From my recent TLS post: Corporate Personhood, Limited Liability, and Double Taxation, LibertarianStandard.com (Oct. 18, 2011).
Also cross-posted at Mises; archived comments below.
Corporate Personhood, Limited Liability, and Double Taxation
by Stephan Kinsella on October 18, 2011 @ 2:56 pm · 0 comments
The politics of the left-oriented Occupy Wall Street (OWS) movement, like that of the right-oriented modern Tea Party movement, is not very well defined. But one of the things some of the OWS participants are calling for in their list of “demands” is an end to “corporate personhood.” In this they echo the views of left-libertarians who contend that state-chartered “corporations” are the source of grave social ills.
Some of these issues were recently debated on the pages of Roderick Long’s blog, in the comments to his post “Double Standard.” Left-libertarians who oppose incorporation, and usually also “capitalism,” argue that firms derive some great benefit from the state by the privilege of incorporation. The standard leftist critique of the corporation is the “concession” theory outlined by Robert Hessen in his seminal study In Defense of the Corporation (see a key excerpt from pp. 18-21). They argue that the state grants to corporations three features: entity status, perpetual duration, and limited liability to shareholders, all of which are artificial and would not exist absent state intervention. Left-libertarians maintain that these privileges grant corporations more power than they otherwise would have, which distorts the market, nay, society in general. This gives rise to more “hierarchy” and “authoritarianism” than would prevail in what Hans-Hermann Hoppe calls a private law society, and indeed, to “exploitation” of the workers by the bourgeoisie.
October 18, 2011 at 7:41 pm-
This is some tasty and strong stuff, brother.
October 19, 2011 at 9:07 am-
Kinsella: “The problem with this theory is the assumption that in a private law society, “shareholders” should be vicariously liable for the negligence of others.”
Let’s not use the word “shareholder.” Let’s call the stockholder what he is: the (or, an) owner. There is nothing vicarious about the damage caused by the (an) owner of anything, whether it be a dangerous pit bull or a dangerous corporation, such as a nuclear-power generating corporation.
Kinsella: “We have to recognize that the prima facie answer—the default condition—is no: each person is responsible only for his own torts, not for those of others. To hold someone else liable requires some kind of “vicarious liability” theory. ”
The pit bull can’t pay, so his owner is responsible. Same with the owners of corporations. No need for any “vicarious liability” theory because there is nothing vicarious about the relationship nor the liability of an owner for his pit bull or her corporation. There is no “vicarious liability” theory involved because there is no “someone else.” There is only the owner.
Kinsella: “But holding employers—or shareholders—vicariously liable for actions of their employees relies on the offensive, paternalistic, feudalistic concept of respondeat superior—a master is responsible for his slaves’ or servants’ transgressions. As Hessen notes, this is just a vestige of the medieval mentality. Why would a shareholder be liable for actions of some employee?”
What is offensive is this is that this statement is deceptive and utter nonsense. The agent-principal relationship is alive and well in law and in relationships recognized as such throughout the world. It is ancient, of course, but most truths are, and modern lawyers are as unable to refute them as were their medieval predecessors down through the ages. Why didn’t the author or Hessen use this modern, non-offensive, non-paternalistic, non-feudalistic term? And since you repeat the same unjustified assertions over and over, let me also be repetitive: We are not talking about a “stockholder” liability for “some employee,” what the author is talking about is an owner’s responsibility for his or her potentially dangerous property or operation. The author would incise the owner from his property, but the ownership of property (viz., private property) is crucial to every libertarian theory I have ever encountered.
Kinsella: “On the other hand…he may have bought the share from a previous shareholder. ”
This is a silly argument. Whether one bought the pit bull as a puppy or a trained fighting dog is immaterial to our owner’s relationship to the property.
Kinsella: ” They assume that giving money to the corporation is akin to “aiding and abetting it…”
This is a strawman, one of so many in this article that I can’t even begin to count them let alone address them all. For this one let me just say, no one need assume anything of the sort, and I doubt anyone so assumes. No owner (stockholder) of a business “gives” it money. An owner either creates the business by an initial investing, or buys it as a going concern. Obviously how ownership is obtained has no affect whatsoever on the pit bull’s behavior nor on whether or not the reactor core melts during a tsunami. Nor does this point have any place in a *rational* argument. Like the argument in total, it is a lawyer-like attempt to ameliorate if not eliminate the personal responsibility involved in human action upon which liberty utterly depends.
If I were to characterize the argument in this article, as it characterizes any imagined opposing view, the kindest thing I could say is that it is silly. Not only is personal responsibility compatible with libertarian theory, it is the ultimate foundation of liberty. The author’s attempt to relieve owners of responsibility for their pit bulls or their dangerous operations engaged in for profit is essentially an attack on individual liberty in the manner of a lawyer defending a losing cause with one frivolous argument piled upon another until the judge finally orders her to “shut up.”
