My reply to Thomas Knapp’s post Big Government, Big Business — Conjoined Twins
Tom, of course we libertarians favor the separation of economy and state, but this is no leftist notion, it’s a libertarian one.
“A corporation, from its birth, is a creature of the state. Absent the intervention of government on its behalf, no such entity could exist.”
This is like saying public roads are creatures of the state and could not exist without the state. Sure, public roads could not; but roads could. Likewise, as Hessen has shown, a corporation could be formed absent the state. It is a contractual arrangement among a number of individuals. The shareholders could have contractual limited liability with any customers, vendors, etc., by way of contract. As for limited liability for torts, as Hessen and others have argued, there is no libertarian reason why passive shareholders should be vicariously responsible for torts committed by others in the first place, so limited liabiltiy for torts is not some privilege granted by the state; this would be the default position absent the state anyway. Legitimizing the Corporation and Other Posts.
“What we call a “corporation,” stripped of its government-bestowed benefits, is nothing more than a joint stock company — a partnership whose owners can trade their stakes in the company, partially or wholly, as unitized shares. Such a company is certainly an advantageous instrument through which to do business, but its mutation into a “corporation,” courtesy of the state, makes it something more.”
I think this is wrong. The state decrees that limited liability is a privilege; it grants it, on conditions; it says that the fiction of “legal personality” is needed, and it grants this as a privilege too. This is all nonsense, state propaganda. State privilege is no more needed for corporate formation or limited liability than state intervention is “needed” for roads or healthcare or justice.
“With the issuance of a corporate charter, what was once a partnership receives an estimable benefit in the form of “limited liability.””
Wrong. This is not a grant by the state. As noted above, contractual limited liability is a result of contract. Tortious results from the fact that we are no responsible for others’ actions vicariously, but only our own.
“It becomes, in effect, an “artificial person” whose body is composed of its stock shares.”
This is just state myth. We don’t need it. The state also says that you consent to its jurisdiction by staying here, or by “receiving” its “benefits,” or that we all agree to the social contract…. so thus it’s justified in conscripting or taxing you. All nonsense. The left-libertarians are opposed to the state; why repeat its statism-justifiying propaganda?
“Liability for the actions of this “person” — even though those actions are in reality the actions of its owners — is limited to those shares.”
The corporation does not have separate personality, as you note. The state’s fiction that it does is just an excuse to regulate and tax it. Actions are always the actions of individuals. If there is a contractual debt then the debtee can be limited to a defined set of “corporate assets”-this is compatible with libertarianism. As for torts–they are committed by people, yes. Usually employees–say, a negiligent FedEx truck driver. Or they are committed by managers, perhaps, who direct some negligent or tortious behavior be committed (to hold the manager responsible requires a libertarian theory of causation, which Pat Tinsley and I tried to sketch out in our paper on causation. To be clear, I think you can make such a case for managers, but you need a theory to connect their actions to that of employees–to hold the manager responsible for actions of others. But I do not see how you can (as a general matter) make this case for shareholders, any more than you could for other people with passive connections to the business–vendors, other employees, creditors, customers.
“Imagine that you and I build a robot, program that robot to murder people at random, and set it loose. Further, imagine that we receive government recognition of that robot not as our creation, but as a “person” in its own right.”
But people are not robots. If I loan you money and you use that money to survive, and then you murder someone, am I responsible for what you did? No, not unless I was collaborating with you on the murder. Likewise, all a shareholder does is (maybe) give the corporation a bit of money (but so do customers and creditors, and even employees confer an economic benefit on the corporation–are they all responsible for what it does?); have a right to receive any paid dividends and a pro-rata share of assets upon winding up (how does having a right to receive money mean you are responsible for what the corporation does? If Amazon owes you a refund, are you responsible? If you receive a paycheck from FedEx, are you responsible for torts of your co-workers?). Finally, the shareholder *might* have the right to vote for directors (not necessarily: there are non-voting shares); but the right may not be exercised, or maybe you vote against the current directors. In any event how does having the right to vote for directors who appoint officers who hire employees mean you are responsible for what those employees do? Does having *any* influene on who the directors are mean you are liable? What if you have a son who you encourage to be a director? What about creditors who “suggest” a given director? What if you appoint a director to appease a given customer or even vendor? Or to appease the local left-libertarian watchdog group? Are they now responsible for tortious actions of employees supervised by managers hired by officers hired by directors appointed at the suggestion of the left-libertarian watchdog group?
“That’s corporate “limited liability” in a nutshell. Without that second step of getting our creation endowed with “personhood” by government fiat we’d be screwed. Our victims would come after us for everything we had — our bank accounts, our houses, our 1974 Ford Pintos. They’d get their restitution to the full extent of our assets.”
For torts you commit, yes. But why are you, Tom the owner of a share of stock in Corp X, vicariously responsible for torts committed by employees of Corp X?
In the left-libertarians hostilty to corporations, big business, etc.–some of it understandable if your ire is focused on state-intermixed corporations–you are assuming too much about vicarious liability and causation without a carefully developed theory. You are giving the state’s con-job cover story about legal personality and the “privilege” of limited liability too much credence. Down with the state and with the state’s propaganda. In your zeal to bash modern business practice per se, you are groundlessly presupposing a theory of causation; your criticism is too general: you are justified in criticizing state-subsidized or aided business–fascist corporatism–but you are wrong, in my view, in using this fairly narrow libertarian (not left-libertarian) observation to condemn modern capitalism and corporations in general.