Archive for the ‘Huebert’ Category

Block/Huebert/Kinsella revisit corporations, beg Qs of grant of limited liability towards persons involuntarily injured and resulting fight to influence state action

September 10th, 2009 No comments

I left the following comment at a recent Mises Blog post by Stephan Kinsella, but the number of links included apparently triggered the spam filter and held up the comment.  According, I post it here, so I can re-comment with a cross-link here.

Stephan, we have extensively discussed this matter previously, focussing mainly on the point that Vincent Cook raises, namely, the consistency with libertarian principles of the state grant of limited liability as against parties who become unwilling “creditors” of the firm as a result of being injured by the actions of the firm.

You continue to dodge this point just as Block and Huebert have explicitly begged the question in their latest effort (emphasis added):

“As long as there is no fraud, as long as all those who deal with corporations know full well that in case of any dispute, they will only be able to sue for an amount up to the full capitalization of the corporation and not have access to the shareholders’ personal assets, there can be no problem with the libertarian legal code.”

It goes without saying that injured persons don`t choose ahead of time who will injure them, much less the whether the liability of their tortfeasors will be limited to corporate assets. [IOW, when it comes to limited liability corporations, there IS a fairly glaring problem with the libertarian legal code.]

Our previous discussions on the Mises Blog took place here and here

And an earlier related discussion on the Mises Blog was here:

I have commented extensively myself on the consequences of this grant – which I see as fuelling risky corporate behavior and a cycle of “rent-seeking” fights with private interests seeking to use the state as a check against corporations – in a number of blog posts, such as the following:


Rot at the core: When will Tom Woods and other "Free Market intellectuals" have second thoughts about the state grant of limited liability to shareholders?

March 4th, 2009 3 comments

Tom Woods, in his recent “Another “Free Market” Intellectual Has Second Thoughts” post at the Mises Economics Blog, notes with great disappointment that Richard Posner is about to publish a book that will apparently abandon the free market and call for greater government intervention.

While I share Mr. Wood’s disappointment that Posner and others are not more vigorously defending free markets, I suggested in comments on Mr. Wood’s post that perhaps free market intellectuals are not yet really pulling their own weight in examining and describing the flaws in the market system that contributed to the current financial crisis, or in explaining the types of reforms that would actually be appropriate.  In particular, it seems to me that the role played by the state grant of limited liability to corporate shareholders in facilitating flawed and irresponsible risk-taking by executives and traders, as well as in perversely fuelling a vicious cycle of rent-seeking and further counterproductive regulation, should be much more seriously examined. 

In short, I believe that, as argued by James Glassman and William Nolan in a recent Wall Street Journal op-ed, unless and until owners and executives have “more skin in the game”, we will continue to ride a tiger of selfish risk-shifting, moral hazard, and ever more disruptive government regulation.

I copy below my comments on Tom Wood’s post:

Tom, it’s hard to judge an unpublished book, but I suspect you’re
right to do so. Has Posner given any more solid clues as to where he’s

However, as it’s clear that things went wrong, I can’t help but
wonder when can we expect to hear more from you and others on what
government factors (besides the Fed, Freddie and Fannie) “fatally
deformed” the financial markets, and laying out a “new, genuinely
free-market paradigm for the economy”. Isn’t there a good book or two
in there from Austrians?

It seems to me that that James Glassman and William Nolan have a key
insight into the type of reforms needed in a WSJ piece that refers to
von Hayek. They argue that “an irresponsible attitude toward risk led
to terrible mistakes in judgment” and conclude that “bankers need more
skin in the game”
. How to move in that direction?  Glassman and Nolan
point to the success of the Brown Brothers Harriman partnership, which
lacks the limited liability feature of modern corporations, and specifically recommend that governments recognize (by less burdensome laws and regulations) that entities like partnerships where owners face unlimited personal liability are more responible risk managers.

