Comments (21)

• RichF

  Wait, Aunt Jemima went and "arrested" strangers on someone else's property? By what right? No libertarian hero was she!

  Published: May 16, 2006 10:36 AM

• banker

  I don't care about history, but as far as I am concerned Aunt Jemima will always be the person's face I see on a bottle of syrup. I don't really see the point of this article.

  Published: May 16, 2006 10:54 AM

• Paul Marks

  Arresting looters on someone's property is exactly what a libertarian should do.

  The idea that a libertarian is only concerned about their own property is the leftist lie about libertarians.

  Besides - after the French force had finished in the properties they were looting they would have moved on to loot other places.

  Of course (to put a bit of historical cold water on the story) the French force was mostly made up of freed criminals and they had got very drunk.

  One reason why they mistook Welsh ladies in their traditional red capes and black hats for British regulars.

  On a larger scale the "Association for the Preservation of Liberty and Property.." (the title went on a bit) organised by John Reeves had more men under arms then the government did (on the home front) in the 1790's. The Association has gone down the memory hole because Reeves was not a democrat.

  See Robert R. Dozier "For King, Constitution and Country: The English Loyalists and the French Revolution" - University of Kentucky, Lexington Kentucky 1983.

  Sure Reeves and co were not anarcho capitalists (they were Royalists) - but there vision of the role of the King was to sit on the throne and not do much (and at least they had no illusions about Parliament - however it was elected the Parliament was just group of people who liked sticking their noses in other folks affairs).

  Remember that central to the French idea of the Rights of Man was the rule of the people (i.e. the rule of the politicians).

  If one examines the French Rights of Man carefully it is a bit different to the British or American Bill of Rights.

  Individual rights get lip service in the "Rights of Man" but the real point is collective rule.

  Published: May 16, 2006 1:44 PM

• Alan R

  This article makes 2 claims common to libertarian writings, both of which are true but incomplete and somewhat misleading.

  The first is that "the outstanding characteristic of our time is a willingness to pass responsibility to others", then proceeds to suggest that "dependence upon government" is the reason we shirk responsibility. My understanding of the nature and legal status of corporations is that they allow shareholders (often referred to as "owners") to evade liability for the actions of the corporation, except for the possible loss of their investment. Freedom from responsibility (and limitation of liability to lawsuits) by such "owners" is the primary reason to switch from a sole proprietorship to a Sub-S corporation, for instance. Thus a form of ownership and voluntary association sanctioned by law and libertarian theory can also contribute to the shirking of responsibility. It seems to me that with the prevalence in the modern world of the so-called "ownership society", corporations are at least as responsible for the shirking of lots of responsibility as is government.

  Second is the claim that "All wars are created by government." War has deep roots in our evolutionary history. Groups of ancient peoples have fought wars for millenia before civilation and kings and modern warfare states made their appearance. "Human" and "killer" appear to be synonymous, whether at the interpersonal or multinational levels of human society. And more broadly, groups of chimps fight wars. Ant colonies fight wars and take slaves. These are not mere metaphors but are well-documented natural history with no connection to government.

  I hope this puts these common libertarian claims in a broader context.

  Published: May 16, 2006 2:45 PM

• Doug Schulek-Miller

  Okay, I have a couple of issues with the story's characterisations and perhaps they are issues of interpretation. The "liberty-loving" Irish, I suspect, are a phenomenon of the past, knowing that their currently loved government has shackled them to the EU and ever decreasing liberty; notwithstanding their apparent attraction to the socialist totalitarian IRA, but that consideration has a number of dimensions to it, none of which pertain to this discussion.
  The series of points about governments sponsoring aggressive attacks upon civilians as part of government's mechanism of war is not exactly right. In the particular case of the Irish, pirating and raiding parties out of Ireland were raiding, pillaging, and carrying away all sorts of stuff from the Welsh and English coastal villages for centuries before the more modern Monarchy [pre -George III] evolved in England - and Wales was brought under its domain, to say it nicely. Now, this also has nothing to say about the Norse and other regular raids on the eastern English coasts, some of which may have been regally inspired, but more likely ordinary guys in the business of looting, pillaging, conquest, and general mischief making in a pre-Renaissance sense, of course. So, while war may be an instrument of foreign [or domestic] policy, it and its associate destruction are not sole property of governments, per se.

