Home > Uncategorized > Do contributions by corporations to 'progress' mean we should ignore sick dynamics set in motion by limited liability?

Do contributions by corporations to 'progress' mean we should ignore sick dynamics set in motion by limited liability?

I post here some of my further dialogue on the comment thread to Matt Ridley‘s “Nuclear crony capitalism” post that I blogged on earlier.

Posted by, Robin Guenier (not verified)


Yes, I agree with much you say. But, nonetheless, I’m sure that limited liability has, on the whole, been beneficial. I haven’t time now to elaborate properly on this so I’ll confine myself to the following:

The concept of limited liability is very old. But it didn’t take off until 1811 when New York State allowed manufacturing companies to adopt limited status. Thereafter, it became widely accepted throughout the USA – and in Britain in 1854. As a direct result, because private investors no longer risked total ruin (even prison) if their company went bust, vast sums of new capital became available to finance the new industries that went on to transform the world and radically improve the lot of millions of people. In my view, without limited liability that transformation is most unlikely to have happened.


Thursday 31st March 2011 – 09:30am

Posted by, TokyoTom (not verified) [emphasis added]

Robin, thanks for your response.

I understand your argument, but the acceleration of innovation at the time of the Industrial Revolution was NOT kicked off or led by corporations.

Perhaps I naively have more faith in human ingenuity than you, but I suspect that the great leap in human welfare could and would have continued without limited liability corporations. We don’t get do-overs, so it’s hard to know; but there were plenty of sophisticated organizations where partners and shareholders retained personal liability or significant residual risk (e.g., companies with shares that were NOT fully paid-in).

In any case, limited liability has also led directly to where we are today, with (i) large governments – purportedly on missions to protect the public from now faceless capitalists who are anonymous to the communities they affect – entangled deeply in a revolving-door game of rent-seeking, influence and corporate welfare, and (ii) publics now nursed and cosseted by governments who demand from bankrupt government more of the ‘welfare’ that the government have so generously bestowed on large, ‘too-big-to-fail’ financial and other firms whose self-interested managers and traders, unchecked by shareholders, have lodged their companies firmly on the shoals of institutionalized agency problems and moral hazard.

The real need is simply to understand the roots of our present problems, so we can find productive approaches to move ahead. More government bailouts – either for everyone or for the most disfunctional and damaging firms – is clearly not going to improve the situation, though of course it may give more power to politicians and bureaucrats, and may put more money in the pockets of industry ‘leaders’ who are socializing risks and privatizing gains.



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