Power and a lack of accountability: just where might they lead?
See Maureen Dowd’s June 4th column, An Archbishop Burns While Rome Fiddles.
No, of course this is not at all related to the issue of moral hazard in state-created corporations, particularly the mega, “public” ones.
In addition to the comment that I blogged the other day regarding Jeffrey Tucker’s June 2 post, Scrupulosity and the Condemnation of Every Existing Business, I posed a question to Jeffrey in response to this further comment by him:
But Rothbard was not just an anarchist. He was an anarcho-CAPITALIST. From what I can tell, Rothbard has yet to win THAT victory among libertarians. They have learned from his anti-state writings, but have they learned from his economic writings on the absolute centrality of capital accumulation for the advance of civilization?
My question:
Jeffrey, are state-created corporations – the ones that embody moral hazard via a gift of limited liability to shareholders, have an eternal life, and in which responsible persons are fairly anonymous and bear little or no direct obligations to the outsiders they affect – are “absolutely central to capital accumulation and for the advance of civilization”?
Did we have no capital accumulation in the days of business partnerships and associations, before governments started giving away the store to their own little Franskensteins? Didn’t all businesses once have a rather clear set of owners, where the buck stopped?
Please clarify.
Tom
Stephan Kinsella kindly jumped in; his response to me on June 4 is here.
I use this blog post to copy my response to Stephan:
I note my related earlier posts on deposit insurance and moral hazard:
http://mises.org/Community/blogs/tokyotom/search.aspx?q=deposit+insurance
http://mises.org/Community/blogs/tokyotom/search.aspx?q=moral+hazard
I tried to leave a few thoughts with Jefrey Tucker in response to his June 2 post, Scrupulosity and the Condemnation of Every Existing Business, but it looks like my immoderate use of links has landed me in moderation, again.
So, here are my comments, which I have confidence Jeffrey will soon personally let through (I fixed a typo and added a link):
Sorry, Jeffrey, but weren’t YOU exemplifying the same “moral scrupulosity” you now protest when you and others somehow found a way a couple of weeks ago to fault efforts by those who love fish to use markets to put water back into overdrawn Western rivers and streams (by finding ways to connect buyers of water with those with absolute homesteaded water rights)?
Further, it seems to me that there are good explanations for the rise of the “moral scrupulosity” that you can’t seems to get around to puzzling out — could it be that there’s a massive rise in corporate statism, or at least in the feeling that corporate statism is out of control? And of the sense that now is an important time for libertarians to point out such statism and to suggest ways to roll it back?
You suggest that our new shibboleth ought to be to “ask ‘do you love commerce?’ to ferret out real defenders of real markets as versus those who just enjoy standing in moral judgement (sic) over the whole world as it really exists.” Besides that being itself a very neat trick of standing in moral judgment of others, I would suggest a different question: do you love corporations? Those state-created entities that institutionalize moral hazard via an absentee shareholder class that was ab initio absolved of residual responsibility for the acts of the the legal fiction they own, and whose CEOs and executives operate without responsibility to any owners?
We have a serious and growing rot at the core of capitalism, easily visible in TEPCO, BP, the entire banking/securities/rating sector, Enron, the auto industry, Big Ag, Big Pharma, you name it. But for you, the real problem is a lack of cheerleaders for our rotten free markets!
Kind regards, your friendly enviro-fascist,
TT
PS: A few recent and relevant posts:
http://mises.org/Community/blogs/tokyotom/search.aspx?q=%22moral+hazard%22
http://mises.org/Community/blogs/tokyotom/archive/2010/08/18/mises-on-bp-and-conocophillips.aspx
This wide-ranging 13-minute interview with Julian Assange, founder of Wikileaks, is well worth listening to:
I bring you a few key excerpts, and both beg you not to miss this news, and caution you not to get too caught up in the traitorous comments to it:
Obi-Wan Kenobi, the mastermind of some of the most devastating attacks on the Galactic Empire and the most hunted man in the galaxy, was killed in a firefight with Imperial forces near Alderaan, Darth Vader announced on Sunday.
In a late-night appearance in the East Room of the Imperial Palace, Lord Vader declared that “justice has been done” as he disclosed that agents of the Imperial Army and stormtroopers of the 501st Legion had finally cornered Kenobi, one of the leaders of the Jedi rebellion, who had eluded the Empire for nearly two decades. Imperial officials said Kenobi resisted and was cut down by Lord Vader’s own lightsaber. He was later dumped out of an airlock.
