ghj,jh

Such is the tone of a deep, searching piece on the Mises Economic Blog [now  only at CSMonitor] by budding philosopher Geoffrey Allan Plauche, “Ecofascism in the Name of Fending Off Ecofascism“.

Sometimes I scratch my head at why, when enviros in panicked tones cast about for ways to come to grips with statism, including latching onto the clearly non-libertarian grant of limited liability to corporate shareholders, libertarians and Austrian economists cannot see an opportunity to find allies in striking at the roots of statism — but then I recall man’s tribal nature and remember that Miseseans are as prone to anyone else to prefer a good hate. When an enemy is in sight, discussing principles and logically analyzing problems just isn’t any fun!

Plauche refers to an article where one commentator makes what Plauche describes as three “authoritarian environmental and anti-market proposals“. One of the  “ecofascist solution[s includes] the revocation of corporate power“, to be effectuated in part through the “authoritarian means of eliminating limited liability”. Complains Plauche, “only corporations are to blame and government is the solution“. Oh, those stupid enviros, thinking they must use government to undo what government has done! One wonders how else one might possibly curtail stated-granted limited liability WITHOUT further state action.

In any event, as readers may have noticed in my earlier posts on the state grant of limited liability to corporate shareholders, I have reached the conclusion that limited liability is one of the key roots of snowballing corporate statism. Accordingly, I thought I’d pull together here some of my comments on Plauche ‘s comment thread and some of the comments I was responding to (emphasis added):

Stephan Kinsella

From what Iv’e seen, most libertarians who oppose “limited liability” don’t really understand how it works or really know what they are criticizing. To oppose limited liability means there should be liability in the first place. But should there? For whom? For what? Shareholders should be liable for torts committed by employees of a company the shareholder owns stock in? But why? That is vicarious responsibilty. Why is the shareholder liable for the torts of another person, any more than the tortfeasor’s mom, sister, roommate, co-worker is, or stakeholder, creditor, debtor, supplier, contractor, customer of the corporation is? For more on this see: http://www.stephankinsella.com/?s=hessen+pilon

TokyoTom September 17, 2010 at 10:04 am

Stephan, I think you know that SOME libertarians who oppose “limited liability” understand very well how it works and know what they are criticizing; I have commented extensively on the very un-libertarian state grant of limited liability to shareholders and the pernicious consequences in fuelling the growth of statist, risk-shifting corporations, of pressures by ordinary citizens to rein in corporations, and of the federal regulatory state that the big corporations manipulate and welcome as a massivie barrier to entry:

http://mises.org/Community/blogs/tokyotom/search.aspx?q=limited

It is obvious that state grants of limited liability are not justifiable, are crucial in the overwhelming choice by investors to use the corporate form, have led to lax oversight of corporate management by shareholders and to a massive shifting of risks by corporations to the public as a whole, and to the growth of the massive federal regulatory state to “check” corporate abuses and to oversee “public” corporations.

Not only have corporations been the driving factor in elevating federal power (via expansive interpretations of the Equal Protection and Commerce Clauses) over the states that create corporations, but it is easy to see (and a number of commentators have noted) the negative role that corporation-enabled rent-seeking, lax management and moral hazard have played in the financial crisis and in the Gulf oil spill.

It is perverse that ANY libertarians seek to defend either the state grant of limited liability or the mess that it has clearly triggered and enabled.

A Cliff Notes’ version of my view is here:
http://mises.org/Community/blogs/tokyotom/archive/2010/07/06/the-cliff-notes-version-of-my-stilted-enviro-fascist-view-of-corporations-and-government.aspx

Regards,

TT

Stephan Kinsella September 17, 2010 at 10:21 am

Tom, when you say the state grant of limited liability is not justifiable, this is a disingenuous way of trying to reverse the burden of proof. This very statement is relevant ONLY if the grant changes what would be the case anyway. That is, if shareholders would be vicariously responsible under a libertarian theory of cause for torts of employees of corporations they owned shares in. I’ve yet to see anyone develop a careful, libertarian-compatible theory of causation and responsibility that would (a) implicate shareholders for torts of employees; and (b) not implicate co-employees, vendors, suppliers, customers, lenders, stakeholders, in short everyone.

And people almost always confuse limited liability of shareholders with that of managers. and they don’t understand the role of shareholders, or directors, contrasted with managers. And they mix in unprincipled incentive concerns. It’s just a mess.

If you have a coherent theory of why shareholders should be liable, please point me to it. If not, I don’t know how you are immune from my criticism.

TokyoTom September 18, 2010 at 6:40 am

No, Stephan; what’s perverse is that YOU think it’s incumbent on libertarians to jump through a lot of hoops before they can argue that the state grant of limited liability to shareholders is unlibertarian and ought to be done away with.

The very fact that you protest so loudly is itself evidence that limited liability MATTERS — on top of the piles of evidence that the limited liability grant is crucial to investors in choosing organizational form and has played a key role in the growth of the destructive corporate statism that has shifted risks from managers and owners to the public at large, trampled states rights and led to calls for the regulatory state that corporations both are advantaged over citizens in influencing and which in part keeps corporations subject to political and bureaucracy whim.

A key reason that corporations have become so important, powerful and ubiquitous is that they are risk-shifting machines, reflecting moral hazard both within shareholders and within the managerial class, and because many of them are extremely capable rent-seekers.

Tell me honestly: do you think partnerships, sole proprietorships and the few unlimited liability corporations out there pose anywhere near the risks to society that corporations do? It is corporate status that has enabled the growth of shareholder and managerial anonymity and nearly severed the corporate organizations from communities of people whom they affect. Without corporate status and limited liability, the simple risk of potential liability means that shareholders have much greater incentives to monitor and oversee the risks that corporate business activities pose to others. This risk they could mitigate by using insurers expert in their lines of business.

In the absence of this, we have a managerial class that is largely free from shareholder oversight and that insulates itself from risk via corporate indemnification and D&O insurance, and reams of federal and state laws and regulations that struggle to manage the risks that corporations pose to the public (but serve chiefly as barriers to entry and to further protect management).

The “mess” that you speak of – the confusion over who should be responsible for “corporate torts” – is not only one that you yourself manifest when you say that the Gulf oil spill is “just a tort” (by whom, pray tell?) but is itself a consequence of the grant of limited liability and corporate status, which encourages citizens, judges and juries NOT to look at the real people INSIDE of corporations who should be held responsible for their own behavior. Limited liability has created grand buck-passing machines.

Regards,

Tom

panika2008 September 17, 2010 at 12:24 pm

“Limited liability is as bogus as pretending all your debts are really owed by your invisible friend.”

Nah. Limited liability is just a simple juristic construct to make default what would otherwise result in a substantial growth of legal homeorrhage, namely specifying in all and every contract of the company the exact limits and conditions of liability. This is impractical, especially for small firms, so they are given the option to incorporate using the “default” set of rules. It’s a part – quite sensible at that – of our common (sense) law tradition – make good/popular practices into codex’s. If only all legislation would proceed basing on this pattern!

 TokyoTom September 18, 2010 at 7:21 am

Panika, the libertarian issue is not about default rules for what could otherwise be voluntarily contracted for – namely, agreements between firms, their shareholders and their voluntary creditors or customers to limit the liability of the firm to its certain assets.

Rather, it is about whether governments should be gifting shareholders with limitations on liability vis-a-vis persons who become INVOLUNTARY creditors of the firm because of corporate actions (via managers, employees or agents) that damage them.

TT

panika2008 September 19, 2010 at 10:08 am

How can anyone become an involuntary creditor of anyone otherwise than by criminal action (extortion?) or government subsidy? I don’t quite understand what you mean.

TokyoTom September 20, 2010 at 10:40 am

Panika, “involuntary ” creditors is fancy legalese designed to distinguish (1) those who VOLUNTARILY to do business with a corporation (or other company, person or association) and to which the business owes money, and (2) those who have not contracted with the business, but have a claim because they have been INVOLUNTARILY injured by it.

Because of ability of parties to freely negotiate contracts, the parties in category (1) do not need a state grant of limited liability; rather, the chief effect of limited liability is to allow corporations to make profits for shareholders, lenders and managers, while passing risks on to those who made NO choice to be injured.

Jon Leckie September 18, 2010 at 5:08 am

Tokyo Tom, good morning. I’m willing to engage in a good dialogue with you on these interesting points.

I followed your links, and thought your two principal concerns were (1) limited liability allows the sponsors of corporate actors to avoid liability for the tortious acts of the company and (2) limited liability is inconsistent with anarchism because it’s only possible through state fiat.

It seems to me that tortious liability can’t exist without a state to impose the tortious duties by fiat, whereas limited liability can be created through contract (perhaps with initially high transaction costs, but standard contratual forms should emerge over time). Do you agree or disagree? What are your thoughts? It seems to me that if you think there’s any truth in this position, you have to engage in a rather deep rethink of the way you express your argument against limited liability.

And of course on top of that remains Stephan Kinsella’s absolutely proper request that you explain why equity investors should have additional duties imposed on them beyond other stakeholders.

Just for background, I have sympathy with your view, even though I no longer agree. When I was at school I applied for a scholarship for an LLM to explore the idea of piercing the corporate veil for companies that engage in human rights violations. The subset is small, mainly companies engaged in extractive industries in the developing world, and I thought that if you allow unlimited liability for such violations, you create incentives for companies engaged in such industries to implement and publish internal procedures designed to avoid such violations; otherwise no one will invest in them. So in preparing for the interview, I presented the idea to some colleagues at the research centre at which I was an assistant, one of them asked why shareholders should bear responsibility for the human rights violations of the company in which they invest. I did’t think I needed to consider that, it was obvious, right? Whatever it takes to prevent such violations should be considered.

I didn’t get the scholarship.

JUL

TokyoTom September 18, 2010 at 8:16 am

Jon, thanks for your comments.

I think the arguments about anarchism vs. minarchism are a distraction in the face of the enormous problem we currently face of corporate risk-shifting, compounded by escalating and counterproductive regulation. Our goal should be to MOVE toward freer societies, not ignore real problems resulting from grants of corporate status/limited liability by assuming a true free market without governments and statist corporations.

But to engage somewhat, let me note that in an anarchic society even the enforcement of contracts may require moral sanction and a possible threat of force. I don’t see that claims by non-contracting parties that they have been injured would not also be subject to very similar “voluntary” court systems, in which injured parties may be supported by community associations, consumer associations, retail stores and the like, which business enterprises (or associations to which they belong) may contract with in advance in order to do business. Other counterparties to a business that engages in risky activities might also insist that the business submit to some type of judicial process regarding any tort claims.

I believe that many traditional societies, precisely to deal with issues of potentially damaging activities, require that people of stature in the community guarantee their behavior.

Let me note that while of course some types of limited liability can be created through contract , NO type of contract lets you say you have no liability to third parties whom you injure but who have not contracted with you in advance.

Stephan hasn’t requested that I explain why equity investors should have additional duties imposed on them beyond other stakeholders; he’s simply noted that, given the status quo, in which shareholders purchase shares based on a legal promise that they will have no liability for corporate acts (other than those they personally direct), it hardly seems fair for the state to impose such liability on them. I would certainly agree; I’m not seeking to use the state to unwind limited liability overnight.

