Yes, Tom Woods; Corporations ARE Unlibertarian. And the Massive Regulatory State and Rampant Crony Capitalism Are the Result.

June 12th, 2015 2 comments

[Note: this started as a Facebook post, which is also open for comment.]

I have been bugged by friends to share some thoughts on the recent discussion (January 2015) between Tom Woods​ and Stephan Kinsella on the “libertarian-ness” of corporations, which was held on the Thomas Woods​ Show, and which they have respectively posted, with supporting references:

http://tomwoods.com/podcast/ep-325-are-corporations-un-libertarian/
http://www.stephankinsella.com/paf-podcast/kol170-tom-woods-show-are-corporations-unlibertarian/

I’ve had countless discussions with Stephan on this topic, chiefly when the Ludwig von Mises Institute ran an open blog; many great conversations were lost when LvMI closed down the blog, but the interested reader can find some of my own conversations here (I backed them up to a personal LvMI blog, and further migrated them when those too were closed by LvMI):

Here are a few thoughts that I shared privately with someone, both in advance of listening to Stefan and as the talk show proceeded:

He’s missing how the state provision of the legal entity structure, and especially the limited liability aspect, has, by risk socialization flowing from shareholders’ incentives to turn a blind eye (to NOT be involved in decisions that hurt others) fuelled the growth of the snowballing and ever-more captured regulatory state.

He mis-states here completely how corporations came about — they were all one-off, special purpose and limited-duration monopolies created in the public interest, not charters that the government let you file that were just like limited partnership agreements.

I am happy that he says state incorporation statutes (and government-made corps, presumably), should be done away with.

His statement that legal entity status is a convenience for the benefit of creditors is basically hogwash — without entity status, creditors could sue ANY (all if they wanted) partners and employees, and let THEM either bring others in as co-defendants or let them work out indemnification arrangements. Entity status is not favor to creditors.

He’s finally making some of the arguments that I did years back — that the favors granted in creating corporations are an excuse/justification for endless meddling by governments in business affairs.

I’ve proposed marked deregulation of non-corporate businesses and of corps whose owners keep a risk tail (i.e., in the case that equity is only partially paid-in, so that directors would have a capital call on shareholders if claims were to exceed assets), but Kinsella instead is trying to say that all government “favors” are meaningless, so government regulations of the corporations they create were never justified. —

It’s an argument that entirely ignores the easily accessed history of harms that, because corporations were made in the “public interest”, courts let corporations get away with, so that people had to go running to legislatures to beg government to “do something” about the corporate Frankensteins that the government had set loose. And it ignores that corporations drive regulatory capture and that the big ones are the partners of government — so much so that it has long been damned-near impossible to tell where business ends and government begins.

He says it would be a good thing if we removed legal entity status — I appreciate this, but in fact, of course, everyone (and Stephan himself) uses Stephan’s argument to deflect criticism from corporations and crony capitalism.

He speculates that “that wouldn’t lead to unlimited liability” for shareholders, but that’s largely a strawman — shareholders could be sued, and would have to bear costs of defense, which would make them quite interested in making sure the execs/manages/employees weren’t running around creating risks/hurting people. Just POTENTIAL exposure to risk gets people’s attention, and cutting that off is a massive subsidy to corporations.

Of course business firms that aren’t corporations could outlive their founders — through a gradual handover to younger generations, bringing in others, etc. But the natural, common law methods of business organization (partnerships, family businesses, cooperatives and associations) keep the owners very, very interested in making sure possible successors are brought up within the firm and understand employees, customers, suppliers, community members, etc., and in carefully monitoring the activities of such possible successors.

The artificial, statist corporation form loosens the bonds of mutual accountability  among owners, and between employees/other community members.

As for limited liability; he’s right about voluntary creditors — that voluntary counterparts can agree to limit each other’s liability to “business assets” only, and to exclude the personal assets of owners.

But as for the involuntary tort creditors, creating the corporate form and eliminating any possible liability of shareholders has had the clear consequence of totally muddling WHO it is that is acting and who should be responsible for torts — so we ended up totally eviscerating the old doctrines of privity of contract, grossly expanding the notion of “respondeat superior” (so corporate assets are on the hook, even when it isn’t clear what INDIVIDUALS ought to be liable for harms) and a lessening of accountability within firms. (Witness the confusion of Stephan and Lew Rockwell regarding the catastrophic BP Horizon blow out a few years ago, when they proclaimed that “BP” was the “biggest victim” of the catastrophe, without identifying whether the victims were those killed, workers generally, managers, execs or shareholders, and that “accidents happen”.)