As I have argued in a series of posts, starting with my review of
Huebert and Block‘s criticisms of Long
, the state grant of limited
liability to shareholders (in particular the grant vis-a-vis those
injured by corporate acts and involuntary creditors, which is a pure
grant from the state and cannot be contracted for) has led to a number
of perverse results, which can be fairly clearly seen in the financial


[Revised] Corporations, the state, limited liability and rent-seeking: Some criticisms of Huebert and Block's criticisms of Long

November 26th, 2008 No comments

[Update:  Items 2 & 3 revised and an item 4 added.]

J.H. Huebert and Walter Block have posted a critique of Roderick Long‘s recent Cato essay.  Allow me to make a few comments:

1.  Huebert and Long argue that “There Is No Such Thing as Corporate Power”, stating that:

“Long writes that “Corporate power depends crucially on government intervention in the marketplace.”

But what does he mean by “corporate power”? A corporation is merely a group of individuals who have entered into a particular type of business relationship. The corporate form allows them to be known collectively by their business’s name instead of their own names. And it allows them to enter into contracts under which they limit their own liability – something which is perfectly legitimate under libertarianism. (Objectivist historian Robert Hessen has made this point well in his book, In Defense of the Corporation, and see our article, “Defending Corporations,” forthcoming in the Cumberland Law Review.)

The corporation, therefore, has no power to speak of.

Instead, only the state has power.”

(emphasis added)

This omits something rather crucial – that the corporate form allows owners to sidestep any personal liability for the wrongful acts that their corporation commits, with the result that liability of the corporation is limited by its assets.  Can someone point me to where libertarian principles defend this result?

2.   Huebert and Block further state that:

“sometimes the state uses its power to confer benefits, direct and indirect, on corporations. It also uses its power to confer benefits on partnerships. And sole proprietorships. And individuals. There is nothing special or different about government privileges for corporations – so why does Long single them out?”

I’m sorry, but a state grant of uncontracted-for limited liability vis-a-vis consumers and others IS a special privilege , and the very reason why so much economic activity is concentrated in corporations, as opposed to partnerships, sole proprietorships and individuals.

Further, there is indisputably quite a difference in SCALE of the benefits that the state confers on corporations, particularly larger ones.

3.  Huebert and Block concede that

“There is a kernel of truth in Long’s viewpoint – some larger firms do use the apparatus of the state to steal an advantage over smaller competitors. As a matter of history, things work out this way more often than in the opposite direction.”

But they fail to acknowledge the obvious implications of this concession:  the aggregated resources and long lives of larger corporations make it much easier for them, as compared to individuals, other forms of association and smaller corporate rivals, to effectively seek rents from the state by offering bribes of various forms (campaign contributions, lecture fees, junkets and revolving-door employment) .  Consequently, the state very often marches to the tune of large corporate drummers, with lobbyists and politicians acting as entrepreneurs in brokering the rents.  It is readily apparent that in the larger firms, executives are very effective at extracting equity at the cost of investors, and are often likewise effective in socializing costs (via federal and state bailouts) when their firms fail.

The creation and expansion of the corporate form has worked hand-in-glove with a steadily expanding and intrusive state.  Huebert’s and Block’s statements that “The corporation, therefore, has no power to speak of” and “onlly the state has power” are both obvious rhetorical excess.

4.  While Long argues that “In a free market, firms would be smaller and less hierarchical, more local and more numerous … and corporate power would be in shambles. Small wonder that big business, despite often paying lip service to free market ideals, tends to systematically oppose them in practice.”  Huebert and Block take this to mean that Long is making the “unfounded” assertion that “big business needs the state to survive”.  Rather than being unfounded, such a view simply cannot be found in Long’s essay.

Huebert and Block argue that:

As it is, there are big businesses that don’t benefit much from government and there are small businesses that benefit greatly from government. In a fully free market, undoubtedly, large and small businesses would both survive, succeed, and prosper. Long’s assertions to the contrary are unfounded speculation.

The first two sentences are unobjectionable, and are not inconsistent with Long’s points. 

Of course what a fully free market would look like is pure speculation, all around.  But without the ability of larger firms to use the state to raise barriers to entry, it seems to me axiomatic that there would be a greater percentage of smaller firms.