However, that does not at all obviate my concerns about the key role that limited liability plays in our perverse cycles of risk-shifting, increasing regulation and statist rent-seeking and efforts by outraged/concerned/ecofascist citizens groups to apply political pressure and moral suasion.

It seems to me we ought to recognize the negative features of limited liability and to recognize that we can pare back the damage by rolling back the regulatory state in the cases of business entities that do NOT have limited liability for their main investor class: sole proprietorships, partnerships, unlimited liability corporations, corporations whose shares are only 10% paid-in (so a call remains on the remaining 90%). As I have noted in various blog posts, several astute observers have made very similar suggestions regarding banks, securities companies and firms engaging in mineral exploitation on public lands.

Regarding the problem you mention of extractive industries in the developing world, too few people (and far too few libertarians) note that the chief dynamic is one of the theft of indigenous resources by elites via the state, using conveniently amoral Western corporations (that are generally unable and uninterested in getting outright title to the land/resources in question) to complete the robbery and leave the natives with nothing but a mess. IOW, an “Avatar”-like problem, not at all dissimilar to the way our federal government claims ownership to marine resources, grants leases to BP and the like, and leaves fishermen with little to no control over their own livelihoods:

Too Many or Too Few People? Does the market provide an answer? – TT’s Lost in Tokyo http://bit.ly/8zlecI

My “Avatar” posts: TT’s Lost in Tokyo http://bit.ly/9s32uD

TT

TokyoTom September 18, 2010 at 10:45 am

Shay, since liability as to voluntary counterparties CAN be limited by mutual agreement, that is NOT at all what drives the use of the limited liability corporate form, but the ability of owners to shift risks to involuntary third parties. One of the KEY PURPOSES of using the corporate form is the promise to generate great returns to shareholders at the risk of great losses to involuntary third parties, who because of state action lose ANY right to claw back profits from the poor, innocent shareholders.

I suggest you look through my many other posts on limited liability, and that explore this and related topic in the context of the financial crisis and BP:

TT’s Lost in Tokyo http://bit.ly/4nr2Ay

 Jon Leckie September 18, 2010 at 11:14 am

TokyoTom: You say “One of the KEY PURPOSES of using the corporate form is the promise to generate great returns to shareholders at the risk of great losses to involuntary third parties, who because of state action lose ANY right to claw back profits for the poor, innocent shareholders.”

That is a bald assertion, Tom. There’s nevier a guarantee of returns to shareholders, let alone great returns. There’s never any guarantee that a company will commit a tort, and there’s never a guarantee that any such tort will result in liability that exceeds the available assets of the company and thus leaves third parties bearing a great loss. These are all events that may happen, but are in no way guaranteed to happen. This is classic baby with the bathwater stuff.

You’ve identified a real problem, but you drastically overstate the extent of it and use it to support abolishing a very useful vehicle for mobilising and deploying capital for socially productive ends. There are other solutions that should be explored before abolishing limited liability should be considered.

TokyoTom September 21, 2010 at 8:13 am

Jon, you accuse me of exaggeration, but understatement is really more like it.

Since limited liability could otherwise be achieved by contract it is clear that the chief effect of that grant is to protect shareholders (and whatever dividends they make) from claims by injured third parties. This is a clear primary intention of many who incorporate and is why lawyers, accounts, doctors and professionals have all pushed to get out of partnerships and into professional corporations.

And sure there’s “never a guarantee of returns to shareholders”, “any guarantee that a company will commit a tort”, nor “a guarantee that any such tort will result in liability that exceeds the available assets of the company and thus leaves third parties bearing a great loss.” But corporations choose to ring-fence all of what they see as risky businesses in separate subsidiaries, precisely to limit the size of the bag if the business fails and/or third parties are injured.

And there have been MANY cases of risks being manifested and damages to innocent parties exceeding corporate assets (and of parent companies working feverishly to make sure those injured get as little as possible). Ever hear of “Superfund sites”, for example?

The history of the limited liability corporate form has been one of a continuing stream of abuses that has led steadily to the aggrandizement of federal power over the states that create corporations, to a continuing cycle regulation in the wake of undermining of strong common-law protection of property (see Block) to protect workers and citizens (regulating health, safety, and welfare, public companies, banks, etc.), and to a steady weakening of shareholder influence over ensconced management.

Far from throwing the baby out with the bathwater, people have to start recognizing that the ‘babies’ have nearly totally slipped our control and, with the government that they have much greater influence over than any of us do, are destroying our communities and freedom.

Anybody who wants to pare back the regulatory state has to strike at the root of regulation and corporate statism – the grant of limited liability that motivates demands from citizens for the mirage of state control.

Contrary to your suggestion, trying to rein in limited liability would NOT mean an end to the corporate form; corporations with uncapped shareholder liability would simply mean shareholders that have far greater incentives to oversee managers and who would be motivated to purchase insurance to cover potential claims against shareholders – which insurers would be well-positioned to help shareholders in oversight. States (and the federal govt) could offer incentives to move in the right direction by reducing regulatory burdens on unlimited liability corps, which would also be in a position to market themselves as more careful and conservative than their competitors. Another way to pare back limited liability would be to provide that companies ensure that common shares are only 10% paid in (so that a call on the remaining 90% remains).

A related step would be to end the counterproductive and risk-shifting federal and state grants of limited liability for particular risky activities, such as nuclear power plants and offshore oil and gas drilling; some commentators, both here at LvMI and elsewhere, have called for a requirement that banks and securities companies be partnerships, precisely because partners have greater incentives to control risk (moral hazard ran rampant in Wall Street as soon as the securities firm went public, and so were playing at making high bonuses while shifting risks to shareholders and US taxpayers, via the “Greenspan-Bernanke put”).

I encourage you to investigate further at my blog.

TT

TokyoTom September 21, 2010 at 8:40 am

Shay: “What limit is there to who all one can sue for damages? Owners, OK. Shareholders (if that term even applies to non-LLCs)? Employees? Customers?”

Your uncertainty here is a manifestation of the confused discussion over liability for “corporate torts”that Stephan Kinsella refers to. His position is that only humans act, and not corporations (though they are given “legal entity” status), so only particular persons who actually injured someone else (and those who directed/ordered their actions) should be liable for any tort – not the corporation itself (and certainly not shareholders, unless they were personally involved somehow). I agree that granting corporate status has greatly confused discussions over whom should be liable for corporate torts, and think Stephan too lightly brushes back the enormous and anonymous torts that our now massive corporations commit — precisely what individuals, for example, is responsible for the BP disaster, for the damage to health and property caused by pollution, or for injuries resulting from faulty products?

Rolling back limited liability should not mean that shareholders SHOULD be held liable for corporate torts in the same way that executives, managers and employees (the first two benefiting from company-purchased insurance policies) and sometimes lenders are; it would just mean that they would get no government-provided “get out of jail free” card. In this way, common shareholders would be put on a similar footing to partners in a partnership that acts through paid managers.

TokyoTom September 21, 2010 at 9:04 am

Geoffrey and Stephan, cat got your tongue?

I’m waiting to hear more about the libertarian wonders of state-granted limited liability (and the evil nature of those citizens groups who have started to figure out not only that our good-willed statist corporations are way ahead of them in the struggle to use government, but are catching on to the idea that Mises explored of laws that enable the externalization of costs).

Your friendly neighborhood envirofascist,

TT

Jon Leckie September 21, 2010 at 9:10 am

Hello Tokyo, thanks for a powerful reply. You say “accuse”, well that’s a perjorative word, I guess it’s technically correct (that I did so) but please credit me with good intentions. I apologise for my immediately preceding post being worded rather shortly, I’ve trying to strike a better tone here.

You and I are not going to reach agreement in the short run, but it’s been interesting and you’ve given me a lot to think about. I don’t agree with you that all of the evils you identify can be laid at the feet of limited liability. I remain of the view that the abuses of the corporate form must be set against the benefits of allowing investors to mobilise capital in such a way that the downside is limited to the assets originally invested. It may ultimately be demonstrated that the abuses outweigh the upside, but from I have seen you don’t seem to acknowledge any benefits to limited liability. You also don’t seem to consider what the costs of the extra compliance and risk to investors with personal liability: I can tell you from personal experience that compliance and monitoring is not costless and that the burden can sink an otherwise profitable and socially beneficial project. You might say “Well too bad!”, but that’s lost jobs for people, that’s products that won’t be made, that’s wealth foregone.

Ultimately, extraordinary claims require extraordinary evidence. You put so much responsiblity at the feet of limited liability that I don’t think it’s unfair of me to ask for more evidence, better arguments (I may find them on further reading of your blog ). I think Stephan Kinsella’s request of you earlier on this page remains valid, to quote:

“Tom, when you say the state grant of limited liability is not justifiable, this is a… way of trying to reverse the burden of proof. This very statement is relevant ONLY if the grant changes what would be the case anyway. That is, if shareholders would be vicariously responsible under a libertarian theory of cause for torts of employees of corporations they owned shares in.”

I believe I understand your response: “no one else gets to avoid tortious liability to third parties based EITHER on the grant of limited liability of the state or by a private contract, so why should people who stand behind an LLC get to do so? The existence of limited liablity (at least vis a vis third parties) is not the default position, they’re a creation of the state.” (Is that right? I’ve tried to be fair, I’m not interested in strawmen). Nonetheless, I don’t think that is a satisfactory libertarian theory of cause for tortious liability for reasons I’ve tried to set out already (contractual liability can exist absent a state (and thus so can limited liability) how would tortious liability exist absent the state?) and so Kinsella’s request remains valid.

If you think that question is covered, my other objection remains: it must ultimately be demonstrated that the abuses outweigh the upside. The law of unintended consequences applies to every proposal for change, and I don’t think you give fair credit to the role that limited liablity entities play in an advanced economy.

I’ll come and see you at your site, or watch out for a reply here. You’ve helped me clarify my own thinking and I appreciate that a lot. Best, JL.

TokyoTom September 21, 2010 at 2:01 pm

Jon:

Thanks for your response. While my envirofascist skin remains somewhat thin, I am fine with your tone – even if I see you as exaggerating and not fully comprehending my position.

A few comments in response:

“I remain of the view that the abuses of the corporate form must be set against the benefits of allowing investors to mobilise capital in such a way that the downside is limited to the assets originally invested.”

What, if anything, is libertarian about your proposed cost-benefit calculation? In determining whether state-granted limited liability is justifiable, shall we engage in a utilitarian weighing of the advantages to investors against the disadvantages to others?

“you don’t seem to acknowledge any benefits to limited liability”

But I have; but I have also pointed out that most of the benefits could be achieved by contract. It’s the benefits that can ONLY be achieved by government fiat and at the cost of innocent third parties that I object to.

You seem to think that either the intrusion of government here is minor or the cost to innocent third parties is trivial, but I can assure you that it is not. Indeed, much of what is wrong with the US in particular and with the world more generally can be laid at the foot of wide-scale government-enabled risk-shifting and moral hazard of the type seen in grants of limited liability and the concomitant cycle of regulation (in which the losers are always a number of steps behind) that such grants have set off.