I could pick the rest of the article apart straw man by indirect ad hominem aimed at whoever might have the temerity to oppose this sanctimonious view, but suffice to say again that the only “vicarious” relationship is a figment of a creative imagination. And if my counter to this diatribe should be characterized as left-libertarian, I would have to classify this article as pure statist, but that would be adopting the methodology of this author’s endeavor to oppose personal responsibility and the individual liberty resulting therefrom.
There are other good reasons why corporations, which are purely products of State legislation, are harmful to liberty not addressed by the article. One big one is the so-called “legal fiction,” which holds that corporations are “persons” for the purpose of standing in legal proceedings. As a direct result of this fiction, many court rulings (including those of the Supreme Court) have been made in cases wherein the parties were the State and a corporation which established important precedents, which precedents were later applied to cases involving the State and individuals as though the latter were equivalent to corporations and without the human rights that can only be claimed by individuals. An example of this is the famous case of Brushaber vs. Union Pacific Railroad (http://laws.lp.findlaw.com/getcase/us/240/1.html), in which SCOTUS declared that the newly enacted federal income tax did not violate the Constitution as claimed in that case and therefor Union Pacific must pay it. From then (1916) until the present, that case has been cited in lower federal courts as having determined that the income tax was constitutional. It has been cited as precedent to deflect thousands of cases of individuals who have tried to challenge the constitutionality of the income tax as applied by the IRS against them, even though Brushaber never even considered the constitutionality of the income tax as applied to real individuals who are not legal fictions created by State legislation.
The State and corporations are so intimately tied to one another that defending the latter is virtually defending the State and its illicit powers, without which no corporation has ever existed.
October 19, 2011 at 10:41 am-
Ownership of a pit-bull is more akin to owning a (potentially leaky, probably perfectly safe) propane tank than it is to partial ownership of a stockholding company. You yourself referred to the principal-agent relationship, the asymmetrical nature of which arises primarily because the latter commands faculties and resources unavailable to the former. This does not characterize an owner and his pet, which has (obviously) little by way of personhood but still generates liabilities for its owner. Tracing negligence from dog, which has no purposeful, rational action in the Misesian sense, to owner, who presumably does, is a trivial matter; establishing a causal relationship between (to use Kinsella’s example) the Pepsi driver and stockholders of Pepsi is not so trivial. This is not to suggest that liability is not, in some tenuous, circuitous manner, traceable, only that the claimant would encounter greater difficulty in trying. I can see a case being made for holding the employer responsible, and by extension, Pepsi Co., if the driver’s history or particulars about his habits are unearthed of which his superiors can credibly be shown to have been aware, or have overlooked. Perhaps the regional manager directed freighters to overload Pepsi fleet vehicles by an amount just above the optimal weight for safe braking distance. This seems actionable. However, this is a far cry from holding Pepsi’s boardmembers, and then stockholders, liable of same, beyond the diminished flow of rent by holding stock in a company now party to litigation. The relationship is there, but the existence of purposeful action on the stockholders’ part, bringing about an undesirable outcome, is not apparent.
Which cuts to the heart of my contention with this whole line of thinking. This seems to me more of a continuum problem, and more justifiably handled by the courts on an ad hoc basis rather than (as now exists) blanket immunity or (as Netterville suggests) enforcing total liability against all parties, regardless of participation. If the claimant can establish a causal relationship of purposeful action, bully for him; I doubt he can in any meaningful way, beyond the flow of capital and rent between the primarily responsible and the putative, peripheral parties. But I wouldn’t wish entirely to close off or open up the potential for liability.
The points you bring up regarding legal precedents are well taken, and I’ll read more about it—I’d love to see a response from Mr. Kinsella. Off the top of my head this seems moot if only because courts also find against individuals and thereby set unlibertarian precedents. The recent Angel Raich case comes to mind. A contentious issue like income tax, especially given the judicial activism surrounding its passage, would doubtlessly have found safe harbor in any number of cases. I’m not suggesting this particular case was not ultimately harmful, or that the modern conception of taxation does not turn on this decision, but merely that some court, somewhere, would doubtlessly have found in favor of the federal income tax, and that case would now serve as the precedent. Would the outcome have been materially different if textbooks instead referred to a conceivable case for the constitutionality of income tax withholding in which the court found against Vivien Kellems? I don’t know. We can’t say.
Thanks for the food for thought, both you and Mr. Kinsella. I am so novice about all of these concepts, I can really only bring up the untutored layman’s perspective and try clarifying my own position. I just wish the rhetoric weren’t so acerbic.
- October 19, 2011 at 5:41 pm
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D. Storey, Thanks for engaging. See my reply to Wildberry below, which I think responds to you comment as well.
October 19, 2011 at 11:20 am-
Ned,
I can see this has gotten you fired up, but your understanding is a little shakey.Rarely have to rushed to the defense of Kinsella, but I think you are not deriving your criticisms from a correct understanding of the principles being discussed.