  Published: May 16, 2006 8:26 PM

• Peter

  Thus a form of ownership and voluntary association sanctioned by law and libertarian theory can also contribute to the shirking of responsibility.

  It seems to be a constant theme among people who say things like "claims common to libertarian writings, [...] are true but incomplete and somewhat misleading", that they don't know what they're talking about. In this case: where did you ever see a libertarian arguement for limited liability status for corporations? When you wrote "sanctioned by law and libertarian theory", you meant "sanctioned by legislation and opposed to libertarian theory", of course.

  Published: May 16, 2006 9:06 PM

• Paul Edwards

  Alan and Peter,

  Can you explain to me how limited liability is either non-libertarian and/or promotes a diminution or shirking of personal responsibility? My understanding is that it essentially is a short form for a contract between a group of borrowers/partners and their creditors. It puts creditors on notice, up front, that baring special contractual arrangements, the liability of the loan is limited to the assets of the corporation and not beyond to the personal assets of the partners. This contractual agreement literally requires no state involvement or legislated privilege.

  I think the concept of a mortgage is a parallel one, where the liability for mortgage debt is limited to the home itself rather than the home-owner’s other personal assets.

  Furthermore, this is the extent to which limited liability protects anyone. It in no way shields employees from liability for negligence or criminal acts.

  I think a pretty good summary of this is presented here by Stephan Kinsella: http://blog.lewrockwell.com/lewrw/archives/004382.html “Legitimizing the Corporation�.

  Published: May 16, 2006 11:51 PM

• quasibill

  Paul,

  Kinsella's argument is very good, and basically correct in large part. I'd tend to quibble at the edges of the concept, however. For example, it's a small problem that it is granted by statute, and not contract, and in some states, this leads to perverse applications at the edges.

  My major quibble is that shareholders, especially in a close corp., are capable of sending messages to management without explicitly sending messages. For example, new CEO is trying to find someone to drive the big rig from East Coast to West Coast. He knows that the margin is razor tight on this shipment, so he can't spend much, and (most importantly for this subject) he knows that two previous CEOs got canned for overpaying and taking a loss on a shipment. He also knows that two previous CEOs got canned for cancelling shipments when they couldn't find an acceptable driver.

  Now, new CEO has only one taker at his bid for this shipment - and its Dan the Drunk, with 3 traffic fatalities on his record. If he hired Dan, how well will his defense of "just doing what shareholders required" work? Fairly well, based on my anectdotal experience - people tend to believe the blame lies with the shareholders. And should shareholders be immunized in this situation? I'd argue not.

  Granted, this is a Robinson Crusoe style example - the real cases are often more complicated, with "corporate culture" involving much more. Once again, its a quibble on the edges.

  Published: May 17, 2006 7:28 AM

• TokyoTom

  Peter, it sounds like you agree with Alan's point that the creation of limited liabilities is also a shirking of responsibility, but take the view that limited liability companies are inconsistent with a libertarian position.

  Paul, the manner in which limited liability represents a shirking of responsibility is not with respect to creditors or consumers, who are presumed to lend or purchase on the basis of an understanding of who they are lending to, but with respect to true third parties who are involuntarily damaged by the corporation. That individual employees may have liability for certain acts for which they are directly responsible does not begin to cover the full scope of the excuse from liability provided by the grant of incoporation.

  Alan, your second point about conflict being inherent human nature is also an excellent and important one, that leaves me wondering just what we would end up with if we were ever to truly eliminate "the state".

  Our penchant for group violence also seems to me to be a key point in understanding the evolution of states, which I see as arising historically chiefly for the purpose of preventing the elimination of one group by its potential rivals, as well as to allow one group to successfully wrest desired resources away from others. Those countries which best took advantage of their resources (combination of private enterprise and public arms) survived. See Hobbes' "Leviathan", Jared Diamond's "Guns, Germs and Steel" and Paul Kennedy's "Rise and Fall", for example. I do not deny the role of personal/family/clan theft and dominance in the development of the state, but think that interactions among proto-states has had a critical influence.