“compliance and monitoring is not costless and that the burden can sink an otherwise profitable and socially beneficial project.”

I’m quite aware that compliance and monitoring are not costless; you, however, see to think that shifting risks to others and thus easing compliance and monitoring costs IS costless and “socially beneficial”, while ignoring that there are clear winners and losers from such government favor. Did you miss the Gulf oil spill, the limits on liability, the poor planning and oversight, the lack of caution, and the costs being borne by quite a different class of people than BP’s shareholders? Of many cases of environment harms experienced throughout the US? Are you unaware of the massive and ongoing environmental damage similarly caused by “socially beneficial” oil and gas development in Nigeria and Ecuador?

You and Kinsella: “Tom, when you say the state grant of limited liability is not justifiable, this is a… way of trying to reverse the burden of proof. This very statement is relevant ONLY if the grant changes what would be the case anyway. That is, if shareholders would be vicariously responsible under a libertarian theory of cause for torts of employees of corporations they owned shares in.”

Au contraire; it’s you and Stephan who are shifting the burden of proof and trying to avoid yourselves to come up with any convincing libertarian arguments FOR the state grant of limited liability to corporate shareholders. Stephan has acknowledged elsewhere that the grant is NON-libertarian, could not be contracted for voluntarily, and that if it were not to exist that insurers would be offering to insure shareholders from downside risks, but like you stubbornly seeks to cling conservatively to a status quo that favors investors and the big government corporatism has produced.

Far from me having to make a libertarian case shareholders should be vicariously responsible under a libertarian theory of cause for torts of employees of corporations, I simply need to show that the grant of limited liability significantly CHANGES the structure of the market and the behavior of market participants. Clearly, limited liability MATTERS, as amply demonstrated not simply by looking at markets and cases where limited liability shields shareholders from damages in cases where partnerships would be liable, but also by your own deep reluctance (and Stephan’s) to do anything about it. Stephan makes a thin lawyerly dodge, while you offer utilitarian arguments.

Stephan’s desire for a libertarian theory of vicarious liability of shareholders in the case of “torts of employees” of corporations is commendable, but as I have already noted, such a desire is itself confused by the failure to recognize the state favors given to corporations and the massive scale at which they operate and can damage third persons. It appears that Kinsella would have us treat most damages caused by companies as “torts by [particular] employees”, thus denying any recourse by injured parties to corporate assets. Such an analysis may be appropriate in the case of small businesses where who acts and under what authority may be very clear (as in the case of partnerships and sole proprietorships), but hardly make any sense in the case of the large, anonymous and bureaucratized institutions that limited liability and legal entity status have directly led to.

Sorry, but it seems to me that your own approach to the issue of tort liability makes even less libertarian sense: you have concluded that in a stateless society institutions would arise only to enforce contracts, while individuals and firms would get away scot-free if they willfully or negligently harmed others. Surely a brief look at traditional societies would quickly inform you that such societies have very sophisticated and effective ways of controlling behavior that damages others.

“my other objection remains: it must ultimately be demonstrated that the abuses outweigh the upside. The law of unintended consequences applies to every proposal for change, and I don’t think you give fair credit to the role that limited liablity entities play in an advanced economy.”

Ahh, there’s your non-libertarian insistence on the need for cost-benefit analysis for a change in eliminating limited liability as to persons involuntarily injured by corporate acts again. Do I need to add up all of the people harmed in the BP spill and weigh them against the potential cost to BP shareholders?

“The law of unintended consequences” sounds suspiciously like the precautionary principle that enviros always argue for (precisely because corporations are risk-shifting machines); bravo! Actually, I’m very well aware, not only of the very central and valuable role that corporate entities play in our economy, but of all of the negative unintended consequences that the grant of limited liability (and other favors) has entailed. But far from throwing the baby out with the bath water, I see reform in this area as both a sine qua non for any meaningful effort to reduce statism and something that is eminently achievable and with a net benefit in efficiency, risk-management and, last but not least, justice.

TT

J. Murray September 21, 2010 at 9:17 am

There is no such thing as a libertarian state-granted limited liability.

TokyoTom September 22, 2010 at 12:00 am

Agreed; that’s MY point exactly.

Jon Leckie September 22, 2010 at 4:40 am

Well hang on now guys, there’s very much a thing as libertarian state-granted limited liability – aren’t you conflating liberatarianism with anarchism? The two are not the same and I can find no definition of libertarianisn that requires the abolishment of the state.

There very much is such a concept of state-granted limited liability, it’s just that Tokyo sees proponents as being obligated to justify its continuance PRECISELY because it is a gift from the state, whereas – on this point – I view it as also capable of existing absent the state through private contract. Tokyo then asks how private contract can exclude third party tortious liability, and I respond with how can tortious liability even EXIST in a stateless environment? (Which might be a stupid question, but no one’s yet said anything on it, it must be a question addressed in the literature somewhere).

Tokyo, one discrete question on your response above: you say it’s non-libertarian to weigh costs and benefits, summing this up as a crude utilitarianism. Why is that not an approach I can take? I mean, on the BP example, one might read your post and wonder whether BP merrily skipped town, having destroyed the gulf completely, taken no remedial action and paid no billions of dollars into a compensation fund, plus remaining exposed to private civil claims? Ask British pensioners whose payments are reliant on BP’s dividends whether they’ve suffered or not. Yes those living around the Gulf have had a hell of a time, but that’s not enough of an argument: accidents happen. BP is being punished. So it’s not a crude balancing act between (a) environment destroyed, people suffering and (b) callous shareholders laughing to the bank. I’m saying that limited liability may be responsible for a vast amount of economic activity that otherwise may not take place due to the unlimited risk of personal liability. Surely you need to take this into account, no?

Oh, and I need to ask you to do me a favour: please don’t accuse me of supporting big government corporatism. I may not be an anarchist, but I am as resolutely against corporate welfare and crony capitalism as anyone else who enjoys these pages. Supporting limited liability as a vehicle for mobilising investment is NOT the same thing as supporting GE or GM, please acknowledge this.

J. Murray September 22, 2010 at 5:30 am

I’m not really confusing libertarianism with anarchism here. A state-granted limited liability would be violating the life, liberty, and property angle. I don’t see libertarianism compatible with a state granting immunity to a party for any wrongdoing. The general argument between minarchism and anarchism in libertarian circles is whether the state should exist to punish those who violate those three key tennents, not whether the state exists to protect the wrongdoer against just punishment.

Jon Leckie September 22, 2010 at 6:24 am

Thanks, J. Murrary: that’s helpful. It’s probably apparent enough, but I’ve a lot more reading to do and am picking up a lot as I go along.

Does it affect your view at all to stress that limited liability does not preclude recovery? There’s no immunity: but recovery is limited to the assets held in the vehicle and if damages are in excess of the value of those assets, the entity is dead. There seems to be remedies available beyond banning limited liability to prevent/minimise undercapitalised entities engaging in behaviour likely to give rise to torious liability (contrast BP with Mom&Pop LLC running a local hardware store): I’m really struggling to get across the line on limited liability as ipso facto in breach of the life, liberty and property standard (thanks again for clarifying the perspective there though). Maybe one day I’ll end up in his camp, I’m keeping an open mind (as much as one can try!). Lots to think about.

PS. Without a state to impose liability for and punish tortious acts against the property rights of another, how would liability for the tortious act be enforced against the tortfeasor?

TokyoTom September 23, 2010 at 12:30 pm

Jon, as for “how can tortious liability even EXIST in a stateless environment?”, I clearly addressed this above where I said:

Sorry, but it seems to me that your own approach to the issue of tort liability makes even less libertarian sense: you have concluded that in a stateless society institutions would arise only to enforce contracts, while individuals and firms would get away scot-free if they willfully or negligently harmed others. Surely a brief look at traditional societies would quickly inform you that such societies have very sophisticated and effective ways of controlling behavior that damages others.

Maybe this post with Bruce Yandle’s thoughts on how humans manage commons might be a good start: http://bit.ly/8V2q6R

Utilitarianism presumes both that it is possible to measure and aggregate conflicting preferences and that it is acceptable for government to do so and to intentionally benefit particular groups of individuals at the expense of others. Austrians say that the first is impossible and libertarians say that the the second violates basic principles.

As for BP and other corporations, I have little sympathy for shareholders, who have the benefit of their bargain (including dividends in good times that cannot be clawed back when risks materialize and the company is unable to fulfill its obligation), while persons injured by corporate actions have little or no ability to bargaining in advance whatsoever, or to get ready to get harmed. (The case of BP is compounded by the fact that government, by claiming to own “public” resources, deprives the fishermen harmed of any control over their livelihoods including any property right that they can claimed was harmed.) This just scratches the surface; I have commented extensively on BP on my blog and on other pages here: http://bit.ly/crTbEA

Yes, I see that you are “saying that limited liability may be responsible for a vast amount of economic activity that otherwise may not take place due to the unlimited risk of personal liability.” I see we agree that limited liability is very important – great! – but you seem to think either that, somewhat magically, such limitations on liability make risks simply disappear, or that such a shifting of risks by investors in particular firms (and the investor class generally) to innocent third parties class leads to improved risk management, or that such shifting or risks by those who fund and benefit from them to innocent third parties is justified on utilitarian or some other unspecified principled grounds. Surely you can see that “the unlimited risk of personal liability” is the default situation without state intervention?

By the way, I completely accept your good faith; please accept my pokes simply as attempt to get you to reflect on the implications of your positions.

You might think that you don’t “support[] big government corporatism”, but surely you ought to realizing that limited liability is a key factor in the rise of statist corporations. Supporting limited liability as towards innocent third parties might be effective in creating a vehicle for mobilizing investment, but it is also clear a vehicle of massive risk-shifting, theft and at destroying community in favor of fundamentally amoral governments and corporations.

You suggest you don’t support GE or GM, but if you can accept and support limited liability, then surely also you must accept its consequences.

TT

TokyoTom September 23, 2010 at 12:48 pm

“Accidents happen”? So do systematic trainwrecks due to mismanagement of risks.

Could government interventions that enable risk-shifting in banks, securities firms and corporations (and subsequent bailouts) have anything to do with engendering such mismanagement?

Massive kleptocracy in the third world differs little from what we see at home.

Beefcake the Mighty September 22, 2010 at 9:51 pm

“I agree that granting corporate status has greatly confused discussions over whom should be liable for corporate torts, and think Stephan too lightly brushes back the enormous and anonymous torts that our now massive corporations commit – precisely what individuals, for example, is responsible for the BP disaster, for the damage to health and property caused by pollution, or for injuries resulting from faulty products?”

What does this question have to do with limited liability? Why should shareholders be any more responsible for the disaster than people who filled their tanks with BP’s gas? They both gave the the company money, after all.

I’m having a hard time seeing what point, exactly, you’re trying to make here (beyond anti-corporatist bromides).

TokyoTom September 23, 2010 at 11:20 am

Lord Bungulous Bringer of Beefcake:

What, those who simply buy a company’s products should be treated on the same basis as those who invest in the company’s business model? Are you trying to clarify, or obfuscate? One offers money in exchange for goods or services, the other offers money for the profits he expects to gain from the company’s business model.

