bunch of individuals giving the money. Don’t like corporations owning property? Pretend that the CEO owns it but has a contract with the board of directors on what he can do. It’s a red herring.

adam knott October 29, 2005 at 11:35 am

We assume that the office holders of a corporation commit some crime, of whatever type, harming some individual or group. (The crime is some injurious act for which the legal system will assess a penalty, and the crime is not necessarily committed within the context of a business dealing. It may be some act the corporation’s officers initiate harming someone not engaged in a business dealing with the corporation) To the extent that laws of incorporation allow the penalty or damages from that crime to be apportioned incrementally to each share holder, the penalty or damages not accruing in full measure to the criminals themselves, then to this exact extent is an incentive created for the criminal behavior.

Whether or not the victim can collect damages from the corporation’s assets is beside the point. The point is that the original damage to person or property is encouraged by a protectionist type scheme, allowing some to take injurious action towards others, in a legal atmoshphere they know will apportion the damges incrementally to shareholders.

The law may not say that such a dynamic is it’s intention. There may be no law stating that this behavior is legal. Rather the incentive to injurious conduct is an unintended consequence of a protectionist scheme. The scheme removes the disincentive to injurious conduct, by apportioning the penalty for such conduct among share holders.

If it is argued that laws of incorporation are benign, and that the entire structure could be created by contract, or is an implicit contract, the contract envisioned would have to include the victim also. The implicit contract would then be something such as: “I agree to participate in a system where an injurious act may be committed against me due to incentives created by laws of incorporation, etc…”

To the extent laws of incorporation shield (protect) the wrongdoer, by apportioning penalty to a larger group, this system is harmful from the point of view of those harmed,who may have preferred not to be harmed in the first place, even if they can collect financially from the corporation’s share holders.

Wolf DeVoon October 30, 2005 at 8:43 am

Kinsella: whose rights are violated by incorporation?

Check your premises. The state is a corporation. This is explicit in local governments and public service monopolies (dams, water districts, PBS), but equally true of nation-states. Privately held corporations are no different in legal character. Their existence as “fictional legal persons” and the impersonal character of limited liability distorts the entire legal system. Think Enron. No one individual was personally liable, all were shielded more or less by the byzantine structure of an impersonal corporation.

Wolf DeVoon

Georgist October 30, 2005 at 2:59 pm

Adam Knott: I assmue you apply exactly the same analysis to people who buy liability insurance. That is, you think it’s a fraud because you have the right to be paid out of their pocket, and not have the insurance company pick up the bill. Right?

Gregory White October 30, 2005 at 7:23 pm

Stephan K asks: “whose rights are violated by incorporation?”

It depends on whether you think this sort of freedom of contract exists under Bork’s ink blot. If you don’t, then your question is understood and requires no answer. If it does exist, then the government granted immunity effectively destroyed this particular right of contract (implicit elimination of the right).

Paul Edwards October 31, 2005 at 9:58 am

Wolf:

I’m not following you. Are you saying that incorporation protects everyone associated with the company, from shareholders and upper management to the delivery truck driver, from any legal ramifications of their actions at all?

I thought Stephan’s point was that this is not the case. The truck driver can be charged for negligence etc, and so can his superiors. My understanding is that the point of incorporation is to simplify contracts which are permissible on a one-by-one basis: that is an agreement that creditors can hold the shareholders only responsible for debts only to the extent that the pooled funds of that corporation can cover them, and not leave the shareholders personally liable for such debts.

That means that we can buy shares in a company, and at worst loose our entire investment, but no more, and we don’t have to hire a lawyer to write up a contract each time stipulating we only agree to be liable for our investment.

adam knott October 31, 2005 at 12:31 pm

Let’s assume a corporation is fined some large amount. Ostensibly this is for committing some serious and harmful act. Generally, all of the people associated with the corporation will not have committed the act in question. For the sake of argument, we should assume that the employees and shareholders did not. In our example, the office holders are responsible for harming some person or group. They continue to collect their salary, benefitting economically, while the penalty is assessed incrementally to the “corporation”. To this extent then do they do these acts under cover of laws of incorporation, and in this sense the acts are “incentivized” or encouraged. If fines in fact are never levied in the way described, then my example does not apply, and I am mistaken in believing that corporations are fined for the acts of specific individuals. But if fines are levied in the way described, this means that some can harm others, and under cover of law, have the penalty assessed incrementally over a large number of people. Some may be O.K. with this, and some may not.

Stephan Kinsella November 2, 2005 at 2:18 pm

Let me reply in reverse order to some of the posts so far. Note that I have posted a reply or two already to Gil Guillory’s separate post about this topic (in which reply I elaborated on the nature of “fraud”).

adam knott:

Let’s assume a corporation is fined some large amount. Ostensibly this is for committing some serious and harmful act. Generally, all of the people associated with the corporation will not have committed the act in question. For the sake of argument, we should assume that the employees and shareholders did not. In our example, the office holders are responsible for harming some person or group. They continue to collect their salary, benefitting economically, while the penalty is assessed incrementally to the “corporation”. To this extent then do they do these acts under cover of laws of incorporation, and in this sense the acts are “incentivized” or encouraged. If fines in fact are never levied in the way described, then my example does not apply, and I am mistaken in believing that corporations are fined for the acts of specific individuals. But if fines are levied in the way described, this means that some can harm others, and under cover of law, have the penalty assessed incrementally over a large number of people. Some may be O.K. with this, and some may not.

Not sure what you are trying to say. Talk of incentives is irrelevant; this is the language of a utilitarian. We are talking about principles–rights–here. The issue of what to do with the prospect of “waste” of assets available to pay damages, in the period between filing of a suit and its resolution, is technical and uninteresting, not really relevant to the question of whether limited liability is libertarian or not. It is not related to limited liability, since the issue you describe could occur in a partnership or other type of entity. It is not only corporations that have employees. Or maybe I am missing your point. If so, please clarify and restate it clearly, making your assumptions clear, with a clear question.

Gregory White:

Stephan K asks: “whose rights are violated by incorporation?”

It depends on whether you think this sort of freedom of contract exists under Bork’s ink blot. If you don’t, then your question is understood and requires no answer. If it does exist, then the government granted immunity effectively destroyed this particular right of contract (implicit elimination of the right).

Rights have nothing to do with recognition in a constitution, especially the federal Constitution which protects rights (from federal invasion) primarily by limiting and enumerating federal powers. Legal recognition of incorporation does not, in any event, destroy any right. It simply gives an option to individuals to conveniently organize their affairs exactly like they have a right to do by private contract, anyway.

Wolf DeVoon:

Kinsella: whose rights are violated by incorporation?

Check your premises. The state is a corporation. This is explicit in local governments and public service monopolies (dams, water districts, PBS), but equally true of nation-states. Privately held corporations are no different in legal character. Their existence as “fictional legal persons” and the impersonal character of limited liability distorts the entire legal system. Think Enron. No one individual was personally liable, all were shielded more or less by the byzantine structure of an impersonal corporation.

I’ll answer despite the “Check your premises” comment that always sets off my Rand-dar. I think you are confused. I am not arguing that there should be corporate law. I am anarchist and think it should all be private. But some libertarians–increasingly apparently those ignorant of just what corporate law says–say corporations are illegitimate becuase of their limited liability. As you are assuming here. In a private society you could have a company called Enron, based on a founding contractual agreement among shareholders whereby each shareholder’s liability for contractual debts of the entity is limited to his investment. Each contract between Enron and some third party would be subject to these limitations. Every third party is voluntarily agreeing not to pursue the assets of the shareholders in case of a claim, but to go only after the defined assets “of the company”. This is not unlibertarian. Libertarianism does not counsel hostility to “impersonal” corporations any more than it counsels wearing birkenstocks and smoking weed.

Vince Daliessio:

Seriously, the ideal of a corporation really does leave very little to quarrel with in an Austrian sense. But the Constitution, bless its founders hearts, is ostensibly written to protect the rights of individual PEOPLE, not GROUPS of people. Union Pacific v Santa Clara changed this, basically saying the rights allegedly guaranteed to individuals by the Constitution were also guaranteed to particular arrangements of people in groups. If we believe that the Constitution as such has any integrity (and I am not as ready yet as some to give up on it completely), then the supremes of that day should have remanded the case to the states, which is where corporation law and contracts was rooted until that time.

The Constitution has nothing to do with state recognition of corporations. This is a state law matter. The state does not need to find authority in the federal Constitution to enact a law; and there is no limit on states recognizing corporations in their state constitutions or in the federal one.

To call a corporation a legal person is just a convenient legal fiction. In a libertarian society it would just be a way to conceptualize a complex contractual arrangement.