I agree that “ownership” shouldn’t necessarily imply personal responsibility when innocent persons are harmed in the course of corporate business activities — my point is that shareholders should NOT be automatically excluded from POTENTIAL liability. By excluding them entirely for liability the effect has to been fashion unnaturally large pools of assets and capital that are managed by executives who are agents for no principals whatsoever, leading to a host of nonsense, including not simply a massive Regulatory State and rampant crony capitalism, but to nearly powerless shareholders in listed companies whom themselves claim to be “victims” whenever Bad Shit “happens.”

His argument that shareholders aren’t “owners” is garbage; it’s another post facto argument, and itself statist. Until this point, he argued that shareholders were just like partners/limited partners (who just have indemnity agreements that spread out individual liability for claims by making each other mutually responsible) –now he’s arguing that, hey, because the shareholders BY LAW have no responsibility, they shouldn’t be considered “owners”.

He then makes the point — which I made to him years ago — that if shareholders were exposed to risk, they would just buy INSURANCE — so the world would NOT collapse and everything would just go on as before. Well, not so fast — if shareholders had potential risk exposure and wanted insurance, it would be a COST that they would have to bear — and what he’s actually doing is acknowledging that, at least as to the cost of such insurance (which would vary company by company, industry by industry), government is now currently SUBSIDIZING corporations (or at least being shareholders in them).

As a result, his “net of causality” for torts has been totally confused.

His argument that shareholders may not contribute a dime directly to the corporation is technically true, but that’s another post facto argument. If there was no corporation, then any new partner in a partnership would certainly, if not also be making a partnership contribution, be directly undertaking obligations to the other partners.

All of the D&O and other liability insurance that Kinsella refers to have real costs; the bigger the firm, the more government-afforded protection, and the less important these costs are. Further, of course, thanks to the government-granted “get out of potential liability free” card (in the form of limited liability), shareholders in corporations don’t have to face costs and risks of monitoring, insuring or self-insuring for potential liability or hassles of being sued by injured persons if damages exceed the assets of whoever proximately caused them or the insurance coverage and business assets of the firm. These things matter, and we face greater risks and reduced incentives (and corresponding markets) to monitor and manage risks as a result.

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Fixing the Rules of the Game to require MORE “SKIN IN THE GAME”.

April 21st, 2015 No comments

[from a Facebook post]

Fixing the Rules of the Game to require MORE “SKIN IN THE GAME”.

I’m not suggesting “removing limited liability,” because this would both be changing the rules of the game for existing shareholders and of course be vehemently opposed by existing firms. Rather, we need for states to start deregulating for small businesses whose owners/shareholders do not hide behind limited liability, live in the communities in which they operate and hence are susceptible to claims of damage by local people. There’s no reason to think that these organizations would remain tiny; Lloyds of London used to be a huge syndicate of unlimited liability names, Amex used to be a LISTED unlimited liability corporation, and there still are some fairly large partnerships.

As I have said elsewhere, “a curtailment of limited liability for torts could be hedged by shareholders via insurance, and could be achieved by state governments and the federal government offering more lenient regulation to business enterprises that operate as partnerships, unlimited liability corporations, or in cases where shares are NOT “fully paid up” so that calls for significant additional capital could be made against shareholders if needed to pay claims. “Creative destruction” by new firms will eventually bring down the limited liability firms.”

http://mises.org/community/blogs/tokyotom/archive/2011/11/14/unwinding-limited-liaibility-can-we-roll-back-the-regulatory-state-lie-by-shifting-ultimate-responsibility-for-managing-risks-to-enterprise-owners.aspx

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On climate, why are so many anarchists/libertarians/conservatives part of a Bootlegger-Baptist coalition that protects the crony status quo?

April 21st, 2015 No comments

[from a Facebook post]

On climate, why are so many anarchists/libertarians/conservatives part of a Bootlegger-Baptist coalition that protects the crony status quo?

Could it be that tribalism and confirmation bias makes hating on lefty enviro-fascist watermelon commies so much fun?