I’m having a hard time seeing what point, exactly, you’re trying to make here (beyond pro-statist-corporatist bromides).

What does the question of whether corporations should have any vicarious liability for the actions of its employees and agents have to do with limited liability? Thanks for the opportunity for me to be a bringer of light, but it’s not that complicated: without limited liability and corporate “legal entity” status, investors and corporate managers would care to make sure that employees are careful. The limited liability shield makes it the interest of shareholders NOT TO CARE, and the interest of managers to obscure who is responsible. Because incorporations make possible large, impersonal businesses without a clear locus of responsibility, on the behest of victims seeking recompense for damages suffered, courts tend to hold “the company” responsible.

In short, the confusion that Stephan raises and professes to be concerned about is a product of the very state grant of limited liability that he – like you – thinks is too unimportant to question, but important enough to defend.

Why don’t you and Stephan start a libertarian fan club for essential government interventions? You can start with limited liability for corporate shareholders generally, add the specific caps on liability granted to the oil+gas industry and nuclear industry, and include the preemption of strict common law protection of property from pollution, in favor of federal preemption and rights to pollute.

Or you could think a little more seriously about how we could replace corporate risk-shifting machines and the whole mass of federal and state regulation that are purported intended to curtail such risks (but instead create barriers to entry and ensconce management from shareholders, thus introducing another layer of moral hazard) with internal risk control and risk control via insurers acting for shareholders.

A number of conservative commentators have made the radical suggestion that banks, securities firms and offshore oil+gas cos should be allowed to act only through partnerships (or other unlimited liability entities); they are thinking too modestly and have overlooked the limited liability for corporate shareholders that drives our whole regulatory edifice and has set off our escalating cycle of statist rent-seeking and corruption.

TT

Beefcake the Mighty September 23, 2010 at 11:26 am

“One offers money in exchange for goods or services, the other offers money for the profits he expects to gain from the company’s business model.”

Yeah, what a critical distinction. Shocking I didn’t see it previously; thanks so much!

TokyoTom September 23, 2010 at 1:09 pm

Not sure whether I should be pleased that my comments are so pedestrian, or disturbed that you are content with government interventions that help to erase moral distinctions.

Prior to the creation of corporations, it was clear who was doing what … thank goodness for anonymity and lack of personal responsibility!

TokyoTom September 23, 2010 at 9:39 pm

[I am]  thankful that you provide an opportunity for me to help others examine the growing rot set off by the very non-libertarian grant of limited liability to shareholders regarding injury to involuntary third parties:

http://mises.org/Community/blogs/tokyotom/archive/2009/02/26/the-curse-of-limited-liability-wsj-com-executives-traders-of-big-financial-corporations-generate-risky-businesss-while-smaller-partnerships-are-much-more-risk-averse.aspx

http://mises.org/Community/blogs/tokyotom/archive/2010/06/29/limited-liability-financial-crisis-and-bp-someone-else-sees-the-obvious-quot-black-swan-quot-of-executive-trader-moral-hazard-after-investment-banks-went-corporate.aspx

http://mises.org/Community/blogs/tokyotom/archive/2010/04/22/finally-an-lvmi-commentator-points-out-the-elephant-in-the-room-effective-reform-to-rein-in-rampant-moral-hazard-at-banks-means-removing-limited-liability.aspx

http://mises.org/Community/blogs/tokyotom/archive/2010/08/18/in-a-shocking-moment-of-honesty-conocophillips-ceo-says-offshore-oil-isn-t-economical-without-government-gifts-of-limited-liability.aspx

Thanks so much for coming out to play, Lord Beefcake!

TT

The Kid Salami September 24, 2010 at 5:40 am

TokyoTom September 24, 2010 at 11:43 am

I received the attached in my email inbox from Oathkeepers.org; I have modified the format, but not altered any of the text.

I consider it thoughtful and well worth reading – though Stewart Rhodes fails to mention the how statist corporations have led the drive to strengthen the federal government and gut the Constitution:

 IS Constitution Day a Celebration, Or a Memorial?

By Stewart Rhodes, Founder of Oath Keepers]
OathKeepers.org

Sept. 18, 2010

Yesterday, September 17, was the anniversary of the signing of the Constitution in 1787, at the Constitutional Convention in Philadelphia. According to the notes of Dr. James Machinery, one of Maryland’s delegates to the Convention, it was on the last day of deliberation that a lady asked Benjamin Franklin “well Doctor what have we got, a republic or a monarchy?” to which Franklin replied, “a republic, if you can keep it.”

Can we keep it? That has always been a central question. But another very good question is whether we still have a Republic to attempt to keep, or have we already lost it? Or more exactly, has it already been stolen right from beneath our noses?

Do We Still Have a Republic To Keep?

Thomas Jefferson, in his Autobiography of 1821, described the federal judiciary as:

[T]he corps of sappers and miners, steadily working to undermine the independent rights of the States and to consolidate all power in the hands of that government in which they have so important a freehold estate.

Truer words were never spoken, and that description also fits perfectly the political, academic, corporate, and banking elites of both major parties who have joined the judiciary in the . steady, relentless undermining, consolidation of power, and theft of the very sweat of our brows that began before the ink was barely dry

As for the banking elites, Jefferson had this to say:

If the American people ever allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered.

We are now very near that point, with our currency on the verge of being completely devalued and what is left of our wealth sucked out of us, and our children already born into monstrous debt as indentured servants of the government supremacist elites – both Democrats and Republicans – who lord over us with increasingly brazen disdain and treat us like so many heads of cattle, as Angelo Codevilla so clearly spelled out in his recent essay, America’s Ruling Class – and the Perils of Revolution (http://spectator.org/archives/2010/07/16/americas-ruling-class-and-the/print).  Code villa’s essay is highly recommended reading, by the way.

What is left of our Republic? What is left of our Constitution? Not much.

A National Government of Unlimited, UN-enumerated, Undivided Powers

The Founders gave us a dual sovereignty republic.  That means states as much sovereign within their sphere as the national government is within its sphere, and a national government of limited, enumerated, and divided powers, where “[t]he powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”

In Federalist 45, James Madison (widely considered the ‘father of the Constitution”) promised the American people that:

The powers delegated by the proposed Constitution to the federal government, are few and defined. Those which are to remain in the State governments are numerous and indefinite. The former will be exercised principally on external objects, as war, peace, negotiation, and foreign commerce; with which last the power of taxation will, for the most part, be connected. The powers reserved to the several States will extend to all the objects which, in the ordinary course of affairs, concern the lives, liberties, and properties of the people, and the internal order, improvement, and prosperity of the State.

Does that sound like what we are living under today?  Hardly.  The design of the Founders’ has been turned on its head.  With the aid of complicit judges – that “corps of sappers and miners” – who willfully misinterpret the Commerce Clause to grant Congress the power to regulate literally anything, we now have ruling elites who will admit of no restraints on national power.   In Justice Thomas’ dissent in Gonzales vs. Raich (http://www.law.cornell.edu/supct/html/03-1454.ZD1.html), he stated the obvious:  

Respondents Diane Monsoon and Angel Raich use marijuana that has never been bought or sold, that has never crossed state lines, and that has had no demonstrable effect on the national market for marijuana. If Congress can regulate this under the Commerce Clause, then it can regulate virtually anything-and the Federal Government is no longer one of limited and enumerated powers … By holding that Congress may regulate activity that is neither interstate nor commerce under the Interstate Commerce Clause, the Court abandons any attempt to enforce the Constitution’s limits on federal power. (emphasis added).

Because the Raich case involved medical marijuana, conservatives, including Justice Scalia, joined the liberals on the Court in championing a gross expansion of Congress’ power to regulate commerce, which is now practically unlimited.  Much like the Parliament the founding generation rebelled against, Congress now claims a power to legislate over us in all cases whatsoever, down to the minutest details of our daily lives.  Just ask Speaker Pelosi or any other Congress-critter where in the Constitution Congress is delegated the power to regulate all that it does.  The answer will be “are you serious?” because, based on the Supreme Court’s rewriting of the Commerce Clause, they presume that all power not expressly and specifically prohibited by the Constitution is granted to the national government.  In other words, the exact opposite of what our Tenth Amendment actually says and the exact opposite of what Madison promised would be the balance of power between the national government and the states. 

The claimed power of the federal government now obviously extends “to all the objects which, in the ordinary course of affairs, concern the lives, liberties, and properties of the people, and the internal order, improvement, and prosperity of the State.”   And the Tenth Amendment may as well be re-written to read “all powers not expressly prohibited to the United States by the Constitution, nor expressly reserved to the states or to the people, are delegated by it to the United States.”

Destruction of State Sovereignty, State Military Power, and Circumvention of the State Legislatures and Governors During Emergencies

Following up on the absurdly gross expansion of Congress’ claimed power to legislate anything and everything, the federal government then uses the Supremacy Clause to supersede state laws.  If Congress can regulate anything, that means that any regulation it passes, or any edict by unelected bureaucrats in some federal agency, is now the supreme law of the land, and trumps state law.  And the states are powerless to stop it (or so the story goes).   Witness the recent claim by the federal government that the Supremacy Clause prevents Arizona from doing anything meaningful about the illegal aliens crossing its borders despite federal failure to handle that problem.

But the elites who control all three branches of the federal government are not content to simply gut state legislative power.  They have also gutted the military power of the states, the power of states to deal with emergencies, and the lines of sovereignty clearly spelled out in the Constitution when it comes to use of federal power within a state.

The Gutting of the State Militias

The Founders’ answer to that ancient question of “who shall guard the guardians?” was that we, the people, would be our own guardians, in our state militias.   Students of history, they clearly saw the dangers of standing armies, and that is why the Second Amendment to the Constitution declares:

A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.

As Dr. Edwin Vieira has pointed out numerous times, the use of that term “necessary” is only used once in the entire Constitution, and it is used in reference to the militia because that is the one institution that is necessary to the security of a free state.   This is so because when the military power is held in the hands of the people, in militias constituted by the body of the people trained and armed, they cannot be tyrannized.  And frankly, no people can long remain free unless so armed, trained, and formed into militias.  It is necessary.    See Dr. Vieira’s excellent article Going to the Root of the Problem, available at http://www.thedailybell.com/839/Edwin-Vieira-Going-to-the-Roots-of-the-Problem-PART-1.html

And the militia was intended to comprise the great body of the citizenry, trained and equipped with arms, not a select militia.  Yes, both by statutes and by clauses within the state constitutions the militia is still defined as the body of the people.  For just one example, the Constitution of Montana, Article VI, Section 13, Militia, still declares:

(1) The governor is commander-in-chief of the militia forces of the state, except when they are in the actual service of the United States. He may call out any part or all of the forces to aid in the execution of the laws, suppress insurrection, repel invasion, or protect life and property in natural disasters.
(2) The militia forces shall consist of all able-bodied citizens of the state except those exempted by law.