However, you are right, in a sense: I would like to see incorporation law changed so that the corporation is not viewed as a “person”, at least for income tax–corporations should not be taxed; rather the real owners should be the only ones taxed, and only once, not twice.

tz:

But why form a corporation if not to get around some law – which may be just or unjust – which applies to persons?

You can do collective action via private contract.

When you create something called a corporation, it is normally to avoid problems like people dying (so a corporation could own something in perpetuity), or liability (instead of a real person, you have an amorphous blob to try to sue).

Corporations are formed to provide a convenient way to invest in a company without having to have direct control or input and liability. This is not rocket science.

Lets say I incorporate myself. Should Me, Inc. have any greater or lesser rights or responsibilities than Me, the person? The corporation can’t marry. But what else is different? If nothing, then there is no reason to have corporations. If there is a difference, then it might be a method to violate rights. If I can protect Me, the person’s assets from a suit against Me, Inc. (can Me, Inc. be jailed?), then there is a problem.

This betrays a confused understanding of this area. It is utterly silly to say that if there is any real reason to form a corporation then it must be because it violates right. Bah.

Vince:

My reservation, and the reservation many of my far-left anticapitalist and anarcho-syndicalist frends have about corporations is with the special, government-conferred advantages enjoyed by certain corporate forms after the Santa Clara County v Southern Pacific Corporation case (http://www.ratical.org/corporations/SCvSPR1886.html), specifically with the differential tax treatment and conferring of an artificial corporate “personhood” upon the corporate entity as opposed to the individual stockholder’s real personhoods.

It’s the other way around. Corporations should not be taxed at all–since this is just double taxation of shareholders. Conferring personhood on corporations actually subjects them to unfair taxation on top of what the shareholders have to pay.

My own conviction is that if corporations were transparent to law except for their contractual limitation of liability, and the shareholders of the corporation obtained no legal advantage whatsoever over unincorporated businesses or individual persons, then I would have no objection to the corporate form at all. But just taking into account the egregious difference in taxation between a privately-owned business at its owners’ death and a corporation’s tax liability at corporate succession it should illustrate how the interaction of the corporate form with the law as we now know it confers assymetric advantages on stockholders that individuals are prevented from enjoying.

The primary complaint about the corporate form is that it gives limited liability. It has nothing to do with its tax status. Of course, there would be no taxes in a free society so this is irrelevant.

Today, however, a corporation is a legal person so has to pay (corporate) income tax. Then, any dividends paid to shareholders are taxed again. This means the shareholder is taxed twice. Compared to the investor in a different form of business, such as sole proprietorship or partnership, who is taxed only once.

Billwald:

The talk radio ads about incorporating in Nevada claiming that a person with terrible credit can get it with no personal liability – this compatable with libertarianism?

Would a moral person want credit without liability?

This is almost not worth replying to. It is neither unlibertarian, nor immoral, to “want” credit, without liability, nor to arrange it, if you can, without committing fraud.

Quasibill:

Seems like an awful lot of mental gymnastics to say that limited liability in the contractual arena is compatible with libertarian ideals, while admitting that it really has no place in the tort arena – proximate cause and actual cause analyses are all the limited liability anyone gets, corporation or no.

Yes, it should be simple, but so many laymen have such a confused notion of the issue of limited liability yet still feel compelled to have strong opinions on this, that an explanation is needed.

adam knott November 2, 2005 at 6:05 pm

Hi Stephan.

I think you are missing my point as stated above. If the question is whether laws of incorporation are “un-libertarian”, I’m saying that laws of incorporation comprise a protection scheme. If….fines are levied against corporations for crimes committed by individuals. Then, laws of incorporation “protect” individuals from having to pay the full amount of the penalty. Thus, those people “get-away” with committing the crime, to the extent the law allows the penalty to be paid by the “corporation” via laws of incorporation. Laws of incorporation have the effect of a protection scheme, if, fines are levied against corporate assests, for crimes committed by individuals. From a libertarian point of view, this, to me at least, seems un-libertarian, and I would want to opt-out of a system that lessened the penalty to some, for a crime committed against me.

If the question is, whose rights does this violate? Then it would appear this would depend on one’s definition of “rights”. I assume the exact definition of rights varies from libertarian to libertarian such that honest libertarians can disagree as to what constitutes ones rights ?

Gregory White November 2, 2005 at 9:35 pm

Stephan K writes: “Rights have nothing to do with recognition in a constitution, especially the federal Constitution which protects rights (from federal invasion) primarily by limiting and enumerating federal powers.”

No and Yes. Habeas Corpus is in the original federal Constitution, for example. The orignal Anti-federalist argument was that if any right was in the original — such as Habeas Corpus — then those rights not enumerated could not be assumed to exist. In other words, it was inconsistant. The Federalists finally turned what had been the anti-Federalist argument into Federalist favor by promising a Bill of Rights. (See Levy’s Origins of the Bill of Rights.) These amendments, by definition, are part of the federal Consitution and they include enumerated and unenumerated rights. The 9th is limitless regarding the number of rights (see Barnett’s Restoring the Lost Constitution).

Stephan K writes: “Legal recognition of incorporation does not, in any event, destroy any right.”

I already mentioned that it will implicitly (effectively) destroy available contracts. You’re left with saying there is no such specific right of contract, or saying that implicit destruction is somehow more acceptable than explicit destruction. Even if the implicit effect is deemed low, it opens a very large door.

Stephan K writes: “It simply gives an option to individuals to conveniently organize their affairs exactly like they have a right to do by private contract, anyway.”

So you’re saying you can write a contract that will survive bankruptcy? How is that? And could it effectively happen? After all, the legislation reverses what the “would be” contracts would say . It goes from a contract saying “I will release you from your debts to me should you become insolvent” without the legislation to “We need a contract that does not absolve you from your debt to me should you become insolvent.” Are the comparative costs of these two contracts different, and who is burdened most by each?

If the legislation doesn’t change the nature of the private contract and the burdens of creating it, then it has no reason to exist and no one should object to its termination.

Wolf DeVoon November 3, 2005 at 5:15 am

In a private society you could have a company called Enron, based on a founding contractual agreement among shareholders whereby each shareholder’s liability for contractual debts of the entity is limited to his investment.

The founders of Empire hereby agree that they shall not be jointly or severally liable for the actions of Empire’s managers, employees, or secret agents.

Stephan Kinsella November 3, 2005 at 8:13 am

White: Your points are not coherent. You are confusing individual rights with positive rights; and failing to recognize the distinction between the feds and states. Yes, I would agree the ninth amendment arguably provides extra limitations on the feds; but it has nothing to do w/ the sttes, whcih are the ones that establish incorporation laws.

Wolf DeVoon:

“In a private society you could have a company called Enron, based on a founding contractual agreement among shareholders whereby each shareholder’s liability for contractual debts of the entity is limited to his investment.”

The founders of Empire hereby agree that they shall not be jointly or severally liable for the actions of Empire’s managers, employees, or secret agents.

You do not understand. When shareholders agree to limit their liability what they are doing is appointing managers and instructing those managers that in every agreement the manager makes using or obligating the “firm’s” assets, the agreement will make clear to the other side that they cannot pursue the assets of the shareholders. It is not just a decree exempting themselves from liability; rather, it is a refusal to enter into a contract (indirectly) with third parties with unlimited contractual liability. This is contractual liability only; not tortious.

This is in no way analogous to DeVoon’s “Empire” case.

Wolf DeVoon November 3, 2005 at 8:54 am

Repeatedly insisting that I do not understand is not a slam dunk. Contractual liability with transparent disclosure sounds nice. I suppose private firms in an anarcho-capitalist utopia will never conceal, misrepresent, dissemble, or balk at disclosing anything.

More than anyone else in the ancap realm, I’ve had real hands-on experience as general counsel. There is no improvement in moral character or business fidelity when government is unable to govern.

Vince Daliessio November 3, 2005 at 9:55 am

Stephan: Agree with you that the primary stated objection to corporations on the left is limitation of liability. Disagree on the current effect of taxation – a corporation is theoretically immortal and so its “death” is not a taxable event. Agree also that taxes should not be levied on corporations at all but simply, transparently pass through to shareholders. And finally, federal law does treat corporations differently than individuals when it comes to pollution regulation – again, if we had a libertarian, full-property-rights regime no problem, but currently corporations can trespass on my property and my person with their pollution with impunity, as long as they observe the Federal bureaucracy’s arbitrary “standards” I can’t sue them for it.

Wolf DeVoon November 3, 2005 at 10:23 am

Libertarian Full Property Rights Inc, a privately held company, is pleased to announce its acquisition of Black Hat LLC in a stock swap deal. The merger significantly expands Libertarian’s extraordinary rendition and stressful interrogation services.

