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Knapp: Big Government, Big Business — Conjoined Twins: And My Comments

Since comments to this 2010 post are now inexplicably (but predictably; so many libertarians are totally half-assed about such matters) deleted, here is the whole post and comments thread, from the archive:

Big Government, Big Business — Conjoined Twins

David Corn, writing in Mother Jonestakes issue with the popular sentiment:

For many decades, Americans have held negative attitudes toward the titans of industry. … But Americans also don’t fancy the counterbalance to corporate power: government. Since 1965, Gallup has asked survey respondents to choose the biggest future threat to the country: big business, big labor, or big government. Big government always wins — by a lot.

As well it should. The wisdom of the crowd may be imperfectly informed, but it’s spot-on in this case.

Government is not and never has been a “counterbalance” to corporate power. In fact, it’s historically been the primary enabler, the symbiotic partner, and a significant beneficiary of that power. The idea that an institution whose employees keep a revolving door spinning between Capitol Hill and the K Street offices of the corporate lobbies, an institution afloat in a sea of corporate campaign donations, an institution groomed to the express task of transferring money from the taxpayer’s pocket to the corporate bottom line, can act as a “counterbalance” to corporate power is absurd on its face.

A corporation, from its birth, is a creature of the state. Absent the intervention of government on its behalf, no such entity could exist. 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.

With the issuance of a corporate charter, what was once a partnership receives an estimable benefit in the form of “limited liability.” It becomes, in effect, an “artificial person” whose body is composed of its stock shares. Liability for the actions of this “person” — even though those actions are in reality the actions of its owners — is limited to those shares.

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. Finally, imagine that when the robot we built starts offing people as we programmed it to, we’re absolved by the courts of any personal liability beyond the value of our ownership stakes in the robot itself. Hey, we didn’t do it … that “artificial person” over there did!

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. But with “limited liability,” all they can get their hands on is the killer robot itself.

That’s not to say that most businessmen are inclined to set killer robots on the loose. They aren’t — they just want to sell a product or service at a profit. But “limited liability” reduces their incentive to do so responsibly by insulating them from the consequences of acting irresponsibly. It’s naive to think that that won’t produce unintended consequences.

Furthermore, “limited liability” artificially inflates corporate profits and capitalization by reducing the apparent cost of investment. Not the real cost — the difference merely gets shifted/externalized onto the victims of any prospective future torts — but the apparent cost is reduced by the amount that would have been saved for, or put into insurance against, prospective future liabilities. It may not be that all “Big Business” is big solely due to limited corporate liability laws. But “Big Business” is certainly bigger than it would have been in the absence of those laws.

As a business gets bigger and disposes of more wealth, its natural next step is to deploy that wealth for the purpose of protecting its advantages and gaining even more advantages. And the natural place to do so is with the institution which helpfully inflated it in the first place … government.

This no new phenomenon. Now Treasury Secretary, then New York Federal Reserve president Timothy Geithner’s pressure on AIG to hide bailout payoffs is just the latest visible tip of a status quo iceberg that’s been afloat for 150 years or more (see, for example, the Crédit Mobilier scandal, or the Erie Railroad Ring, or Teapot Dome).

The “counterbalance” to corporate power is not government, it’s separation of economy and state.

Comments (15)

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.

Regarding your argument’s inappropriately relying on invalid state distinctions and concepts and assumptions such as legal personality and limited liability as a “privilege,” see also my post The Over-reliance on State Classifications: “Employee” and “Shareholder”.

Stephan,

I’m not sure how you manage to get from the fact that I identify and condemn “invalid state distinctions and concepts and assumptions” to the conclusion that I “inappropriately rely” on them, unless that’s some corollary to your … um … novel estoppel/argumentation ethics theories.

Q: What distinguishes a “corporation” from a “partnership” or a “joint stock company?”

A: “Invalid state distinctions and concepts and assumptions” which manifest by fiat as what I refer to as “privilege” — “a particular law, or a particular disposition of the law, which grants certain special prerogatives to some persons, contrary to common right.” — Bouvier’s Law Dictionary, Revised 6th Ed (1856)

As far as your objections to vicarious liability are concerned, how consistent are they? Is, for example, POTUS only liable as a thief for restitution for the salary, food, lodging and transportation he steals while in office, or is he also at least partially liable for restitution for actions taken by people acting on some transmitted/modified/extended versions of orders he gives?