Is there a “burden of proof” before we have to start criticizing government ownership/mismanagement of resources, grants of public utility monopolies that crush competition and consumer choice, pollution regulations that provide free rights to pollute (and grandfather the dirtiest polluters), and government creation of corporations that provide grants of limited liability to investors?

Come on.

http://tokyotom.freecapitalists.org/?s=climate+bootleggers
http://tokyotom.freecapitalists.org/2010/02/10/productive-libertarian-approach-climate-energy-environmental-issues/
http://tokyotom.freecapitalists.org/?s=tribal+climate

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Crazy anti-government people spout off crazy ideas on disaster responses.

April 21st, 2015 No comments

[from a Facebook post]

Crazy anti-government people spout off crazy ideas on disaster responses:  “Fox Business host John Stossel on Sunday asserted that most government was unnecessary because companies like Walmart would spontaneously provide assistance to disaster victims “in many more ways” than the Federal Emergency Management Agency (FEMA) could.

But there’s something to what Stossel says; check into the writings of Rebecca Solnit and Daniel P. Aldrich.

Social capital (the bonds of people within a community) is the key driver to recovery from disasters, not governments.

(Governments actually help GENERATE disasters, by creating and feeding crony capital corporations, as well as feeding legions of unaccountable bureaucrats and politicians.)

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The fight against parasitism and free-riding is a never-ending one.

April 21st, 2015 No comments

[from a Facebook post]

The fight against parasitism and free-riding is a never-ending one. The focus should be not on imagining a world free of either, but on moving it in a direction that makes parasitism more difficult.

Randall Holcolmbe points out:

“[D]espite many theories justifying government because its activities produce benefits to its citizens, no government was ever established to produce those benefits. Governments were created by force to rule over people and extract resources from them. Thus, the argument that citizens would be better off if they replaced government activities with private arrangements and market transactions is irrelevant to the issue of whether an orderly anarchy would be a desirable—or even feasible—replacement for government. The real issue is whether a group of people with no government can prevent predators both inside and outside their group from using force to establish a government. …

“The evidence shows that anarchy, no matter how desirable in theory, does not constitute a realistic alternative in practice, and it suggests that if government ever were to be eliminated anywhere, predators would move in to establish themselves as one by force. One can debate the merits of anarchy in theory, but the real-world libertarian issue is not whether it would more be desirable to establish a limited government or to eliminate government altogether. Economist Bruce Benson notes, “When a community is at a comparative disadvantage in the use of violence it may not be able to prevent subjugation by a protection racket such as the state” (1999, 153). Libertarian philosopher Jan Narveson writes, “Why does government remain in power? Why, in fact, are there still governments? The short answer is that governments command powers to which the ordinary citizen is utterly unequal” (2002, 199–200). …

“[S]ome governments are better than others. Therein lies the libertarian argument for a limited government. People benefit from an institutional mechanism to prevent their being taken over by a predatory gang. They can provide this mechanism by preemptively establishing their own limited government, in a form they themselves determine, not on the terms forced upon them by outside predators. A government created by the people themselves can be designed to produce the protection they desire while returning to them the bulk of the surplus owing to peaceful cooperation rather than allowing the state to retain it.

“Is it really possible to design a limited government that will protect people’s liberty? Despite the challenges, it is well-known that some institutional arrangements do a better job of securing liberty and creating prosperity than others. Nations that have protected property rights and allowed markets to work have thrived, whereas nations that have not done so have remained mired in poverty. A libertarian analysis of government must go beyond the issue of whether government should exist. Some governments are more libertarian than others, and it is worth studying how government institutions can be designed to minimize their negative impact on liberty. This proposition is obviously true if one believes that government is inevitable, but even advocates of orderly anarchy should have an interest in understanding how government institutions can be designed to maximize their protection of liberty. …

“Although ideas have been advanced as to how institutions might be redesigned to lessen government’s coercive activities (for example, by Tucker 1990; Anderson and Leal 1991; Holcombe 1995; Holcombe and Staley 2001), there may be no final answer to the question of how to design the ideal government because any innovations in government designed to protect the rights of individuals may prompt offsetting innovations by those who want to use government for predatory purposes. The preservation of liberty will remain a never-ending challenge.”

http://www.independent.org/pdf/tir/tir_08_3_1_holcombe.pdf

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It’s a rachet, and racket: State-made limited liability corporations are the health of the massive Regulatory State

April 21st, 2015 No comments

[from a Facebook post]

State-made limited liability corporations are the health of the massive Regulatory State, which is likewise the health of the crony corporations. It’s a rachet, and racket.