But what has happened?  Where are the actual militia forces of Montana, made up of all able-bodied citizens except those exempted by law?  Certainly you can say that the people of Montana still constitute those militia forces, but they are not organized, trained, equipped, nor do they muster to train or to deploy.  When were they last called up by either the Governor of Montana or by the United States?   As with nearly all of the states, those militias have been allowed to whither away till they are but a distant memory.  As actual military forces worthy of that name, they exist on paper only.  What is left is a potential pool of unorganized militia, which may or may not be equipped, armed, and trained, depending entirely on the actions of the individual citizen.  That pool of the population is not formed up into units (except for the occasional private militia associations that have formed in an attempt to revitalize an actual militia), and those units have not been called up by anyone in living memory.

By means of slow and artful manipulation, and by means of the plain, simple laziness of the American people, we no longer have an actual, physical citizens’ militia in each state, made up of the able bodied citizenry actually trained, equipped, and organized with citizens coming together in a public militia.  Instead, the militia was allowed to atrophy and die with few exceptions.  And even with the exceptions, such as the Ohio Naval Militia, (http://navalmilitia.ohio.gov/) or the few State Defense Forces, they are usually unarmed, which makes no sense.  Just how are they supposed to “repel invasions” or “suppress insurrections” without arms? 

Instead of militia made up of the body of the people trained and armed, we have only the National Guard.  But what is the National Guard?  Or more to the point, where is the National Guard?   By and large, the National Guard is merely an auxiliary or reserve for the standing Army, and our Guard units are deployed overseas with increasing frequency.   They are most often unavailable to help here at home. The Founders never intended for the militia to be used abroad as an auxiliary for the standing Army.  Article 1, Section 8 contemplates the militia of the several states being called forth “to execute the Laws of the Union, suppress Insurrections and repel Invasions.”  The militia was meant to be used domestically, to keep the peace here at home, while the Navy and Army were to be used abroad, against external foes.

FEMA, NORTHCOM, and the Council of Governors Fill the Void

As Dr. Vieira points out, with the states having no real state militias, and with the National Guard sent abroad as an auxiliary to the standing Army, the states are left defenseless and weak, unable to provide for their own security, and unable to care for their own citizens during emergencies.   And into that vacuum, predictably, steps the federal government in the form of FEMA, DHS, and NORTHCOM, with standing Army troops now deployed here in the United States to do the job that is supposed to be done by we the people in our state militias. Once again, the Founders’ design has been stood on its head. 

What did the founders intend to be the relationship of the states to the federal government when it came to use of military force within the states in times of emergency?  Article IV, Section IV of our Constitution states:

The United States shall guarantee to every State in this Union a Republican form of Government, and shall protect each of them against Invasion; and on Application of the Legislature, or of the Executive (when the Legislature cannot be convened) against domestic Violence.

Notice that even when it comes to aiding a state that is facing domestic violence – i.e. an insurrection aimed at overthrowing the free, elected government of that state – the national government cannot enter a state with military force unless invited in by the state legislature or by the governor of the state if the state legislature cannot be convened.  The “Application of the Legislature, or of the Executive,” is a necessary prerequisite.  That requirement is a reflection of our dual sovereignty system, where we are supposed to have sovereign states that are every bit as sovereign within their sphere as the national government is within its sphere.  And it is a reflection of what it means to have a “Republican form of Government” which means a government by consent of the governed, consisting of a representative legislature, executive, and a judiciary established pursuant to the constitution of that sovereign state, and a preservation of the balance of sovereignty maintained by our national constitution. 

And what military institution was to be called forth to defend states against domestic violence (such as riots and insurrections) upon the application of that state?  The militia of the several states.  That meant that even if a state requested federal intervention in its internal affairs, the military force sent in was to be the militia of the several other states, not the standing Army.  As we saw during Hurricane Katrina, where units of the Utah National Guard (and reportedly a few other states as well) refused to participate in gun confiscation, the closer we stick to the ideal of a citizens militia, the less beholden to the federal government and the less susceptible to pressure to go along to get along will those troops be.  It is far easier to pressure a career military man to obey unconstitutional orders than it is to pressure a National Guardsman who already has a day job back home, and won’t care much if he is dismissed.  The same would go for an actual state militia member.

But Article IV, Section IV is all but ignored today.  Instead, the federal government has divided the United States into ten regions with both FEMA (which is now part of DHS) and NORTHCOM sharing those regions for both emergency and domestic military deployment.  See http://www.fema.gov/about/regions/index.shtm

Add to this the new Council of Governors, required by the Fiscal Year 2008 National Defense Authorization Act which stated, “The President shall establish a bipartisan Council of Governors to advise the Secretary of Defense, the Secretary of Homeland Security, and the White House Homeland Security Council on matters related to the National Guard and civil support missions.”  The selection of the governors to sit on that council almost exactly matches that FEMA/NORTHCOM ten regions map.   Those hand picked governors are to “advise” the federal Homeland Security/homeland military/FEMA/White House leviathan on actions it will decide to take within the states.  Even if those ten appointed governors could consent on behalf of each state – which they cannot (that being a violation of Article IV, Section IV) – their consent is not even sought – only their advice.  And that advice can be taken or simply ignored.  

In keeping with the nationalization of everything, FEMA and NORTHCOM increasingly act as though the states don’t even exist (except as possibly convenient sub-divisions), conducting regional training operations involving standing Army, Reserves, Guard troops, FEMA, DHS, and private contractors within the ten regions with nary a call to the governors, let alone seeking permission from the legislature of any state, and assuming perpetual command of the state National Guard units.  See NORTHCOM, NORAD, Guard, Inextricably Linked    (http://www.ng.mil/news/archives/2010/03/032510-NORAD.aspx)

As that National Guard article states:

NORTHCOM has a unique degree of the jointness sought throughout the Defense Department. A mix of National Guard, Reserve, Coast Guard, active duty component, senior civilians and contractors fill the command’s ranks.

The command partners with Canada and Mexico and with Defense Department, civilian and private agencies – more than 60 organizations.
Nary a mention of any requirement to seek the permission or even participation of the various state legislatures or state governors.   The major players are federal or federalized assets and foreign governments.   And, foreign troops are increasingly invited to participate:

A feature of recent exercises has been foreign military involvement.  The Iowa Vigilant Guard exercise involved troops from Mexico, Japan, Australia, South Korea, Bahamas, and Senegal.  The Montana Vigilant Guard exercise will include the participation of Kyrgzstan.  http://publicintelligence.net/montana-vigilant-guard-2009-exercise/
The foreign troops were invited in “to learn about how the U.S. military communicates and works with civilian emergency responders.”  http://www.army.mil/-images/2009/06/22/42394/index.html
This is all being done as part of the National Guard State Partnership Program.  According to the National Guard 2010 Posture Statement: 

The National Guard State Partnership Program (SPP)
establishes enduring and mutually beneficial partnerships
between foreign countries and American states through the
National Guard. This program is an important component
of the Department of Defense’s security cooperation
strategy, the regional Combatant Commanders’ theater
engagement program, and the U.S. ambassadors’ Mission
Strategic Plans. 
http://www.ng.mil/ll/Congress_Reports/2010%20National%20Guard%20Posture%20Statement.pdf

Thus, Montana is partnered with Kyrgyzstan, Alabama is partnered with Romania, Alaska with Mongolia, Arizona with Kazakhstan, Arkansas with Guatemala, California with Nigeria and Ukraine, and so on.  For the full list, go here: http://en.wikipedia.org/wiki/State_Partnership_Program
Do you suppose the state legislatures or governors had any say about which country their state was “partnered’ with?   To borrow Pelosi’s favorite saying, “are you serious?”  So, what, exactly, are the state governors really in command of, as the supposed commanders in chief of their state militia forces?  Not much.  And how sovereign are the supposedly sovereign states?  Again, not much.  Not anymore.

We now have a national government of nearly unlimited de facto powers, grown like a metastasizing cancer far beyond the bounds of anything foreseen by even the most skeptical of Anti-Federalists from the Founding era.  All actual, physical and structural powers of any real meaning – legislative, military, legal, law enforcement, and economic – are consolidated in the hands of the federal government.   And we are not even talking about the hydra-like overlay of international law and international unelected agencies and untouchable international “officials” that are also being imposed up us by means of treaties, executive partnerships (such as the supposedly now defunct Security and Prosperity Partnership of North America   http://en.wikipedia.org/wiki/Security_and_Prosperity_Partnership_of_North_America) and other constitutionally dubious mechanisms.
The states retain only what paltry “powers” the federal government deems it convenient to leave with the state, with those powers and assets always subject to nationalization or preemption at the pleasure of the national elites.  Just look at how easily and completely the peace officers of Arizona are being outgunned and outmanned by the Mexican drug cartels now boldly occupying whole sections of that sovereign state to the degree that those areas are now “no go” zones for Arizona citizens who wish to stay alive. 

And to what degree do the states have any form of independent, real money (i.e. backed by gold or silver)?  Again, not by much.  In fact, zero.   As Vieira’s Going to the Root of the Problem article points out, this is the second great weakness of the states, right along with having no militia, and thus no security.  The states are financially and militarily impotent, and thus their populations are ripe for federal intervention during emergencies or during an economic collapse.  With no preparation and no ability to keep the peace, the people of the states (except perhaps the more hardy rural states) will be desperate for aid during emergencies and will likely welcome even “martial law” with open arms during a severe enough emergency. 

To borrow from the canned speech phrase used by every President’s state of the Union address, the state of the federal government is super-strong, the state of the states is pathetically weak.

With the concept of dual sovereignty, limited government power, and even national sovereignty nearly wiped away, and with the states weakened to the point of failure during even modest crisis, all we have left as a check on government abuse is our Bill of Rights.  But those last restraints are also under relentless assault.

The Gutting of the Bill of Rights

How is the Bill of Rights being gutted?  Here are just a few examples:

The absurdity of “free speech zones.”   All too often, citizen protesters are now confined “at a safe distance” in ‘free speech zones” during public political events.  This whole nation is supposed to be a free speech zone!  And any public sidewalk is your public forum so long as you don’t block pedestrian traffic.  But that principle is now under attack, along with the rest of the First Amendment, and you are now likely to be threatened with sound wave or microwave weapons, as occurred during the G20 meeting, for merely exercising your right to peaceably assemble, petition your government for a redress of grievances, and speak out freely.  You can only do so safely in a government approved, cordoned off “free speech zone” far away from the anointed beautiful people who cannot be bothered with ugly, dirty protesters.  And in addition to the blatant violations of free speech being carried out, we have attempts to further chill and limit speech with proposed legislation such as the Disclose Act, which would have mandated disclosure of donors to small non-profit advocacy groups but would have exempted existing large organizations, and by means of targeting people and organizations with being placed on a “list” of “extremists” by the DHS or by the Southern Poverty Law Center (essentially now part of DHS).