The news touched off an extraordinary outpouring of emotion as crowds gathered in the Senate District and outside the Imperial Palace, waving imperial flags, cheering, shouting, laughing and chanting, “Hail to the Emperor! Hail Lord Vader!” In the alien protection zone, crowds sang “The Ten Thousand Year Empire.” Throughout the Sah’c district, airspeeder drivers honked horns deep into the night.
“For over two decades, Kenobi has been the Jedi rebellion’s leader and symbol,” the Lord of the Sith said in a statement broadcast across the galaxy via HoloNet. “The death of Kenobi marks the most significant achievement to date in our empire’s effort to defeat the rebel alliance. But his death does not mark the end of our effort. There’s no doubt that the rebellion will continue to pursue attacks against us. We must and we will remain vigilant at home and abroad.”
Obi-Wan Kenobi ’s demise is a defining moment in the stormtrooper-led fight against terrorism, a symbolic stroke affirming the relentlessness of the pursuit of those who turned against the Empire at the end of the Clone Wars. What remains to be seen, however, is whether it galvanizes Kenobi’s followers by turning him into a martyr or serves as a turning of the page in the war against the Rebel Alliance and gives further impetus to Emperor Palpatine to step up Stormtrooper recruitment.
In an earlier statement issued to the press, Kenobi boasted that striking him down could make him “more powerful than you could possibly imagine.”
How much his death will affect the rebel alliance itself remains unclear. For years, as they failed to find him, Imperial leaders have said that he was more symbolically important than operationally significant because he was on the run and hindered in any meaningful leadership role. …
The strike could deepen tensions within the Outer Rim, which has periodically bristled at Imperial counterterrorism efforts even as Kenobi evidently found safe refuge it its territories for nearly two decades. Since taking over as Supreme Commander of the Imperial Navy, Lord Vader has ordered significantly more strikes on suspected terrorist targets in the Outer Rim, stirring public anger there and leading to increased criminal activity. …
“No Stormtroopers were seriously harmed,” Lord Vader said. “They took care to avoid civilian casualties. After a firefight, I defeated my former master and took custody of his body.” Jedi tradition requires burial within 24 hours, but by doing it in deep space, Imperial authorities presumably were trying to avoid creating a shrine for his followers.
Lord Vader has denied requests to present photographs of the body, describing them as “too gruesome” for the general public.
Kate Sheppard’s pithy and wistful observation at Mother Jones on May 4, If Only We Could Shoot Climate Change in the Face, seems wryly correct:
Here are excerpts (emphasis added):
Might the death of Osama bin Laden give President Obama a chance to revive a climate and energy bill? That’s what former New Mexico Gov. Bill Richardson thinks. Via Politico:
“My hope is that from this success in the foreign policy arena two days ago, that he will be emboldened to take once again to the Congress legislation — not just to increase a renewable energy standard — but climate change legislation that this country and the world need,” Richardson said Tuesday at a Climate Leadership Gala hosted by the Earth Day Network in Washington.
It certainly is the case that the bin Laden’s death has put some wind in Obama’s sails. But I don’t think it’s enough wind to change the minds of a House majority that doesn’t even think that the climate is changing, let alone get them to support a bill to deal with it. Unfortunately, passing climate legislation isn’t an issue that American politicians are as unified on as they are about hunting down a terrorist mastermind.
Seems to me that Sheppard is on to something, but fails to really grasp it: citizens are rather easily stirred up by politicians for “defense” reasons to approve extremely costly and counter-productive policies, but not so easily stirred up for other reasons where the threat does not appear as tangible and where it is clear that someone’s ox will be “Gored” (pardon the pun; it fell into my lap here).
Further, the supposed hunt for OBL turned out to be a joyride into Iraq that a wide range of people believe was a failure, but to our defense industry (and our connected political class) – which has received around a trillion dollars, with the meter still running – and to government itself, which greatly expanded its domestic reach, has been a smashing success.
Sheppard seems to concede that, for the sake of chasing OBL, this was somehow justifiable rather than a scam, and thus is unable to see the hypocrisy of those on the Right who supported the looting and expansion of government power while it benefitted the GOP and friends in the defense industry, but who moan about the “climate scam” because policies proposed will disadvantage their friends while benefitting firms that have politically supported the Left.