  Regards,

  TT

  Published: May 17, 2006 7:44 AM

• Deacon Elurby

  
  Re: the myth of national defense

  If an individual may be accorded rights, then a group of like-mined individuals may demand similar rights, such as when a nation of people demand the right to survive as a people (( the anthropological definition of "nation" is "a people of common ancestry" )): Read and learn:
  http://illegalalienstrashamerica.blogspot.com/

  Published: May 17, 2006 9:50 AM

• Paul Edwards

  quasibill, TokyoTom,

  The weakness that i see with your arguments, if i understand Kinsella's argument correctly, and assuming his argument is correct, is that there is no legal connection between the concept of limited liability and what you are objecting to. In other words, limited liability is strictly and nothing but, a generalized statement of limit against debt liability towards creditors. It is absolutely nothing more than this.

  Therefore, any privilege that appears to derive from limited liability is an illusion. The privilege, if it exists, is derived from state intervention in the carrying out of justice. There is no advantage in conflating the two things because limited liability is highly valuable to the free market and therefore it is valuable to everyone. It should not be criticized for an effect of which it is not the cause.

  Published: May 17, 2006 9:59 AM

• quasibill

  Paul,

  I understand exactly where you're coming from - it's the point of Kinsella's argument. And he's correct, for the most part, as I noted. It's at the extremes where the analogy tends to break down, and that is often because "limited liability" is treated by the courts as a privilege granted by the legislature, and not a merely contractual undertaking.

  IIRC, Kinsella acknowledges that there are often problems with agency law in torts, and this critique is in a similar vein. If the laws were exactly what Kinsella proposes, I'd be content. However, in any given state, to varying degrees, the laws diverge from Kinsella's theory as you get to more extreme fact patterns.

  I may be wrong, but I don't think Kinsella was necessarily trying to defend "limited liability" in all its current permutations. Rather, I understood his article to be a defense of the idea that limited liability would exist in a stateless society, and that it wouldn't look too much different from its current shape. And with that, I agree.

  Published: May 17, 2006 12:13 PM

• TokyoTom

  Paul, I think you're not quite understanding what "limited liability" means with respect to corporations. It's essential meaning is that the liability of shareholders in the corporation for the various obligations of the corporation are limited to the amount of their equity investment, so that if the assets of the company are insufficient to pay all of its obligations, the persons to whom such obligations are owed are left holding an empty bag, with no further recource - no one can make a claim against the investors for the amount of the shortfall.

  As I noted, limited liability is conceptually voluntary between the company and its lenders and commercial/retail counterparties, but is not voluntary with respect to others whom are injured by the company.

  This is the aspect which is most pernicious about corporations, since it allows investors to use corporations to escape liability for ruinous practices committed by corporations. This is especially evident and is a serious problem with respect to environmental matters - the polluting or extractive corporation simply goes bankrupt and leaves society holding the bag for clean up and other costs. There is a long and sad legacy of this, and you could probably name your own examples. Government and private efforts haven't even begun to solve some of these problems.

  This is one of the reasons that "enviros" feel compelled to act proactively, on the basis of some feared or prospective harm. In other words, this behavior stems from government interference, by allowing limited liability against third parties.

  Published: May 18, 2006 1:52 AM

• Paul Edwards

  TokyoTom,

  “As I noted, limited liability is conceptually voluntary between the company and its lenders and commercial/retail counterparties, but is not voluntary with respect to others whom are injured by the company.�

  What I am suggesting is that there is nothing wrong with expressly limiting the debt liability of a corporation to its creditors to the equity in the corporation. Outside of this concept, there is also government privilege and it is distinct from the meaning of limited liability. I think the problem is in definition. If we include the privilege of government bestowed immunity from prosecution for criminal aggression in the definition of limited liability, what term do you reserve for the pure concept of limiting debt liability to the equity in a corporation?

  The reason that firms can pollute and are immune from prosecution for such crimes is due to government intervention and hampering of the legal system. Fraudulent government legislation was introduced which pre-empted justice, libertarian ethics and natural law based on property and replaced these with state bestowed privilege and advantage for large established moneyed and politically connected firms. It is not that these firms are limited that protects them from justice, it is unrelated government legislation that does it.
  

  Published: May 18, 2006 2:44 AM

• tokyo-tom

  Paul, thanks for your response. Where are you by the way?

  1. I am approaching the term "limited liability" from a legal perspective, from which it seems that your use of terms is a little off, so I'm not sure I understand your questions. As used in law, "limited liability" essentially means that the liability of SHAREHOLDERS for the acts of the corporation is limited to their investments. That is the key development that distinguished corporations from proprietorhips and partnerships, where the owners had personal liability for all acts of their businesses, and could lose their homes and everything they had if business assets (including insurance) were insufficient.