Stephan Kinsella November 3, 2005 at 10:42 am

I am realling starting to believe there is a wacko lefty “anti-corporate” strain among libertarians.

Wolf: Re your cryptic last opst– why don’t you clearly, carefully, coherently spell out exactly what your position is? Are you still trying to maintain that organizing the firm with limited liability is somehow antilibertarian? If so, spell it out–and without the ignorant mischaracterizations of how corporations and corporate liability actually work, that accompanies many of the attacks of the left-libertarians.

Wolf DeVoon November 3, 2005 at 11:20 am

Stephan,

I don’t think there’s anything cryptic in that forecast. The meaning of minarchy is less public scrutiny of private action. Anarcho-capitalism abolishes regulation altogether. I’m in favor of both, provided that we abolish corporations.

There is no fundamental human right to incorporate as a state, a family trust, or a limited liability hippie commune. The thing at issue is the rule of law and the definition of legal persons who are competent to sue or be sued.

An association (mafia, corporation, trade union) blurs the existence of natural persons and shifts the blame for intentional wrongdoing. I used the example of a security service. Subscribers and lenders form a privately-held company. It grows by merger with another PDA whose customers are dope dealers and arms merchants. The entire enterprise is predicated on evil, and its shareholders are culpable for organizing the damn thing.

Nominee shareholders and anonymous cyberbanking compound the problem. What is needed urgently is to “pierce the corporate veil” and hold people individually responsible for their actions — especially what purpose they advance by paying in funds to an impersonal corporate collective.

I’m always prepared to be mistaken. But I think 19th century history suggests that individual entrepreneurs were benefactors, whereas the worst actors were states, membership orgs, and limited liability corporations.

Stephan Kinsella November 3, 2005 at 11:45 am

Wolf:

I don’t think there’s anything cryptic in that forecast. The meaning of minarchy is less public scrutiny of private action. Anarcho-capitalism abolishes regulation altogether. I’m in favor of both, provided that we abolish corporations.

I feel like you must either be an anti-industrialist lefty type, or ignorant of what you are talking about, to make these comments. Have you read the seminal work on this by Robert Hessen, In Defense of the Corporation?

What exactly do you mean, “abolish” corporations? Suppose 100 people want to each contribute $1000 to start a company, but not be actively involved in its management or be personally on the hook for contractual obligations and debts of the company, as they would be if they were partners in a partnership. So they all sign a shareholder’s agreement which sets up procedures to hire and appoint managers to use the funds and run the business. This agreement also permits the managers to enter into agreements with third parties–employees, customers, vendors, contractors–but requires that all such agreements include a clause limiting the liability of the sharholders to their initial investment.

So for example an employee’s agreement basically says he will be paid for his labor–but only out of a defined pool of assets; and if this pool is insufficient, he is out of luck and cannot sue the owners/shareholders individually. Is this contract unlibertarian in your view?

The limited liability afforded corporate shareholders is similar to this. So what is the problem?

What about liability for harm done to third parties with whom there is no privity of contract? If some tortious action harms someone, it is committed by an individual–some employee of the firm. Of course that employee is liable. Arguably, his managers or those who authorize or direct this action, are also liable. But why would the shareholders be liable? Did they cause the harm? They are not active managers. Their primary contribution is money. Customers also give money to the firm–are they also personally liable for all torts committed by employees of the firm? What about suppliers–by selling supplies to the firm, aren’t they enabling its torts? Surely, they are liable too, right? And banks who lend the company money–well, they are just adding fuel to the fire. Let’s outlaw lending of money, purchasing of goods, and selling of supplies, forthwith!

In my view a reasonable theory of libertarian causation would not hold a shareholder necessarily liable for harms committed by employees hired by a corporation in which the shareholder owns a share. So the fact that a shareholder of a modern corporation is not liable for torts of the company is also not contrary to libertarian principles.

There is no fundamental human right to incorporate as a state, a family trust, or a limited liability hippie commune. The thing at issue is the rule of law and the definition of legal persons who are competent to sue or be sued.

As Hessen argues in his seminal but apparently largely unknown work, the corporation indeed should not be seen as an entity. Rather it should be seen as based on contract.

Do people have a right to “incorporate”? Depends on what you mean. To me it simply means a convenient shorthand for a complex contractual arrangement. Do people have a right to collectively invest their money in a business? Sure. Do they have a right to agree among themselves as to who is going to run the business? Sure, why not. Do they have a right to refuse to deal with outsiders who do not agree to give them limited liability? Sure. If you invest in a company are you automatically causally responsible for harms committed by its employees? I don’t see why you are.

An association (mafia, corporation, trade union) blurs the existence of natural persons and shifts the blame for intentional wrongdoing.

I was unaware that “blurring” was a crime. This is the problem with trying to reason by metaphor and analogy.

I used the example of a security service. Subscribers and lenders form a privately-held company. It grows by merger with another PDA whose customers are dope dealers and arms merchants. The entire enterprise is predicated on evil, and its shareholders are culpable for organizing the damn thing.

What does this have to do with anything? If you want to make out a case in a given situation, that some individuals’ actions are causally responsible for harms committed by others–go ahead and make the case. Don’t just assume it. And don’t assume that it applies *in general*. Most companies are not “predicated on pure evil” (whatever that means). The investment of funds in a business is not per se enabling evil. If thereafter the company’s personnel start to perform evil actions, then you have a question, as with all crime, as to who is responsible. Maybe some managers started going bad–they would be responsible. But why would the shareholders be? I own 10 shares of IBM. If an IBM vice president I never heard of decides to use IBM cash to start up an assassination division, why am I responsible for this? I didn’t cause it. What can I possibly do to prevent it? Sell my shares to someone else? “Vote” for a different board of directors at the next annual shareholders meeting?–sure, we all know how causally efficacious voting is.

Nominee shareholders and anonymous cyberbanking compound the problem. What is needed urgently is to “pierce the corporate veil” and hold people individually responsible for their actions — especially what purpose they advance by paying in funds to an impersonal corporate collective.

No one disagrees that people should be held responsible for their actions. BUt you have to first establish that in some reasonable libertarian theory of causation, the *mere act of investing* makes one culpable for actions committed by the company one invests in. And if you try to argue this, you are going to have a difficult time exempting customers, vendors, lenders, etc.–anyone who “aids and abets” this company.

I say it takes more than just “dealing with” the company to be responsible for its actions–just as my “dealing with” you does not make me responsible for your actions. Take a murderer who is employed by ABC Corp. You could argue that ABC Corp. “invested” in the murderer by paying him a salary; enabling him to purchase his weaponry etc. So now, all the sharehlders, bondholders, lenders, vendors/supppliers, contractors, and even customers of ABC corp. should be liable for the murders right? After all, they “enabled” ABC Corp., which enabled the murderer.

How far down the chain do you want to go? Any moron can show that the chain of literal, “but-for” causation extends forever. What we have to find in the law is proximate cause–the real, responsible cause for a crime. It is absurd, in my view, to maintain that investing in a company makes you causally responsible for the actions of its employees.

(Moreover, at a given point in time, most shareholders of a company never actually invested a dime in it–they just purchased the shares from an original shareholder.)

I’m always prepared to be mistaken. But I think 19th century history suggests that individual entrepreneurs were benefactors, whereas the worst actors were states, membership orgs, and limited liability corporations.

Could be. What does this have to do with anything? Hell, you could argue that history suggests that most terrible crimes have been committed by white males. Most congresscritters are white males. So what? Want to outlaw them too?

Paul Edwards November 3, 2005 at 11:48 am

Wolf,

I don’t wish to derail the discussion from your point, but I feel compelled to point out that merging with a company “…whose customers are dope dealers and arms merchants” is not an unethical action from a libertarian point of view. One person’s dope dealer is where another person buys pain relief medicine, or recreational drugs.

But swapping in “murderers and thieves” as customers, does not seem to add to your argument. If I have a murderer for a customer, and I am a grocer and I sell him food, is my operation unethical? Should the shareholders be liable for murder or conspiracy to murder?

But maybe your objection is: the employees themselves become murderers and thieves on behalf of the management of the company. I don’t think that incorporation protects any of these people from legal ramifications of their illegal activities. Furthermore, if it can be shown that individual shareholders are also responsible for instigating murder and theft, then I also don’t think incorporation protects them either.

I just think it would be hard to show that the majority of shareholders of some company could be shown at fault individually for any illegal activity some employees may have participated in. It’s like this: should most American tax-payers be tried for assisting in mass murder in a foreign country? I think it is fair to argue that they had no direct say in the event, regardless of the degree to which they may have financed it.