Are you a Bootlegger, or a Baptist?

In free, voluntary markets, there is no Get-Out-of-Personal-Liability-for-Harms-Caused-to-Others-Free Card.

Limited liability for shareholders is a state-granted favor that is demonstrably at the bottom of the dynamic of people forever running to a gamed “democratic” government, to make government make its creations behave more nicely (with the regulations then serving to protect the big, to limit competition, and to fuel corruption and further government capture). As soon as governments began creating corporate monopolies and/or limited liability cos, then judges followed suit by rejecting strict common-law protections of private property in favor of a pollution-/corporation-favoring “balance” of equities that Block and Rothbard noted.

In a private law society, one finds ALWAYS individuals and associations of individuals who may negotiate liability caps with voluntary counterparties, but remain potentially personally liable up to the remainder of their personal assets for harms that their activities (and those of their agents) caused to others.

While the persons who actually directly caused harms would of course be liable, their principals would try to limit their own potential exposure by either closely managing their agents or making sure that others were independent contractors.

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On climate, how to avoid being a blind, self-righteous ideologue in a “Bootleggers and Baptists” coalition

April 21st, 2015 No comments

[from a Facebook post]

Trust me — you don’t have to agree with those who say “climate science is scary, so we need to do something about it” to be willing to have a decent conversation about how governments play a deep role in generating problems, and seeing ways to use the concerns of “warmers” as leverage to try to start fixing what is broken.

Elsewhere, I got head-scratches when I said, “I think there is little we can do to change temps …, but I still think that there is room for productive “climate” policy.”

Allow me to reconcile what for some is an apparent contradiction:

The climate system is complex, and we are engaged in a massive experiment that simply cannot be turned on a dime even if we were all to make the effort (even if we stopped all fossil fuel CO2 releases tomorrow, the processes now set in motion will take centuries to play out); already CO2 levels are now higher than they’ve been for 3 MILLION years: http://theconversation.com/carbon-stored-deep-in-antarctic-waters-ended-the-last-ice-age-37488

I am not one of those who are fine and dandy with this “experiment” and who act as if it is a “conservative” venture or that market or libertarian principles justify it.

Nor, however, am I one of those who think that climate concerns — like other environmental/healthy/safety/welfare concerns — mandate massive further interference with people’s lives and economic activities, in the manner of past interventions.

Governments have been and continue to be hugely disruptive, incompetent and corrupt, and in fact are the friends of the “crony capital” corporations that are the object of popular scorn (but in fact such corporations are made, fed, coddled, catered to and protected from competition and market forces by governments).

So I “get” some of the reflexive whinging by shallow market fundamentalists that the science must be wrong and that “enviros” must be evil — though these people also piss me off, because in effect they are ideologues who are protecting crony capitalists and a very fucked up system, rather than engaging in good faith with people who can see quite clearly that there are no “property rights” or “market prices” in the air that magically direct economic activity “invisible hand”-like towards optimal outcomes.

My suggestions that there are productive climate policies is one that is NOT based on either a certainty of climate science or some false expectation that we could easily “fix” the climate (we can’t), but on the awareness that our current economic order is profoundly corrupt, costly/inefficient, significantly hampers consumer choice and innovation, socializes real (and generally recognized) pollution costs and protects bureaucrats.

And even the deepest skeptic of climate change science and theory ought to be interested in seizing the opportunity of the concerns of others to FIX what is deeply fucked up about economic regulation. That is, of course, unless they’re hooked the adrenaline rush that comes from being a blind, self-righteous ideologue in a “Bootleggers and Baptists” coalition.

Here are some thoughts, both on productive climate policies and on seeing past illusory certainty:

http://tokyotom.freecapitalists.org/2010/02/10/productive-libertarian-approach-climate-energy-environmental-issues/
http://tokyotom.freecapitalists.org/?s=climate+trust

Note: I have reworked this from a comment I made on another post: https://www.facebook.com/tokyotomsr/posts/10202665423355536

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Introducing the #DreadAmeliorist. I’m backing away from pegs that dull people’s thoughts and skew their perceptions — because I’m slippery and evil.

