Libertarian Answer Man: Corporations, Trusts, HOAs, and Private Law Codes in a Private Law Society

This is a lightly edited interchange with a libertarian friend.

FRIEND:

Stephan,

I’ve read Robert Hessen’s In Defense of the Corporation and found it excellent. I found it interesting that he disagrees with the notion that corporations are distinct entities, separate from the voluntary association of individuals (shareholders, board, executive, etc.) that makes up the corporation. Also interesting is his careful and insightful description of corporate liability for tort, distinguishing intentional and unintentional/negligence cases, and pointing out that agents (such as board members, executives, etc.) do not escape liability for their actions, i.e. cannot hide behind the corporate veil (though he doesn’t use this term).

[I found Norman Barry’s article “The Theory of the Corporation” very good and clear, too, for the most part, though some of it is somewhat mangled. More on this later… ***.]

(( I discuss and critique Van Dun’s criticism of my and Walter Block’s “libertarian legalism” in “A Tour Through Walter Block’s Oeuvre,” in Elvira Nica & Gheorghe H. Popescu, eds., A Passion for Justice: Essays in Honor of Walter Block (New York: Addleton Academic Publishers, forthcoming); see also Legal Foundations of a Free Society, pp. __, et pass. ))

However, some legal scholars, such as Frank van Dun, do not think that limited liability entities are compatible with a natural order.¹

I’m curious if you have any further thoughts or refinements about how best to form legal entities in a completely free society where there is no authority regulating incorporation and registration of legal entities. Hessen is not an anarchist, but a minarchist, so he sees a role for government mandating certain minimum requirements, such as registration and public disclosure of certain corporate details. How would this be handled in a completely libertarian / anarcho-capitalist society?

And what are the pros and cons of corporations vs trusts as general vehicles for business? I mean, corporations are currently dominant, but in the nineteenth century trusts were dominant, and were only replaced by corporations because of government trust busting. So perhaps trusts are naturally better suited for business in general, in a fully free society.

There is also the question of recognition — a group of individuals may set up whatever contractually agreed entity they want, but will it be recognized in the business community (for example, will it obtain bank accounts), if it is set up with zero registration or public disclosure, etc.

Have you written about this topic?

KINSELLA:

I’ll have to review this email in detail later but I think most libertarians are confused or wrong on this issue, including Van Dun, whom I greatly admire and who is great on lots of libertarian theory matters, including argumetation ethics.² The best 3 I know are all non-lawyers, Rothbard, Hessen, and Pilon, but they all sense that the crux of the problem is the notion of respondeat superior. I discuss this various places in my book Legal Foundations of a Free Society (LFFS) and e.g. “Corporate Personhood, Limited Liability, and Double Taxation.”

It’s ultimately a matter of causation and responsibility, discussed in general in ch. 8 of LFFS.

FRIEND:

KINSELLA:

1. Perhaps he had in mind Frank Van Dun, “Is the Corporation a Free-Market Institution?,” Ideas on Liberty (March 2003). van dun: also: “A note on Austro-libertarianism and the limited-liability corporation“;

   Hessen was also criticized in two articles by Piet-Hein van Eeghen, “The Corporation at Issue, Part I: The Clash of Classical Liberal Values and the Negative Consequences for Capitalist Practices,” J. Libertarian Stud. 19, no. 3 (Summer 2005): 49–70, and “The Corporation at Issue, Part II: A Critique of Robert Hessen’s In Defense of the Corporation and Proposed Conditions for Private Incorporation,” J. Libertarian Stud. 19, no. 3 (Fall 2005): 37–57.  [↩]

2.   [↩]