Shareholders are not employees, agents, or owners. They are shareholders, whose liabilities and powers are statutorily defined at the outset. Now you come along and want to change the nature of that in retrospect, not what the shareholder bargained for.
Your interpretation of vicarious liability is backwards, because the shareholders are neither employers or employees; they are investors whose proprtionality is a measure of share price.
A pit bull owner is liable for the tort of the Pit Bull, because it is the owner’s tort, negligence, which is at issue. The owner is not liable because of VL theory making the owner out to be the employer of the dog.
Also, an employee is not liable for the torts of the employer, and the employers is not liable for the torts of employees unless they are within the scope and course of their role as employee.
Shareholders are not “employers” precisely because they cannot exercise any control over the scope and course of the corporation, other than to vote and/or ratify materials acts of the BOD. They cannot ratify something that is illegal in the first place. The BOD controls the Executives adn the Executives control the employees. Shareholders buy in or sell off. That’s it.
I enjoyed your rant, but it would be helpful if you departed from some solid understanding of what you are criticising.
October 19, 2011 at 2:48 pm-
Rarely have to rushed to the defense of Kinsella, but I think you are not deriving your criticisms from a correct understanding of the principles being discussed.
Wow, you must be off (or on?) your meds.
Shareholders are not employees, agents, or owners. They are shareholders, whose liabilities and powers are statutorily defined at the outset. Now you come along and want to change the nature of that in retrospect, not what the shareholder bargained for.
Your interpretation of vicarious liability is backwards, because the shareholders are neither employers or employees; they are investors whose proprtionality is a measure of share price.
Did you not read the original piece either? ARe you, like the others, total naifs and inepts who know nothing about the business world they have the gall to weigh in on? Being a shareholder HAS NOTHING OT DO WITH BEING AN INVESTOR. Helllooooo. shares are tradeable. You guys are such amateurs. Jesus. Why do you have a public opinion about things over your station? Jesus.
Shareholders are not “employers” precisely because they cannot exercise any control over the scope and course of the corporation, other than to vote and/or ratify materials acts of the BOD.
Shareholders vote to rafity “material” “acts”of the Board? Really? I thought they voted for nominated shareholders. Hmm, where did you get this hodgepodge layman theory from?
They cannot ratify something that is illegal in the first place.
What does this statement even mean?
The BOD controls the Executives adn the Executives control the employees. Shareholders buy in or sell off. That’s it.
Well the shareholders vote for board members, but I guess we cannot expect you to grok this.
- October 19, 2011 at 4:12 pm
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@ Stephan Kinsella October 19, 2011 at 2:48 pm
You’re a funny guy, Kinsella. Watch out, I may be equivocating on the connotations of “funny”.
And here I am trying to support your battle against ignorance, and you say something like this:
Being a shareholder HAS NOTHING OT DO WITH BEING AN INVESTOR. Helllooooo. shares are tradeable.
Tradable for what? Money? Who issues the stock and for what reason? Raising capital?
When someone pays money for a share of an enterprise, what are they doing? Investing?The fact that they are subsequently tradable goes to liquidity. Shares in a close corporation may not be tradable because there is no market save a few other shareholders. Right?
Why do you have a public opinion about things over your station? Jesus.
Just what is my station? I’ve always wondered about that. I know you think highly of yourself, but when did you starting signing stuff “Jesus”?
Shareholders vote to ratify “material” “acts” of the Board? Really? I thought they voted for nominated shareholders. Hmm, where did you get this hodgepodge layman theory from?
Well, let me pull some layman theory out of my bum; how about the corporation wants to sell off is primary assets, or accept a takeover bid? Is that material? Is that electing a BOD? Does it require a shareholder vote?
What does this statement even mean?
Oh, I don’t know. How about the BOD wants to invest in a nuclear bomb by selling off all its assets and puts it to a shareholder vote? If they vote yes, is that OK?
Well the shareholders vote for board members, but I guess we cannot expect you to grok this.
You know how us laymen are, sort of on the stupid side. And all this time I thought there was more that a shareholder could vote on besides directors.
Here’s what I do grok. You are pretty predictable. You focus on trivia and bark at the smallest provocation. It reminds me of one of those little doggies that bark whenever the doorbell rings. You know the type?
Excuse me for agreeing with something you said. It was a momentary lapse. The fact that most of the criticisms I’ve seen here and elsewhere about the evils of corporations are based on rather fundamental misunderstandings of how they work and what they can and cannot do because they are corporations and not people.
The state is not required for corporation, just like the state is not required for something like IP. Free humans are also free to arrange their affairs to structure their cooperation. As Herman Cain might say, you are talking about apples and oranges. But if you and I don’t agree about that, I’m sure it’s because I’m completely, utterly, and stupidly wrong. Do I hear an Amen?