Wolf DeVoon November 3, 2005 at 2:57 pm

Should most American tax-payers be tried for assisting in mass murder in a foreign country?

Yes, absolutely. The Bush Administration refused to ratify the International Criminal Court. Claims executive power to detain indefinitely and torture anyone, anywhere, without due process of law. U.S. taxpayers had a moral duty to stop it. Too late to claim ignorance.

What we do with our capital is leverage good or evil. There are very few “wertfrei” economic results.

Gregory White November 3, 2005 at 3:32 pm

SK> “Your points are not coherent.”

LOL

SK> “You are confusing individual rights with positive rights;”

Hardly, and you never outlined a needed distinction, (you actually wrote “any right”).

SK> “… and failing to recognize the distinction between the feds and states.”

Nonsense. So you were asking about rights — individual or positive — and the whole time referring simply to those rights recognized/generated only on a state-by-state basis, rather than on a federal basis? Who knew you were purely standing on the 10th while simultaneously asking about whose rights were violated?

SK> “Yes, I would agree the ninth amendment arguably provides extra limitations on the feds; but it has nothing to do w/ the sttes, whcih are the ones that establish incorporation laws.”

1. It isn’t only the 9th that imposes “extra limitations.”
2. The 14th directly gives the Feds reach into the states, including commercial matters.

3. There is not now, nor has there ever been some sweet and clear line regarding when “states rights” will prevail, and when an issue will come under federal jurisdiction. That’s why they’re called cases rather than classes. The two contra-ideas have always been in tension. (By Separation of Powers design.) To originally ask about “whose rights” and then 35 posts deep wave off the original question by claiming “states rights” is to say you never took the question seriously.

I have enjoyed the following quote from Rothbard’s Man, Economy, and State (http://mises.org/rothbard/mes/chap15d.asp):

On the purely free market, … men [incorporating] would simply announce to their creditors that their liability is limited to the capital specifically invested in the corporation, and that beyond this their personal funds are not liable for debts, as they would be under a partnership arrangement. It then rests with the sellers and lenders to this corporation to decide whether or not they will transact business with it. If they do, then they proceed at their own risk. Thus, the government does not grant corporations a privilege of limited liability; anything announced and freely contracted for in advance is a right of a free individual, not a special privilege. It is not necessary that governments grant charters to corporations.[78]

[78]It is true that limited liability for torts is the illegitimate conferring of a special privilege, but this does not loom large among the total liabilities of any corporation.

Rothbard is saying people should be free to incorporate, and I agree. He’s also saying government should have nothing to do with it, including an explicit grant of immunity from debts (by “privilege of limited liability” and charter grants), as I originally said and you rejected.

With limited liability to debts granted by government charter, the “right of a free individual” to effectively choose the contract is destroyed by implication. In practice they have little choice but to accept the limited liability condition, since it is a government granted privilege that any business person would quickly seize on. You have not justified the privilege. Moreover, even if you argued there would be no net outcome difference since “free” corporations would simply “announce the limited liability,” it does nothing for your argument, since this claim simply says the legislation does nothing and thus has no reason to exist.

Shareholders/investors/owners get personal immunity from their firm’s debts by the government grant of privilege, via firm bankruptcy. This means creditors can’t recover their property (their money). Most libertarians believe in property rights as actual rights, not as some metaphor or whatever you believe it is.

You apparently don’t like free markets and free contracts when it comes to corporate liability. You have done nothing to justify the legislation. Whether it is state or federally generated is fundamentally irrelevent to the underlying principle.

It would be one thing to argue that the loss of certain rights may worth the returned benefit. But that is not your tact. Your’s is to deny creditors claim to their property by government sanctioned immunity.

Michael A. Clem November 3, 2005 at 3:49 pm

Wolf, I’m puzzled–are you saying that I and possibly you yourself (if you are an American citizen) should be tried for assisting in mass murder in a foreign country? But if I stood on a street corner and protested the war (which I in fact did), would that change my culpability?

…we all know how causally efficacious voting is.

“causally efficacious” Heh. Love that phrase–I’ll have to use it some time…

David J. Heinrich November 3, 2005 at 3:51 pm

I really don’t see what’s so complicated about this issue. It really is very simple. Anyone doing a transaction wtih an entity identifying itself as a corporation agrees that they can only recover any debts owed them from the corporation’s assets, and not the assets of its shareholders. This is a natural outgrowth of property rights and freedom of contract. If one denies this, one is denying property rights and freedom of contract.

Stephan Kinsella November 3, 2005 at 3:55 pm

White:

SK> “You are confusing individual rights with positive rights;”

Hardly, and you never outlined a needed distinction, (you actually wrote “any right”).

I am a libertarian. I am talking about rights–meaning our individual rights. Now whatever the local state happens to enforce.

SK> “… and failing to recognize the distinction between the feds and states.”

Nonsense. So you were asking about rights — individual or positive — and the whole time referring simply to those rights recognized/generated only on a state-by-state basis, rather than on a federal basis? Who knew you were purely standing on the 10th while simultaneously asking about whose rights were violated?

this is boring and nitpicky. but you started pointing to the constitution as the source of rights. It is only the source of positive rights–and only as pertains to the feds, at that. I was talking about individual or moral or natural rights. Moreover, the states are the ones that have corporations so even if we are talking positive rights, the constitution is irrelevant.

1. It isn’t only the 9th that imposes “extra limitations.”
2. The 14th directly gives the Feds reach into the states, including commercial matters.

I don’t agree. The 14th only gives the feds limited authority over states–primarily to make sure they treat blacks and whites equally. Anyway, it was illegally ratified, so there.

To originally ask about “whose rights” and then 35 posts deep wave off the original question by claiming “states rights” is to say you never took the question seriously.

No, it’s saying I don’t give a damn if teh corporaiton takes your positive rights from you, if they are not also genuine, libertarian rights.

I have enjoyed the following quote from Rothbard’s Man, Economy, and State (http://mises.org/rothbard/mes/chap15d.asp):

On the purely free market, … men [incorporating] would simply announce to their creditors that their liability is limited to the capital specifically invested in the corporation, and that beyond this their personal funds are not liable for debts, as they would be under a partnership arrangement. It then rests with the sellers and lenders to this corporation to decide whether or not they will transact business with it. If they do, then they proceed at their own risk. Thus, the government does not grant corporations a privilege of limited liability; anything announced and freely contracted for in advance is a right of a free individual, not a special privilege. It is not necessary that governments grant charters to corporations.

Yes, and I agree completely with this.

It is true that limited liability for torts is the illegitimate conferring of a special privilege, but this does not loom large among the total liabilities of any corporation.

I am not sure that limited liability for torts is granted anyway. And it does not seem to me that shareholders would be liable for such torts in the first place. They did not commit them.

Rothbard is saying people should be free to incorporate, and I agree. He’s also saying government should have nothing to do with it, including an explicit grant of immunity from debts

Er, I agree dude.

With limited liability to debts granted by government charter, the “right of a free individual” to effectively choose the contract is destroyed by implication.

It’s not granted by government charter. It’s granted by people voluntarily dealing with an entity that has adopted the corporate form. By incorporating and naming myself ABC Inc., it’s equivalent to what Rothbard said: by incorporationg, one is “simply announc[ing] to their creditors that their liability is limited to the capital specifically invested in the corporation, and that beyond this their personal funds are not liable for debts, as they would be under a partnership arrangement. It then rests with the sellers and lenders to this corporation to decide whether or not they will transact business with it. If they do, then they proceed at their own risk.”

In practice they have little choice but to accept the limited liability condition, since it is a government granted privilege that any business person would quickly seize on.

You are confused. Who cares if people “quickly seize” on it? If it’s something they have the right to do, so what?

“You have not justified the privilege.”

It’s not a privilege. It’s just recognition of exactly what you quoted Rothbard above as saying they have the right to do.

Moreover, even if you argued there would be no net outcome difference since “free” corporations would simply “announce the limited liability,” it does nothing for your argument, since this claim simply says the legislation does nothing and thus has no reason to exist.

Dude, I am an anarchist and against all legislation. I do not think there should be this kind of legislation. This whole debate, however, is a response to the lefties who continuously whine that corporations are illegitimate *because the shareholders have limited liability*. This is NOT what is wrong with corporations, since indivdiuals have a right to form corporations without the aid of the state.

Shareholders/investors/owners get personal immunity from their firm’s debts by the government grant of privilege, via firm bankruptcy.

THis has nothign to do w/ limited liabilty. That is the bankruptcy law. Criticize that if you want.

You apparently don’t like free markets and free contracts when it comes to corporate liability. You have done nothing to justify the legislation. Whether it is state or federally generated is fundamentally irrelevent to the underlying principle.