The watering down of the Second Amendment.  The Second Amendment was plainly meant to preserve the military power of the people.  It was meant to protect and preserve the right of the people to keep and bear arms of military utility, so that they may form the militias “necessary for the security of a free state,” with sufficient power to “execute the Laws of the Union, suppress Insurrections and repel Invasions” – as Article 1, Section 8 contemplates.   While the Supreme Court in the Heller decision finally, at last, recognized the obvious fact that the Second Amendment protected an individual right to bear arms, and that the people were expected to provide their own arms for militia duty, it failed to recognize the obvious related necessity that they thus be able to keep and bear arms of military utility (which the Miller case at least contemplated).  Instead, the Heller Court told us that we have a right to keep and bear only those weapons that are “commonly kept for lawful purposes,” whatever that means.  Such a standard leaves intact nearly any and all restrictions, registration, prohibitions on types of firearms, and even leaves intact prohibitions on the actual bearing of arms outside our homes (imagine a similar prohibition on free speech, free press, or assembly outside of your home being found “constitutional”).  The Court carved out protections for nearly any regulation or prohibition on types of weapons, and any restrictions on the keeping and bearing of arms short of a total ban.

The gutting of the Fourth Amendment.  The Fourth Amendment, born out of the Founding Generation’s experiences under the egregious writs of assistance, has now been carved with so many exceptions that it is a laughable farce which can be circumvented at will by crafty government lawyers, with nearly any kind of warrantless search deemed “constitutional” under one exception or another, resulting in the FBI issuing itself “national security letters” to search without a showing of probable cause to an independent judge, sneak and peek searches of our homes, random vehicular “your papers please” check points for all manner of excuses now common, routine upholding of warrantless searches by police under a plethora of exceptions (most based on ever expanding zones of “officer safety”), and with the most extreme claim being that the Fourth Amendment doesn’t even apply at all to warrantless surveillance of Americans when it is done in the name of national security, as in the case of the NSA domestic spying, with the rationale that such is surveillance of the battlefield in the war on terror.

The gutting of the Fifth and Sixth Amendments.   The federal government now makes the Orwellian claim that we still have a right to “due process” despite the executive branch claiming the power to detain American citizens in military brigs and deprive them of their liberty without Grand Jury indictment, without jury trial (and without even a suspension of habeas corpus by Congress), and to even try American civilians before military tribunal (and note that Obama has not renounced any of those claimed powers advanced by the Bush Administration).  This is essentially a claim that American citizens can be treated exactly the same as a foreign enemy in wartime – exactly like citizens of occupied Iraq or Afghanistan, in direct violation of the Article III Treason Clause, which makes very clear what must be done with a citizen accused of making war against the United States or aiding and abetting its enemies – such a citizen must be tried for treason, in a civilian court before a civilian jury.   See Justice Scalia’s dissent in Hamdi v. Rumsfeld (http://www.law.cornell.edu/supct/html/03-6696.ZD.html). 

This claimed power now includes the asserted power  that the government can assassinate its own citizens if the President determines that they are a threat to national security – no “due process” of any kind, no trial for treason as Article III mandates, no right to face your accusers, not even a military tribunal, just straight to execution on sight.  And don’t think any of the above will be used only against Americans who have become Islamacists and embarked on jihad.  Government lawyers and judges have been very careful to ensure that there is no legal distinction whatsoever made on those grounds – the above illustrated claimed powers apply to ALL OF US;

Claims that government may impose “Martial law.”     The above noted claimed power to designate American citizens as “enemy combatants” is itself a form of martial law, being the claim that the international laws of war may be applied to the American people by their own government.  However, even aside from that extraordinary claim of power, government officials at every level are increasingly asserting that during a national emergency of any kind, the Constitution and Bill of Rights can be suspended and martial law imposed on us, though that term is nowhere even mentioned in our Constitution.  Go ahead, look for it in the text.  It is not there – and for damn good reason.

Martial law is no law at all except for the will of the commander on the battlefield.  Martial law is what we imposed on defeated and occupied Germany, Japan, and Iraq.  Nowhere in our Constitution is any branch of government, at any level, whether state or federal, given the power to set aside the Constitution of the United States and the constitutions of the several states and treat the American people like conquered enemies in wartime.  Not only is “martial law” absent from the Constitution, and in direct violation of Article IV, Section IV (the guarantee of Republican government), it is a power foreign to our system of government, which is supposed to be a government of laws, not men, with the government having only those powers granted by the consent of the people.  Remember, one of the grievances listed in our Declaration of Independence, against the King, was that “He has affected to render the Military independent of and superior to the Civil power.”  The Crown had imposed martial law on a rebellious Boston, and it was during that occupation that the expedition to seize arms at Lexington and Concord finally led to open conflict.  Martial law is in fact a complete lack of law.  It is anti-law and is anti-constitutional.  See Dr. Edwin Vieira, A Primer on Martial Law, http://www.newswithviews.com/Vieira/edwin198.htm.  And the principle of civilian command of the military is expressed both by Article II, which makes the President, an elected civilian, Commander in Chief of the armed forces, even above life-long professional military Generals. This principle is also reflected in the Third Amendment, which prohibits the quartering of soldiers in any home, even in time of war, “but in a manner to be prescribed by law” and that means by law written by Congress and signed by the President.  Add to that all of the Article 1, Section 8 powers of Congress to regulate the armed forces, to make rules for capture, and to define and punish violations of the laws of nations, and to declare war, etc. and it becomes clear how illegitimate and wildly unconstitutional any claimed power to impose “martial law” really is.  And yet, government supremacist elites increasingly insist that they have an inherit or implied power to invoke “martial law” and impose rule by fiat, by simple decree upon us.  History has a name for such rule by decree, by the dictates of The Leader – dictatorship.

The Ninth Amendment has been ignored.  The Ninth Amendment states that “The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people.” (emphasis added).  The Ninth Amendment uses the command language “shall not” and is as much a command as “the right of the people to keep and bear arms shall not be infringed.” It also speaks of the enumeration (the listing) in the Constitution of certain rights, not the “creation by the Constitution of certain rights.”  This is no accident.  The Bill of Rights does not create rights, but merely provides protection for rights that already exist.  As our Declaration of Independence made clear, our rights predate any government and come from our creator, not from government.  Our rights come first, and are ours by virtue of nature and nature’s God.  Governments come later, being instituted among men to protect those natural rights.  And yet, we now have over us legal, political, and academic elites that assert the exact opposite – that we have only those “rights” granted by government.  And that is a common perspective of elites from both sides of the aisle. 

The Tenth Amendment has been ignored.  As already discussed above, the Tenth Amendment has been so ignored that it may as well read exactly the opposite.  We now have a national government that claims all powers not clearly and expressly prohibited to it by the Constitution, and we have states that only have whatever scraps of power the federal government deems to give them, until such time as it decides to take those powers away by simply passing federal legislation and then evoking the Supremacy Clause.

The Bizzaro Anti-Republic

The above only barely scratches the surface.  There are a great many other examples of violations of the Constitution and usurpations of powers never granted.  Suffice it to say that the elites of both parties in power in this country have almost completely cut themselves loose from the chains of the Constitution while at the same time having almost totally expanded their power, while also eviscerating the power of the states.
Right down the line, the Founders’ design of a dual sovereignty, balanced Constitutional Republic made up of sovereign states and a national government of limited powers, with those boundaries enforced both by the state legislatures, governors, by a Bill of Rights with teeth, and, as a last resort, by an armed populace in their state militias (which were to be strong enough to repel invasions), has been turned upside down and inside out till it is the exact mirror opposite of what it was supposed to be. We are now living in the “Bizzaro” Republic, or the Anti-Republic. Rather than a massive sea of the rights and powers of the people and tiny islands of government power, we now live on tiny, shrinking islands of “rights” and state powers in a great sea of federal and even international government powers. And the tide is rising.

And so, is the anniversary of the signing of the Constitution cause for celebration, or for mourning?  Should we still bother to celebrate Constitution Day? Should we bother to read that old, dusty document from so long ago?

Yes we should. By all means.  But why, you may ask, given all that I have said above, should we do so?  

In a follow-up article I will give you several very good, and very powerful reasons to celebrate, honor, read, and to DEFEND the Constitution, and to work hard for the Restoration of this Republic.  

And by the way, with all due respect to Dr. Franklin, the birth-date of this Republic was not, in fact, September 17, 1787.  I hold that our Republic was actually officially born on July 4, 1776.  That was when the American people separated themselves from their former country, Great Britain, dissolving the political bands which had connected them with another people, and assumed “among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature’s God entitle them.”  Yes, each state was its own republic, but they together formed the united States of America, and on that day we became a separate people. 

In fact, one could argue that our Republic was unofficially born on April 19, 1775, at Concord and Lexington, or perhaps even farther back, in the hearts and minds of the men and women of America in the early years of American resistance.  But in any case, the spirit of the American Revolution, the spirit of liberty, what came to be known as the Spirit of 76, was alive and well in the hearts and minds of the American people long before the Constitution of 1787 was written, and good men and women shed their blood for liberty, for the “fate of unborn millions” long, long before anyone even heard of the Constitution.  And that makes perfect sense.  As Judge Learned Hand once remarked:

I often wonder whether we do not rest our hopes too much upon constitutions, upon law and upon courts. These are false hopes, believe me, these are false hopes. Liberty lies in the hearts of men and women; when it dies there, no constitution, no law, no court can save it; no constitution, no law, no court can even do much to help it. While it lies there it needs no constitution, no law, no courts to save it.

Before we can know whether we can keep our Republic, the central question is whether liberty still lies in our hearts, as it did in the hearts of the Founding Generation and in the hearts of all who stood in its defense since.  The answer to that question makes all the difference to if and how we shall keep and restore our Republic.

For the Republic (born in the American Revolution!), and in defense of the Constitution still, as always,
Stewart Rhodes
Founder of Oath Keepers
© Oathkeepers.org
Kalispell, Montana, Sept. 18, 2010

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I refer to David Korten, a Stanford-trained economist, former professor at Harvard Business School, former adviser to the Ford Foundation and the US Agency for International Development. Korten, a prominent critic of corporate globalization and official aid, is co-founder and board chair of the Positive Futures Network, which publishes the quarterly YES! Magazine, a board member of the Business Alliance for Local Living Economies, and is author of  When Corporations Rule the World (1995 and 2001).

Korten recently published in YES! Magazine his thoughts on how we need to re-organize our economy. Since YES! publishes under a Creative Commons License, I take the liberty of reproducing the article below, with my comments interlaced.

Here are ten common sense principles to frame the New Economy that we the people must now bring forth:

1.  The proper purpose of an economy is to secure just, sustainable, and joyful livelihoods for all. This may come as something of a shock to Wall Street financiers who profit from financial bubbles, securities fraud, low wages, unemployment, foreign sweatshops, tax evasion, public subsidies, and monopoly pricing. 

An “economy” has NO purpose; it is simply shorthand for the interactions of people, acting as individuals and in groups. Securing just, sustainable, and joyful livelihoods for all is indeed a worthy goal for a society to have, among other goals that individuals, groups within the society (including those within government) and the society as a whole may have – which goals cannot all be achieved due to scarce resources and conflict between goals.

While the identification of “Wall Street Financiers” is vague, certainly it is fair criticize our financial system and those who profit from it while generating ill for the rest of society.

2.  GDP is a measure of the economic cost of producing a given level of human well-being and happiness. In the economy, as in any well-run business, the goal should be to minimize cost, not maximize it. 