This post reminds me of one of the most common objections raised to anti-IP advocates; they make fallacious statements about what IP law actually does, and then rail against their own creations. That is what Ned is doing, and, (ahem!) what you do regularly.
After me saying all of this, Kid Salami fires the shot that hits the mark with just a few sentences. I admire his succinctness. You don’t strike me as an “expert” who is interested in actually addressing objections that are raised on the basis of something you say or claim. You are much more interested in indulging you nasty attitude against those you perceive to be beneath the staggering heights of your self-declared station. Don’t look now, but I think the train has left that station.
Are shareholders “co-owners” of something in the libertarian sense that you employ the term relative to easements, servitudes, and the like? Since you are a “pure libertarian”, excuse me for testing your assertions against reality. Is the concept of good will consistent with pure libertarianism? Just asking.
- October 19, 2011 at 4:30 pm
- October 19, 2011 at 5:46 pm
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@Stephan Kinsella October 19, 2011 at 4:30 pm
Let’s see; opening monologue; cut to commercial; yada yada yada….I do not pay the cash TO THE CORPORATION. HELLOOOOOOOOOOO.
Let’s see now, a corporation makes an IPO or an offering of additional shares and makes them available to the public and guess who the money goes to? HELLOOOOOOoooooo….They are offered on condition that they are fully alienable. Is this where you start paying attention?
Why, why, why are you guys who are so clueless about the business world compelled to weigh in on it in public. Why.
Let me try to respond in terms you might understand. Look stupid, for a lawyer you often fail get your facts straight. Did you actually have to pass the bar to do what you do? Did you only start paying attention after the first day was over? Didn’t that impact your score?
I detect a pattern. You start your analysis of shares after they have been issued and purchased for the first time, and then conveniently forget that the reason they exist in the first place is because a corporation issued them to raise capital.
This reminds me of your analysis of copyrights, where once you have a copy of an authors book, you conveniently forget that you only have it because the author produced it in the first place. That is why your property rights argument looks dumb. Mises himself showed you how dumb it is here: http://mises.org/libprop/lpsec5.asp
The socialists must admit there cannot be any freedom under a socialist system. But they try to obliterate the difference between the servile state and economic freedom by denying that there is any freedom in the mutual exchange of commodities and services on the market. Every market exchange is, in the words of a school of pro-socialist lawyers, “a coercion over other people’s liberty.” There is, in their eyes, no difference worth mentioning between a man’s paying a tax or a fine imposed by a magistrate, or his buying a newspaper or admission to a movie. In each of these cases the man is subject to governing power. He’s not free, for, as professor Hale says, a man’s freedom means “the absence of any obstacle to his use of material goods.”[6] This means: I am not free, because a woman who has knitted a sweater, perhaps as a birthday present for her husband, puts an obstacle to my using it. I myself am restricting all other people’s freedom because I object to their using my toothbrush. In doing this I am, according to this doctrine, exercising private governing power, which is analogous to public government power, the powers that the government exercises in imprisoning a man in Sing Sing.
Shareholders and book readers don’t snatch their goods from the air. They belonged to somebody before you got them, and they exist for the economic benefit of those who produced them. Any analysis must acknowledge that fundamental fact. Of course, plugging your ears, stomping your feet and humming loudly while this is being pointed out must mean that it is safe to ignore whatever it was you didn’t want to hear. See the pattern?
Not always. Sometimes you give it to employees in the form of options.
Raising human capital.
BUt that is really irrelevant. The point is an existing shareholder may not be an investor in the company: they may have acquired it from a previous investor. But anyway so wht? so what if A gives $$ to a company. CUstomers do this too when they buy things. ARe they now implicated too for all the torts of its employees?
Is it possible you just don’t understand that no matter how ridiculous your path here might be, I agree with your conclusion? Shareholders nor customers are liable. Neither did what they did (bought something) with the knowledge or understanding that they would be thereby liable of acts of the company that produced the product. That is the benefit of the bargain; an explicit understanding that liability is limited in a specific way.
So, I AGREE, it is stupid to argue that shareholders or customers should be liable in any way for the decisions and conduct of the corporations behind the share purchase transaction. Don’t let it go to your head. It looks like a ripe watermelon already. I’m concerned for bystanders.
Maybe, but they are not giving money to the company.
Never? Really? Is this a joke? The money from an IPO goes where, initially????
This is irrelevant. Stop trying to obscure the deficiencies in your overall business acument in an inept attempt to say something quasi-sensible about an irrelevant side-issue. It’s embarrassing. Oh, wait, I guess this is why you use a ‘nym.
I use a nym because you look a little bit like Freddy Krueger, and it scares me to think you might learn where I live. Nothing in your conduct assuages that perception.
Liquidity is a feature and benefit of shares, and one reason why people buy them. They are liquid. They can be easily traded for cash, especially if they are publicly traded. Think about how much harder it would be to raise money by selling shares if they weren’t. Owned shares in a close corp. lately?