  Of course private corporations were always in a position to negotiate with creditors and their commercial counterparties as to limiting the liablity of the business owner to the assets of the business, so real theoretical revolution relating to the creation of corporations relates to the liaiblity of owners to non-voluntary third parties.

  If by "debt liability" you mean only a company's liability to lenders who have voluntarily chosen to provide credit to a corporation, then I agree that "there is nothing wrong with expressly limiting the debt liability of a corporation to its creditors to the equity in the corporation" - no one is forcing lenders to make loans, and lenders are in a position to require personal guarantees from owners if they wish.

  But the limitation of liability provided by incorporation includes not only lenders but also other claimants - commercial counterparties, consumers seeking refunds, employers, tax collectors, and third parties injured by a companies torts. Accordingly, the "government privilege" to which your refer is NOT distinct from the meaning of limited liability, but is in fact its very essence.

  2. "Immunity from prosecution"
  You are also using this term imprecisely. Corporations themsleves are NOT immune from civil lawsuit, and may also be criminally prosecuted in certain cases. Rather, it is the OWNERS who are shielded from liability by virtue of acting through a corporation - except in the case where an owner is also acting as a manager, in which case he may have unlimited liability in that capacity.

  By the way, I have taken a look at Kinsella and must point out that both he and Hessen incorrectly ignore the big hole noted in item 1. Kinsella is correct to a limited degree, as corporations do not shield corporate employees from liability for torts or criminal acts for which employee responsibility may be established in a court of law - "the person direclty responsible for a tort or crime is always liable; sometimes the ... corporation is also liable for the employee's actions, via respondeat superior." But both Kinsella and Hessen fail to see that in the cases where the corporation is legally responsible, the corporation may have insufficient assets to make good its obligations, leaving its owners to escape and the injured persons holding the bag.

  This limited liability escape hatch has foisted onto the public untold billions in damages, and corporations deliberately take advantage of this protection themselves by creating new subsidiaries whenever they start a new project that they think may be risky, just so that their corporate risk is limited solely to the size of the new company.

  This limitied liability feature should not be minimized, as it is a key reason why citizens and pressure groups try to pressure the government to stop corporations from taking certain action that they feel impose risk, rather than waiting to see if a harm actually materializes.

  I have not really taken a position on this myself, as I had taken limited liability as an unexamined "given", and an indispensible component of our current system. But clearly it is accurate to say that the use of corporations allows investors to undertake new ventures without assuming all of the risks that such ventures may entail.

  Regards,

  TT

  Published: May 18, 2006 4:49 AM

• quasibill

  TokyoTom,

  I think you miss the last step of Kinsella's analysis. The point he makes about employees still be liable goes all the way up the chain to anyone who takes an active part in managing the affairs of the corporation. Since shareholders, by definition, are removed from management of the daily operations, and are essentially left only with extremely limited powers like voting on the hiring/firing the CEO, they would likely be insulated from liability by normal tort law under factual or proximate causation. Only when they also put on another hat, such as CFO, and partake in managing daily operations, would they be likely to be found liable under traditional tort rules.

  Now, as I pointed out previously, I think that there are extreme (but unfortunately, not so uncommon anymore) fact patterns where shareholders could arguably be held under traditional tort concepts but where the "privilege" of limited liability currently shields them. But I think Kinsella is in the large part correct in arguing that limited liability would look very similar in a stateless society. Most shareholders would be immunized from tort liability because the causal chain would likely be broken well before it reached them.

  Published: May 18, 2006 7:24 AM

• TokyoTom

  quasibill, I didn't miss that step, it's just a farce when the damages are big, the corporation bankrupt, and any individuals with shallow pockets and personal liability (as opposed to liability of the firm) difficult to establish.

  We might have a very different corporate structure without limited liability, as insurers could step up - but it would be costly. In any case, it's not the system we have now, so the consequence is that there are loss of risks pushed off onto society, so that consumer groups and others who may be harmed lobbying against new lines of business in order to forestall harms that otherwise will be uncompensated.

