Comments (82)

• RogerM

  As a fundamentalist Christian and libertarian, the political situation is very frustrating. But what options do we have? Evangelicals make up only about 20%, of the population, and many are leftist on econ issues and so vote for Democrats. Republicans stiff us on most issues while Democrats scream that we have the Republican party in a headlock. It's enough to make you want to quit voting, except then you're guaranteed that a Democrat will win. I think many Christians vote Republican because it's the lesser of the two evils.

  My main concern with evangelicals is their increasing drift to the left on economic issues, which has contributed to big government conservativism. If Democrats ever figure out that by throwing evangelicals an occasional bone on social issues, while appealing to their socialist tendencies on economic ones, they can woo the majority of evangelicals away from Republicans, this nation is in for a lot of sorrow.

  Published: February 6, 2007 8:23 AM

• David White

  RogerM, as a fundamentalist Christian who is presumably saved on account thereof, why does party politics matter to you, or indeed, why does anything that happens in the here and now matter to you?

  Or if what matters to you in the here and now is that as many are saved as possible (never mind that most of humanity won't be), then why would you bother with a forum such as this, when you could be trying to save souls instead?

  Published: February 6, 2007 9:47 AM

• RogerM

  David "...why would you bother with a forum such as this, when you could be trying to save souls instead?"

  You're response comes out of the Pietist movement that was popular in the late 19th and early 20th centuries. The Pietist idea is that only spiritual things are important and getting involved in non-spiritual matters is akin to wallowing in the mud. It's not too different from the monastic view of life.

  The historic Protestant view is very different. Early Protestants didn't hold to the strict separation of spiritual and material things that was popular among Catholics, and the result of the influence of Greek philosophy. Protestants believed that we demonstrate our salvation by good works, as the parable of the Good Samaritan demonstrates. They believed our vocation, whether baker or brewer, was a calling from God and a ministry as much as the clergy is.

  Modern evangelicals place an enormous emphasis on "saving souls," but as far as a demonstration of spirituality, the Bible places a far greater emphasis on helping the poor. Just sit down with a good concordance and look up the word "poor". then look up "witness" or "evangelize". I would say that helping the poor is the third greatest commandment, but it's included in the second. I first became interested in economics because of a concern for the poor and a desire to help them. I'm convinced that capitalism is the only way to help large numbers of the poor, and the only moral system of economics because it's grounded in the Biblical injunction against theft and it lifts the poor up.

  The dichotomy between the spiritual and physical world that is so popular with many Christians is a false dichotomy, directly opposed to the Bible, and quite pagan. Every religion that I'm aware of calls the spiritual side good and the physical evil. The ultimate goal is a purely spiritual existence in heaven/nirvana/paradise. Partly, this attitude stems from the assumption that the soul is eternal and the physical is temporary.

  But in Biblical Christianity, not the popular version, God values our bodies as much as our souls. The soul is incomplete without the body. The Bible places far more importance on the resurrection of our bodies than it does on the eternal nature of the soul. The rapture is first and foremost a resurrection/re-creation of dead bodies. We spend eternity in our new bodies on a new earth, not as bodiless spirits in heaven.

  Published: February 6, 2007 10:46 AM

• jamie

  david,

  is there something I'm not picking up on, for it seems that comment was rather rude.

  Published: February 6, 2007 10:47 AM

• RogerM

  jamie, I didn't take it as a rude comment. It's actually something I struggled with when I was younger and I think many Christian young people struggle with that issue.

  Published: February 6, 2007 10:49 AM

• jamie

  haha, ok roger, i jumped the gun then, when I first read it, it didn't seem very welcoming though. I couldn't tell if it was an earnest question or a snide comment, such is sometimes the problem with online communication

  Published: February 6, 2007 10:52 AM

• David White

  My question was blunt, as I admittedly have a real problem with those whose beliefs are dominated by otherworldliness, while their actions are dominated by so disgusting a worldly endeavor as party politics.

  Furthermore, why would anyone, much less a Christian fundamentalist, choose between two evils unless he had to? And what, prey tell, is the difference between a Republican and a Democrat? Political buggery is the modus operandi in either case and the very last thing that ANY self-respecting human being would engage in.

  But look at Falwell, Robertson, and the like. Political buggers if there ever were any.

  Me, while I wouldn't call myself a Christian in a formal sense, I do subscribe to the two "commandments" that Jesus himself said were paramount: to love God (which I do, though mine is not the God of traditional theism) and to love my neighbor (which begins with observing the non-aggression principle and extends to all who do likewise).

  And thus do I oppose the state, as one needn't render ANYTHING to an aggressor, other than to choose between them on those rare occasions when one is really any different from the other.

  Published: February 6, 2007 11:37 AM

• RogerM

  David: "I admittedly have a real problem with those whose beliefs are dominated by otherworldliness, while their actions are dominated by so disgusting a worldly endeavor as party politics."

  I explained above why I don't see a dichotomy between the "other world" and this one. In historical Protestantism, one can't practice one's faith anywhere but in this world. And while politicians may be disgusting, politics isn't. In fact, Paul called politicians and policemen ministers of God.

  "Furthermore, why would anyone, much less a Christian fundamentalist, choose between two evils unless he had to?"

  I didn't mean that the two parties are literally evil, an anarchists do. It was a figure of speech. Besides, what's the alternative, not voting? That would violate my Christian responsibilities to be active in doing good works in this world.

  So how do you promote anarchism? By not voting? What positive thing do you do?

  Published: February 6, 2007 11:48 AM

• Lisa Casanova

  Roger,
  Personally, I would say I promote anarchism by supporting a place like this. I don't vote, largely because I view it as ineffective and a waste of time (although there are many libertarian/anarchist views on voting, and this is just mine). I am curious, however. As a Christian libertarian, what do you see as the proper role of government in a society made up of those who are Christian and those who are not?

  Published: February 6, 2007 12:11 PM

• David White

  RogerM, the proper end of all political endeavor is freedom, the realization of which would put an end to politics -- i.e., to power centered in the territorial monopoly otherwise known as the state. As political endeavor is in reality no such thing and is in fact destructive of its proper end, it should be engaged in with the understanding that the only vote that matters is the vote to peacefully withdraw -- i.e., to secede -- from the state until it has been voted out of existence.

  That is one positive thing I do -- i.e., argue in favor of this all-important vote -- others being to work as environmental entrepreneur and engage in such civic activities as I believe will promote the cause of freedom.

  Published: February 6, 2007 12:11 PM

• RogerM

  Lisa: "As a Christian libertarian, what do you see as the proper role of government in a society made up of those who are Christian and those who are not?"

  I believe the government should be limited to national defense and police work. I'm not opposed to anarchism, I just have doubts that it would work. The Bible doesn't sanction any form of government, although the only state the God created was semi-anarchy. Israel before the monarchy was a collection of tribes joined in a loose federation. God warned them about the dangers of a monarchy and gave in to their demand in order to punish them for their rebellion.

  I vote because I think incremental change, however small, is still important. A disaster may happen that would change things, such as the total collapse of the monetary system that many libertarians pray for, but I'm not convinced the result would be increased freedom. More likely, totalitarianism would occur. The best we can do is try to educate others, support groups like Mises.org, and work for incremental changes.

  Published: February 6, 2007 1:28 PM

• N. Joseph Potts

  I couldn't find the link in this post to the anti-Tucker article it mentioned. This must also have been the anti-Wal-Mart-homosexuality article. I'm dying to find out which they feel is the greater threat to the American Way of Life - homosexuality or Tuckerism.

  Published: February 6, 2007 2:16 PM

• David White

  RogerM, if Lisa's like me or any other libertarian worthy of the name, she doesn't pray for the collapse of the monetary system; rather, she simply expects it, given its Ponzi scheme nature, knowing that it's going to be a terrible thing for most people.

  And I do mean most, as it's difficult to even get good friends to understand what the monetary system is and why they should be stocking up on gold and silver while they're still so cheap.

  Published: February 6, 2007 2:36 PM

• Michael A. Clem

  I vote because I think the fewer people who vote, the more power they have. However, when your voting options are so severely limited, voting just isn't going to have much impact. You can't vote for option C when only A & B are allowed on the ballot.
  

  Published: February 6, 2007 5:18 PM

• Tom

  I'd like to take this thread in a different direction, and put libertarians on the spot about their professed beliefs. For all the reading I've done by so-called Free Marketers, I am most struck by the massive contradiction of their positions. Always, the focus is on central banking, taxation, excessive regulation, et al. As well, the complaining splits along party lines, with Democrats being rated as the instigators of more government, and Republicans often times being judged as barely better.

  To my mind, this focus is entirely misplaced. The real driver of big goverment - the original cause, if you will - is the active interventions of government made to allow and nurture the creation of corporations. Do libertarians criticize these interventions? No. Do they ignore them? No. Instead, libertarians actively defend these privileges of law, describing the corporation as "capitalism's greatest invention".

  Smith's original premise in favor of capitalism was that it dispersed economic power to the lowest level possible, the level of the individual. The governmentally-granted privileges of incorporation - the privileges of pooled capital, limited liability, immortality, and personhood - allow for the consolidation of economic power at a level far above the individual. In turn, this gives rise to the assault on individual liberties that leave libertarians wringing their hands.

  Still, their concern is never about these leading interventions of government that generate the need for the trailing interventions - taxation, regulation and entitlements - about which they complain so bitterly.

  How come? If you truly believe in liberty as the paramount value upon which to build a society, shouldn't you be vehemently opposed to the existence of the corporation? In fact, shouldn't opposition to the existence of the corporation be the foundation of your belief system?

  Published: February 6, 2007 5:30 PM

• Mark Brabson

  Tom:

  I and many other libertarians DO oppose corporations. I oppose corporate personhood and I oppose limited liability and I oppose each and every state interference on behalf of corporations.

  I would go back to joint stock companies, where each and every shareholder was jointly and severally liable and where the directors and officers were also jointly and severally liable.

  I agree that ANY government intervention is necessarily distorting.

  Published: February 6, 2007 5:35 PM

• David White

  Michael A. Clem,

  Precisely, since there's no runoff system in national elections, third-party voters only undermine their second choice by voting for their first. Recall the '92 presidential election, when Ross Perot's 19% of the vote effectively elected Bill Clinton, even though it was clear that the vast majority of Perot voters would have voted for George H. W. Bush in a runoff.

  The same for Ralph Nader voters in the 2000 presidential election, as they would have tipped the balance in Florida had they been allowed to vote for Gore in a runoff.

  Not that I'm taking sides, of course, as the Democrats and the Republicans are but two sides of the same (increasingly worthless) coin, the point being that real change is stymied by the present system, precisely as both parties want it.

  Published: February 6, 2007 5:35 PM

• Francisco Torres

  To my mind, this focus is entirely misplaced. The real driver of big goverment [...] is the active interventions of government made to allow and nurture the creation of corporations. Do libertarians criticize these interventions? No.

  Yes, we do. The close relationship between corporations and government is called Fascism by libertarians and Austrians.

  
  Do they ignore them? No. Instead, libertarians actively defend these privileges of law, describing the corporation as "capitalism's greatest invention".

  No, we do not. At least Austrian libertarians do not. Corporations as an artificial "person" are not considered a "great invention of capitalism" by Austrians. If a company seeks to enjoy a limited liability when dealing with clients and lenders, they should do so by contract, if the market permits them.