I don’t think the legislation is justifed; no legislation is justified (except a law disbanning government and nullifying all other legislation). THe question is, is a corporation with limited liabilty unlibertarian? Hessen has demonstrated it could form on the free market solely by means of private contract and free association.

Your’s is to deny creditors claim to their property by government sanctioned immunity.

Some people voluntarily organize themselves as limited liabilty, just as Rothbard says. They use the state’s mechanism since the state has monopolized the field, but it’s the same thing. Creditors then deal w/ this entity with eyes open. they are not defrauded; they accept the risk.

If anyone argues libertarians should form their own corporations by private contract instead of using the corporate form provided by the state, I say this is stupid. No one is obligated to be a martyr. This is why libertarians are such LOSERS.

Stephan Kinsella November 3, 2005 at 3:57 pm

Heinrich maneuver: “I really don’t see what’s so complicated about this issue. It really is very simple. Anyone doing a transaction wtih an entity identifying itself as a corporation agrees that they can only recover any debts owed them from the corporation’s assets, and not the assets of its shareholders. This is a natural outgrowth of property rights and freedom of contract. If one denies this, one is denying property rights and freedom of contract.”

I agree. I don’t understand what is so difficult about it either. I think the explanation is some people are abysmally ignorant of the way real corporations and business work, and/or they have adopted the luddite, leftist hatred of “big business.” It’s really embarrassingly stupid.

Gregory White November 3, 2005 at 7:22 pm

SK> “you started pointing to the constitution as the source of rights. It is only the source of positive rights–and only as pertains to the feds, at that.”

Well that is flatly wrong. The Bill of Rights is loaded up with natural rights, not the least of which is the 9th. In addition, and as you wrote, “the [original] federal Constitution which protects rights (from federal invasion) primarily by limiting and enumerating federal powers.” True enough, the Constitution has natural rights, liberty, freedom (pick your favorite) written all over the face of it, even if not explicitly. Sure, there are positive rights that do exist as trades by the people for the police powers granted to the government. But underlying a positive right such as “trial by jury,” however, is the natural right to be free. That is, the state has to use due process to justify taking your natural rights away. In addition, I believe many of the states call out natural rights in their own constitutions. So that part of your argument likely doesn’t wash even on its own terms.

SK> “I was talking about individual or moral or natural rights. Moreover, the states are the ones that have corporations so even if we are talking positive rights, the constitution is irrelevant.”

No, it’s not irrelevent because if you’re talking natural rights, some arbitrary legal boundary such as state/federal holds no principled barrier. You plop these boundaries down where argumentatively convenient and ignore them otherwise. Since natural rights theory says “first come rights, then comes the law” (including constitutions), it wouldn’t matter if natural rights were articulated in any constitution, state, federal, or otherwise. You can’t be consistant and limit your argument to states creating incorporation laws and in the next sentence totally delimit the breadth by saying your concern is natural rights.

gw>> To originally ask about “whose rights” and then 35 posts deep wave off the original question by claiming “states rights” is to say you never took the question seriously.

SK> “No, it’s saying I don’t give a damn if teh corporaiton takes your positive rights from you, if they are not also genuine, libertarian rights.”

A claim to one’s own property is profoundly a Lockean natural right (covered, at least, under the 9th), not a positive right. I’ve argued no “positive right” issue, so you’re way off base. In fact, the government corp charter is the associated positive right, or even license. You’ve got it exactly backwards.

gw>> In practice they have little choice but to accept the limited liability condition, since it is a government granted privilege that any business person would quickly seize on.

SK> “You are confused. Who cares if people “quickly seize” on it? If it’s something they have the right to do, so what?”

LOL. The problem is you refuse to see the real distinction between the two arrangements. If you were simply to argue that the difference between the arrangements was quite small, I might be able to agree. But you just don’t want to admit it or address it in any way, so I reckon little more needs to be said.

gw>> You have not justified the privilege.”

SK> “It’s not a privilege. It’s just recognition of exactly what you quoted Rothbard above as saying they have the right to do.”

No and no.

SK> “I do not think there should be this kind of legislation. This whole debate, however, is a response to the lefties who continuously whine that corporations are illegitimate *because the shareholders have limited liability*.”

I’m not a lawyer, so maybe you’re using “limited liability” in a way that has specific meaning I don’t know about. I’m talking about liability regarding debts, and I only mean it in a basic way, not legal lingo if it happens to be exclusionary here.

gw>> Shareholders/investors/owners get personal immunity from their firm’s debts by the government grant of privilege, via firm bankruptcy.

SK> “THis has nothign to do w/ limited liabilty. That is the bankruptcy law.”

They are granted personal immunity from the firm’s debts by government law, not by private contract. Creditors are legally cut off from recovering their property (a natural right) by law rather than by free contract. Free contract is circumvented here. (If creditors chose to do so by free contract there would be no discussion between us.) This is the distinction you’ve ignored since the beginning. That the immunity finally happens to show up at bankruptcy — a separate set of laws — is notwithstanding. I’m simply noting it, and you’ve not justified your legal compartmentalization — especially when you also claim to care about boundaryless natural rights.

SK> “THe question is, is a corporation with limited liabilty unlibertarian?”

I believe we agree that it is very much “libertarian” if it is done under free contract and it is clearly anounced and agreed upon by creditors. But that is not strictly the question you originally asked. You play very loosely.

SK> “If anyone argues libertarians should form their own corporations by private contract instead of using the corporate form provided by the state, I say this is stupid. No one is obligated to be a martyr. This is why libertarians are such LOSERS.”

Oh, give me a break. I said in my first post that is what a business owner could and should do and now you’re repeating it back to me. I would no more restrict myself from the immunity granted than I would refuse to use the internet. There are principles and there is common sense.

Stephan Kinsella November 3, 2005 at 8:38 pm

GW:

SK> “you started pointing to the constitution as the source of rights. It is only the source of positive rights–and only as pertains to the feds, at that.”

Well that is flatly wrong. The Bill of Rights is loaded up with natural rights, not the least of which is the 9th.

Positive rights are whatever is decreed by teh state. If they happen to match natural rights, they are still positive rights.

In addition, and as you wrote, “the [original] federal Constitution which protects rights (from federal invasion) primarily by limiting and enumerating federal powers.” True enough, the Constitution has natural rights, liberty, freedom (pick your favorite) written all over the face of it, even if not explicitly. Sure, there are positive rights that do exist as trades by the people for the police powers granted to the government. But underlying a positive right such as “trial by jury,” however, is the natural right to be free. That is, the state has to use due process to justify taking your natural rights away. In addition, I believe many of the states call out natural rights in their own constitutions. So that part of your argument likely doesn’t wash even on its own terms.

This is all irrelevant and beside the point.

SK> “I was talking about individual or moral or natural rights. Moreover, the states are the ones that have corporations so even if we are talking positive rights, the constitution is irrelevant.”

No, it’s not irrelevent because if you’re talking natural rights, some arbitrary legal boundary such as state/federal holds no principled barrier. You plop these boundaries down where argumentatively convenient and ignore them otherwise. Since natural rights theory says “first come rights, then comes the law” (including constitutions), it wouldn’t matter if natural rights were articulated in any constitution, state, federal, or otherwise. You can’t be consistant and limit your argument to states creating incorporation laws and in the next sentence totally delimit the breadth by saying your concern is natural rights.

Move along, sir, move along.

gw>> To originally ask about “whose rights” and then 35 posts deep wave off the original question by claiming “states rights” is to say you never took the question seriously.

SK> “No, it’s saying I don’t give a damn if teh corporaiton takes your positive rights from you, if they are not also genuine, libertarian rights.”

A claim to one’s own property is profoundly a Lockean natural right (covered, at least, under the 9th), not a positive right. I’ve argued no “positive right” issue, so you’re way off base. In fact, the government corp charter is the associated positive right, or even license. You’ve got it exactly backwards.

Sidetracks. I’m not gonna do forensics on what you said, blah blah blah, it does not matter. Limited liability corporations are not unlibertarian, because they don’t violate anyone’s rights. That’s the issue.

gw>> In practice they have little choice but to accept the limited liability condition, since it is a government granted privilege that any business person would quickly seize on.

SK> “You are confused. Who cares if people “quickly seize” on it? If it’s something they have the right to do, so what?”

LOL. The problem is you refuse to see the real distinction between the two arrangements. If you were simply to argue that the difference between the arrangements was quite small, I might be able to agree. But you just don’t want to admit it or address it in any way, so I reckon little more needs to be said.