Why do you have a public opinion about things over your station? Jesus.
Just what is my station? I’ve always wondered about that. I know you think highly of yourself, but when did you starting signing stuff “Jesus”?
Well you are just a nym, and a gadfly at that, so who really knows, or cares? Maybe you are an AS machine (artificial stupidity).
No no no…You have to respond to the whole joke. No fair cutting out the punch line. What about the Jesus part?
And that is what you are doing, as these diversions are utterly irrelevant to the point at hand.
You have made yourself, as is your MO, the point at hand. You exhibit little common courtesy or decorum. If you would grow up a little, we could cover more ground, in which you are clearly not interested. You seem to prefer to argue about things we seem to agree upon, and create points of disagreement for your own pleasure. That is my point. It was a pretty good image, don’t you think?
The arguments are not analogous, you twit.
Ah, but they are. Did you read the link that Kid supplied from Brian Macker about the cows? Things that may and do arise in a free market do not assume a state, and are interesting for that fact. Corporations, a state enacted form of business organization, and IP, as state enacted form of property organization, are two such examples; both would naturally arise in a free society, with or without a state, as would a state itself.
By the way, your vocabulary for insults is almost a big as Don Rickles. That is not the only similarity.
that you quote that moron in support of your positions does not commend itself well. His blabbering about apples and oranges was confused nonsense.
He did not make up the analogy. Thanks for letting me know you watched. Got a favorite?
Yes. With a host of other people. Just as you are a co-owner of a Hertz rental car for a couple days when you rent it, just as you are a co-owner of a condo that you rent for a year to some tenants.
See, I ask a simple question and you make me argue with you.
Shareholders do not have an ownership interest in other people’s stock, do they? What do they “co-own” and with whom do they have this relationship?
You never obtain an ownership interest in a rental car. You are a licensee. Your rights to use are very tightly defined. You cannot sub-rent it, for example.
Tenants are leaseholders. They don’t own anything about the condo. They purchase a right of possession, not an ownership interest.
You are making this up, and it is some pretty thin gruel. There is such a thing as a co-owner, like tenants in common and joint tenants, but these are not the examples you bring.
Did you actually pass the bar? I don’t see you listed in the Texas Bar. Just asking.
- October 19, 2011 at 6:08 pm
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Ahhh. It’s under NORMAN! Yep, member of the Texas Bar. There it is right there.
- October 19, 2011 at 6:58 pm
- October 19, 2011 at 7:16 pm
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Kinsella: “Being a shareholder HAS NOTHING OT DO WITH BEING AN INVESTOR. Helllooooo. shares are tradeable. You guys are such amateurs. Jesus. Why do you have a public opinion about things over your station? Jesus.”
Mr. Kinsella, during my ten years as a professional OTC securities trader, and five years as a member of the New York Stock Exchange, we referred to wannabe-traders and side-line lawyers like you as pluckable fowl, and welcomed your kind as the centerpiece of our trading, poker or backgammon feasts. So, stick to your intellectual property law and other areas where you are licensed-by-the-State and your statist expertise may win you some lucre. FYI, even if you’re were an algorithmic robo-trader, which you obviously are not, during the hours, minutes or nanoseconds that you are long shares, you is de owner, like it or not. Call it trading or investing, call yourself a shareholder, pretend you are a computer, or merely an intermediary, try as you might to avoid reality, the shares and all that goes with their ownership are yours during that interim. (The only exception being when you buy securities to cover prior short sales, in which case you never own the shares. And, unless it was a naked short, a trader’s liability, if any, during the interim of the short which might attach to the shares borrowed to make good delivery would make for an esoteric discussion, but obviously this is not an issue you are competent to address.)
But aside from a little fun and games dust up and go at each other in the rhetorical lists, my point is that both you and Wildberry are defending shareholders on the basis of corporate and securities law, both of which, like corporations themselves, are products of State or statist legislation. And IM(not)HO, your (plural) arguments based on legal theories that shareholders ought not be liable for this or that only serve to make or substantiate my contention that corporations are a State-created means of dispersing personal responsibility at the cost of individual liberty.
- October 19, 2011 at 6:15 pm
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Wildberry, I’m sorry to have put you in a boat with Mr. Kinsella, which I know must be unconfortable–because, among other good reasons, his boat is about to sink even further when I respond to his silly, pit-bull rejoinder, in which he couldn’t resist attacking you as well. However to address your concerns directly:
“Shareholders are not employees, agents, or owners. They are shareholders, whose liabilities and powers are statutorily defined at the outset. Now you come along and want to change the nature of that in retrospect, not what the shareholder bargained for…Shareholders are not “employers” precisely because they cannot exercise any control over the scope and course of the corporation, other than to vote and/or ratify materials acts of the BOD. They cannot ratify something that is illegal in the first place. The BOD controls the Executives adn the Executives control the employees. Shareholders buy in or sell off. That’s it.”