Tom, I don’t understand how your post is supposed to be reply to the substantive points I made. I gather you don’t like argumentation ethics.. okay.

My objections to vicarious liability are very consistent. I have laid out very carefully in the Causation article w/ Tinsley linked above, a theory rooted in praxeology and libertarian legal theory, how and why you can be responsible for “ordering” the perpetration of crimes, or for being a causal part of a criminal enterprise. Some libertairnas say you cannot hold the ringleader responsible for actions of the underling. They wrongly think that if you impose liability on the principal then it’s removed from the agent; nonsense; it’s not a fixed pie. Both hitman and his boss can be 100% responsible. Or, they’ll say that the hitman is not responsible b/c he only used words–he’s “merely” “inciting”. Or they will say that the boss is liable *only* if he pays or coerces the underling–these are ad hoc categories. I have a coherent theory as to how and why you can and should be liable for actions of others–and it applies in the case ofa President.

But it does not apply in the case of shareholders. The burden of proof is not met. You have not even tried ot meet it, as far as I can see: you just assert that of course they are liable, relying on loose analogies and I suppose laymen’s presuppositions about strict liability and the law (not-carefully-thought-out formulations like “you should be responsible for your property” etc.). I don’t think this cuts it. Libertarianism prima facie holds only the actor responsible for his actinos. The shareholder in his capacity as shareholder is not the actor who commits any torts. If you want to impute liability to him for actions of others you need a good reason. What is it? Noting that heads of criminal gangs (like the President of the US) are liable doesn’t prove anything. Laymen bromides about “you have to take the pain with the gain” are not any kind of serious argument. Utilitarian law-and-economics style reasoning about incentives etc. is irrelevant to principled libertarian reasoning. I mean what is the argument? I have yet to hear one. I’m open to hearning one. If you can show shareholders ought to be causally responsible, then I agree, the state grant of immunity is a privilege, and should be revoked (and would simply lead to D&O style insurance being extended to shareholders, changning nothing systematically in the business world, so what’s the point?). What is your argument? If you don’t have one, we are left with the libertarian presumption that shareholders are not resposnible for torts of employees.

Stephan,

You write: “I don’t understand how your post is supposed to be reply to the substantive points I made.”

Well, I think I replied reasonably to the whole “what is a corporation” question. You seem to be hung up on the idea that a “corporation” could somehow exist in a stateless society. I don’t see how an entity which is and always has been differentiated from other businesses on the sole basis of state recognition/chartering could exist without that differentiation. Absent the state recognition/chartering, it would simply be a partnership or joint stock company. Even if your case for limited liability is correct, it wouldn’t apply to an entity which by definition could not exist.

As to your arguments on vicarious liability, I find them contradictory:

On the one hand, you hold that the head of a criminal gang is vicariously liable for the actions of his agents/proxies.

On the other hand, you hold that the partial owner of an entity chartered, recognized and privileged by that criminal gang is not vicariously liable for the actions of his agents/proxies, and that that same owner, were his business not a creature of the state, could also disclaim such liabilities.

So, to put it bluntly, I don’t understand your foundational logic, since it seems to produce contradictory conclusions.

As far as revocation of limited liability privileges leading to D&O style insurance, the point is pretty simple: State-granted limited liability is an economic distortion for precisely that reason. It illegitimately externalizes part of the cost of investment (the cost that would go to that insurance) to the victims of prospective torts.

Tom:

Absent the state people could pool their assets, and arrange them similarly to how “corporations” do now. they could let all contracting parties know any claims are limited to a defined set of assets, but not personally against “shareholders”. And I submit “shareholders” would not be held to be vicariously responsible for acts of employees and agents of this “corporation.”

Whether it would be called “a corporation” or not I have no idea, and it’s irrelevant. do you agree so far?

You dismiss the significance of the fact that shareholders can easily be covered by D&O insurance. Sure, it would internalize costs, but it’s trivial, dude, and in any event many of the things left-libs complain about corporations for are structural or incentive features that would easily still exist if all you did was make the corporation pay a small insurance premium for shareholder coverage.

An to be clear: we all here favor the state dropping the legal fiction of legal personality and other laws including limited liability, and just getting out of the area. We all here oppose the state and corporate fascist intermixtures. So I am not really sure to what extent we disagree, so long as we agree on this.

Stephan,

You write:

“Absent the state people could pool their assets, and arrange them similarly to how ‘corporations’ do now.”

Absolutely.

“they could let all contracting parties know any claims are limited to a defined set of assets, but not personally against ‘shareholders’.’

Yep.

“And I submit ‘shareholders’ would not be held to be vicariously responsible for acts of employees and agents of this ‘corporation.'”

And I submit that this claim seems, in the absence of any explanatory/transtionary material, to directly contradict your own theory of vicarious liability (if POTUS is responsible/liable for the acts of his proxies/agents, why is a stockholder not?).

“Whether it would be called ‘a corporation’ or not I have no idea, and it’s irrelevant.”

No, it’s not irrelevant. To call it a “corporation” would be fraudulent, since the very term is defined as “A body politic or corporate, formed and authorized by law to act as a single person … a society having the capacity of transacting business as an individual” [Webster’s 1913 ed.]

A group of people is not “a single person,” and no act can make it one.

“do you agree so far?”

Partially, as previously detailed.

“You dismiss the significance of the fact that shareholders can easily be covered by D&O insurance.”

They can be, but they aren’t. They aren’t because they don’t have to be. They don’t have to be because the state has artificially exempted them from liability for actions they take through proxies/agents.

“Sure, it would internalize costs, but it’s trivial, dude”

If it’s so trivial, see how far you get with a law to revoke limited liability so that it happens.

“and in any event many of the things left-libs complain about corporations for are structural or incentive features that would easily still exist if all you did was make the corporation pay a small insurance premium for shareholder coverage.”

I would never suggest “making the corporation pay” such a premium. If some or all of the company’s stockholders prefer to leave their assets unshielded from seizure for tort restitution, that’s their prerogative (unless the terms of the contract under which they buy their shares specifies otherwise by either requiring them to insure their shares themselves or including purchase of a policy in the stock price).

Not being as wise or far-sighted as you are, I choose not to a) make any assumptions as to what some other left-libertarian might complain about; or b) speculate as to what exact effects the revocation of state fiat limited liability might have on other structural or incentive features of partnerships/joint stock companies. I’ve simply pointed out that that state fiat privilege produces an economic distortion in a certain direction (artificial augmentation of profits through artificial externalization of costs).

Stephan,

You write:

“An to be clear: we all here favor the state dropping the legal fiction of legal personality and other laws including limited liability, and just getting out of the area. We all here oppose the state and corporate fascist intermixtures. So I am not really sure to what extent we disagree, so long as we agree on this.”

Well, that much is certainly true. Our disagreement on those things is not a disagreement on principle, but a predictive disagreement as to some likely effects of implementing the principle. That’s a relatively minor kind of disagreement, but the kind that can be fun to argue about.

““Whether it would be called ‘a corporation’ or not I have no idea, and it’s irrelevant.”

No, it’s not irrelevant. To call it a “corporation” would be fraudulent, since the very term is defined as “A body politic or corporate, formed and authorized by law to act as a single person … a society having the capacity of transacting business as an individual” [Webster’s 1913 ed.]”

Who is defrauded, exaclty? If it’s known in a free society there is no such thing as legal persoanlity then the word would be understood as shorthand for something else. Libertarians are too careless in how they throw out the “fraud” charge, IMO. SEe my posts Fraud, Restitution, and Retaliation: The Libertarian Approach and The Problem with “Fraud”: Fraud, Threat, and Contract Breach as Types of Aggression.

“I would never suggest “making the corporation pay” such a premium.”

me neither.

“Our disagreement on those things is not a disagreement on principle, but a predictive disagreement as to some likely effects of implementing the principle.”

I think this is primarily correct. Some left-libs take it so far that they say a world without fascist corporatism would be one of agrarian localist coops with an occasional dirt road, or some such, and thus, they decry all modern international and big business as obviously unlibertarian by contrast. Or, at the least, they think that modern commerce is a distortion of the pastoral craftsman’s life we would lead. I, on the other hand, believe we would have a far more prosperous and thriving industrial life absent the state, with far more trade, even international, and with extensive use of the “soul-killing,” “ailenating,” division of labor and mass production employer-employee factory system. And I believe this is perfectly libertarian.

“Not being as wise or far-sighted as you are, I choose not to a) make any assumptions as to what some other left-libertarian might complain about;”

Well, I’ve heard my share of leftist attacks on “‘capitalism'”. But, if the shoe doesn’t fit, it doesn’t fit. Fine by me.

“b) speculate as to what exact effects the revocation of state fiat limited liability might have on other structural or incentive features of partnerships/joint stock companies.”

I tend to agree here–I say, just repeal it and let’s see what happens. I have no need to speculate. I view my speculating as merely to counter that of leftists, who do speculate, at least implicitly, that in a market free of state “privilege” the entities known as “corporations” today would all but be unable to persist (okay, let’s say they change their names to satisfy you).

“I’ve simply pointed out that that state fiat privilege produces an economic distortion in a certain direction (artificial augmentation of profits through artificial externalization of costs).”

Sure. And we both agree this should be internalized by removing any state props.

“And I submit that this claim seems, in the absence of any explanatory/transtionary material, to directly contradict your own theory of vicarious liability (if POTUS is responsible/liable for the acts of his proxies/agents, why is a stockholder not?).”

Take a look at my causation paper and you’ll see why the cases are distinct. In the POTUS case he intends to (say) bomb Nagasaki, and uses the bombadier and pilots and military itself as a means to accomplish this goal. 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”–again, it’s why I linked to my post The Over-reliance on State Classifications: “Employee” and “Shareholder”, above. 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 negligently, or carefully? Can you drive the truck yourself? No. forget the state’s classification. You can say they are an owner but ownership is the 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.

Have you read Hessen on this? The excerpt (<a href=”https://web.archive.org/web/20150124022736/http://www.lewrockwell.com/blog/wp-content/uploads/2004/04/Hessen+corporation+tort+liability+excerpts.pdf” rel=”nofollow”>here) in the <a href=”https://web.archive.org/web/20150124022736/http://www.stephankinsella.com/2009/08/06/legitimizing-the-corporation-and-other-posts/” rel=”nofollow”>post I linked above? What do you disagree with about this?

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P.M.Lawrence's avatar

P.M.Lawrence· 262 weeks ago

Stephan Kinsella, you wrote ‘…as Hessen has shown, a corporation could be formed absent the state. It is a contractual arrangement among a number of individuals… State privilege is no more needed for corporate formation or limited liability than state intervention is “needed” for roads or healthcare or justice… contractual limited liability is a result of contract.’

That has been amply rebutted, even refuted, in posts elsewhere, e.g. hereherehere, and here. Corporations could not be formed absent the state (apart from special cases like monasteries that have a cohesive internal dynamic of their own), and corporations are not mere contractual arrangements among a number of individuals because at most contractual arrangements could only give rise to a partnership. Doing that would not generate a continuing entity holding together by itself and doing that would not confer any of the particular privileges typical of a corporation, such as limited liability (although it could arrange to shelter anonymous sleeping partners and limit their liability de facto), because those would be beyond both the physical power and the moral authority of the founders.

Your later arguments have been brought out and countered before, in the posts linked to just above. These also counter Hessen’s arguments and assertions, that you linked to.

PML: “corporations are not mere contractual arrangements among a number of individuals because at most contractual arrangements could only give rise to a partnership. Doing that would not generate a continuing entity holding together”

I disagree–I think it would be similar to the way restrictive covenants survive. All you need is creative lawyering.

“by itself and doing that would not confer any of the particular privileges typical of a corporation, such as limited liability”

It’s not a privilege, unless you prove that a shareholder is causally responsible under libertarian law for actions of employees. I’ve yet to see this proof.

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P.M.Lawrence's avatar

P.M.Lawrence· 262 weeks ago

Stephan Kinsella, you wrote “I disagree [that at most contractual arrangements could only give rise to a partnership] – I think it would be similar to the way restrictive covenants survive. All you need is creative lawyering.”

The first sentence is absolutely correct, but the second is incorrect because it does not take into account that some outside holder together is needed, unless there happens to be some internal dynamic that does that. Without that, creative lawyering would not have any way to give effect to what it asserted – any more than restrictive covenants work once the people on the ground decide to do otherwise, unless something outside makes them obey.