Actually that is not at all my argument. My argument is that luddites and leftists and business-ignoramuses say corporations are invalid *because they have limited liability*, and they view this as some privilege bestowed by the state. They have accepted the Ralph Nader anti-corporate propaganda. The point is there is nothing magical about limited liability; it can be constructed by private contract, so whatever objections you people have to the corporation, limited liability is not one of them.

I’m not a lawyer, so maybe you’re using “limited liability” in a way that has specific meaning I don’t know about. I’m talking about liability regarding debts, and I only mean it in a basic way, not legal lingo if it happens to be exclusionary here.

LImited liability means your liability as a shareholder is limited ot what you invested; unlike your liability if you are a partner in a partnership, in which case you are personally liable for the debts of the partnership, without limit.

They are granted personal immunity from the firm’s debts by government law, not by private contract.

No. The government only helps hang a bright neon sign *recognizing that* the shareholders are broadcasting to all third parties: if you deal with us, you can’t come after our personal assets.

Creditors are legally cut off from recovering their property (a natural right) by law rather than by free contract.

There is no natural right here since it is not “their property”–they never had an agreement to recover against the shareholders’ property.

Free contract is circumvented here. (If creditors chose to do so by free contract there would be no discussion between us.)

It is a “free contract”. If you don’t want to buy toothpaste from Crest, go buy it from the homeschooling luddite down the corner who makes it in his spare time.

Tutorial over, GW, this has become boring, elementary, monotonous, and depressing.

Wolf DeVoon November 3, 2005 at 9:44 pm

homeschooling luddite

Quite a smear. All opponents are dolts.

The “free contract” litmus test amuses me. It would be alarming, except that no enlightened society would tolerate it. Equity routinely trumps contract. And the less we legislate, the more we need common law courts. Think asbestos you can about product liability and the duty of care that comes with a profession like banking, medicine, dentistry, structural engineering, law, etc. A “free contract” with a child or an idiot is void on its face.

I sympathize with those who want Proctor & Gamble to float common shares and commercial paper. The idea, however, is to hold Mr Proctor and Mr Gamble or their heirs and successors personally liable for everything done or not done in pursuit of commerce. For instance, if an ingredient in Crest’s secret formula is strontium 90, or they made a batch of poison Colgate to ruin a rival, there must be something other than “free contract” as a first principle of public justice.

A free society is not made more free by closing the law courts, nor by replicating the worst features of statism — in this case, corporate charters, trusts, nonprofit orgs, unions, etc.

I agree that the thread became elementary and depressing, albeit for another reason altogether.

Vince Daliessio November 3, 2005 at 10:08 pm

Wolf,

You had me at being “tried for assisting in mass murder in a foreign country”!

Honestly, do you believe any of us has any effect whatsoever on the federal Leviathan?

Wolf DeVoon November 4, 2005 at 6:36 am

Hi Vince,

Yes, of course. It’s a democracy. If you mean ancaps and libertarians, rather than the broad electorate and mainstream parties, the answer is still yes. I was part of the antiwar vanguard in the 60′s and experienced what a handful of activists (Dave Dellinger, the Berrigans, Tom Forcade) can achieve.

In the present context, I think it is a moral duty to expatriate, communicate secretly about what can be done. The press is doing a good job of busting White House lies and recently outing CIA torture centers in Eastern Europe.

Look at it another way. 9/11 was punishment. We were tried and found guilty. Insurgents in Iraq and Afghanistan are inflicting more punishment. Cindy Sheehan and a growing number of military veterans are on the march.

In WWII, the civilian populations of Germany and Japan were punished so severely that both were transformed into peaceful free-market societies.

I am often wrong. I could be wrong about moral consequences, but it’s hard to understand why an American citizen should be exempted from guilt for the criminal actions of his government.

Stephan Kinsella November 4, 2005 at 7:50 am

Wolf:

homeschooling luddite

Quite a smear. All opponents are dolts.

Wolf: First, it was a joke. Lighten up. Second, I did not say all homeschoolers are luddites–I was imagining some character who might make his own toothpaste, and invented this one.

The “free contract” litmus test amuses me. It would be alarming, except that no enlightened society would tolerate it. Equity routinely trumps contract.

What exactly are you saying? My position is rather simple (and it echoes that fleshed out by Robert Hessen in his definitive book on this, which apparently no one bothers to read before fumbling around, trying to reinvent the wheel). IF A has a contract with B, and if the contract limits what assets of B’s that A can pursue, then that should be given effect. And then it recognizes that the shareholder is in the position of B and the creditor or customer of B’s corporation is in the position of A. All talk of “equity trumping free contract” is just a distraction.

I sympathize with those who want Proctor & Gamble to float common shares and commercial paper. The idea, however, is to hold Mr Proctor and Mr Gamble or their heirs and successors personally liable for everything done or not done in pursuit of commerce.

I have no idea where you are coming from, but it does not sound like libertarianism. It sounds like some leftist anti-corporate animus. Am I wrong? If not, please enlighten me.

Your view, as best I can make it out, does rest on an implicit theory of causation. You need to flesh this out; you can’t just assume it.

For instance, if an ingredient in Crest’s secret formula is strontium 90, or they made a batch of poison Colgate to ruin a rival, there must be something other than “free contract” as a first principle of public justice.

Again, these abstract, amorphous sweeing principles are unclear in application. I have no idea what you mean by “free contract” and its relation to “a first principle of public justice,” whatever this latter thing might be. Look. In libertarianism, people are of course responsible for “their” actions. But other than clear cases of directly causing harm, you need a coherent theory of causation to connect the actions of someone only indirectly related to the harm done. If you want to argue that a shareholder is causally responsible for the actions committed by his corporation, you need to explain why–you seem to think you can just assert it and it’s obvious. It is not obvious. AS I have mentioned several times, the shareholder has no direct control or active involvement in management. He might not even have given money to the company–he might have purchased the share from another shareholder. So on what theory are you saying he is liable? That he has the right to vote to elect the directors? Why does *having this right* make you causally responsible?

In fact with your ridiculous comments about US citizen responsibilty for US government actions, it is apparent you apply a sweepingly broad notion of causation. That is your right, but in my view, it is not libertarian, and in any event, it takes more than just assertion–it must be established. I believe that if you make a genuine effort to show that US citizens per se are responsible for the government’s action, or that shareholders per se are responsible for the corporation’s actions, you’ll see that the effort founders. For example, if you were to have a theory of cause broad enough to implicate shareholders, you would also implicate its employees, vendors, bondholders, etc.–there is nowhere to stop, really. If you are hung up on shareholders being “special” because they are “owners” of the company, then you are focusing on a conventional positive law categorization. From the point of view of praxeology and economics, there is nothing categorically different or “special” about a shareholder compared to others who help and have influence on a company’s actions–a large bank who loans it money, for example, has far more influence on what the company does than does an individual shareholder (and gives it more money too). So would you hold the corporation’s lenders liable too? Where do you draw the line? Coherent line drawing requires a coherent theory of causation, not a kneejerk, leftist hostility to “the Man”.

A free society is not made more free by closing the law courts, nor by replicating the worst features of statism — in this case, corporate charters, trusts, nonprofit orgs, unions, etc.

WE libertarian advocates of the corporation do not advocate the state or the corporate form. We only say it is not inherently unlibertarian because it would be imitated by means of a web of contracts in a free society.

I agree that the thread became elementary and depressing, albeit for another reason altogether.

WEll, if you mean my smartass comments, I apologize if I offended anyone, especially those who have the greatest need to lighten up.

Yes, of course. It’s a democracy. If you mean ancaps and libertarians, rather than the broad electorate and mainstream parties, the answer is still yes. I was part of the antiwar vanguard in the 60′s and experienced what a handful of activists (Dave Dellinger, the Berrigans, Tom Forcade) can achieve.

And here we see again how there are two separate strains of libertarians: the “principle” libertarains, and the “tactic” libertarians. The latter type deludes itself (IMHO) into thinking victory is just aroudn the corner; that we “should do more”; that “we” “could do more”; and ends up adopting a “blame the victim” mentality. As Wolf seems to be doing here–after all if you are born here and don’t devote your life to some wasted cause of fighting The Man, then it’s your fault. Ridiculous. I don’t believe in blaming the victim, nor in attributing responsibility to people for others’ actions.

NOw that said, I would say that many Americans are somewhat responsible for the US’s actions, because they endorse or support it. But Wolf seems to think even those who oppose the state are responsible. This shows his un-nuanced implicit theory of causation is out of control.

In the present context, I think it is a moral duty to expatriate, communicate secretly about what can be done.

Okayyyy. Suree.. This is why libertarians have a somewhat … non-real-world reputation. I guess we all have a duty to buy and read The Black Arrow, too.