  Published: February 6, 2007 6:26 PM

• Tom

  Mark,

  It may be that you do, but would you not agree that you are in the distinct minority? I know that there is a continuum of beliefs within the libertarian movement, but within that community, you certainly cannot rank Friedman and the entire Chicago School amongst those opposed to the privileges of incorporation. Read Friedman's "Capitalism and Freedom", and "Free To Choose", end to end, and you will barely see the corporation mentioned. In separate essays, he vociferously argued for the right - indeed, the duty - of the corporation to pursue profit maximization. No consideration was given to any need to countervail the reach of their governmentally granted privileges.

  
  And even for those libertarians such as yourself who claim an opposition to these privileges, I am dubious about the degree of commitment on this. When such positions are professed, they really seem to exist as a passing acknowledgement of the contradiction inherent in NOT opposing these privileges. In this respect, the topic is treated as one to be agreed upon so that the discussion can be moved to more comfortable ground. They are never offered as a foundational belief, or one that goes to the heart of your philosophy. Amongst the big-name libertarian writers, you'd think one of them would have dedicated a book to the topic. Or maybe even a chapter? The best I've been able to find is a few passages on the topic, passages that stand as a weak counterweight to the voluminous arguments made in defense of our "beleaguered" corporations as they "struggle" to keep the government at bay, and out of their business.

  Published: February 6, 2007 6:38 PM

• tom

  Francisco,

  See my notes in second post. I have seen these "me-too" arguments in favor of limiting the corporation, but as I've said, they are not what I regard as foundational beliefs. The focus is inverted. The topic is treated as a tangential one, rather than as the crux of all matters. Look at the threads at this site. There are dozens of essays fretting over taxation, regulation, central banking, blah, blah, blah. These issues would hardly matter were the modern economy built upon a different set of rules for corporate ownership. So is corporate ownership reform the main focus of your suggested reforms? Not so far as I can tell.

  Also, I know that amongst libertarians you make distinctions between the Chicago and Austrian school, but one has to acknowledge they are close cousins, and between the two, the Chicago school has greater standing. And within their ranks, they are either silent or defensive on the topic of the corporation.

  Published: February 6, 2007 6:57 PM

• Mark Brabson

  Tom:

  Actually, I think Friedman and the Chicago school were a bunch of totally ignorant twits when it came to economics. They had no more of a clue than the Keynesians, although the Chicago group wasn't quite as destructive.

  I follow the Austrian Economic School myself and reject the teachings of the Chicago school, particulary those that are destructive of liberty.

  My commitment to the destruction of the current corporate structure is clear, although I will admit that most libertarians do not share my view. For some libertarians, their views stem from their following the Chicago school. For others, they are simply uninformed, other than the garbage economic crap they got fed in government schools.

  And of course, you have to make sure when you blast corporations, that your audience knows WHY you are blasting them. We need to differ our critiques of corporations, from the bleating on the left, which merely critises corporations as part of their usual class warfare.

  Published: February 6, 2007 7:10 PM

• Mark Brabson

  tom:

  The Chicago School has the greater standing become Friedman and his accomplices did everything they could to keep Mises and other Austrians out of top teaching positions.

  Published: February 6, 2007 7:14 PM

• tom

  Mark,

  I will have to confess ignorance on the distinctions between the Austrian and Chicago school, which I'm certain will have you categorizing me as an "ignorant twit" as well.

  As for leftist perspectives, I regard them the same as right-wing perspectives. The quality varies, depending on the observer. Some of them are keenly observant about the problems of corporatism, but misguided as to appropriate solutions. They continue to hold faith in the interventions of government.

  The best observers on the right correctly assess concentrated power as the principal threat to liberty. They, unfortunately, are blind to the fact that the principal means by which power is now concentrated is through the instrument of incorporation.

  Thus it is that each is focused only the particular form of concentrated power that worries them, when they should instead be worried about the general problem of concentrated power.

  Published: February 6, 2007 8:28 PM

• Mark Brabson

  Tom:

  Hehe. No, wouldn't categorize you that way. A twit is somebody who, like Friedman, SHOULD know better, but keeps doing dumb things anyhow. :)

  As for the prime differences between the two schools. I guess the easiest way to illustrate it would be like thus.

  If you read either or both "Human Action" and/or "Man, Economy and State" you would note that Mises and Rothbard, respectfully, start with a model where there is not even any government at all, total free-market laissez fair economy. They then point out the effects of government interference.

  The Friedanites and other Chicago school adherents, start off with government as a given, and consider government a necessary factor. They never attempt to discover what would happen if you dispensed with government interference altogether.

  If you haven't taken the quiz on this site, I strongly suggest you do so. When you get back your results, go through them and compare the differences between some of the answers, and you will be further informed on many of the differences between Austrians and Chicagoans.

  Published: February 6, 2007 8:55 PM

• Daniel M. Ryan

  Tom, if you go through Austrian literature more carefully, you'll find that distinctions are made between corporation and corporation. If there is any Austrian libertarian who is wholly pro-corporation, when the "corporation" in question is a fractional-reserve bank, I would be surprised. Even the champions of free banking advocacate that policy because it's a better (to them) alternative than allowing the government to supervise bank operations, out of fear that a 100%-reserve policy will turn into a much-lower-reserve policy. The free-banking advocates "trust the market," which implies "trust the borrowers to be vigilant," meaning "suspicious." The Rothbardians claim that any policy other than 100% reserves is fraud, plain and simple, which means that any Rothbardian has to accept the conclusion that every bank in today's system is run on a principle that, in a rational laissez-faire sociaety, would be considered prosecutably fraudulent.

  This position is not "pro-corporation," not by a long shot.

  You have to remember, though, that governments colluding with corporations is only one of the ways in which unchained governments can void liberty. The Austrian libertarian point of view encompasses all of them.

  Published: February 6, 2007 9:39 PM

• Vince Daliessio

  RE: The corporation - there are few features of the modern corporation that could not be legitimately reproduced under free contract law, and, I submit, those few features are the difference between free markets and fascism. Stephan Kinsella has written on this.

  As for Friedman, and the Chicago school, I would not dismiss them as "twits". After all, the Chicagoans brought us the Federal Reserve, and Uncle Milton himself devised the witholding tax!

  Actually on balance, the biggest problem with the Friedmanites is monetarism (which Rothbard would say is all we need to know about them), but exclusive of monetary policy they are in surprisingly strong agreement with the Austrian School, faint praise I know.

  Published: February 6, 2007 9:44 PM

• Vince Daliessio

  RE; Free Banking vs. less than 100% reserve banking - Not to disagree too strongly with Daniel, sentient adults are capable of making decisions whether or not banks or other deposit institutions are trustworthy. An institution that advertised quite transparently that it had 80%, 50%, or 30% reserves available in cash at all times might be a perfectly acceptable institution in which to invest one's money, if, and only if it were completely transparent. These institutions would have to offer a risk premium, this is called interest.

  Conversely, the banks of today, because they are nontransparent and present the appearance of 100% liquidity / reserves would be technically insolvent even if they had 90% reserve requirements.

  Personally, I would go with the 30% bank I could trust over the 90% bank I could not. A free banking society would have to allow any level of reserves / liquidity desired / voted for by the market, but in no case could a bank or other institution become insolvent without consequences, as opposed to today, where every bank operates throughout its life-cycle in technical insolvency, with bankruptcy and ruin only staved off by government spending and regulation.

  Published: February 6, 2007 9:56 PM

• Michael A. Clem

  Whatever evil there may be in corporations could not exist without government privilege. Even in a minarchist libertarian society, such privilege would be denied, and certainly in an anarcho-capitalist society it would be well nigh impossible. Therefore, while corporations deserve some bashing, the real focus should still be on government and the privileges it passes out.
  
  I still find it funny that many modern liberals think the way to curb the corporations is by giving government more power, as if they don't understand how corporations got the way they are now.
  

  Published: February 6, 2007 10:25 PM

• Lisa Casanova

  Tom,
  The modern corporation is a creature of the state; as such, it deserves to die. There is some argument about what companies in a true free market might look like and whether they would in any way resemble corporations as we know them now, but I don't think you'll find many people saying that the state should, or has a right to, create and perpetuate the corporation. I also don't think it's the situation that most libertarians want to defend the corporation for its own sake. In the world as it is, these entities simply exist, thanks to the state, and that's not likely to change. In a free market, they would live or die according to market forces; that's taken for granted. Knowing that, we spend more time critiquing the rent-seeking and anti-competitive behavior that corporations engage in with government, rather than their existence.

  Published: February 6, 2007 10:44 PM

• TokyoTom

  Tom, I think you have a good point that the "real driver of big goverment ... is the active interventions of government made to allow and nurture the creation of corporations". These interventions have increasingly moved conflicts over resources from private venues, the common law and the courts to political venues, in which the big corporations have the biggest advantages. There are of course various citizens groups, including special interests like AARP and enviros, and opportunities for politicians to grandstand, but real policies tend to favor the biggest corporations, which are more sophisticated, more persistent and better-funded in their efforts to manipulate government.

  I share your sense that there are a number of commentators here who find it easy to criticize the citizens groups - especially the enviros with their overblown, anti-market rhetoric that displays a fundamental misunderstanding of the problems that concern them - but fail to acknowledge the corporate statism that underlies the problem, while glorifying the capitalist system. I have been a persistent interlocutor of commentators who are quick to scoff at enviros but ignore the "real driver" that you identify.

  Published: February 6, 2007 11:35 PM

• Chris Marshall

  "A free banking society would have to allow any level of reserves / liquidity desired / voted for by the market, but in no case could a bank or other institution become insolvent without consequences, as opposed to today, where every bank operates throughout its life-cycle in technical insolvency, with bankruptcy and ruin only staved off by government spending and regulation."

  You're missing the point. There is no way to have fractional reserve banking except by fraud.

  Any non-fraudulent arrangement is by definition full reserve banking.

  You don't seem to recognise that what is meant by "reserves" is money to cover demand deposits. If there a "30% reserve bank" in a free banking system, the only way to do this without fraud is for that bank to say quite clearly that when you put a dollar into the bank, you can only get $0.30 out over the counter, etc. The remainder is loaned out and you would get interest on it.

  Fractional reserve banking is quite literally announcing that you have something that you do not in fact have.

  Published: February 7, 2007 5:10 AM

• Peter

  An institution that advertised quite transparently that it had 80%, 50%, or 30% reserves available in cash at all times might be a perfectly acceptable institution in which to invest one's money

  Well, that's precisely the problem - one doesn't want to invest one's money, when it's in a demand deposit account; the whole idea is to have instant access to it! If you want to invest your money, put it in a savings account, and the bank can keep 0% reserves quite legitimately (in fact, that's precisely what it should be doing!)

  The problem with fraction reserve demand deposits, when the bank allows for tradeable substitutes representing the money on deposit (eg., banknotes, cheques), doesn't go away if it's "transparent".

  Published: February 7, 2007 6:56 AM

• David White

  Tom, Lisa Cassanova and others are quite right in pointing out that insofar as the corporation is a creature of the state, it is morally indefensible, for the simply reason that the state is morally indefensible. And while Mises believed that the state is a necessary evil (like Tom Paine), Rothbard maintained that it is evil and accordingly unnecessary.

  Once this premise is thoroughly in place, all matters of state intervention, whether corporations or anything else, quickly fall into place. For to quote one in-the-know party:

  "While the State exists, there can be no freedom.
  When there is freedom there will be no State." -- Vladimir Lenin

  Published: February 7, 2007 7:25 AM

• RogerM

  Something like modern corporations would have to exist in an anarchist society, too. Why do you think people form corporations? The sole purpose is to raise large sums of money and spread the risk of a venture over large numbers of people. The state gives limited liability to the owners of the corporation in order to encourage people to invest in them, that is, own the stock. I can't think of any reason common law courts in an anarchist society wouldn't grant the same immunity to passive investors. Otherwise, why invest in a corporation when you could be liable for actions you had no control over and knew nothing about.

  It would be very easy to start a retail store without incorporating, but try to build a company that can manufacture airliners without incorporating. There's absolutely no way to raise the necessary funds without a corporation of some type.

  Published: February 7, 2007 8:29 AM

• David White

  RogerM, the point isn't that limited liability companies couldn't/wouldn't exist in a truly free society; it's that because no state would exist, such companies would have no way to subvert the market process in today's corporatist -- i.e., fascist -- manner.

  And THAT difference would make ALL the difference.

  Published: February 7, 2007 9:00 AM

• Joshua Katz

  Oh, good, another place to bicker about reserves. When Austrians rail against fractional reserves, I am inclined to ask "what would you do about it, exactly?" It is odd that so many Austrians, so able to make rational distinctions most of the time, seem entirely unable to see between the extremes on this question. What of the bank I wish to open (in theory) that would allow for withdrawal on demand, but post a sign explaining that we maintain only 85% reserves, and so, while you're free to try to withdraw your money, there is a slight chance that you won't be able to if lots of other people try at the same time? Is this fraudulent? Is it 100% reserve?

  On Tom's remarks, I wonder why everyone is so quick to grant Tom's claims. Yes, government intervention in the form of corporate welfare is bad, and is a problem. But I have yet to see proof that it is THE crux of why government is bad. I'd submit that warfare is worse, if we're going to rank such things. But I'd invite Tom to at least present some evidence, rather than simply asserting THIS to be the bad thing about government. In fact, there are very few aspects of the corporation that could not be reproduced in a free economy, although I am not convinced that they could be reproduced practically - that is, people might shy away from doing business with a firm that insists on contracts exempting its principals from liability. But certainly the corporate form and public ownership could and likely would exist in the free market - Mises once commented that the best dividing line between a capitalist and socialist economy is the presence of a stock market. In any case, it's hard to see why the presence of a limited-liability corporation, or a publicly held corporation, threatens my liberty. Certainly it is odd to say that this is a greater threat than uniformed armed men enforcing my compliance with edicts.

  Published: February 7, 2007 9:22 AM

• RogerM

  David: "it's that because no state would exist, such companies would have no way to subvert the market process in today's corporatist -- i.e., fascist -- manner."

  How do corporations subvert the market process?
  

  Published: February 7, 2007 9:36 AM

• David White

  RogerM, the military-industrial complex for one. Just look at what it's done to the price of gasoline -- http://www.evworld.com/view.cfm?page=news&newsid=11520. As Robert Higgs rightly says, "[T]he U.S. military presence in the Gulf serves not to ensure that the oil keeps flowing; it merely ensures that U.S. corporations (oil and weapons companies in particular), banks, insurance companies, and so forth will be the specific parties raking in the profits from dealing in the Gulf oil. -- http://www.lewrockwell.com/higgs/higgs54.html

  And of course there's the banking system as a whole and its massive fractional-reserve fraud, not to mention countless other smaller examples such as Archer Daniels Midland and its huge ethanol subsidies.

  Indeed, it's not too much to say that there's nothing that the corporate state does that doesn't distort every market in one way or another, from the fiat fraud on.

  Published: February 7, 2007 11:03 AM

• RogerM

  David: "Indeed, it's not too much to say that there's nothing that the corporate state does that doesn't distort every market in one way or another, from the fiat fraud on."

  So you're not upset over the idea of corporations, but the actions of specific corporations and the way they conspire with the gov to distort the market. But Adam Smith warned about this type of activity when he wrote that whenever two businessmen get together, they're conspiring to employee the government to give them an advantage over competitors. This can happen with any type of businessman, not just corporations. Businessmen in general are among the worst enemies of free markets.

  Published: February 7, 2007 12:01 PM

• tom

  First off, kudos to all for what I think is the most engaging thread I've found in a long time.
  While I think I have a general understanding of the Austrian school of thought, it is clear to me by these responses that I had some gaps in my understanding. Thanks for the quick synopses, and I will strive to bone up on my von Mises and Hayek as soon as possible.

  In the meantime, I wish to respond to many of the points made, as I hope to add some balance to the discussion as an "informed outsider". Unfortunately, I am on my way to the airport, and won't be able to contribute to the discussion until late tomorrow. Briefly, though, I don't have a problem with fractional reserve banking, so long as they are transparent about their intentions. And I would also agree that this isn't entirely the case now, so that's a problem, too; so everyone's a little bit right on that one, at least to my mind.

  Someone said I owe evidence on the unfree nature of the corporation, and I agree. I will do so shortly, but another writer was already on track by throwing up examples such as the war, subsidies to ADM, etc. Still, I hope to show the problem is deeper - and more subtle - than the most obvious signs of corporate welfare. To my mind, the obvious cases actually obscure the reality of the more prevalent day-to-day failures of the marketplace.

  Last, I disagree with Roger on whether or not the corporation corrupts the marketplace, but he does accurately present the dilemma we would create for ourselves by outlawing its creation. How else can we allows for enterprises of any scale without it, short of socialism? As a teaser, I think the answer lies in creating the right rules for allowing their creation.

  Published: February 7, 2007 12:07 PM

• quasibill

  Joshua,

  You're free to open such a bank - just don't come crying when your banknotes trade at approximately 85% (or less - people may have a different subjective valuation of the risk your fractional reserve system creates) of par value.

  In other words, you'll have a lot harder time diversifying your risk onto other people in such a scenario - the gamble won't be nearly as rewarding as it currently is.

  Published: February 7, 2007 12:07 PM

• David White

  RogerM, it's a given that businessmen hate competition, except for when they're denied access to a market for on reason or another. And while some would surely collude in a truly free market, such collusion would pale in comparison to the kind the defines the corporatism/fascism.

  What competition benefits is the consumer, which is to say society as a whole, which is why a rule of law based solely on the protection of life, liberty, and property would assure that competition, not collusion, was the order of the day.

  Published: February 7, 2007 12:09 PM

• Michael A. Clem

  I'm not so sure limited liability could be granted without government privilege. But surely the liablity could be contractually transferred from the owners to the management that's actually making the company's decisions? After all, the purpose of liability is to make sure the appropriate parties are responsible for criminal and negligent actions, right?
  

  Published: February 7, 2007 12:54 PM

• Mark Brabson

  Michael A. Clem:

  If joint stock companies were shorn of their limited liability grants by government, they could not obtain them on the free market.

  In a true free market, sans government, liability issues would be decided by the courts according to the common law. No need for positive law whatsoever. The blame would be placed where it belonged. In case of a major liability, such as a problem that caused thousands of deaths or injuries, ultimately the plaintiffs would be entitled to the company's assets in compensation, which means the stockholders would get cleaned out, even if they weren't particularly at fault. That is the thing with joint and several liabilty, it can be a bitch sometimes. The good thing though, is just that fact will cause shareholders to ride herd on directors and officers to do their job right.

  Published: February 7, 2007 1:44 PM

• RogerM

  Mark: "The blame would be placed where it belonged. In case of a major liability, such as a problem that caused thousands of deaths or injuries, ultimately the plaintiffs would be entitled to the company's assets in compensation..."

  I'm no lawyer, but I took business law in college and if I remember correctly, corporate law today is organized as you describe it under free markets and common law. The limited liability only applies to the passive investors, that is, holders of stocks and bonds, and only to their personal assets, not the funds invested in the corporation.

  Look at Enron, for example. Many stock and bond owners lost fortunes because of the mismanagement, but the loss was limited to the amount invested; they got "cleaned out". But plaintiffs can't go after the personal assets of passive investors. However, managers can, and did, go to jail. I personally believe some board members should have gone to jail, but that's another issue.

  "The good thing though, is just that fact will cause shareholders to ride herd on directors and officers to do their job right."

  It doesn't, though. Enron is also a good example here. The best protection against criminal activity by management, or just poor decisions, is diversification. So most investors have their funds spread out over a large number of corporations. They don't pay much attention to what management does. Besides they rely on third parties, such as accounting firms and the financial press, to keep them abreast of major issues. If a company appears to be mismanaged, investors simply sell their ownership in it and invest in another company. With mutual funds, investors have become even more detached.
  
  

  Published: February 7, 2007 2:38 PM

• Sione Vatu

  Firstly, any fool who invests in stock in a company where he does not know what the management are doing deserves to lose his investment. He may as well give the money to a steet beggar.

  More interesting is the situation regarding whether or not a shareholder should be strictly liable for company liabilities. My suspicion is that in a free society it would be possible for the shareholders to limit liability by contract and limit losses to only that resource committed to the company (analogous to the present case).

  A question-
  If a company approaches me for a loan of say $100k and I award it, should I be liable for the losses and liabilities of that company? What principle is the determinant?

  Finally, Tom writes: "The real driver of big goverment - the original cause, if you will - is the active interventions of government made to allow and nurture the creation of corporations."

  Corporations caused government! Really!

  That assertion is Tom's premise. Tom would need to provide a very sound proof to verify this belief! I doubt a proof is available. In its absence the rest of his arguments collapse.

  Sione

  Published: February 8, 2007 11:27 AM

• Tom Cobb

  First off, I am really struggling with the Rothbardian notion of no state. Marx wished that the state would wither a way too, so anyone who seriously thinks that sort of utopian ideal is a serious starting point for discussion should give pause. Reading the notes closer, I don’t understand the concept of a “stateless” system that is still somehow built upon the rule of law. Huh? Who enforces the contracts? Who prevents the bribing of judges? I just don’t follow a construct that envisions a stateless world as the starting point for all discussion. As an aside, where in the history of man is the example wherein the rule of law existed without the state? If it has, it must be a pretty obscure footnote.

  That issue aside, there was disagreement over whether or not corporations could exist without the active intervention of government. Some agreed the corporation is an invention of government while others said the corporation could come about by contractual arrangements between individual parties. Some of this disagreement is mere semantics, a word game of sorts. How, afterall, can you have contractual agreements without the help of a governmentally-provided legal system? Still, for the sake of argument, I’ll assume that the defenders of the corporate form of ownership are merely saying that the privileges of incorporation can be contractually arranged even in the absence of the statutory laws that now allow for these privileges.

  I am familiar with these arguments, and they are weak. Most typically, the focus is on the ability of lenders to acknowledge limits on liability as a term of the loan. Nowhere have I seen anyone make a compelling argument for how I as a citizen, consumer, and worker would contractually agree – along with 300 million other individual economic actors – to extend the corporation the right of personhood, to extend it an unlimited legal life, and to waive my right of full recourse against either the corporation’s shareholders or their agents in the event I’ve been economically damaged by the corporation. These are the privileges that are now statutorily granted to the corporation, and that are extended to them at the individual’s expense. With these privileges in hand, the corporation nearly always holds more information, and an advantageous bargaining posture when transacting with the individual. In this regard, the individual is always less “free” than the corporation whenever the two come together to transact.

  In combination, these privileges give the corporation a massive advantage over the individual in the marketplace, and creates the need for all the trailing interventions of government that have arisen in response to the mess created by these privileges. Move forward through our post-Civil War economic history to see the pattern: Corporations begat the trusts that destabilized our economy, and forced the need for antitrust laws, the rise of organized labor, the populist movement, and the creation of the Federal Reserve. These responses notwithstanding, corporate wealth continued to concentrate further. The imbalance in information held by insider shareholders, and shareholders at large created an unstable financial market. With the Crash, Keynesian policy became the next wave of governmental intervention conjured in an attempt to counter the unstable nature of corporate capitalism. Next in the order of these perennial side affects? The military industrial complex, corrupt unions, and the externalizing of environmental cost onto the society at large. And then, of course, a whole body of bureaucracies were created in an attempt to manage these problems. Onward from there, we’ve created a welfare state and a debt-ridden economic system that seems to require the manufacture of a running series of marketplace bubbles as an antidote to a full-on implosion.

  The nature of the pattern? The cumulative privileges of incorporation ensure these things: 1) Our corporation buy labor at some discount to its natural value (that which would be paid in the absence of their bargaining advantages), and sell their goods and services at some premium to its natural value (again, what consumers would pay in the absence of their bargaining advantages); which then leads to 2) the compounding accumulation of created wealth into the hands of insider shareholders and corporate agents. This, in turn, leads to distorted and destabilized financial markets, which 3) require the constant manipulation of our fiscal and monetary systems to prevent a market collapse.

  Enough for now.
  

  Published: February 9, 2007 12:41 AM

• RogerM

  Tom: "Nowhere have I seen anyone make a compelling argument ... to waive my right of full recourse against either the corporation’s shareholders or their agents in the event I’ve been economically damaged by the corporation."

  As Sione wrote above, the limited liability principle for stockholders is an extension of the similar principle for lenders. For example, when you place money in a savings account in a bank, the bank loans your money to businesses. Do you want to be responsible for everthing that business does with your money? Or less abstractly, if you loan money to your brother-in-law to buy a car and he uses it to help him rob a bank, do you want to be held responsible? If that were the case, people would lend money only to those they know very well.

  I'm not much of a lawyer, (maybe Mr. Kinsella could jump in somewhere on this discussion) but it seems a part of natural law to hold as responsible for crimes only those who committed them and those who knowingly supported the perps. In that vein, a landlord can't be held responsible for a tenant using his property as a meth lab. We extend limited liability to a lot of people.

  We should keep in mind that the Dutch created the first corporations in the early 1600's when they were a common law nation for the most part. So I see no reason that common law would continue the practice.

  
  "With these privileges in hand, the corporation nearly always holds more information, and an advantageous bargaining posture when transacting with the individual."

  How do individuals transact with corporations? In the market place. Consumers vote with their dollars for or against corporations, causing some to thrive and others to fail. Corporations have no power to coerce consumers to buy their products or services.

  
  "Corporations begat the trusts that destabilized our economy, and forced the need for antitrust laws, the rise of organized labor, the populist movement, and the creation of the Federal Reserve."

  That's pure Marxist propaganda. If you want to know the real economic history of the US, read Rothbard's history, or "How Capitalism Saved America: The Untold History of Our Country, from the Pilgrims to the Present", by Thomas Dilorenzo.

  
  "1) Our corporation buy labor at some discount to its natural value (that which would be paid in the absence of their bargaining advantages)..."

  Our markets aren't totally free, but corporations can't force people to work for them. There are plenty of non-corporate businesses to work for. Besides, how is it that Americans have among the highest paid workers in the entire world and in history if corporations are so powerful?

  "...and sell their goods and services at some premium to its natural value (again, what consumers would pay in the absence of their bargaining advantages)..."

  Wal-Mart is one of the largest US corporations and has the lowest prices. But again, no corporation can force me to buy from them. If corporations charge more than non-incorporated businesses, the latter will flourish and the corporations will die.

  "... 2) the compounding accumulation of created wealth into the hands of insider shareholders and corporate agents."

  I guess you're talking about CEO compensation here, but that has become outrageous in the last decade or so. How do you explain 200 years of corporations without outrageous CEO pay?

  "This, in turn, leads to distorted and destabilized financial markets which 3) require the constant manipulation of our fiscal and monetary systems to prevent a market collapse."

  Not at all. The Federal government destablizes the financial markets. Read anything by Mises or Rothbard, or the new book by de Soto.

  It's clear that you place a lot of importance on the economics you learned in school. But please consider that much of it was wrong and written by socialists to promote socialism. I think if you'll read Mises, Hayek, Rothbard, Garrison, de Soto or any of the really good economists featured at this site, you'll come to the same conclusion.

  Published: February 9, 2007 8:59 AM

• tom

  Roger,

  Well, crap. I wrote an extended point-by-point response, and then lost it all with some fat-fingered keyboard combination. No energy to recreate it, so I'll have to take a different tack.

  So instead of that, could you (or anyone else for that matter) answer some or all of these questions. Some may seem a little off the wall, but go with me on this:

  1) What do you think of the news and entertainment media?

  2) If CEO pay was relatively stable for 200 years, what has made it become "outrageous" (your words, not mine) in the last ten?

  3) How do you define "coercion"?

  4) How do you feel about the principle of "caveat emptor"?

  5) What constitutes a "voluntary" transaction to you?

  6) How do you think competing property rights should be adjudicated?

  7) How do you feel about unions?

  8) Assuming you do, why do you believe in the rule of law, and how do you interpret the phrase.

  
  

  Published: February 9, 2007 11:41 PM

• Sione Vatu

  Tom

  Yeah, sure you did.

  How about you start by proving your initial premise:- "The real driver of big goverment - the original cause, if you will - is the active interventions of government made to allow and nurture the creation of corporations."

  Sione

  Published: February 10, 2007 1:52 AM

• Sione

  As for your questions, the answers depend on context and on the particular situation/s to which they are applied. You're attempting to use loaded questions to smuggle in an ideology here. As a method to validate your position it won't work. It's better for you to specifically state your position and explain your theory of politics openly. Then other people can evaluate what you present and decide whether there is any value to it.

  Sione

  Published: February 10, 2007 2:05 AM

• RogerM

  Tom,
  I have a bad cold on a Saturday morning and am feeling ornery, so I'll try to answer your questions.

  1) What do you think of the news and entertainment media? What news? It's all entertainment. But I would guess from your previous posts that you're worried about media concentration. A favorite scare tactic of the left is to claim that a few corporations control the media and therefore the perspective that viewers have. In the extreme, some claim that media corps have a lock on what people think; we're nothing but brainwashed consumers.

  I disagree. A few decades ago, we had 3 major TV stations. With cable, we have hundreds. Radio has proliferated, as have magazines. But best of all, the internet keeps any one corp or group from dominating communications.

  Another monster that the left loves to scare people with is advertising. According to the left, people are helpless before the onslaught of genius spin-doctors. But real research proves that advertising has no where near the power that the left, and ad execs, claim. It mainly serves to provide information. It can't brainwash anyone.

  2) If CEO pay was relatively stable for 200 years, what has made it become "outrageous" (your words, not mine) in the last ten?

  Globalization. The left has a very low opinion of corp execs, believing they're mostly unecessary. But anyone who has tried to start or run a business knows that good execs are as rare as good NFL coaches, and just as necessary. The increased rewards and risks involved in global businesses makes good execs even more in demand. However, I do think the conpensation has gotten out of hand, but the market is forcing adjustments as I write.

  3) How do you define "coercion"? Certainly not as advertising, which can be persuasion. But there's a big difference between persuasion and coercion. I can still reject an action that someone is trying to persuade me to perform. With coercion, I have no choice. The most common form of coercion is law.

  4) How do you feel about the principle of "caveat emptor"? I rarely think about it. But Douglass North has, quite a bit, in fact. In his writings on the history of economic development, he thinks that one of the greatest achievements of capitalism was the advancement of informal exchange. Before capitalism, commerce was based on personal knowledge of the seller. People knew which merchants were crooks and which ones were honest in their village. But personal commerce limits the size of markets and therefore the economies of scale. It also causes high transaction costs, because you may have to devote an enormous amount of time to learning who's honest who isn't, then personally negotiating prices with dozens of vendors. With warranties, guarantees, and standardization, companies could create trusted brands. Consumers knew that certain brands were better than others, and if the product failed, warranties and guarantees allowed the consumer compensation. As a result, impersonal commerce developed, lowered transaction costs, increased market sizes and contributed enormously to increased wealth for consumers.

  5) What constitutes a "voluntary" transaction to you? Any transaction in which both parties can walk away if they don't like the results. In the US, all retail transactions are voluntary. Transactions with utilities, such as electricity, and the government are not voluntary.

  6) How do you think competing property rights should be adjudicated? According to natural law, by which I mean that body of writing from Thomas Aquinas to Adam Smith, roughly.

  7) How do you feel about unions? They steal wages from non-union workers in order to increase their own wages.

  8) Assuming you do, why do you believe in the rule of law, and how do you interpret the phrase. I'm not a big fan of positive law, but natural law is God's law, and I believe following it is best for mankind. It reveals God's intent and purpose for mankind. It's important because it reduces arbitrariness on the part of rulers and makes all mankind equal. The rule of law applies equally to ruler and subject.

  I mean by the rule of law what most people mean: we obey the laws, not the whims of men who happen to be in power.

  How did I do?

  
  

  Published: February 10, 2007 9:48 AM

• tom

  Sione,

  You're still looking for "proof" on corporations as the driver of big government? I articulated my belief that corporate property rights are a privileges extend to its holders that instantly encroach upon my property rights, and the rights of all individuals. Without the benefit of statutory enforcement, why would I or anyone waive a right of recourse against an owner of a business that had damaged me? Why would I agree to compete against an inanimate entity that had the same privileges under the law as me, with none of my human limitations (mortality, and the resources, knowledge and information-gathering capabilities of only myself)? Why would I concede those advantages to others for nothing?

  These corporate advantages set in motion the need for the government to intervene on a trailing basis to clean up the wreckage. Every set of governmental interventions you see and object to have been made in an attempt to rectify the messes made by corporate actions in the marketplaces. I'm sympathetic to the argument that these interventions have created their own moral hazards, but they all have been set in motion as a clumsy attempts to contain the excesses of corporate capitalism.

  Roger and others have disputed my read on history, but that's where I am at with it. We haven't gotten too far in sorting out that dispute, but it seems that everyone here thinks the statutory laws that allow for the creation of the corporation - and with it, the massive bargaining leverage it provides its holders - is an arrangement that could come about voluntarily in an idealized, stateless world. Kind of tough to argue against that, though, as it is a freely made assertion that is wholly safe from ever being tested. We live in no such world as that, never have, and never will.

  Published: February 10, 2007 10:37 AM

• Daniel M. Ryan

  Tom seems to have reified the corporation. As far as his conception that a corporation is the Great Invincible, a history of the PC and software industry should drain that notion. It's true that an individual, or a small group of individuals, can rarely achieve stupendous wealth through competing with entrenched corporations, but this is largely the reflection of the fact that achievement of stupendous wealth, period, is rare.

  As far as succesful competition against entrenched corporations is concerned, there are many small businesses that do so - so many, that we tend to take their existence for granted. By "successful" competition in this paragraph, I mean "making enough to stay afloat," rather than the vague use of "stupendous wealth" in the previous paragraph.

  Published: February 10, 2007 10:46 AM

• tom

  Roger,

  Re your responses, you did fine. Some answers were as I expected, others weren't. Will try to address when I can. In brief, I think our divide is mostly over the nature of what constitutes a voluntary exchange. I believe the rise of the corporation corrupts the nature of marketplace transactions, and compromises their free nature. For me, the corporation is an invention created for the benefit of gaining economies of scale, but it is one that requires a sacrifice of principle on the freedom front. Since libertarians are nothing, if not principled, it forces them to develop rationales that deny any individual freedom is being exchanged for the merely materialistic benefit of greater efficiency. Mainly this is done by sticking to a narrow definition of coercion, and labeling the main instrument of marketplace coercion - deception - under the tame heading of "persuasion". And, no, I'm not talking about TV commercials.

  Published: February 10, 2007 10:47 AM

• Tom Cobb

  Daniel,

  It is a nonsequitor to say that the existence of small businesses "proves" the corporation gains no advantages for itself in the marketplace by way of the laws that allow for their existence. Let's say we have a 100 yard dash on a hill, with some runners starting at the uphill end, and others at the downhill end. A handful of those going uphill might be good enough to overcome their disadvantage, but that doesn't change the fact that they ARE racing at a disadvantage. The outcome of the race is affected.

  Published: February 10, 2007 10:55 AM

• Daniel M. Ryan

  The non sequitur is in your inference, Tom. What I refuted was the notion that it's impossible to compete against a big corporation successfully.

  One more point: if you use an analogy, you have to justify why it's a fitting one, other than through appeal to some kind of authority. Appeals to authority include "it's customary" or some such.

  Published: February 10, 2007 11:48 AM

• RogerM

  Tom: "why would I or anyone waive a right of recourse against an owner of a business that had damaged me?"

  I think you misunderstand our argument for limited liability. You're not contracting to give up an rights. The limited liability of passive investors is just common sense. You can't go around suing anyone you want for any reason. You have to show cause and effect. If the management of a corporation caused you damage, then the management is liable and the assets of the corporation are available to recompense you. But how can you make the passive investor liable? No cause/effect relationship exists between the passive investor and the actions of management. The lack of cause/effect relatioship gives the passive investor in stocks and bonds limited liability.

  Published: February 10, 2007 12:00 PM

• Sione Vatu

  Tom

  I didn't ask you to re-articulate your beliefs. I asked you to prove your premise (e.g. you cited corporations as not merely a driver but causal).

  I also asked you to specifically state your position and explain your theory of politics openly. What that requires from you is an explanation of how you derive and validate your system, why it would be an improvement, why you consider it moral (if indeed it is), how it would operate and why it would be practical (in the case of the corporation you would need to explain what rules you would recommend, how they would work and why they would be superior to the present regime). Doing this will save a lot of polemic hot air and enable your ideas to be properly examined and evaluated.

  Sione

  Published: February 10, 2007 12:11 PM

• tom

  Sione,

  Sorry. You probably think I'm being coy, when mostly I'm just in information-gathering mode. For a full rundown on my views, visit this website and either order my book from amazon, or download the ebook from the website.

  http://outskirtspress.com/cgi/webpage.cgi?ISBN=159800350X

  Published: February 10, 2007 10:13 PM

• tom

  Sione and Roger,

  This is an editorial submission I made to the WSJ. It is a decent synopsis of my thoughts on remedying the problems I see with corporate capitalism. The book, of course, goes into much greater detail.

  
  In the debate over corporate governance and regulatory reform, the Wall Street Journal editorial staff has been the lead defender of the status quo. Every advocate needs a foil, so occasionally the voice of the opposition is allowed on these pages. Elliott Spitzer and the accounting industry may be allowed to speak their piece, but entirely missing from the discussion is a perspective from Main Street. As a mere 401K participant and cubicle dweller, let me offer this heretical position on the topic of corporate governance: Anyone who claims a belief in free markets and love of country cannot also defend the current corporate ownership structure. Here’s more: The proof of this lies in the very words of the foremost modern defender of capitalism, Milton Friedman.
  In his seminal work, “Capitalism and Freedom”, Friedman defined a free market as one where transactions reflect voluntary exchanges between private individuals. He also offered that a key element of a voluntary transaction is that both parties to it be fully informed. Unfortunately, with the government-spawned creation of the corporation, we have long since ceased to have an economy comprised of individuals acting at arm’s length, armed with equal information. Through the conscious interference of law, our corporations are allowed the right of immortality, the negotiating power that comes with the pooled capital of millions of investors, and the legal standing of personhood. With these enormous privileges in hand, the balance of power between the individual and corporation tilted to the favor of the corporation a long time ago.
  Ironically, this reality has left all defenders of the status quo stuck defending these aggressive acts of governmental interference, while professing to oppose on principle such interventions. When note is made of this contradiction to conservative friends, most respond with patronizing explanations of how necessary the corporation is to a modern economy. With great condescension, it is explained that it would be impossible to create steel mills and microchip factories without the invention of the corporation, unless we gave all work over to the control of government.
  This may be true, but it only means the corporation is merely a tool of convenience, not one of principle. Its use requires a sacrifice of principle. And with this sacrifice of principle, the touch of the invisible hand is partly disabled. In response to this, we’ve devised regulatory means of keeping the tainted results of our marketplaces in check. Unfortunately, these efforts create their own moral hazards, hazards about which the editorial board is always anxious to complain.
  This dilemma is especially evident in our financial markets. The editors have made great cant of how costly, unnecessary and redundant the requirements of Sarbanes-Oxley are. They say the marketplace can solve these problems on their own, without interference. Corporate boards will become more diligent, as board members strive to defend their reputations in the marketplace, or so we’re told.
  Do these contentions jibe with marketplace outcomes? Hardly. The endless waves of corporate scandal we endured through the 80s and 90s and market bust of 2000 finally culminated in the passage of the Sarbanes-Oxley Act. And yet, even under the supposed hyper-scrutiny imposed on executives and boards by this regulatory shotgun, we face yet another round of scandal related to back-dated options. Meanwhile, corporate boards cannot even attend to the remedial task of containing executive pay to a single-digit rate of inflation. With these problems, it isn’t even necessary to ask the most obvious question: Why did the discipline of “reputation risk” never work in the first place?
  Such persistent failure screams of a design problem. As a quality assurance process, the current system works much like that of a 1970s-era factory. Then, quality control inspectors sifted for defects to be culled after production. Today, corporate governance is an inspection system that looks for regulatory breaches after the fact. Reformers should instead borrow from the playbook of the Quality Movement, and regard these persistent failures as symptoms of a process problem. They should then look upstream to identify and fix the defective process.
  Were we to do this, the trail would lead us straight back to the often-mentioned, but never-solved agency problem. To the point of satire, all we seem able to do is add layer upon layer of agents, with each new one charged with monitoring the previously added one. For a better idea, how about quitting this farce, and focus on eliminating the root cause, which is absentee investors’ reliance on corporate agents?
  How? The answer lies in the ashes of United Airlines failed attempt at worker capitalism. Typically described as a case study in the flaws of worker ownership, United Airline’s experience was actually just a variation of what happened at Enron, Worldcom, et al. In all these cases, insiders used their better access to information to exploit poorly informed absentee investors. In the case of United, this took the form of workers as insiders who gifted themselves with an above-market wage agreement in much the same way CEOs finesse pay-for-failure options packages.
  Were worker buyouts instead devised so that workers and absentee investors took shares that represented an agreed-upon stake in the total of all value added by the corporation, the ability of either party to game the system to their favor would be eliminated. More importantly, a corporation built upon the issuance of these types of shares – let’s call them TVA shares - could dramatically reduce the need for agents. Corporate leaders would be charged with advancing the interests of shareholders by way of advancing the interest of workers, as the two would move in lockstep. In turn, workers would be far better positioned to gauge the competence of their leaders than disengaged absentee shareholders.
  Meanwhile, this more perfect alignment of interest would greatly diminish the need for active portfolio management, and the massive sums of monies lost to this zero-sum game. TVA shares would be far more stable in their returns, thereby eliminating the volatility in share prices that money managers need to pitch the promise of above-market performance. With this illusion exposed, there would be nowhere to hide the 150 to 200 basis points Wall Street now pockets for itself each year in payment for their trading exertions. In doing so, absentee investors and workers could capture this massive spread – the difference between the gross returns on equity shares, and the net returns that ultimately trickle into the pockets of absentee investors – and split it amongst themselves.
  The byproduct of such an ownership arrangement would be a host of social benefits too numerous to describe here. Their essence would be to revise for the better the flow of economic information, and by extension, every economic calculation we make as workers, consumers, investors, and citizens. The only group that would lose under such an arrangement would be the aforementioned agents, so their opposition to such reforms can be presumed. Keep in mind, though, that whatever objections they might express would be contradicted by their own long history of support for stock grants, options, and employee ownership via ESOP plans and 401K participation. While these programs are said to be means of ensuring their interests are aligned with those of shareholders, worker ownership based on TVA shares would accomplish this same end far more efficiently. All stakeholders would be acting together in concert, and there would be no room for the pay-for-failure agreements that nearly every CEO now has tucked in their safe deposit box. The day the editorial board backs reforms that help eradicate the need for agency representation is the day their professed belief in free markets finally ring true.
  
  

  Published: February 10, 2007 10:32 PM

• Daniel M. Ryan

  What I myself inferred from that proposal of yours, Tom was:

  1. Permitting the limited liability provision of corporations encourages people to invest their money with far less forethought than confining investment to joint-stock companies, with unlimited liability, would.

  2. Thus, elimination of the corporate form, and substituting the joint-stock company form in its place, would lead to people being more careful in their investments.

  3. As a side benefit, substituting the joint-stock form for the corporate form would reduce the size of business organizations, which would restrict businesses from growing so large as to be unwieldly. Evidently you consider the "bargaining power" aspect, inhering in large pools of capital coalescing into a single firm, to be a means of burying mistakes in the making, which limited liability does not prevent from happening.

  Is this summary accurate?
  

  Published: February 10, 2007 10:55 PM

• tom

  Daniel,

  Your synopsis is close, but let me clarify some.

  1. Permitting the limited liability provision of corporations encourages people to invest their money with far less forethought than confining investment to joint-stock companies, with unlimited liability, would.

  I think I've done a poor job on this one, as everyone thinks this is an issue about investors.
  I'm more concerned about third party damages. In an arms' length transaction between individual's, the fear of personal bankruptcy is a big limiter on personal overreach. The risk of being responsible for reparations to damaged parties ensures better behavior. For the corporation, the fear of personal liability for damages done to third parties is loosened considerably, even to the point of being non-existent. This creates the condition where corporate executives wield considerable power, but little fear of being held responsible for exercising it in an aggressive or wanton manner. In the most egregious cases, the corporate veil may be pierced, and damaged parties can proceed against corporate agents - Enron and Worldcom being some of the very rare cases where this has happened. Unfortunately, the statutory standards of proof are so high, they clearly embolden corporate agents (C-level executives and corporate boards) and even lower level employees to be aggressive in their actions. This breeds a sense of irresponsibility throughout corporate organizations, leading people to believe (correctly) that they aren't personally responsible for their business actions. Whether it is a drug researcher who hides the bad result of their clinical trials, a design engineer who hides product defects, or a sub-prime lender who jacks the mentally impaired, the shield from personal responsibility serves as an inducement to immoral economic behavior.
  
  2. Thus, elimination of the corporate form, and substituting the joint-stock company form in its place, would lead to people being more careful in their investments.

  That would help, but the corporate form I have in mind would simply require that only corporate workers would be allowed to own voting shares. It is a bit involved, but I think this would recalibrate all economic decisions in such a way as to ensure better economic behavior in all respects. Decisions would be more moral, and also more efficient. Smarter risks would be taken, capital would be better allocated, and both capitalist and workers would be better incented to create true wealth. Consumers would make more informed choices, and we would naturally encourage a more economically literate citizenry.

  3. "As a side benefit, substituting the joint-stock form for the corporate form would reduce the size of business organizations, which would restrict businesses from growing so large as to be unwieldly. Evidently you consider the "bargaining power" aspect, inhering in large pools of capital coalescing into a single firm, to be a means of burying mistakes in the making, which limited liability does not prevent from happening."

  Well stated. The current system hides mistakes by design. The invisible hand relies on "reputational risks" to act as a limiter on personal overreach. The bargaining power and personal anonymity that results from a corporate structure built upon absentee ownership greatly diminishes the effectiveness of this constraint.
  

  Published: February 10, 2007 11:59 PM

• Daniel M. Ryan

  Thanks for the clarification, Tom.

  Published: February 11, 2007 12:02 AM

• adi

  Tom's ideas sounds too good to be true; as if all the problems associated with the principal-agent relations and co-operation of different individuals inside of large community just disappear if some changes are made to internal organization of business initiatives.

  Tom's proposition, syndicalism and worker capitalism have similar characteristics and same problems.

  Tom, I would like to ask you if company which would operate in a way you suggested has both salaried and owner employees, how day-to-day operation and investment decisions are made? Is every worker required to own equal share in company? Is there capital market to sell your shares if you want to quit company? How much each worker has to contribute his own money to company if losses are made?

  There are good reasons why some people want to get regular salary and not any varying share of profits of operations. It's all about the matter of risk taking and risk sharing.

  Published: February 11, 2007 3:12 AM

• tom

  adi,

  Good questions, all of which are addressed in my book. I don't believe the reforms would be a panacea for all organizational problems, they would just be an improvement upon the current system. The improvements would be incremental, but one must remember that incremental improvements compound over time, and can lead to dramatic results in the long run.

  We are in absolute agreement that the issue is "all about...risk taking and risk sharing." I think the current system is designed badly for risk taking and risk sharing. The last bearers of risk are absentee shareholders, and they are incompetent for the job. That's why we have market bubbles and crashes, and CEOs who game the system by cooking the books, and fraudulent/negligent boards, etc. They are too far removed from the business to properly assess risks, so they must rely upon agents to act on their behalf in that regard. But there is no way to solve the agency problem, as conflicts of interests are inherent to this design.

  Re the exact structure of the organization, the details would vary from company to company, depending on what particular work groups settled upon. I have my personal opinions on the structure that would work best, but the reforms shouldn't require that these be decreed, other than that voting shares are controlled by employees. That being said, I think the best working structure would be where voting shares only represented a nominal chunk of equity, shares would probably be of a one-person, one-vote variety, and voting rights would be mainly limited to the selection of corporate leadership, and the matter of dividend distributions. The bylaws would be restricted to prevent workers from raiding the equity interest of non-voting shareholders, as happened at United Airlines. This could best be done by having most of the equity in the company held in non-voting or preferred shares, or even better, the TVA-style shares described in the book. As well, some equity might be converted to bonds.

  The best style of security for these shares would be what I call TVA's, or Total Value Added Shares. They would represent a stake in all value created by the corporation prior to wages. Securities such as these would bind the interest of workers and absentee shareholders far better than the clumsy methods used now, most notably option grants.

  The exact ownership structure used would have to be tailored to the risk preferences of individual workers within a work group, but these could be accomodated to a far greater degree than people's first instincts tell them. Internal auction markets would arise within companies for handling business downturns, and the concomitant need to reduce compensation. Insurance market might also arise to smooth this risks for workers as well.

  As for the stock market, there would for certain be a market for these shares, at least those held by absentee investors. The big difference, though is that fluctuations in their value would be far more moderate than we currently see in the stock market, as much of the corporation's business risks would be shifted to workers. With less volatility, there would be less trading, as the need - and ability - to capture changes in what John Bogle calls the "momentary precision of price". In short, the fog of speculation that now surrounds the ever-changing value of a stock share would be significantly reduced. With it would go the need for the expensive and wasteful zero-sum game the stock market now represents. The markets would exist for liquidity and diversification purposes, and the opportunity for speculative gains would be greatly reduced. One big benefit is that the smart people now dedicated to this wasteful task would be freed to create real wealth.

  The book develops these points in fuller detail.

  Published: February 11, 2007 1:06 PM

• Peter

  Tom: you _really_ need to read Man, Economy, and State. Learn some proper economics first.

  Published: February 11, 2007 5:51 PM

• RogerM

  I'll pick just a few of Tom's points to discuss, but I disagree with just about every line he has written.

  Tom: "In the most egregious cases, the corporate veil may be pierced, and damaged parties can proceed against corporate agents - Enron and Worldcom being some of the very rare cases where this has happened."

  You're using a few bad apples to characterize the entire bushel as bad. The truth is that the vast majority of corporations operate in an honest manner. You brought up the issue of quality control, so you should know that the standard practice in quality control is to determine if a problem is a special cause, not likely to be repeated, or if the problem is the fault of the system. The corporate bad guys, such as Enron and Worldcom, are so rare and represent such a small sample of the population that you can't honestly condemn the system because of them.

  The corporate system works quite well as it is. To propose an ideal system, such as your TVA, is to compare reality, the current corporate system, with and abstract idea. Of course the abstract idea will be a major improvement because it has never been tried on a large scale. The Yugoslavs tried it in the 1970's and failed, and as you wrote, United Airlines tried it without much success. The problem is that workers turn out to be no better managers than passive investors.

  "...only corporate workers would be allowed to own voting shares... Decisions would be more moral, and also more efficient. Smarter risks would be taken, capital would be better allocated, and both capitalist and workers would be better incented to create true wealth."

  I doubt it. Germany has a similar structure where the unions hold a lot of the votes. As a result, managers concentrate on keeping employment levels and wages high in order to pacify the unions. That's why all of the German auto makers are building plants in the US and Mexico instead of Germany. As I wrote earlier, you seem to have a low opinion of the need for good CEO's. But employee-owned companies, and Germany's union controlled ones, have demonstrated that employees are a poor substitute for really good managers or entrepreneurs. Management and entreprenerual skill is far more important and scarce than you realize.

  "Consumers would make more informed choices, and we would naturally encourage a more economically literate citizenry."

  Don't see how that follows from your argument at all. Seems like an unwarranted leap in logic there.

  "With these enormous privileges in hand, the balance of power between the individual and corporation tilted to the favor of the corporation a long time ago."

  I'm guessing that your argument here is that corporations try to hide product defects from the consumer, but that happens with private businesses as well as corporations. That's a problem with unscrupulous businessmen, not corporations. But the marketplace takes care of such problems on its own, because product defects will soon be known by the first purchasers of a product and that information widely disseminated. That's why the Toyota Camry is the best selling car in America; Toyota has a reputation for quality. Any advantage that you see the corporation as having over the consumer is small and temporary. Many volumes have been written about the failure of businesses to fool the consumer.

  
  "As for the stock market, there would for certain be a market for these shares, at least those held by absentee investors. The big difference, though is that fluctuations in their value would be far more moderate than we currently see in the stock market, as much of the corporation's business risks would be shifted to workers."

  That's a very naive view of the stock market. Hundreds of factors go into determining the price of stocks, not just the risks the business faces. And there is no reason to assume that workers would take fewer risks or make better decisions than CEO's. In fact, the history of those few who have tried is pretty poor.

  "In short, the fog of speculation that now surrounds the ever-changing value of a stock share would be significantly reduced."

  You're probably right on this one, but not for the reasons you think. These companies would become such poor investments that people would pull their money out of the stock market and put it into real estate and government securities, or equities overseas.

  
  "The invisible hand relies on "reputational risks" to act as a limiter on personal overreach. The bargaining power and personal anonymity that results from a corporate structure built upon absentee ownership greatly diminishes the effectiveness of this constraint."

  There's far more restrain on "personal overreach" than just "reputational risk." The board-of-directors is the first line of defense for the stockholders. If the board doesn't like what management does, it can fire them. If management does something illegal, the board can file charges. Large stockholders, such as mutual funds and insurance companies are very active in directing the board. If the board fails at its job, stockholders can sell their stock and send a message to the board, or lenders can call in loans, as happened with Enron.

  But the best defense against corporate irresponsibility, as Adam Smith noted, is the consumer. Consumers vote with their dollars and have destroyed many corporations with their disapproval. Is the system a perfect one, like the one you propose? No. But no working system ever looks as good on paper as an abstract one.

  One reason that the market doesn't discipline corporate misbehavior as well as it could is the so-called government oversight. The government lulls investors to sleep with its myriads of regulations and its insistance that it has made the system completely honest with increased regulation like SOX. Government creates a moral hazard. To improve the system, get the government out of it completely. Once investors realized that they were responsible for checking out the integrity of a corporation, they would be more careful and remain more diversified. In addition, less regulation would reduce the costs of doing business and increase capital investment, which then increases workers's wages.

  Published: February 12, 2007 11:15 AM

• RogerM

  An article on today's WSJ site has bearing on this issue, I think. In the article, economist Edmund Phelps writes about the poor performance of European economies relative to the US, Canada and Ireland. Here's a sample:

  "The weakness of these values on the Continent is not the only impediment to a revival of dynamism there. There is the solidarist aim of protecting the "social partners"--communities and regions, business owners, organized labor and the professions--from disruptive market forces. There is also the consensualist aim of blocking business initiatives that lack the consent of the "stakeholders"--those, such as employees, customers and rival companies, thought to have a stake besides the owners. There is an intellectual current elevating community and society over individual engagement and personal growth, which springs from antimaterialist and egalitarian strains in Western culture." http://opinionjournal.com/editorial/feature.html?id=110009657

  It seems to me that Tom's TVA is trying to immitate the failures of the European model.

  Published: February 12, 2007 12:10 PM

• tom

  Will respond on Wednesday.

  Published: February 12, 2007 9:07 PM

• tom

  Roger:
  "You're using a few bad apples to characterize the entire bushel as bad. The truth is that the vast majority of corporations operate in an honest manner...The corporate bad guys, such as Enron and Worldcom, are so rare and represent such a small sample of the population that you can't honestly condemn the system because of them."

  Tom: Here is the actual list of corporations guilty of accounting fraud from 2002 on:

  AOL
  Adelphia
  Bristol-Myers Squibb
  CMS Energy
  Computer Associates
  Duke Energy
  Dynegy
  El Paso Corporation
  Enron
  Freddie Mac
  Global Crossing
  Halliburton
  Harken Energy
  HealthSouth
  Homestore.com
  ImClone Systems
  Kmart
  Lucent Technologies
  Merck & Co.
  Merrill Lynch
  Mirant
  Nicor Energy, LLC
  Peregrine Systems
  Qwest Communications
  Reliant Energy
  Sunbeam
  Tyco International
  Waste Management, Inc.
  WorldCom
  Royal Ahold (2003)
  Parmalat (2003)
  Calisto Tanzi (2003)
  AIG (2005)
  CF Foods

  This represents almost 10% of the corporations in the S&P 500. It doesn't include Arthur Andersen, one of only 5 auditors in charge of all corporate audits, and whom was bankrupted by the cumulative litigation brought against them for failing to catch these scandals. It doesn't include the 100s of other company that restated their financials during the window of opportunity provided prior to the adoption of SOX. It doesn't include the 100s of other corporations prosecuted for criminal violations. It doesn't include the dozen of mutual funds prosecuted for timing trades that ripped off their members. It doesn't include the 100s of companies currently under investigation for backdating options. You simply aren't correct that corporate crime and fraud is rare.

  Roger:
  "The corporate system works quite well as it is. To propose an ideal system, such as your TVA, is to compare reality, the current corporate system, with and abstract idea. Of course the abstract idea will be a major improvement because it has never been tried on a large scale."

  Tom: The idea has been tried on a larger scale than anarcho-libertarianism has (which has been tried not at all). The top 100 employee-owned companies in America employ a half million people. The Mondragon Cooperative in Europe employs 78,000 people, has $15 billion in revenue, and has financial fundamentals that would be the envy of most American Corporations.

  Roger:
  "I doubt it. Germany has a similar structure where the unions hold a lot of the votes. As a result, managers concentrate on keeping employment levels and wages high in order to pacify the unions. That's why all of the German auto makers are building plants in the US and Mexico instead of Germany."

  Tom: Their experience is not at all similar. Under my proposal, unions would be unnecessary, and workers wouldn't have the benefit of guaranteed wages. In my book, I argue against the need for, and effectiveness of, unions.

  Roger: "As I wrote earlier, you seem to have a low opinion of the need for good CEO's. But employee-owned companies, and Germany's union controlled ones, have demonstrated that employees are a poor substitute for really good managers or entrepreneurs. Management and entreprenerual skill is far more important and scarce than you realize."

  Tom: "Again you misconstrue. I have a very high opinion of the need for good CEO's. My low opinion relates to the current vetting process for selecting them. You seem to have this presumptive belief that because the CEO's are paid so heavily, they must be good. As a CPA, I simply look at the percentage of them who cannot tend to the remedial task of keeping a straight set of books in order to conclude the current system fails badly at finding the right people for the job.

  Roger: "I'm guessing that your argument here is that corporations try to hide product defects from the consumer, but that happens with private businesses as well as corporations. That's a problem with unscrupulous businessmen, not corporations."

  Me: You disregard the degree of frequency in each case. Saying there are also unscrupulous independent business people says nothing about the relative prevalence of each. My argument was that the corporate veil of protection from liability emboldens unscrupulous corporate businessmen. This doesn't mean I was saying there is no business crime outside the corporation. Instead, it occurs to a lesser degree and on a smaller scale.

  Also, markets SOMETIMES punish the misdeeds and the deceptions of the marketplace, provided the transaction cost of discovering these deceptions are less than the potential value of the discovery. There is a ton of slop in the gap between those two numbers, and the corporation holds the information needed to capture that difference for themselves.

  Roger: "That's a very naive view of the stock market. Hundreds of factors go into determining the price of stocks, not just the risks the business faces. And there is no reason to assume that workers would take fewer risks or make better decisions than CEO's. In fact, the history of those few who have tried is pretty poor."
  Me: Not true. Note my aforementioned examples of successful worker-owned companies. Also note the extent to which more and more companies have tried to approximate the effect of worker ownership through the issuance of options. This shows that corporations are struggling to fix the motivational problem traditional compensation arrangements create for them, and they are trying to resolve them to the extent they can under the current corporate structure. Unfortunately, options cause more problems than they fix.

  Roger: "There's far more restrain on "personal overreach" than just "reputational risk." The board-of-directors is the first line of defense for the stockholders. If the board doesn't like what management does, it can fire them. If management does something illegal, the board can file charges.
  Tom: Read John Bogle, and you will learn how board politics really work. Look at how boards are selected, and you will see how heavily they are stacked with the CEOs hand-picked directors. See how difficult it is to get independent directors onto proxy ballots.

  Roger:
  "Large stockholders, such as mutual funds and insurance companies are very active in directing the board."
  Tom: Again, read Bogle for the real numbers on the low participation rate of institutional investors in proxy votes. Ironically, those that are active in this regard are derided by the WSJ and the Business Roundtable as political grandstanders, acting against the interest of shareholders.

  
  Roger: "If the board fails at its job, stockholders can sell their stock and send a message to the board."
  Tom: That works really well. Exactly what message is sent? Board are thankful to get rid of agitating shareholders, and replacing them with newly hopeful ones.

  Roger: "But the best defense against corporate irresponsibility, as Adam Smith noted, is the consumer. Consumers vote with their dollars and have destroyed many corporations with their disapproval."
  Tom: You disregard the high transaction costs that must be covered before such "voting rights" can be exercised. Its disappointing that I identified this as the crux of my complaint against corporate capitalism, but you opted not to address it.

  Roger: "Is the system a perfect one, like the one you propose? No. But no working system ever looks as good on paper as an abstract one."

  Tom: An interesting observation, coming from those in service to the utterly untried experiment of full-on laizzez-faire. Besides, there is a precedent for successful, thriving examples of worker ownership.

  Published: February 16, 2007 12:40 AM

• Sione

  Tom

  I recently had the opportunity to go see the District Court in action. Many of the people I saw hanging around that place were being charged with crimes relating to theft and fraud. It seems some judges specialise in hearing certain sorts of cases and so they fill the docket with those sorts of matters. That day, there appeared quite a few people were getting charged with "theft as a servant", uttering documents, taking hidden commissions, stealing their employer's property and so on. I was surprised at how many. Later I had lunch with the Crown Prosecutor. She reckoned only a handful of such matters ever got detected and of those very few made it to Court. I asked her about the prevalence of such crimes and she said that it comes down to education, culture and the fact that some people just have their priorities and morality all wrong (you just can't beat a State Education). She also reckoned there were a lot of such people operating in authority, in govt. "You'd be surprised", she opined.

  Tom, in the end the issues that worry you so much are endemic to representational democracy. Of course in the special case of govt there are powers and authorities over all other people. That is far more serious than what may or may not go on within a company/corporation (and I submit the prime cause of corporate corruption is the government- it is the source of it). With govt, there is no way to avoid assault against individual property or liberty. There lies the real problem.

  Tinkering with various mechanisms of representational democracy will not solve the troubles inherent in such schemes (and your schemes will not be a substantive improvement over what we have presently). In the end what is necessary is a complete overhaul of the political system. That means dealing with the topic of organisation of society and in particular the institution of govt (and whether there should even be such an entity). It is to this that people such as von Mises, Rothbard and the other Libertarian writers directed their attention. That is something you need to understand.

  Sione

  Published: February 16, 2007 11:37 AM

• RogerM

  Tom: "This represents almost 10% of the corporations in the S&P 500."

  10% still seems like a small part of the total to me. Why haven't the other 90% behaved the same way? Also, these scandals tend to come in waves. What causes the waves? Usually it's new financial models. Something similar happened in the 1980's with junk bonds. Michael Milkin went to jail essentially for inventing new techniques for financing. Many of us thought he was railroaded. A lot of the "criminal behavior" of Enron was just creative financing and it wasn't clear to a lot of experts that they had done anything illegal.

  Tom: "The idea has been tried on a larger scale than anarcho-libertarianism has (which has been tried not at all). The top 100 employee-owned companies in America employ a half million people."

  I'm not an anarcho-capitalist for the same reasons I don't support employee-owned companies. But I'm not against them, either. I think they're a great experiment. Let the marketplace decide whether employee-owned companies or traditional corporations are the best. I don't care as long as the government stays out of it.

  Tom: "Under my proposal, unions would be unnecessary, and workers wouldn't have the benefit of guaranteed wages."

  I don't see a difference between a union and an empoyee-owned company. And how would you keep the workers from guaranteeing themselves wages and benefits as the unions representing workers in Germany have? More government intervention?

  Tom: "You seem to have this presumptive belief that because the CEO's are paid so heavily, they must be good."

  No, I don't assume that. However, I do know that good CEO's are rare and that employees won't necessarily make better decisions. And scarcity drives up prices.

  Tom: "Also, markets SOMETIMES punish the misdeeds and the deceptions of the marketplace, provided the transaction cost of discovering these deceptions are less than the potential value of the discovery."

  The consumer is directly aware of the quality of products and services and the cost of that knowledge is nothing more than the purchase of the good. Corporations can't hide quality defects from consumers. Accounting issues don't concern consumers; that's an investor problem.

  Tom: "Note my aforementioned examples of successful worker-owned companies. Also note the extent to which more and more companies have tried to approximate the effect of worker ownership through the issuance of options."

  Note my examples of failed worker-owned companies. As I wrote before, there is no reason to assume that workers would take fewer risks or make better decisions than CEO's. They may or may not. Besides, stock-options are a way to increase CEO pay without cash. As for improving CEO performance, they've been a bust.

  Tom: "Read John Bogle, and you will learn how board politics really work. Look at how boards are selected, and you will see how heavily they are stacked with the CEOs hand-picked directors. See how difficult it is to get independent directors onto proxy ballots."

  I don't doubt that. I have no illusions about the behaviors of boards or CEOs. I'm arguing that the problem is not the system, but individuals within the system lacking ethics. The system is set up to address the issues you raise. If people within the system fail to do their jobs, or are corrupt, that's not a system failure, but a personal one. Worker-owned systems won't change personal ethics; some of them will be just as corrupt and immoral as corporations. If stockholders have decided not to get involved in electing or overseeing board members, it's because they see a cheaper way to accomplish what they want--selling their shares and buying shares in better managed companies. I can't help but believe that falling share prices has some effect on board members's decisions.

  Tom: "You disregard the high transaction costs that must be covered before such "voting rights" can be exercised. Its disappointing that I identified this as the crux of my complaint against corporate capitalism, but you opted not to address it."

  I wasn't referring to voting rights, but to consumer purchases of products and services. If the corporation produces shoddy products, the consumer will punish the corporation by refusing to purchase them. I've already addressed the voting rights issue several times. If the investor decides not to pay the high transaction costs of monitoring management and discovering corporate crime, then that investor will pay the much higher cost of losing all of his investment. Besides, the cost is not all that high with the numerous magazines and investment advisors who do the monitoring for the investor. Finally, the cost of losing one's investment is not all that high either, if the inverstor is rational and diversifies his investment properly.

  Published: February 16, 2007 12:21 PM

• tom

  Roger: 10% still seems like a small part of the total to me. Why haven't the other 90% behaved the same way?
  Tom: A common response. Don't forget the 100s of others I mentioned. 140 corporations are now under investigation for options back-dating. If you add in the other issues raised, well over 1/2 of all corporations are guilty of some form of malfeasance on this front alone. And remember, these are only those that have been caught. Still, I think dwelling on these criminal violations obscures the larger issue. I'm more concerned with finding competent, vital leaders, not simply ones that don't break the law. In this regard, if roughly half our corporate leaders cannot even run an honest set of books, we can safely assume they are incompetent leaders. So we have to discard half the pile before we even get to the question of whether or not the person is a savvy strategist, or creative, dynamic, and visionary leader.

  Roger: But I'm not against them, either. I think they're a great experiment. Let the marketplace decide whether employee-owned companies or traditional corporations are the best. I don't care as long as the government stays out of it.

  Tom: Agreed. My intent is to advocate for these ideas on pro-capitalists terms (with the exception of the anarchist; still cannot get my arms around that concept). I truly believe the result would be less government, but I freely grant we are talking about an experiment here.

  Roger: "I don't see a difference between a union and an empoyee-owned company. And how would you keep the workers from guaranteeing themselves wages and benefits as the unions representing workers in Germany have? More government intervention?"

  Tom: No. The Mondragon Cooperative is wholly worker-owned on the equity side, so they have no means of guaranteeing their wages and benefits. They receive fixed-rate, debt-based capital in the open financial markets, no governmental assistance provided. They consequently have no need for a union, as they would only be negotiating with themselves for a guaranteed wage.

  In cases where equity is shared between absentee investors, the situation becomes ripe for workers to do as you say, and game the system to their favor, as they did at United Airlines. TVA shares would prevent this from happening, as there would be no way for workers to raid the absentee owners share of TVA, as that stake would be locked in at the inception of the corporation. TVA's would work much in the manner as revenue sharing works in the NBA, the key difference being that the percentage split between the two wouldn't be up for negotiation every few years. This would eliminate the contentious rounds of negotiation that results from this.

  Roger:
  "No, I don't assume that. However, I do know that good CEO's are rare and that employees won't necessarily make better decisions. And scarcity drives up prices."
  Tom:
  Not everytime, but I believe on balance they would. My rationale is this: They are both better motivated and informed to make the right choice. Further, you could eliminate the friction of distrust that exist between corporate leaders and the rank-and-file. Under the current system there is an inherent conflict, as the two are at odds over their goals. A CEO is charged with maximizing the interests of shareholders, not workers, but they are stuck in a role where they are supposed to be leading the workforce in the creation of value. If you change the mission of the CEO to be the maximization of workers' wealth (as constrained by the fixed limit on workers' share of the pie), this friction is eliminated.

  With these three advantages in hand, I think you would get a better result.

  Roger:
  "The consumer is directly aware of the quality of products and services and the cost of that knowledge is nothing more than the purchase of the good. Corporations can't hide quality defects from consumers."

  Tom: Capitalism does work well in this regard, but as I noted, I think there is significant slop in the system at the margins. Quality problems can be hidden, at least to some degree. To me, the proof is in the spending. It would seem odder to me that corporations spend so much on advertising and marketing for no gain. Lots of examples, mostly where the quality of a product can be obscured. Little example: Why do people pay more branded items such as Advil (ibuprofen) that are identical to private label brands, other than because of the influence of advertising?

  Roger:
  "I don't doubt that. I have no illusions about the behaviors of boards or CEOs. I'm arguing that the problem is not the system, but individuals within the system lacking ethics. "

  Tom:
  This is the heart of our differences, and they probably aren't resolvable, but we've done well to clarify the exact nature of our differences. I do think system design does affect outcomes. Systems set the limits on allowed behavior, by encouraging certain actions, and discouraging others.

  My ideas on worker ownership create problems for both the left and the right. The right thinks I'm proposing socialism, when less government would actually be required. It is very hard to consider the possibility that various forms of capitalism might produce various results. By contrast, leftist thinkers are suspicious of anything that preserves capitalism.
  
  Last, I'm not sure there is much life left in this discussion, but I would like to extend my thanks for engaging me. For me, the discussion has been productive, and you helped me identify the areas where I am explaining my beliefs poorly. I hope you got some benefits from the discussion as well. I definitely understand that I am essentially tilting at windmills, but innovation is what capitalism is about.

  Regards,

  Tom

  Published: February 16, 2007 9:14 PM

• Sione Vatu

  Tom you wrote: "...innovation is what capitalism is about..."

  No, not really. Innovation is one result of how Capitalism operates and how its rewards are allocated but it is not a fundamental.

  Essentially Capitalism is about property, how it is acquired, traded and disposed of. It is about exercising one's freedom. It is about the recognition of Individual Rights.

  Sione

  Published: February 17, 2007 12:31 AM

• tom

  Sione,

  OK, but what I don't ever see resolved by libertarian thought - at least the anarchist wing - is a real-world rule for defining where one individual's property right end, and another's begin. In a crowded world, we bump into each other at every turn, so conflicts arise. There has to be a means of resolving those conflicts, and establishing a set of enforceable rules is at the heart of that. The operative term here is "enforceable", as that is implicit to the very meaning of the word "rule".
  Without this ability, we are back to the rule of the jungle, tribalism, etc. I appreciate that government can be used as a tool of coercion, but what completely baffles me about libertarianism is the belief that coercion can be wished away by the elimination of government. At that point, might would make right, and the coercion would still remain, only to be delivered by tribes, factions, and thugs.

  Once we get thrust into the real world - the modern world - the main instruments of coercion are force and deception. I have concentrated in this blog on the current design of the corporation, as I think design changes could reduce their ability to coerce through deception.

  Published: February 17, 2007 10:30 AM

• Sione Vatu

  Tom

  When I grew up we had no government. There was no requirement for such an institution. Sure there was one on the main island but that was something no-one needed to interact with or have interact with him or her. It may as well have been on the Moon. The villagers (several villages and one town) operated in spite of govt. No-one paid tax and property issues were settled amicably by those involved. For complex matters or difficult disputes we could turn to a third party for adjudication- the Matai. He was wise in such issues and would guide parties to a result. Nevertheless he had no formal power to enforce. I suppose a person could have gone against his recommendation but I'm not aware of any who did. The result would have been ostracism by the rest of us.

  I've witnessed just how rapidly and effectively that can sort out troublesome people. Ostracism is what happened to a fellow who passed bad cheques- although the Matai was not involved in solving that affair. It also happened to a fool who got drunk, started fighting people and broke someone property at the hotel. They came into line sure enough. In the end, the first one was never able to pass cheques again. The other was unable to purchase alcohol for years. The point is the the moral have a job to do in dealing with the immoral. They can do it without the burdens of adopting an immoral institution. They can (and should) do it directly.

  What I have encountered since I started travelling around the World is that in the main people in civilised countries (much of Oceania, USA, UK and important parts of Europe etc.) operate as anarchists in their day to day living. They need no third party authority or enforcer. Same as home.

  Unfortunately they are unable to evade govt intrusion, as it has imposed arbitrary rules and regulations that ultimately do affect them and interfere with their ability to make decisions. Worse is that many of them believe in the faith of govt. So they waste much effort and wealth dealing with govt, dealing with its imposts, paying tribute and attempting to minimise the damaging effects upon their lives. Many choices are closed.

  People are aware all this hinders their progress through life and that it is ultimately deleterious to them but still they believe they must have such an institution in their lives and that it would be a better institution if only...(fill in the wish list here, get govt to control the other people- especially the ones you do not like, get free things from the govt., etc. etc._________). Nevertheless they do not need such an institution cluttering up their lives, consuming time and resources. Despite what people are taught (at state controlled schools), there is no need to embrace the "necessary evil". There is no requirement to hand over your individual soverignty to someone else.

  What surprises me is how many supposedly intelligent people know govt is never going to work (never has yet and the future aint looking too rosy either) and yet they continue to have faith that somehow a miracle will occur and everything will be better if only govt would act as they wish. Deam on! They may as well hit the drugs...

  Anyway, the work of anarchist Capitalists such as Rothbard make perfect sense. It's surprising that so many can't consciously accept that which is so obvious.

  Regarding your schemes of redesign for corporations, you'd be better off considering the prime source of deception in your society today - the institution of govt itself.

  
  Sione

  Published: February 17, 2007 1:26 PM

• Dan Coleman

  tom, your description of libertarianism taken to its logical conclusion, written thus:

  "OK, but what I don't ever see resolved by libertarian thought - at least the anarchist wing - is a real-world rule for defining where one individual's property right end, and another's begin. In a crowded world, we bump into each other at every turn, so conflicts arise. There has to be a means of resolving those conflicts, and establishing a set of enforceable rules is at the heart of that. The operative term here is "enforceable", as that is implicit to the very meaning of the word "rule".

  Without this ability, we are back to the rule of the jungle, tribalism, etc. I appreciate that government can be used as a tool of coercion, but what completely baffles me about libertarianism is the belief that coercion can be wished away by the elimination of government. At that point, might would make right, and the coercion would still remain, only to be delivered by tribes, factions, and thugs.

  Once we get thrust into the real world - the modern world - the main instruments of coercion are force and deception. I have concentrated in this blog on the current design of the corporation, as I think design changes could reduce their ability to coerce through deception."

  Strikes me as misunderstanding several central libertarian concepts, including 'coercion' (which you conflate with aggression), property rights, and enforcement.

  Here is a chapter from Rothbard's 'For a New Liberty' that I think you will find very helpful in at least understanding libertarian concepts on our own terms. Until then, your arguments against libertarianism (and anarchism) seem sadly beside the point at best, or simply incorrect at worst.

  At the very least, it will help you to understand where libertarians are coming from. As of right now I think you are beating up straw men.

  http://mises.org/rothbard/newliberty2.asp

  Published: February 17, 2007 3:07 PM

• Dan Colema

  I'm sorry for the double post, here is how my other post *should* have read (I've fixed the italics):

  tom, your description of libertarianism taken to its logical conclusion, written thus:

  "OK, but what I don't ever see resolved by libertarian thought - at least the anarchist wing - is a real-world rule for defining where one individual's property right end, and another's begin. In a crowded world, we bump into each other at every turn, so conflicts arise. There has to be a means of resolving those conflicts, and establishing a set of enforceable rules is at the heart of that. The operative term here is "enforceable", as that is implicit to the very meaning of the word "rule".

  Without this ability, we are back to the rule of the jungle, tribalism, etc. I appreciate that government can be used as a tool of coercion, but what completely baffles me about libertarianism is the belief that coercion can be wished away by the elimination of government. At that point, might would make right, and the coercion would still remain, only to be delivered by tribes, factions, and thugs.

  Once we get thrust into the real world - the modern world - the main instruments of coercion are force and deception. I have concentrated in this blog on the current design of the corporation, as I think design changes could reduce their ability to coerce through deception."

  Strikes me as misunderstanding several central libertarian concepts, including 'coercion' (which you conflate with aggression), property rights, and enforcement.

  Here is a chapter from Rothbard's 'For a New Liberty' that I think you will find very helpful in at least understanding libertarian concepts on our own terms. Until then, your arguments against libertarianism (and anarchism) seem sadly beside the point at best, or simply incorrect at worst.

  At the very least, it will help you to understand where libertarians are coming from. As of right now I think you are beating up straw men.

  http://mises.org/rothbard/newliberty2.asp
  

  Published: February 17, 2007 3:08 PM

• Dan Coleman

  Grr, it didn't fix it.

  
  Okay, the first three paragraphs, from "OK, but what I don't ever see resolved . . ."

  until "as I think design changes could reduce their ability to coerce through deception."

  should be italicized and considered a quote. Very bizarre.

  Published: February 17, 2007 3:10 PM

• tom

  Dan,

  That's OK on the italics problem; I caught your drift. And I will get to the links you sent when I can. My intent was not to "beat up on straw men", as you put it, but to elicit an explanation of how the anarchists address this issue (I never had in mind that I was the first to raise it). With that as my goal, I appreciate your response.

  Thanks,

  Tom

  Published: February 17, 2007 3:23 PM

• Dan Coleman

  Tom, thanks for the response. I think that anarcho-capitalism, libertarianism, and anarchism (which can all denote the same thing, depending on a couple of basic ideas) don't get enough airplay in conversation and so people aren't familiar with the actual arguments.

  If you're looking for an answer to your question, Rothbard is a great place to look; Hoppe's work is also great. Mises is wonderful for libertarian thought in general, although the issues with security and protection of rights will not be addressed as fully as in the former two authors. In my opinion, there is no substitute for these books.

  But, in the meantime, the short answers to some of the issues that you raise are: Property rights are absolute and well defined, and they are *not* fuzzy and relative to social conventions.

  When it comes to figuring out whose property belongs to whom: homesteading, voluntary exchange, and ownership become important concepts.

  Police, courts, security, and protection of rights are all issues that anarcho-capitalists believe could be handled through voluntary association and free markets (simply, unhampered exchange).

  In short, the libertarian believes that it is possible to run a society that does not use aggressive force against anyone, as all governments necessarily do (taxes). Certainly punishing criminals will require coercion (even violent coercion), but the key distinction is that it will not be aggressive coercion, not initiated force, but only retribution aimed at the restoration of property to its rightful owner(s).

  Published: February 18, 2007 2:06 PM