Korten’s definition of GDP is idiosyncratic and not helpful. GDP is the chief measure of economic performance used by policy makers (determined either as the sum of Consumption (C), Investment (I), Government Spending (G) and Net Exports, or as the sum of income and depreciation). It is certainly a very flawed measure of economic performance, as it fails to measure damage to private and social capital (including damage to the environment), and treats wasteful government spending on wars, pork-barrel spending and building a police state on the same basis as it treats expenditure by the private economy. It does not even attempt to measure of human well-being and happiness, such as differences in income and wealth.

Maximizing GDP – especially as it is now defined – certainly should not be a public policy goal. Korten does not refer to the “environmental” cost of our economic activities; if he intended this criticism I would agree. In fact, GDP treats expenditures to deal with environmental harms as positive contributions to GDP!

3.  A rational reallocation of real resources can reduce the human burden on the Earth’s biosphere and simultaneously improve the health and happiness of all. The Wall Street economy wastes enormous resources on things that actually reduce the quality of our lives—war, automobile dependence, suburban sprawl, energy-inefficient buildings, financial speculation, advertising, incarceration for minor, victimless crimes. The most important step toward bringing ourselves into balance with the biosphere is to eliminate the things that are bad for our health and happiness. 

While I share many of Korten’s concerns here, he has completely failed to define what he means as the “Wall Street economy”, so it is difficult to have productive conversation. GOVERNMENT, not Wall Street, is chiefly or substantially responsible for wars, automobile dependence and suburban sprawl, for building a financial sector that encourages financial speculation, and for the ruinous “War on Drugs” that militarizes our police, keeps blacks in jail and undermines the growth of healthy inner cities. How is Wall Street responsible for energy-inefficient buildings or any other problem Korten identifies, other than financial speculation? Does Korten intend here simply to set up his later criticism of the “money system”? Libertarians would certainly agree that our screwed-up money system is the linchpin of many problems in our society/economy.

Nor is it clear what Korten means by “bringing ourselves into balance with the biosphere” or by a “rational reallocation of resources”, whether these are goals shared by all and are top priorities, or who is supposed to be making rational reallocation decisions. If he is suggesting that governments should have more power, I would disagree.

4.  Markets allocate efficiently only within a framework of appropriate rules to maintain competition, cost internalization, balanced trade, domestic investment, and equality. These are essential conditions for efficient market function. Without rules, a market economy quickly morphs into a system of corporate monopolies engaged in suppressing wages, exporting jobs, collecting public subsidies, poisoning air, land, and water, expropriating resources, corrupting democracy, and a host of other activities that represent an egregiously inefficient and unjust distribution of resources.

“Markets”, loosely defined, are evolved and devised cooperative institutions for interpersonal and inter-group exchange. To maintain efficient cooperation, markets typically employ rules that enforce agreements, provide clarity, limit cheating. Cost internalization （limiting costs shifted to others) and fair sharing of collective costs are a purpose of the rules, but market participants generally have no personal interest in, and markets generally have no rules regarding, “balanced trade” or domestic investment.

Sure, there are a host of problems that can be identified as relating to “corporate monopolies”, but corporations are NOT creations of markets, but creations of governments. It is governments that incentivize moral hazard and risk-shifting, by allowing people to form limited liability business firms that – unlike individuals and partnerships – have unlimited lives and whose owners have no liability for the damage that such firms may do to others. Government action creating corporations has been the trigger fuelling corrupt and damaging behavior, that in turn has fuelled citizens’ demands that government get bigger and create more “rules” to constrain their Frankensteins, who are now bigger and more powerful than government, and far more influential than REAL “persons”. 

Well, it’s not working out very well, is it? The only path I see ahead is to gradually end “limited liability” in corporations, on a number of different fronts.

5.  A proper money system roots the power to create and allocate money in people and communities in order to facilitate the creation of livelihoods and ecologically balanced community wealth. Money properly serves life, not the reverse. Wall Street uses money to consolidate its power to expropriate the real wealth of the rest of the society. Main Street uses money to connect underutilized resources with unmet needs. Public policy properly favors Main Street.

Korten is very right about his last three sentences; the first is spot-on: Wall Street uses money to consolidate its power to expropriate the real wealth of the rest of the society. If one understands modern “fiat money”, it is easily seen as a form of fraud. While I do not see this as a deliberate intention of those working in finance, expropriation of wealth is a natural consequence of the “fiat currency” system that banks developed and that the US government has captured (though governments often deliberately expropriate by inflating their currency – this is clearly seen in Zimbabwe). Until money systems were captured by banks and government, real money was nothing more or less than goods of various types that people found valuable and more convenient than direct barter as a means of exchange.

If fiat money was eliminated (a gradual process would eliminate “legal tender” laws and allow competing currencies), then the natural result would be a shift of power from government and Wall Street to people and local communities.

6.  Money, which is easily created with a simple accounting entry, should never be the deciding constraint in making public resource allocation decisions. This is particularly obvious in the case of economic recessions or depressions, which occur when money fails to flow to where it is needed to put people to work producing essential goods and services. If money is the only lack, then make the accounting entry and get on with it.

This is completely wrong-headed. First, wealth is not created, and long-run human needs are not addressed, simply by continuing to treat money as play money that can be created whenever one wants something – this simply hides the very real theft from the economy as a whole (particularly those least well-off).  If we want honest government that does not favor the wealthy over the middle class or the poor, then we need to end our fiat currency. But as long as we are NOT doing that, then the government should either borrow what it intends to spend, or raise it via donations or taxes – even during down times.

Second, economic recessions or depressions, while not happy times, are generally the product of government playing with money – “easy money” of the kind Korten seems to want – that leads to mal-investment. The recession is actually the process by which the economy “cures” the over-investment, as investments in unsustainable, over-heated sectors go bust and are reallocated to projects that more realistic.

7.  Speculation, the inflation of financial bubbles, risk externalization, the extraction of usury, and the use of creative accounting to create money from nothing, unrelated to the creation of anything of real value, serve no valid social purpose. The Wall Street corporations that engage in these activities are not in the business of contributing to the creation of real community wealth. They are in the business of expropriating it, a polite term for theft. They should be regulated or taxed out of existence.

Generally, agreed, with many quibbles and clarifications. Speculation as used in it’s negative sense is simply making a bet, backed with real money, that an asset (stocks) is worth more than or less than what others think. It sends a useful signal to everyone else that a particular corporations or government may be hiding its real financial and/or business condition. It is government AND banks that generate financial bubbles.

Of course risk externalization is bad, but not only is it inherent in the corporate form, but it is actually encouraged by our systems of financial and corporate regulation, and by government ownership of many resources. Government insurance of banks means government and not depositors must regulate and monitor the risks generated by banks, whose executives and traders are thus playing with “other peoples’ money”. The business models of securities firms and rating agencies has been to find ways around regulations, and to sell risky instruments to regulated entities. Likewise, the regulation of “public companies” has served to raise barriers to entry and to reduce the ability of shareholders to oversee management. The powerful “regulated” companies are always better positioned than consumers and possible upstart rivals to manipulate and take advantage of regulations.

“Usury”? Interest is nothing more than the recognition that a bird in the hand is worth two in the bush.

How to deal with Wall Street? First, end fiat money. While that is progressing, require banks and financial companies to be partnerships instead of limited liability corporations (tighten regulations on the first, relax them on the second), and roll back the counter-productive, easily corrupted effort by government to regulate risks, by limiting deposit insurance.

8.  Greed is not a virtue; sharing is not a sin. If your primary business purpose is not to serve the community, you have no business being in business.

I agree that sharing is not a sin (indeed, it’s necessary for societies to function well, particularly for common resources), but “greed” is a cop-out. While I would support whole-heartedly an effort to eliminate limited liability for corporate shareholders (it was once extremely rare, and required legislative approval on a case-by-case basis of a strong public purpose), people engage in business on an individual basis not expressly “to serve the community”, but to make a living – by providing goods and services that the community members want. If people and firms fail to do that well, they go out of business.

9.  The only legitimate reason for government to issue a corporate charter extending special privileges favoring a particular enterprise is to serve a clearly defined public purpose. That purpose should be clearly stated in the corporate charter and be subject to periodic review.

I have a very similar perspective, but my conclusion is that the government should not be issuing corporate charters at all, and certainly none that limit the potential liability of the shareholders. I don’t trust politicians who are easily influenced by the wealthy to be bestowing special favors to anyone. 

10.  Public policy properly favors local investors and businesses dedicated to creating community wealth over investors and businesses that come only to extract it. The former are most likely to be investors and businesses with strong roots in the communities in which they do business. We properly favor them. 

Muddled, but I largely agree. There are business that “extract wealth”, and damage the local community while benefitting others who have little or no stake in it. This can be addressed by insisting that states end limited liability corporations, which would allow them to apply different standards to corporations based in other states or countries, and finding ways to limit the damage done by Supreme Court decisions that say that corporations have Constitutional rights.

But rather than asking for government “favor”, communities and individuals should insist on reclaiming control over their own destinies, thus limiting the areas of “public policy” that government can screw up – a la BP and offshore drilling), in order to benefit a favored set of interest groups.

Let me conclude by saying that I share David Korten’s concerns about how screwed up our economic priorities are, and appreciate his efforts. However, his “common sense” principles miss the key factors at work in skewing our economy towards Wall Street and “extractive” corporations: fiat money, deposit insurance, limited liability for corporate shareholders, and government ownership of resources. 

David Korten is co-founder and board chair of YES! Magazine, co-chair of the New Economy Working Group, president of the People-Centered Development Forum, and a founding board member of the Business Alliance for Local Living Economies (BALLE). His books include Agenda for a New Economy: From Phantom Wealth to Real Wealth, The Great Turning: From Empire to Earth Community, and the international best seller When Corporations Rule the World.

I just ran across an old post quoting Mises, and some of it seemed quite relevant to my posts on BP (including my post yesterday regading a statement by the CEO of ConocoPhillips that they would not drill in the Gulf of Mexico if Congress eliminated statutory liaibility limits for pollution), particularly with regard to ownership by government, lack of ownership  by BP, and the absence of any rights in favor of fishermen or other non-petroleum resource users.

Here’s the quote (emphasis added):

“Property rights as they are circumscribed by laws and protected by courts and the police, are the outgrowth of an age-long evolution. … The legal concepts of property do not fully take account of the social function of private property. There are certain inadequacies and incongruities which are reflected in the determination of the market phenomena.

“Carried through consistently, the right of property would entitle the proprietor to claim all the advantages which the good’s employment may generate on the one hand and would burden him with all the disadvantages resulting from its employment on the other hand. Then the proprietor alone would be fully responsible for the outcome. In dealing with his property he would take into account all the expected results of his action, those considered favorable as well as those considered unfavorable. But if some of the consequences of his action are outside of the sphere of the benefits he is entitled to reap and of the drawbacks that are put to his debit, he will not bother in his planning about all the effects of his action. He will disregard those benefits which do not increase his own satisfaction and those costs which do not burden him. His conduct will deviate from the line which it would have followed if the laws were better adjusted to the economic objectives of private ownership. He will embark upon certain projects only because the laws release him from responsibility for some of the costs incurred. He will abstain from other projects merely because the laws prevent him from harvesting all the advantages derivable.