I am often wrong. I could be wrong about moral consequences, but it’s hard to understand why an American citizen should be exempted from guilt for the criminal actions of his government.

THe burden is the other way around, Wolf: they are exempt unless you can demonstrate by a good causal link, because they did not commit the actions. Hell, why shouldn’t a German citizen be responsible for American actions? After all, he could mount a private army and take on the US government–and if he dies trying, why, it’s his obligation as a Freedom Fighter, eh? No one has a right to a life, they have to pretend it’s Red Dawn and join the Wolverines, eh?

Wolf DeVoon November 4, 2005 at 8:14 am

Stephan, I missed one of your earlier replies, before the ad hom attacks commenced. You wrote: Suppose 100 people want to each contribute $1000 to start a company, but not be actively involved in its management or be personally on the hook for contractual obligations and debts of the company, as they would be if they were partners in a partnership. So they all sign a shareholder’s agreement which sets up procedures to hire and appoint managers to use the funds and run the business. This agreement also permits the managers to enter into agreements with third parties–employees, customers, vendors, contractors–but requires that all such agreements include a clause limiting the liability of the sharholders to their initial investment.

The brunt of my criticism is purpose in founding a company. I’ve organized numerous corporations over the years and always chuckled at the boiletplate “…and all other lawful purposes.” What I am suggesting is that agreements to pool capital should be explicit regarding purpose, else the owners and assigns are no better than financial drunk drivers.

About a German citizen having a hyperbolic duty to attack the U.S., no comment. Instead of reading Vin’s fantasy, I suggest that U.S. citizens have a legal duty to control their government, just as corporate shareholders have a duty to control their enterprise.

Stephan Kinsella November 4, 2005 at 12:16 pm

Wolfie:

Stephan, I missed one of your earlier replies, before the ad hom attacks commenced. You wrote: Suppose 100 people want to each contribute $1000 to start a company, but not be actively involved in its management or be personally on the hook for contractual obligations and debts of the company, as they would be if they were partners in a partnership. So they all sign a shareholder’s agreement which sets up procedures to hire and appoint managers to use the funds and run the business. This agreement also permits the managers to enter into agreements with third parties–employees, customers, vendors, contractors–but requires that all such agreements include a clause limiting the liability of the sharholders to their initial investment.

The brunt of my criticism is purpose in founding a company. I’ve organized numerous corporations over the years and always chuckled at the boiletplate “…and all other lawful purposes.” What I am suggesting is that agreements to pool capital should be explicit regarding purpose, else the owners and assigns are no better than financial drunk drivers.

Why does there need to be a “purpose”, other than to make money (by any lawful means)? Where do you people come up with these standards? It amazes me that you trot them out as if everybody knows this, as if it’s not controversial, as if it’s quite obvious to everyone.

About a German citizen having a hyperbolic duty to attack the U.S., no comment.

Why? The German lives in “the world” doesn’t he? One of the world’s governments–one of “his” governents–is causing problems. He need fixee, no? by your logic, anyway.

Instead of reading Vin’s fantasy, I suggest that U.S. citizens have a legal duty to control their government, just as corporate shareholders have a duty to control their enterprise.

A *legal* duty? Of course they do not. You mean a moral or libertarian obligation? Why? You can suggest or assert it, but where is the proof? Why do you call it “their” government? Do they own it? Have a right, or power, to control it? Furthermore, you also just assume shareholders have a “duty” to control their enterprise. Actually, they explicitly do not have active control; they only have a right to select, by vote, the *directors*, who then appoint officers, who hire managers– is is these people who have the control and thus these people who have any duty to control the enterprise and make sure it does legal things only.

Mike D. November 4, 2005 at 2:02 pm

Stephan:
When I had a seat on the Pacific Stock Exchange, the Exchange did not allow Corporations to own seats because of the limited liability. Large entities can pick and choose who they do business with and the terms under which they do it. The same with banks, leasing companies etc. If a bank or lending institution wants more safety when lending to a corporation, they can (and do) demand collateral. The fact that there is a hierarchy of priority of claims against the assets of a corporation allows people with different aversity to choose an investment vehicle with the appropriate level of risk.

Gregory White November 4, 2005 at 8:39 pm

SK> “Positive rights are whatever is decreed by teh state. If they happen to match natural rights, they are still positive rights.”

A total non-sequitur — totally irrelevent. It doesn’t matter if it is true (it is), since the matter isn’t about positive rights. You’re the one who asked about rights, and then stated your concern about “individual or moral or natural rights.” Both the federal constitution and state consitutions call out natural rights. I only thought it would help you get a grip.

SK> “This is all irrelevant and beside the point.”

You don’t remember your own question.

SK> “Move along, sir, move along.”

Dude, you’re the one who’s making the same basic mistake repetitively and causing the hangup (because you don’t know foundations).

SK> “My argument is that luddites and leftists and business-ignoramuses say corporations are invalid *because they have limited liability*,…”

No problem there if they acheive the limited liability via their own wits.

SK> “… and they view this as some privilege bestowed by the state.”

Which has at least some truth to it, even if small in actual practice. Or rather it certainly is bound to affect some number of contracts and prevent some creditors under some situations from recovering property they otherwise could have.

There is plenty of low hanging fruit when it comes to topics of leftist nonsense. Choosing to argue on a rare issue where they are nominally or partially right is probably not the brightest move.

SK> “so whatever objections you people have to the corporation, limited liability is not one of them.”

Which I never came close to objecting to. I have absolutely nothing against a corporation forming limited liability with its vendors if it can do it via its own wits.

SK> “LImited liability means your liability as a shareholder is limited ot what you invested;”

And so we see your remarks are quite beside the point. The legislation distorts the market by destroying some measure of bargaining power on the part of creditors.

SK> “The government only…

Stop right there. That’s the crux of the elementary error you make over and over and over again. That is not all the “sign hanging” does. It guarantees an immunity, destroying possible terms of negotiation. Without government, the corporation can do no more than ask for agreement (sure, they can “announce” their resolute terms as well as I can announce the sky is green). If you were to say that many contracts, and maybe even most, would end up the same way if it were solely private, I would probably agree. But that won’t be the limit. The government distorts the market here — no question about it. And that distortion plays into natural rights. Some will not be able to recover their own property, where without the distortion, they could have otherwise formed a different contract. It will distort bargaining power in some circumstances. No doubt about it.

SK> “…helps hang a bright neon sign *recognizing that* the shareholders are broadcasting to all third parties: if you deal with us, you can’t come after our personal assets.”

Blah blah blah. The same endless assertion. Simply saying a firm can privately announce their “terms” does not mean those are the terms that will eventually be agreed upon in all cases. You don’t get it because you don’t want to: you have an agenda.

SK> “Tutorial over, GW, this has become boring, elementary, monotonous, and depressing.”

You give a great course in Logic-Lite! Thanks!

Stephan Kinsella November 4, 2005 at 9:28 pm

White:

Dude, you’re the one who’s making the same basic mistake repetitively and causing the hangup (because you don’t know foundations).

I have repeatedly maintained that adopting the corporate form is not unlibertarian. You people have yet to supply a single coherent reason that shows that it is.

SK> “My argument is that luddites and leftists and business-ignoramuses say corporations are invalid *because they have limited liability*,…”

No problem there if they acheive the limited liability via their own wits.

They did: they added “Inc.” to their name, and filed a few papers to make sure the state’s monopoly court system will recognize it. That puts people on notice. Good enough.

There is plenty of low hanging fruit when it comes to topics of leftist nonsense. Choosing to argue on a rare issue where they are nominally or partially right is probably not the brightest move.

Sigh. Tacitician libertarians always end up blaming the victim. It is the lefty types who are always in a little tizzy about big corporations who have made the challenge. We have just denied it.

I have absolutely nothing against a corporation forming limited liability with its vendors if it can do it via its own wits.

As everyone knows, the libertarian principle of “by your own wits” applies here.

And so we see your remarks are quite beside the point. The legislation distorts the market by destroying some measure of bargaining power on the part of creditors.

The notion of “bargaining power” is leftist to the core.

You are completely wrong. Because people are free to organize as a partnerhsip, or as a corporation; and because creditors are free to insist on personal guarantees (and they often do), you are utterly mistaken.

Stop right there. That’s the crux of the elementary error you make over and over and over again. That is not all the “sign hanging” does. It guarantees an immunity, destroying possible terms of negotiation.

It does not guarantee an immunity. First, the creditor can insist on personal guarnatees from sharholders. This is common in small corporations. Second, the creditor can refuse to deal with corporations, and only deal with sole proprietorships or partnerhsips.

In the free market it would be the same. Some people would organize themselves into a “limited liability company” by means of pure contract; others would be partnerships. Creditors could refuse to deal with the former if they wanted.