Wild, you make my case. (As an aside, keep in mind, that the agent-principle relationship undoubtedly predates the state and human laws as does the ownership of private property. I believe both of these assertion can be deduced from the action axiom as Menger deduced that money predates the State, and, although I am neither an “economic anthropologist” nor an ethnologist, I doubt if there is any conflicting empirical evidence to the contrary.) The point is that before the State or in the absence of the State and its step child, the corporation, there was no such thing as a “stockholder.” There was the owner, responsible for his or her property. The corporation with its shareholder-owner, like the State itself, is a means of dispersing that all-important self-responsibility upon which liberty depends. Now if you’ll excuse me, I have to fit Mr. Kinsella with a new rectal orifice.
October 19, 2011 at 1:05 pm-
If I own a single $23 share of GM stock, the victim of a defective GM car should be able to seize my house? Nonsense.
D Storey makes an excellent point:
“Perhaps the regional manager directed freighters to overload Pepsi fleet vehicles by an amount just above the optimal weight for safe braking distance. This seems actionable.”In this case, the principal had direct control over the circumstances that resulted in injury. If the pit bull analogy has any weight at all, it is here. The pit bull owner has complete and direct responsibility for the dog at all times. If the dog injures someone, the owner is rightly held liable because of his negligence. The shareholder, however, has no direct involvement in the actions of employees, and therefore have no liability under this standard.
Aside from direct involvement, as I recall, the principal is only held liable when the agent injures someone while performing duties within his scope of employment, or if the agent was only able to injure another party because of the means supplied by the principal. I.E. a truck driver crashes a company vehicle while making a delivery, or a hotel employee robs a guest. In the first case, the driver was performing his duty (and using means supplied by the company), and in the second, the hotel provided the employee with access to the guest’s property. In both cases the principal is only liable because he supplied means that were misused or abused. This is where shareholders bear some liability, and it is entirely appropriate that this liability is limited to their contribution/stake in the firm. If a Pepsi driver gets drunk and crashes, the principal’s relationship to the injury is strictly commercial. The means that were supplied that occasioned the injury were strictly commercial. So, it’s entirely appropriate that, when the principal had no direct involvement in the injury, that his liability be limited to his contribution to the injury. Strictly speaking, you might say the liability is limited to the truck itself, but since the entire commercial operation is interdependent, it’s appropriate to expand liability to the entire commercial operation. It is not appropriate, however, to expand liability to the personal property of the principal when that personal property was not involved in or tied to any property that was involved in the jury.
To what extent should shareholders be liable when they have no direct involvement in the tort? The extent that they supplied means to facilitate the injury, which is their stake in the company.
- October 19, 2011 at 2:43 pm
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Kinsella: “The problem with this theory is the assumption that in a private law society, “shareholders” should be vicariously liable for the negligence of others.”
Let’s not use the word “shareholder.” Let’s call the stockholder what he is: the (or, an) owner.
Well you are just buying into the state’s classificaiotns. Who says he “is” an “owner”? Ownership is the right to control. What resource does he have the right to control?
There is nothing vicarious about the damage caused by the (an) owner of anything, whether it be a dangerous pit bull or a dangerous corporation, such as a nuclear-power generating corporation.
well if you call him an owner, as the state says, I guess you are done! How convenient for you. And why, again, does the right to control a resource imply that you are responsible for harms caused with that resource being used as a causal means? I realize you just want to rely on this without justifying it –but bear with me–how do you know this?
Kinsella: “We have to recognize that the prima facie answer—the default condition—is no: each person is responsible only for his own torts, not for those of others. To hold someone else liable requires some kind of “vicarious liability” theory. ”
The pit bull can’t pay, so his owner is responsible.
Is your chauffer or delivery man your property? do you own him?
Same with the owners of corporations. No need for any “vicarious liability” theory because there is nothing vicarious about the relationship nor the liability of an owner for his pit bull or her corporation.
Again, you are speaking simplistically. Did you read my post? I explained the problems with assuming ownership implies liability. And in any case, the owner of a corporation owns property, not people. Helloooo
There is no “vicarious liability” theory involved because there is no “someone else.” There is only the owner.
So…. if a fedex truck driver runs you over, he is not really there?
Kinsella: “But holding employers—or shareholders—vicariously liable for actions of their employees relies on the offensive, paternalistic, feudalistic concept of respondeat superior—a master is responsible for his slaves’ or servants’ transgressions. As Hessen notes, this is just a vestige of the medieval mentality. Why would a shareholder be liable for actions of some employee?”
What is offensive is this is that this statement is deceptive and utter nonsense. The agent-principal relationship is alive and well in law and in relationships recognized as such throughout the world.
Well that settles it, then! Let’s hang up libertarian theorizign–the “world” has “established” the “right way” to proceed!
We are not talking about a “stockholder” liability for “some employee,” what the author is talking about is an owner’s responsibility for his or her potentially dangerous property or operation.
Ah, well when you put it that way it’s all settled! Wow.
Kinsella: “On the other hand…he may have bought the share from a previous shareholder. ”
This is a silly argument. Whether one bought the pit bull as a puppy or a trained fighting dog is immaterial to our owner’s relationship to the property.
So… owning a piece of paper that represents a legal title to a sliver of a legal claim to the assets of a firm upon dissolution is … “dangerous”, “like” a pit bull? Wow.
Kinsella: ” They assume that giving money to the corporation is akin to “aiding and abetting it…”
This is a strawman
It’s not a strawman at all. Since you ignorami cannot even articulate a coherent explanation of how corporations work much less what is your theory of rights or liability or causation, I am tyring to help you out by charitably articulating your implicit views for you.
No owner (stockholder) of a business “gives” it money. An owner either creates the business by an initial investing, or buys it as a going concern.
This sounds like an amateur observation by a clueless grad student in a dorm room session bullshitting about stuff they have no clue about. With David Letterman playing in the background, and the whiff of Mary Jane from the suite-mate next door. Good for you! But when you buy a share of Exxon stock from a previous owner, using the stock market to facilitate the exchange, how do you “buy it”?–and what is “it?”; as a “going concern”–and pray tell, what is the relevance of GAAP terminology like “going concern” to libertarian theory? methinks you are utterly clueless.
October 19, 2011 at 3:05 pm-
Wow, you must be off (or on?) your meds.
Ok, that was funny, but now you see the problem with “co-ownership” that appeared from the clear blue sky a while ago, namely where you say
Who says he “is” an “owner”? Ownership is the right to control. What resource does he have the right to control?
This statement is not sufficiently general. The owner of an easement does not have the right to “control” the “resource” ie. the land in which he has a property interest eg. to cross to get to the beach.
October 19, 2011 at 3:10 pm-
Kid: “now you see the problem with “co-ownership” that appeared from the clear blue sky a while ago, namely where you say
” Who says he “is” an “owner”? Ownership is the right to control. What resource does he have the right to control?””
No, I see no problem with it at all. Ownership vests rights of control in a given resource to a given individual. Then this owner can transfer some or all of these rights contractaully to someone else, whether the rights are partial or limited or whatever. In some such cases the owner A becomes a co-owner with B. This is not hard to grok.
“The owner of an easement does not have the right to “control” the “resource” ie. the land in which he has a property interest eg. to cross to get to the beach.”
Yes, he has a defined right of control, related to other rights of control of other co-owners.
NEXT!
- October 19, 2011 at 4:19 pm
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Yes, he has a defined right of control, related to other rights of control of other co-owners.
Yes, (oops! There I go again) just like all rights “relate” to other rights of control. Just like IP, and your right to use your bat and your paper and ink. Very good.
- October 19, 2011 at 10:28 pm
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Stephan, see my reply to you above, written before this you’re more comprehensive response to my initial post, but after my reply to Wildberry, which for some cyber reasons appears following. And in my reply to Wild I wrote and reiterate: “The point is that before the State or in the absence of the State and its step child, the corporation, there was no such thing as a “stockholder.” There was the owner, responsible for his or her property. The corporation with its shareholder-owner, like the State itself, is a means of dispersing that all-important self-responsibility upon which liberty depends. Now if you’ll excuse me, I have to fit Mr. Kinsella with a new rectal orifice.” So, now let me don my surgical gloves:
First let me notice and address your use of the disparaging term “left libertarian” with a quotes from two prominent libertarians in Mises Wiki page on Libertarianism: “Like many libertarians, Leonard Read rejected the concepts of ‘left’ and ‘right’ libertarianism, calling them ‘authoritarian.’ Libertarian author and politician Harry Browne wrote: ‘We should never define Libertarian positions in terms coined by liberals or conservatives – nor as some variant of their positions. We are not fiscally conservative and socially liberal. We are Libertarians, who believe in individual liberty and personal responsibility on all issues at all times. You can depend on us to treat government as the problem, not the solution.’” Stephan, why do you use such a provocative term? You must begin to see government authority as the problem.
Kinsella: “Well you are just buying into the state’s classificaiotns. Who says he “is” an “owner”? Ownership is the right to control. What resource does he have the right to control?”
No, Stephan, you are the one defending the State, its corporations, and its stockholders–its creations. I can hardly be said to be buying into the State’s classification since the concept of ownership predates the state and corporations. Who says ownership is the right to control? Ownership is the responsibility of controlling what you own because you cannot have a right without the attendant responsibility, at least not for long.
Kinsella: “Is your chauffer or delivery man your property? do you own him?”
Nah, he is the employee of the owner(s) of the business, and you are responsible to him and, in respect to what he does on your behalf, you are responsible for his actions. That is the essence of the agent/principle relationship, which long predates the State and its efforts through laws to abate that relationship and its attendant responsibility. And because of its abatement no one is responsible for the “collateral damage” or other murders committed by State agents. And, btw, what are the responsibilities, if any, of shareholders?