“The laws concerning liability and indemnification for damages caused were and still are in some respects deficient. By and large the principle is accepted that everybody is liable to damages which his actions have inflicted upon other people. But there were loopholes left which the legislators were slow to fill. In some cases this tardiness was intentional because the imperfections agreed with the plans of the authorities. When in the past in many countries the owners of factories and railroads were not held liable for the damages which the conduct of their enterprises inflicted on the property and health of neighbors, patrons, employees, and other people through smoke, soot, noise, water pollution, and accidents caused by defective or inappropriate equipment, the idea was that one should not undermine the progress of industrialization and the development of transportation facilities. The same doctrines which prompted and still are prompting many governments to encourage investment in factories and railroads through subsidies, tax exemption, tariffs, and cheap credit were at work in the emergence of a legal state of affairs in which the liability of such enterprises was either formally or practically abated.”

“Whether the proprietor’s relief from responsibility for some of the disadvantages resulting from his conduct of affairs is the outcome of a deliberate policy on the part of governments and legislators or whether it is an unintentional effect of the traditional working of laws, it is at any rate a datum which the actors must take into account. They are faced with the problem of external costs. Then some people choose certain modes of want-satisfaction merely on account of the fact that a part of the costs incurred are debited not to them but to other people.

“The extreme instance is provided by the case of no-man’s property referred to above. If land is not owned by anybody, although legal formalism may call it public property, it is utilized without any regard to the disadvantages resulting. Those who are in a position to appropriate to themselves the returns–lumber and game of the forests, fish of the water areas, and mineral deposits of the subsoil–do not bother about the later effects of their mode of exploitation. For them the erosion of the soil, the depletion of the exhaustible resources and other impairments of the future utilization are external costs not entering into their calculation of input and output. They cut down the trees without any regard for fresh shoots or reforestation. In hunting and fishing they do not shrink from methods preventing the repopulation of the hunting and fishing grounds. In the early days of human civilization, when soil of a quality not inferior to that of the utilized pieces was still abundant, people did not find any fault with such predatory methods. When their effects appeared in a decrease in the net returns, the ploughman abandoned his farm and moved to another place. It was only when a country was more densely settled and unoccupied first class land was no longer available for appropriation, that people began to consider such predatory methods wasteful. At that time they consolidated the institution of private property in land. They started with arable land and then, step by step, included pastures, forests, and fisheries. The newly settled colonial countries overseas, especially the vast spaces of the United States, whose marvelous agricultural potentialities were almost untouched when the first colonists from Europe arrived, passed through the same stages. Until the last decades of the nineteenth century there was always a geographic zone open to newcomers–the frontier. Neither the existence of the frontier nor its passing was peculiar to America. What characterizes American conditions is the fact that at the time the frontier disappeared ideological and institutional factors impeded the adjustment of the methods of land utilization to the change in the data. …

“It is true that where a considerable part of the costs incurred are external costs from the point of view of the acting individuals or firms, the economic calculation established by them is manifestly defective and their results deceptive. But this is not the outcome of alleged deficiencies inherent in the system of private ownership of the means of production. It is on the contrary a consequence of loopholes left in this system. It could be removed by a reform of the laws concerning liability for damages inflicted and by rescinding the institutional barriers preventing the full operation of private ownership.”

http://mises.org/humanaction/chap23sec6.asp

I have a number of blog posts up discussing the BP oil well blow-out and the limited liaibility corporate structures and additional oil drilling liability caps that heighten moral hazard in offshore oil drilling.

I have just run across a post by another blogger, who refers to comments made by ConocoPhillip’s CEO and noted in the Financial Times, which strongly reinforces my view (emphasis in original):

The true shocker here is how heavily offshore oil development depends on anti-market protection from liability in order to be profitable. At least, that’s what ConocoPhillips CEO Jim Mulva unwittingly declared the other day. In an article entitled, “Unlimited liability for Gulf oil spills would kill development,” the Financial Times reports [in an article titled, “Unlimited liability for Gulf spills would kill development”]:

Jim Mulva, ConocoPhillips’ chief executive, says that the unlimited liability some are proposing in Congress to punish operators for further spills in the Gulf of Mexico is inappropriate. That would raise the question of how many of the smaller companies operating in the Gulf could afford to get back out there to work following the lifting of the moratorium and even whether the risk reward equation would favor going out into the waters again for the biggest of companies. He said to analysts:

We will not develop the resources if we have that situation.

It may have sounded like a threat, but it is also a realistic assessment of the situation.It is true that an increasing number of companies have been looking to the Gulf for prospects, given that it has been a good source of oil and natural gas over the years and new technology has made it even more so. But they will not risk their entire futures to get at the resources.

Mulva’s intent, of course, was to argue against imposing unlimited liability for oil spills. But assuming his statement was more than bluster, his implicit admission is that the risks of oil spills are so great that in a free market, the costs of paying for spill damages would outweigh the benefits of developing the resources.

Of course, the situation in the Gulf is hardly a free market, and neither oil companies nor Congressional Republicans have any interest in creating one (corporate welfare is good for the shareholders). Liability for damages from oil spills is capped at $75 million, which means that oil companies do not have to account for the full costs of oil production in their resource planning. It’s an implicit subsidy (or more accurately, a bailout): no matter how bad the damages to the tourism industry, the fishing industry, and the intrinsic value of the coastal ecology, oil companies will only ever have to pay $75 million to compensate them. Either the taxpayer picks up the tab, or the non-oil industries are just left with losses, while Big Oil gets bailed out.

In other words, when Jim Mulva or coastal congressmen say, “lifting the liability cap will hurt production and kill jobs,” what they’re actually saying is, “offshore production only occurs because of market-distorting protections that insulate companies from the consequences of their decisions and lead to overproduction of a resource.” Would making oil companies responsible for damages they cause reduce oil production and oil jobs? Probably. But jobs and money are not reasons to subsidize irresponsibility. There’s no constitutional right to drill for oil: if paying for the full cost of oil spills would make offshore drilling unprofitable, then offshore drilling probably shouldn’t be happening, and it’s not the government’s job to make it profitable.

And let’s not forget that for every offshore driller who’s hard at work, there’s also a fisherman whose fishing grounds are ruined by oil, and a hotel worker whose rooms are empty of tourists. If oil companies are insulated from liability, it means that drilling is necessarily happening in an economically inefficient manner, which likely means that the jobs destroyed by oil are greater than the jobs created by it.

If companies have rights just like people, then they also have responsibilities. Personal responsibility is not just for individuals.

The blogger is largely correct, though he misses the roles of the government (1) in denying property rights – and an ability to control their own lives – to fishermen, and (2) in further encouraging irresponsibility by the grant of limited liaibility to corporation shareholders.

More from the FT:

Last month the conservative Canadian National Post ran a surprising editorial. It certainly caught me by surprise, and I thought I would share it with you.

It is somewhat reminiscent of Jim Manzi’s shocking takedown of climate “wingnuttery” by Mark Levin at NRO last April.

I quote liberally (emphasis added):

Bad science: Global-warming deniers are a liability to the conservative cause

Jonathan Kay  July 15, 2010

Have you heard about the “growing number” of eminent scientists who reject the theory that man-made greenhouse gases are increasing the earth’s temperature? It’s one of those factoids that, for years, has been casually dropped into the opening paragraphs of conservative manifestos against climate-change treaties and legislation. A web site maintained by the office of a U.S. Senator has for years instructed us that a “growing number of scientists” are becoming climate-change “skeptics.” This year, the chairman of the Australian Broadcasting Corporation gave a speech praising the “growing number of distinguished scientists [who are] challenging the conventional wisdom with alternative theories and peer reviewed research.” In this newspaper, a columnist recently described the “growing skepticism about the theory of man-made climate change.” Surely, the conventional wisdom is on the cusp of being overthrown entirely: Another colleague proclaimed that we are approaching “the church of global warming’s Galileo moment.”

http://www.frumforum.com/why-global-warming-deniers-are-a-liability

Anyone familiar with my presence at LvMI will be aware that I have encountered much the same phenomenon that Jonathan Kay referes to, and have been saying much the same thing in response.

But I’ve also gone to the trouble of fleshing out libertarian approaches to the climate challenge: http://mises.org/Community/blogs/tokyotom/search.aspx?q=libertarian

Well, yes, indeed; many have – not the least the Russians experiencing weeks of never-before-experienced hellish temperatures and the Pakistanis with floods covering a fifth or more of their country. We also had floods battering New England, then Nashville, then Arkansas, and then Oklahoma.

What’s going on?

For those of you who have NOT paid any particular attention, but whose curiosity is piqued, here are a few links that may help, in reverse chronological order.

Each of these articles is worthy of a full read.

http://www.guardian.co.uk/environment/2010/aug/16/summer-extremes-wake-up-call

http://climateprogress.org/2010/08/15/new-york-times-front-page-story-in-weather-chaos-a-case-for-global-warming/

http://www.nytimes.com/2010/08/15/science/earth/15climate.html?_r=3&hp

http://climateprogress.org/2010/08/15/stu-ostro-weather-channel-global-warming/

http://climateprogress.org/2010/08/14/climate-experts-agree-global-warming-caused-russian-heat-wave/

http://climateprogress.org/2010/08/12/nasa-hottest-year-on-record-what-global-warming-looks-like/

http://climateprogress.org/2010/08/12/hell-and-high-water-finally-gets-medias-attention-but-are-moscows-1000-year-heat-wave-and-pakistans-katrina-linked/

http://climateprogress.org/2010/04/14/the-complete-guide-to-modern-day-climate-change/

This, my friends, is just the tip of the iceberg for the warming that is expected, both from the delayed effected of existing CO2 levels and as economies pump further CO2, methane and other GHGs into the atmosphere. Even if we were to stop on a dime and cease ALL CO2 emissoins, the world is expected to further warm.

Nor does this address what climate change is doing to the oceans.

I’ve been travelling, so I hope readers will forgive a few late comments on Stephan Kinsella’s well-read July 28 Mises Daily post, “The Death Throes of Pro-IP Libertarianism“. I copy below the comments I left on the post comment thread:

TokyoTom August 17, 2010 at 8:23 am

 I refer to Walter Block’s the July 14 Mises Blog post Defending the Litterer, an excerpt of his “Defending the Undefendable” book.

In his final two paragraphs, Block concludes:

In the light of the inflexibility of the government, and its apparent lack of interest in accommodating public tastes, how is the litterbug to be viewed? The litterbug treats public property in much the same way he would treat private property if he were but free to. Namely, he leaves garbage around on it. It has been demonstrated that there is nothing intrinsically evil about this activity, and that but for governmental calcification, it would be as widely accepted in the public arena as it is in the private. It is an activity that should be regulated by people’s needs, not by government fiat.

We must conclude, therefore, that far from being a public enemy, the litterer is actually a hero. The courage exhibited by the litterer, given the intense campaign of vilification directed against him, is considerable. Even more important, the behavior of the litterer who purposefully “takes the law into his own hands” can serve as a protest against an unjust system.

I left the following comment: