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Comment on Knapp’s Big Government, Big Business — Conjoined Twins

My reply to Thomas Knapp’s post Big Government, Big Business — Conjoined Twins

nskinsella on Jan 9, 2010, 11:34 am:

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.

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{ 14 comments… add one }

  • DJF January 11, 2010, 9:13 am

    So you seem to want to remove responsibility for the stockowners? If owning the stock of the company does not make you an owner then who actually owns the company? Is there no ownership in your version of libertarianism?

    Also does ownership confer responsibility? You seem to want the benefits of ownership but none of the responsibility?

    You also seem to think that the stockowners have no responsibility for the management of the corporation. Yet they are the ones who collectively vote for the management and who can collectively remove them. You may object to this idea of collectivization but that is what a stock corporation is. A voluntary collective organization and if you don’t want to take responsibly for what that collective does then you should not buy into it.

    Finally if you are going to create a corporation where the owners have no responsibility for what the corporation does and that responsibility is put on the management and workers then what use is the owners? If the management and workers are doing the work and bearing the costs then they simply start up their own business and leave the stockowners out

  • Stephan Kinsella January 11, 2010, 10:52 am

    DJF:

    So you seem to want to remove responsibility for the stockowners? If owning the stock of the company does not make you an owner then who actually owns the company? Is there no ownership in your version of libertarianism?

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

    Take a look also at Hessen on this: The excerpt (here) in this post.

    Also does ownership confer responsibility? You seem to want the benefits of ownership but none of the responsibility?

    What kind of reasoning is this? Where is the rule that “ownership confers responsibility”? Ownership is the right to control. If you steal my gun I still own it. If you murder someone with it am I “responsible”? After all, I am “the owner”. No, I am not–why? Because it was not my action. It was your action. We are responsible for our actions.

    You also seem to think that the stockowners have no responsibility for the management of the corporation. Yet they are the ones who collectively vote for the management and who can collectively remove them.

    Not true. The shareholders elect the board of directors. The directors appoint officers. The officers hire managers and other employees.

    Finally if you are going to create a corporation where the owners have no responsibility for what the corporation does and that responsibility is put on the management and workers then what use is the owners? If the management and workers are doing the work and bearing the costs then they simply start up their own business and leave the stockowners out

    What if you loan money to a company, and they owe you money. Does this make you responsible for what they do? What about non-voting shareholders? What about shareholders who just don’t vote? What about those who vote for a losing director?

  • DJF January 11, 2010, 11:44 am

    [quote]People are responsible for their actions, not for their status-as-owners[/quote]

    Ownership is an action. You have declared that something is your property, that it is under your exclusive control.

    If you declare that you own a tree and you prevent anyone else from using it or even inspecting it and that tree then falls over onto your neighbors car who is responsible? You a second before were claiming that you had exclusive rights to that tree, don’t you also have exclusive responsibility? Or does it suddenly change when you stop getting benefits from ownership but now must take responsibility?

    You are not advocating libertarianism, but instead libertinism. Rights without responsibilities, benefits without costs

    [quote]Why single out that one class of people? [/quote]
    Because that one class of people have declared that Wal-Mart is their property and they have exclusive rights to it and how it is both run and disposed of.
    [quote]Not true. The shareholders elect the board of directors. The directors appoint officers. The officers hire managers and other employees.[/quote]
    And yet the shareowners collectively have the right and the power to run that corporation anyway they want including who they hire, what products they make, how it is disposed of. They paid for the right to have ultimate power, but you say they do not have ultimate responsibility?

    [quote]What if you loan money to a company, and they owe you money.[/quote]
    Lending is not ownership, the only thing you own is the money. If you want to lend money to a corporation then do so, if you want to own it then you both have rights and responsibilities to that corporation. But I would not lend money to your corporation since nobody seems to have any responsibility for that borrowing and I am out of luck if it is not paid back. If I ask you, you will give me a song and dance about it not being the owners responsibility and in fact there is no one responsible for anything that corporation does

    I find it strange that anyone who advocates a free market based on ownership would so want to water down ownership to the point that a stockowner is nothing but a dividend recipient

  • Stephan Kinsella January 11, 2010, 11:52 am

    DJF: “Lending is not ownership, the only thing you own is the money.”

    But why do you call a shareholder an “owner”? Just because the law does? Can you go use Intel’s boardroom for a party if you are shareholder? Can you drive a FedEx truck if you are a shareholder?

    “I find it strange that anyone who advocates a free market based on ownership would so want to water down ownership to the point that a stockowner is nothing but a dividend recipient”

    ? it’s not me who wants to, it’s shareholders! I say, capitalist acts among consenting adults are fine!

  • DJF January 11, 2010, 2:05 pm

    “””””But why do you call a shareholder an “owner”? Just because the law does? Can you go use Intel’s boardroom for a party if you are shareholder? Can you drive a FedEx truck if you are a shareholder?”””’

    Collectively the shareowners can do anything they want with that company including using the boardroom for a party. They can sell it, they can burn it to the ground, they can fire everyone, they can hire anyone who consents to being hired. They are the ultimate power, they own it.

    Individually they don’t have much power unless they own 51% of the stock but collectively they own the company. Some may object to this collectivization but if so they need to object to the stockowners who joined together collectively to own the company

  • Alpheus January 11, 2010, 6:27 pm

    Should a shareholder be responsible for an action X if they voted for management because they promised not to do X, but, once voted in, go ahead and do X anyway?

    I agree with Kinsella: owning stock is akin to giving the business a loan, and (in some cases) you get to have a little bit of say in the goings-on of the company: you get to attend a stock-holder’s meeting (if you could travel there), and then you get a vote for every piece of stock you own.

    Sure, you could provide *some* guidance this way; you could sell your stock, *if* you know that management is going to do X (although that may be “insider trading”, whatever that means); but you *do not run the company*. The management does.

    Thus, it’s a stretch to say that shareholders (or other employees, or customers, or other “enablers”) should be held responsible for what management does.

    The only way I could see that they should be held liable is if the shareholders vote to do X, against the management’s wishes…even then, management has the opportunity to resign rather than to do X.

  • DJF January 12, 2010, 7:36 am

    “””””Sure, you could provide *some* guidance this way; you could sell your stock, *if* you know that management is going to do X (although that may be “insider trading”, whatever that means); but you *do not run the company*. The management does.””’

    But you restrict yourself to the individual stockowners. But by the act of purchasing stock in a corporation that individual has joined a collective of stockowners who have total control of that corporation. As I pointed out, collectively they can do anything they want with that corporation. And as I pointed out some people may object to that collectivization but I am not the one who put these people into a collective, they did. If you don’t want to be part of a collective then don’t buy into a collective.

    Its like buying into a high rise condo. You are now part of a collective and collectively you are responsible for that building. Just go ask the people who are now in trouble because they find out that a lot of the units in the condo are in foreclosure or abandoned and the remaining owners are ending up with the bill for maintenance and other collective costs for that building. And it does not matter about the management since the owners are the ones ultimately responsible

    So if stockowers are just lenders, who owns these corporations?

    Does not ownership signify control?

    Or is ownership no longer a libertarian idea?

    Do all libertarians reject the idea of ownership?

    What is the libertarian belief toward ownership? Is it just a benefit, do you only receive a positive from ownership and all negatives are ignored. Since everything has both positive and negative aspects who ends up with the negative aspects of ownership? If you declare that you own something does this not mean that you control it, and if you control it does this not make it your responsibility?

  • Stephan Kinsella January 12, 2010, 7:56 am

    DJF, you keep asking who owns the corporation. Why? The question here is vicarious responsibility for another’s actions: and responsbility comes from action, not ownership. The shareholder has certain rights of control, as do managers, employees, directors, and others. Ownership is the right to control, so the right to control is distributed in various ways. So what? Why is it your concern who owns it?

  • James January 12, 2010, 10:49 am

    “DJF, you keep asking who owns the corporation. Why? The question here is vicarious responsibility for another’s actions: and responsbility comes from action, not ownership.”

    Of course, but it’s not as if ownership is an irrelevant concept in this situation. If the shareholders don’t own the corporation then who are the managers acting on behalf of? Surely the managers and employees are hired to follow the instructions of the people who own the business and those people, like the president bombing nagasaki, are responsible for the actions of their agents if those agents are indeed following their instructions.

    “If the President intends to (say) bomb Nagasaki, and uses the bombadier and pilots and military itself as a means to accomplish this goal, he is responsible for that action. But if you own a share of Wal-Mart stock, you are not using its stockboy as an agent to negligently mop the floor to cause a woman to slip and fall.”

    No of course not. The stockboy is liable to you (via the managers) because he has broken the terms of his employment contract. So this example describes a completely different situation to the one being discussed.

  • Alpheus January 12, 2010, 11:05 am

    “””But by the act of purchasing stock in a corporation that individual has joined a collective of stockowners who have total control of that corporation.”””

    A collective right is not a right, but a mere shadow of a right. This is why second amendment advocates insist on an individualist interpretation of the second amendment: if we “collectively” have the right to bear arms, then that right is fulfilled when only the army and the police are allowed to own arms. Similarly, in the Soviet Union, the people had a “collective” right to free speech; this was fulfilled by the State newspapers, which spoke for the people.

    To say that the shareholders have a collective right to use the boardrooms for daycare is true–but it means absolutely nothing to the individual shareholder who wishes to do so!

    As for those individuals who are stuck in a high-rise condo: it’s true that they collectively took on that responsibility; why can’t they collectively decide to revoke that responsibility, and declare that they will only do the bare minimum of maintenance of the other condos, to make sure that the building doesn’t collapse on them?

    And why, after foreclosure, aren’t the banks who now own the condos responsible for the maintenance of those condos?

    Of course, those in the condo could *choose* to continue maintenance, because they fear that the value of their condos could be hurt if they don’t: but it’s up to them to decide that!

    “””If you declare that you own something does this not mean that you control it, and if you control it does this not make it your responsibility?””‘

    But if I only own 1/1000 of a company, then shouldn’t that mean, *at best*, I should only own 1/1000 of the responsibility of the corporation, when management decides to do something evil? Even when that management does so without my consent (which may have even been the case for 999/1000 or 1000/1000 of the stockholders)?

    And what of those who own that little bit because a Mutual Funds Manager decided that the company would be a good investment? Should the stockholder *still* be held responsible?

    And to what degree are they already held accountable, when, because of a scandal, the value of the little piece of owned stock plummets? When that happens, should the stockholder sell the stock to avoid responsibility, or should the stockholder hold onto it, and hope that after the scandal has been uncovered, that the management would do the right thing and correct the scandalous behavior?

    For that matter, if a stockholder holds onto his stock, but demands the resignation of the management that caused the scandal in the first place, would he be automatically absolved of responsibility? Or will he have to wait up to a year to attempt to vote the management out?

    I’m sorry if I still can’t see why stockholders should have complete responsibility for what a corporation does. I think you attribute too much power to the stockholder!

  • Stephan Kinsella January 12, 2010, 11:12 am

    “it’s not as if ownership is an irrelevant concept in this situation. If the shareholders don’t own the corporation then who are the managers acting on behalf of?”

    What does it matter? They are acting for their own interrests, surely, but also for the benefit of a multitude of market actors–creditors, employees, and so on.

    ” Surely the managers and employees are hired to follow the instructions of the people who own the business and those people, like the president bombing nagasaki, are responsible for the actions of their agents if those agents are indeed following their instructions.”

    The President WANTED the bomber to bomb Nagasaki. Tat was the end of his action. The diretors usually do NOT direct managers to direct employees to be negligent or commit crimes. Bu anyway, the shareholders don’t direct anyone.

  • DJF January 12, 2010, 11:26 am

    “”””DJF, you keep asking who owns the corporation. Why?”’’

    Because ownership is such a big part of a free market? Is your version of libertarianism without ownership? Without the concept of ownership then how do you buy/sell/control? And I would add in “take responsibility”, though this seems to be unpopular here.

    It seems to me that any free market system must determine what ownership means and what is the rights and responsibilities of ownership.

    So I think that a definition of what ownership means is central to a free market and part of that definition is who actually owns a corporation. If your version of a free market is different and does not need clear ownership then I guess I have a different idea of what a free market is?

  • Stephan Kinsella January 12, 2010, 11:36 am

    DJF: ““”””DJF, you keep asking who owns the corporation. Why?”’’

    “Because ownership is such a big part of a free market? Is your version of libertarianism without ownership? Without the concept of ownership then how do you buy/sell/control? And I would add in “take responsibility”, though this seems to be unpopular here.”

    Property rights specify who gets to control things. Libertarianism has a view as to this. What people do contractually with such property is their business.

    Libertarianism also specifies what actions are not permissible–what constitutes aggression. Aggression is the invasion of the borders of others’ property.

    From this it does not follow that one “is responsible for” one’s property.

  • James January 12, 2010, 2:56 pm

    “What does it matter? They are acting for their own interrests, surely, but also for the benefit of a multitude of market actors–creditors, employees, and so on.”

    It matters when establishing who is the principal and who is the agent.

    “The President WANTED the bomber to bomb Nagasaki. Tat was the end of his action. The diretors usually do NOT direct managers to direct employees to be negligent or commit crimes. Bu anyway, the shareholders don’t direct anyone.”

    Not individually but they do have collective ownership rights. If they didn’t have any ownership rights they would just be creditors, why then do they get any vote at all on how the corporation is run? At the very least they are helping to fund the corporation. In your example if a group of people voluntarily donated to the president on condition that they collectively would decide how things would be run including who they would delegate this task to would they not then be responsible for his actions?
    This isn’t to say that nothing like limited liability could arise, who knows what sort of contracts we’ll end up with, but it’s not as clear cut as either side of the debate is arguing. I think in a libertarian world people would have to be more careful about what they got themselves involved in. Also liability has to fall on someone eventually so if established on a contract by contract basis rather than by the state the people who now hold all liability might not agree to those terms anymore. I think you would end up with a joint-stock company that functions in a very similar way to a partnership.

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