“It’s not a privilege, unless you prove that a shareholder is causally responsible under libertarian law for actions of employees. I’ve yet to see this proof.”

The former sentence is false, because being a privilege does not require that sort of proof, any more than the fact that the moon is not made of green cheese requires proof. Demonstration of the fact would need proof, but the proof is not necessary to cause the fact. All proving it would do is demonstrate it, but the fact would remain true whether you acknowledged it or not. Even without someone proving it, the fact could be determined by anybody who took the trouble to see that there is indeed legislation that grants powers to corporations but not to others – companies acts, etc. – which is what privileges are; and that sort of proof would demonstrate the fact without even needing to jump through the artificial hoops you are raising.

The latter sentence is false, because as it happens you have been shown such proofs repeatedly, e.g. in the comments at the links I cited. Hint: who let go of control? That means that you have seen proofs; the fact that you refuse to accept them does not mean that they have not been shown to you.

PML: “The first sentence is absolutely correct, but the second is incorrect because it does not take into account that some outside holder together is needed, unless there happens to be some internal dynamic that does that.”

sure. This is easy.

“The former sentence is false, because being a privilege does not require that sort of proof, any more than the fact that the moon is not made of green cheese requires proof.”

We all agree the state should grant no privilege. To me the real question is a substantive libertarian one: should shareholder be liable for acts of employees. Unless you show that they should, there is no basis for vicarious liability.

“The latter sentence is false, because as it happens you have been shown such proofs repeatedly, e.g. in the comments at the links I cited. Hint: who let go of control? That means that you have seen proofs; the fact that you refuse to accept them does not mean that they have not been shown to you.”

I have seen no coherent argument. It’s just a bunch of amateur Peter Parker “with power comes responsibility” nonsense, or talk about incentives, etc.

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P.M.Lawrence's avatar

P.M.Lawrence· 262 weeks ago

Stephan Kinsella, you wrote “To me the real qustion [sic] is a substantive libertarian one: should shareholder be liable for acts of employees”.

No, the real question is the one that was raised here, not the one you have been thinking about for yourself. I remember my father once pointing this rhetorical style out to me as a feature of French thinking when I drifted into it. It was illustrated by an interview between a British journalist and a French expert, in which the latter said “the question is [whatever]”, to which the journalist replied “No, it isn’t. I know, because I asked the question.”

The real question is, can (physically) and should (morally) corporations exist without state intervention? I have suggested that this is only possible in special cases like monasteries that have an internal cohesive dynamic of their own (and even then, particular cases might still be unethical – imagine a malicious secret society). Bear in mind that the harms at issue include ones flowing from entity status as well, and are not simply restricted to who/how much issues of liability. To substitute your own question is to beg this real question, along the lines of “we already settled that question, we’re arguing about the price”.

But even stipulating your question – without prejudice to answering the real one – the burden of proof on that lies the other way around, as was pointed out in the material I linked to.

“I have seen no coherent argument”.

As I pointed out above, that is not true; you have indeed seen such arguments, you merely refuse to acknowledge them as such. There is little point in repeating them since they are very specifically covered in the linked material. But here is another thread you can look at.

‘It’s just a bunch of amateur Peter Parker “with power comes responsibility” nonsense, or talk about incentives, etc.’

You certainly know that that is not true, because you replied to some people who made objections that were not that shallow (without refuting them, I hasten to add in case you suggest that you dealt with those objections).

I will get even more specific. Here is one particular comment that spells it out, that I did not provide myself: “But why do those people need state-mandated exemptions from liability? Why do they need thousands of pages of corporate law to create artificial notions of personhood and corporate veils? Why can’t those people be responsible for the direct and indirect effects of their actions, the same way any independent business owner would be? The presence of corporate law gives shareholders an incentive to act immorally, by treating their investment as a numbers game, in essence gambling on a return without any personal involvement in the enterprise. Corporate law also allows those in control of an organization to hide their personal interests behind the fiction of serving an abstract entity.” See also here: ‘regarding “Please, pretty please, with sugar on top…explain to us WHY investors SHOULD be held personally liable for employees or managers?” Because partners in a partnership would.’ (That would read more properly if it had been written as “For the same reasons that partners in a partnership would”.) Or there is TokyoTom‘s material.

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{ 15 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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