April 21st, 2015 No comments

[from a Facebook post]

I’m backing away from pegs that dull people’s thoughts and skew their perceptions — because I’m slippery and evil./1/

So I’m NOT a conservative/RWNJ, capitalist/crony capitalist, progressive/democrat/libtard, green/envirofascist, libertarian/Paultard/Koch-sucker, anarchist/idiot, Marxist/commie, etc.

Instead, I’m a Commons-ist/Ostromist/Dread Ameliorist! 😀 #CODA

Commons-ists see that we swim in seas of shared communities/assets/social capital/institutions and customs, not either Govt or “private”/corporate property.

#Ostrom-ists are problem-solvers, who see that what in fact works in real life can be theoretically possible./2/ https://www.facebook.com/WorkshoponOstromsCommonsandSelfGovernance

And #DreadAmeliorists want to collaborate with others for BETTER, not revolution, sheer anarchy or blood-dimmed tides 😀

I do some commenting here: https://www.facebook.com/groups/CollaborativeCenterCommunity/
_______
1. “He’s a snake in the grass, I tell ya guys; he may look dumb but that’s just a disguise; he’s a mastermind in the ways of espionage.” Charlie Daniels, “Uneasy Rider” – See more at: http://tokyotom.freecapitalists.org/#sthash.vET6Gpgb.dpuf

2. Ostrom’s Law: http://www.thecommonsjournal.org/index.php/ijc/article/view/252/182

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Imagine reining in governments and the corporate Frankensteins they make

April 21st, 2015 No comments

[from a Facebook post.]

Governments, themselves largely unaccountable institutions guided and staffed by persons who are personally unaccountable, create corporate Frankensteins that are owned, guided and staffed by persons who are personally unaccountable.

When “accidents happen”, our Big Brother may either shrug or rush in to “protect” us some more — in ways that are sure to enhance the power of government and to create more regulations that will reduce competition (and thus favor the existing larger firms in a particular industry), while leaving each of us with LESS power to do anything personally or collectively to protect ourselves — in the case of the massive #BP Horizon blowout, remember how the Feds stopped gulf states and towns from laying out their own booms to limit damage, and stopped people from digging on public beaches to take oil samples?

Corporations, made by the state, are truly “The Health of the State”.

IMAGINE, however, (1) if business was conducted only in organizations whose owners retained potential personal liability (as a partnership, association, or corporation whose shareholders only partially pay-in their equity commitment) and lived adjacent to their riskiest businesses, and (2) if old tort doctrines allowing people whose persons/property were damaged by others’ pollution to enjoin/stop such practices were still respected. In this case, the personal skin in the game of owners/execs, face in the community, personal risk to liability, and agreements with insurers would incentivize all to greatly reduce risk — in a manner that EMPOWERS people in the community around the business operations.

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In which I try to help Bob Murphy clear the air on climate proposals by the Niskanen Center

April 2nd, 2015 No comments

I left this comment at Bob Murphy’s Free Advice blog, where he has post noting A Critique of Jerry Taylor’s “Conservative Case for a Carbon Tax”, which links to a piece authored by Bob at the “Institute for Energy Research”. [Note: I’m not sure when/if Bob will actually clear this comment.]

Bob, I know that as senior economist for the Institute for Energy Research DC fossil fuels lobbying outfit (one that was expressly abandoned by Exxon in 2008 because its “position on climate change could divert attention from the important discussion about how the world will secure the energy required for economic growth in an environmentally responsible manner”) you’re not allowed to make consistent libertarian/market-principled arguments on climate/energy policy, so allow me to note my old post that summarized what I thought might be a productive libertarian approach to climate:

http://tokyotom.freecapitalists.org/2010/02/10/productive-libertarian-approach-climate-energy-environmental-issues/

Btw, I see that Jerry Taylor/Niskanen Center has responded to you here:
http://niskanencenter.org/blog/debating-the-carbon-tax/

Yours,

Tom

P.S. Here are a few of my old blog posts on IER, from when my blog was still hosted at the gracious Mises Institute: http://tokyotom.freecapitalists.org/?s=Institute+for+Energy+Research

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