Kinsella: “This sounds like an amateur observation by a clueless grad student in a dorm room session bullshitting about stuff they have no clue about. With David Letterman playing in the background, and the whiff of Mary Jane from the suite-mate next door. Good for you! But when you buy a share of Exxon stock from a previous owner, using the stock market to facilitate the exchange, how do you “buy it”?–and what is “it?”; as a “going concern”–and pray tell, what is the relevance of GAAP terminology like “going concern” to libertarian theory? methinks you are utterly clueless.”
Stephan, I’ve stated my experience in the securities investment (broker/dealer) industry. Your credentials as a a state-licensed (approved/indentured/subserviant/statist) lawyer virtually disqualifies you from commenting on libertarian principles. I read your article and I even read your citation to yourself as an authority, wherein you say, “For libertarians, the purpose of a legal system is to establish and enforce rules that facilitate and support conflict-free interaction between individuals. In short, the law should prohibit aggression.”
Stephan, you purport to speak for libertarians and yet you talk of “legal systems,” “enforce rules,” and what “the law should prohibit.” This statement of yours (and Patrick Tinsley’s) is a clear demonstration that you accept what Larken Rose calls THE MOST DANGEROUS SUPERSTITION, in his book with that title. He points out–and logically proves–that belief in authority is irrational and self-contradictory. Perhaps because your livelihood as a lawyer makes you utterly depends on the State and its laws, you have yet to shake that superstition. But not to worry. When I was a young and inexperienced libertarian like you back in the 1960s, I too had yet to realize how insidious and thorough the State’s and society’s subtle indoctrination of me into the cult of “legitimate authority” had been. The way I see you going, I’m confident you’ll get over it.
I would also like to comment on your lawyerly manner of arguing: Lately I’ve been reading Keynes GENERAL THEORY (re-reading, actually). Based on a comparison of his supercilious rhetorical style with yours, youngster, I believe if he was still around, K could secure you membership in the Bloomsbury Circle. However, don’t worry, when I was your age there were lots of things I hadn’t figured out yet. Stick with libertarianism; you’ll eventually get it.
October 19, 2011 at 12:57 pm-
I own a little over a share of Wal-Mart stock (big investor that I am!) and yet I have no control over Wal-Mart property, employees, or policy (or I should say, no more control than any other customer can exert). Why should I be out more than the value of my share if Wal-Mart executives or employees do something wrong or objectionable?
- October 19, 2011 at 1:12 pm
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Likewise, why should you be held liable if you hire a trader to make investments on your behalf, and she buys a single share of Wal-Mart stock without your knowledge.
Likewise, why should you be held liable if you work for a company that offers a pension that includes stock in Wal-Mart, but you have no direct involvement in the investment decisions being made on your behalf, other than your continued willingness to work for your present employer.
October 19, 2011 at 1:06 pm-
The heretofore analysis has been narrowly confined to tort exposure.
Is there any consideration of shareholder gains that directly result from fraudulent corporate activity? E.g., Distillery XXX has been selling watered down booze and paying handsome dividends as a result. Are the shareholders’ earnings available to pay claimants in a class action suit brought by defrauded customers? Is the decline in price of Distillery XXX shares as a result of the de-capitalization of the corporation due to settlement payments just recompense for shareholders’ fraudulent gains?
This seems to be the area where “liability” is most murky. Is the concept of “fraudulent conveyance” applicable, or are shareholders shielded from such exposure?
- October 19, 2011 at 4:48 pm
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Crickets. . . . ?!
- October 19, 2011 at 5:59 pm
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@jasontgordon October 19, 2011 at 1:06 pm
Would you hold the investors that Bernie Madoff swindled liable for his fraud?
Fraud woud apply to them only if they knew Bernie was a crook and relied on that knowledge in making their decision to invest.
Those that lost money don’t have to pay a penalty to others who also lost money. But those that did make money might have to disgorge their profits which may be used to pay restitution to those who lost, but not because they are liable in the way you are thinking of it, but becasue they were unjustly enriched by the fraudulent conduct of Madoff.
Liability is murky where the facts are murky. But for fraud to apply, someone has to knowingly deceive someone for the purpose of getting some of their stuff. Shareholders are not fraudulent by accepting dividends that as far as they know, are legitimate.
- October 19, 2011 at 9:57 pm
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not because they are liable in the way you are thinking of it
I don’t have a clue how or what you presume to be my thinking regarding investors, am I not clearly referring to shareholders?
So according to you Wildberry, dividends based upon fraudulent profits are justifiably owned so long as the shareholder accepted them in good faith? Give me a break. That logic would be convenient for a buyer of stolen goods, would it not?
Are shareholders in an actionable position to obtain damages related to their being payed dividends obtained fraudulently?
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