  Regards,

  TT

  Published: May 18, 2006 9:33 AM

• quasibill

  TokyoTom,

  What do you mean by farce? Do you want to hold shareholders liable for things they have no control over? When you deposit your money in a bank, do you want to be personally liable for everything the bank does, and in turn, everything that the companies the bank invests in does?

  Like I said, I think there are fact patterns where you can prove that a certain "corporate culture" was knowingly, or recklessly created by shareholders, and in that instance, they should be held liable for the direct results. But I think the general rule is still that in the absence of proof of such meddling by a shareholder, you can't attack their personal assets. In other words, you still have to prove that something they did (negligently) caused the harm, even without limited liability coming into play.

  If you're saying you want to push these costs onto them regardless of whether they're actually at fault whenever the "damages are big", aren't you just as surely leaving society holding the bag, in that noone would dare invest their money without retaining veto power over every decision? That's a consistent philosophical position, as far as I can see, but I'm not sure I think its better than what Kinsella proposes.

  Published: May 18, 2006 10:13 AM

• TokyoTom

  quasibill, you're misunderstanding me. I am not advocating for eliminating limited liability, I am just trying to explain that it is a grant from the state, has a very real meaning apart from what companies could otherwise negotiate freely with their creditors and voluntary business counterparts and customers, and has led to a number of pernicious consequences that are quite evident in the struggle for spoils ("rents") that corporations, investors, enviros and a whole host of pressure groups engage in in the halls of government today.

  What I mean by farce is simply in reference to the claim that limited liability does not leave society (damaged individuals, communities, firms etc.) holding the bag - this is in fact the real purpose of limited liability and the chief consequence.

  Please note that I have not made a particular argument over what policy SHOULD be, so no, I don't particularly "want to hold shareholders liable for things they have no control over." I am simply pointing out that, if limited liability corporations had not been allowed, shareholders would be liable for acts committed by the corporation - just as investors in other traditional forms of business always were. Your observation that shareholders "have no control" over certain matters is a correct observation at present, but that is simply the natural consequence of having been absolved from legal liability. In other business ventures where investors do have legal risk, they do a much better job of being in control; to the extent they don't have actual control, loose management is at their peril since they are held at law to have control.

  Your question as to depositors at a bank is not apropos, as depositors at law are essentially lenders (the bank doesn't actually "keep" their money, but uses it and has an obligation to return it when asked), and are not investors in/owners of the bank. I presume you really just mean the case of ordinary investors today, who know they might lose their investment, but nothing else. I am not arguing that the rug should be pulled out from these investors by the changing the rules after their investment have been made.

  Your middle paragraph is a fairly accurate summary of the situation today, where it is very difficult to pin any liaiblity on shareholders.

  Again, I am not arguing that we should change the laws to pick the deepest pocket or "regardless of whether they're actually at fault". My point is that, compared to other forms of business organization that existed prior to the creation of corporations, investors always had personal liability for whatever the business did, past the size of the investment and up to the shirt of the investor - investors were not allowed to limit their liability, and had legal risk even if they weren't really making the decisions or taking the actions that damaged others.

  Changing the liability rule has pushed off alot of costs onto society generally when mining and industrial firms go belly up - this is simply undeniable, and this is a key to understanding why people fight over what corporations might do, instead of waiting to sue if they are actually damaged.

  The question is whether Miseans want to think about and ponder of this or to simply ignore it, and to keep on bashing enviros. That might be alot easier, but it puts Miseans firmly in the camp of irresponsibility and rent-seeking.

  Published: May 18, 2006 9:56 PM

• angela

  Fun read, but populace, not populous.
  
  Welsh populous felt a necessity to protect their homes was because of the politically inspired war.

  Published: May 27, 2006 8:15 PM

• M E Hoffer

  TT,

  If I understand correctly, von Mises was no mere "rent-seeker". Those who profess their adherence to that fine man's work and are ultimately found to be, as you describe, irresponsible and rent-seeking are 3x fools.

  1. They know not of what they profess to be.
  2. They parade in costumes they are not fit for.
  3. Their mindset, once properly distilled, is that of a mere child.

  Again, unless I am wrong, I would think that von Mises would have the highest praise for a profitable business organized around principles that included: "Reduce, Reuse, and Recycle".

  If I am, indeed, incorrect, please point to the chapter of his that gives rise to the contra...

  Published: May 27, 2006 8:36 PM