SK> “…helps hang a bright neon sign *recognizing that* the shareholders are broadcasting to all third parties: if you deal with us, you can’t come after our personal assets.”

Blah blah blah. The same endless assertion. Simply saying a firm can privately announce their “terms” does not mean those are the terms that will eventually be agreed upon in all cases.

What? If I make an offer subject to certain terms, and you accept, then you have accepted these terms.

You don’t get it because you don’t want to: you have an agenda.

Yes, I do–opposing lefties, anti-industrialists, anti-corporate hippies, and those who oppose what free individuals do with their own property.

Adam Knott November 5, 2005 at 1:10 pm

Sorry Gentlemen. You all miss the mark. Forget debt forgiveness. If fines are levied against corporate assets, for crimes committed by individuals of the corporation, that proves (at least partial)immunity by that fact. In order for this not to be true, one would have to maintain either that: 1. Fines are never levied against corporations for the crimes of individual corporate members, or 2. Such crimes are “victimless crimes” and so do not count as crimes. Until someone is willing to assert #1 or #2, then public (and my) perception is that corporations are indeed fined for the crimes of individuals in the corporation. Thus they receive immunity from the full penalty of the crime. There is no libertarian law or theory of law I am aware of, that formulates partial or full immunity from criminal penalty. But laws of incorporation do grant such immunity. In that sense they are unlibertarian. If replying, no name calling please.

Stephan Kinsella November 5, 2005 at 4:32 pm

Knott:

If fines are levied against corporate assets, for crimes committed by individuals of the corporation, that proves (at least partial)immunity by that fact.

You say “if”. Do you have any reason to believe that if a crime is committed by an individual who happens to work for a corporation, that he is granted immunity from this crime by virtue of the state’s incorporation law? IF so, please point me to a single example or statute that specifies this.

In order for this not to be true, one would have to maintain either that: 1. Fines are never levied against corporations for the crimes of individual corporate members, or 2. Such crimes are “victimless crimes” and so do not count as crimes.

I believe indeed some crimes corporations are accused of are #2. Also it is rare for corporations to be charged wiht crimes, since corporations are not actually “persons” and do not have intent, so to speak.

But this is all irrelevant. IF you could show that a given actual crime by a corporate employee meant only the corporation was liable, and not the employee, then I would agree, this aspect of “limited liability” is incompatible with libertarianism. So what? We are defending the corporation from the charge that limited liability for contractual debts is unlibertarian–since this is what most critics harp on.

Keep in mind also that the state has an unlibertarian scheme of punishment/torts.

adam knott November 5, 2005 at 5:21 pm

Stephan. I believe corporations have been fined thousands of times. Am I wrong? I’m taking the liberty of defining a crime as unfair or unwarrented harm (agression, etc..) to others. (not welfare state’s definition) If corporations are fined, this ostensibly is for some harm (crime) committed. Then the fine levied against corporate assets is proof that the entire penalty is not levied against only those who were responsible. What is it that others are harping on regarding debt immunity? Answer: welfare state laws grant immunity from the PENALTY of not paying the debt back. (there is no way to force someone to pay the debt, we can only penalize them by putting them in jail) Incorporation debt releif is immunity from the penalty of going to jail for not paying back. Similarly with other crimes (harmful acts) committed by corporate members. If a penalty is levied, and those specific individuals responsible in the corporation do not have to pay the full amount, the full penalty, then to this extent have they received immunity from the penalty. (same as others are complaining aboout regarding debt) It is not what is written in the law, it is the unintended consequence of the law. If we know that the unintended consequences of the law are unlibertarian, then we have to conclude that the law is unlibertarian, even if the wording of the law seems benign. I thought we were debating the idea of defending laws of incorporation, as to whether or not they are consistent with libertarianism? I agree that the state is unlibertarian in other ways. I’m trying to show that aside from debt relief, and aside from tort punishment, there is a third dynamic, not specified in any laws, but which is operant via laws of incorporation. One finds that dynamic not in the wording of the law, but in following the ACTUAL penalties that are or are not being assessed, by tracing backwards from the penalty, instead of forward from the laws’ INTENTION. To me this seems very clear. If corporations have been fined thousands of times, (meaning corporate assets), then it is highly unlikely that no crimes (harm to others) were committed. Thus, by logic alone, those responsible for the actions the corporation took, did not pay the entire penalty. They received immunity from the laws of incorporation.

Stephan Kinsella November 5, 2005 at 5:59 pm

I believe corporations have been fined thousands of times. Am I wrong?

Sure. Of course, I regard even the imposition by the state of a tax on a company as a “fine”.

I’m taking the liberty of defining a crime as unfair or unwarrented harm (agression, etc..) to others. (not welfare state’s definition) If corporations are fined, this ostensibly is for some harm (crime) committed.

Really? I would not make that assumption at all. We know for example that companies cannot really commit murder–only people can. So what kind of “crimes” they are dreaming up, who knows? IF they are legitimate crimes, they must be committed by individuals. These are the guilty parties.

The problem is the entity theory of the corporation–that it viewed as a legal person. There is no need that it be so–as Robert Hessen demonstrates in his classic book that apparently only 3 people have read. The attack against corporations is that in having limited liability it is getting a privilege from the state. Hessen shows that this is not true: people have the right and power to set up the same arrangement by means of contracts alone.

Then the fine levied against corporate assets is proof that the entire penalty is not levied against only those who were responsible. What is it that others are harping on regarding debt immunity? Answer: welfare state laws grant immunity from the PENALTY of not paying the debt back.

But you are here citing hypotheticals. Is this your basis for opposing corporations–that IF they get unfair benefits, then you “would” oppose them? In actuality, what we have is this: lefties and those hostile to industrialism and capitalism hate the corporation, capitalism, and business; and they do view the corporation as receiving priveleges from the state; therefore, they reason, the state does not need to grant these privileges–or it can condition the grant of these privileges on the corporation changing its behavior or paying more taxes, etc. BUt his whole notion rests on the positive argument that granting *shareholders* limited liability for contractual debts of the company, is somehow a grant of privilege. IT is not.

Any other issues about criminal penalties are irrelevant. If the state were to merely fine a company, and fail to prosecute the individaul who actually committed an action, that is simply another demonstration of the ineptness of public law enforcement. IT has nothing to do with whether free people ought to be able to arrange their affairs so that shareholders have “limited liability” as classically understood.

Incorporation debt releif is immunity from the penalty of going to jail for not paying back. Similarly with other crimes (harmful acts) committed by corporate members. If a penalty is levied, and those specific individuals responsible in the corporation do not have to pay the full amount, the full penalty, then to this extent have they received immunity from the penalty. (same as others are complaining aboout regarding debt) It is not what is written in the law, it is the unintended consequence of the law. If we know that the unintended consequences of the law are unlibertarian, then we have to conclude that the law is unlibertarian,

If the state fails to prosecute a given individual who is actually guilty of the commission of a crime, this is bad; this shows the state is inefficient; what it has to do with corporations I have no idea.

even if the wording of the law seems benign. I thought we were debating the idea of defending laws of incorporation, as to whether or not they are consistent with libertarianism?

My contention is simply the recognition of shareholder limited liability by the law of incorporation is NOT problematic, because shareholder limited liability is a result of freedom of contract. PEriod.

adam knott November 5, 2005 at 6:36 pm

Stephan. O.K. I didn’t realize you were making the more limited argument of shareholder limited liability. My mistake. My point, which possibly was not addressed directly to your point was, that the mercantilist institution of incorporation is not compatible with libertarian principles of justice. And I thought my unique analysis highlighted one way in which this was true. Agreed that the state can be inefficient in prosecuting those who harm others. And when I harm another, it would be great if the state inefficiently sued my town. Unfortunately there is no law of “intowneration”, allowing me to so diffuse the penalty for committing such harm. Though I won’t claim to have “won the debate”, I will say that if I have made it just a little more difficult for those claiming incorporation is compaitible with libertarianism, then I’ll be satisfied with that. If I haven’t made it more difficult, then there is more work to do ! Yours (in liberty) A. Knott

Stephan Kinsella November 5, 2005 at 6:52 pm

O.K. I didn’t realize you were making the more limited argument of shareholder limited liability.

But it’s not that limited of a point–the entire attack on corporations rests on this little thing.

My mistake. My point, which possibly was not addressed directly to your point was, that the mercantilist institution of incorporation is not compatible with libertarian principles of justice.

I don’t know what this means. Do individuals have a right to organize by means of contract in a way that resembles the features of today’s corporation? I say, yes. That the state recognizes this is no more problematic than it recognizing and giving effect to any other contract.

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