One hopes for more people and the left and right who can perceive the rent-seeking games inexorably involved with exercises of power by government. It is only by doing so that problems of collective action be productively and cooperatively addressed.
I got an interesting blurb in my email inbox from “Tea Party Nation”, and thought I’d share excerpts from the linked article with you.
The article was by one Alan Caruba, PR specialist for the pesticides industry and, not surprisingly, a dedicated enemy of enviros. I don’t recall reading much by him on environmental issues and imagine I’d find him to be a partisan rather than a clear thinker, but I did like his piece at Tea Party Nation. Indeed, I think that Caruba pulled his punches, by failing to discuss the many ways that government itself is at the root of the bad economy and lowered possibilities that college grads now face.
Problems on the job front are suffciently bad that they are not confiened simply to new graduates. Ludwig von Mises Institute President Doug French has a great post om May 2, The Plight of the MBA Generation, that focusses on the difficulties of college-educated men ages 35 and older.
I’m not sure all of my readers will want to register over at Tea Party Nation, so here is a condensed version (emphasis added) of The Screwed Generation:
June is famous for weddings and graduations. Both are filled with great expectations and both are subject to great disappointments.
Today’s college graduates are thoroughly screwed. According to Matthew Segal, the president of a non-profit membership organization called Our Time, “With 85% of college graduates moving back home and an average debt of $22,900 per student, thousands are staring at a bleak economic future.” You think?
Aren’t these the eager, besotted youngsters who, at age 18, voted for Barack Hussein Obama as if he were the Second Coming? In the words of Herman Cain, a GOP presidential contender, how did that work out?
“New college graduates,” said Segal, “are entering an economy with an almost 17% unemployment rate for Americans under the age of 30.” Despite that and other horrible statistics, Segal insists “We know there is still a bright future out there…” Oh, yeah? High unemployment. Having to move back home. Graduating with a huge debt. That’s not my definition of a bright future. …
For those graduating from college at age seventeen or eighteen this year, it means they were born in 1990 or 91. They were ten or eleven years old on September 11, 2001; just old enough to know that something terrible had happened, killing thousands of Americans who probably thought they were not at war with militant Islam. Since then, this generation has not known a day of peace. …
A subject of growing contention is the way the nation’s educational system has been “dumbed down” since the 1960s or the growth of “political correctness” that thwarts addressing issues involving ethnicity, ancestry, religious faith, and gender. Nor is there much discussion of the way colleges and universities have become sausage factories squeezing parents and working students for every dollar, pushing them through, and conferring degrees that, with the exception of the professions, often have dubious value.
This new generation is very “connected” in ways earlier ones could never imagine. Facebook, MySpace, and all manner of other Internet machinery have transformed how they perceive themselves and the world. It has not, however, significantly educated them in the traditional sense of the word.
They will doff their caps and gowns and go home to mom and dad. A friend of mine graduated from Georgetown University in 1982 after working his way through. He recently calculated that it cost $232,000 to graduate today. What teenager could ever take on such a burden [without federal guarantees] and why should their parents be expected to shell out the kind of money that could purchase a second home?
Today’s graduate is not likely to see any return on the money he or she pays into Social Security or Medicare. The dollars they earn will have diminished in value from those of my time or my friend’s. …
Welcome to the world of faltering economies from here to Greece and back again.
Welcome to outsourced jobs.
Welcome to rapacious bankers making money on housing loans they knew were bad for those in search of the American Dream.
Welcome to useless pat-downs every time you fly.
Welcome to “reality TV” and vulgar “entertainment”.
In these and so many other ways, this new generation is thoroughly screwed.
Rob Bradley has up a post at the fossil-fuel cheering “free-market” Master Resource energy blog on April 25 that shows Ayn Rand’s familiarity with the mis-regulation of the energy industry. The post itself is fairly apt, except that while it paints the energy producers as victims of erratic government regulations it ignores those whose health and property were damaged by the energy industry and gives little play to the role of major firms in pushing for and benefitting from regulation.
But the chief point I wish to make is that Bradley’s post ends with a quote from Rand that is intended to criticize government but actually resonates because of the statism and poor decision-making of the major industry players themselves: (emphasis added)
There is no “natural” or geological crisis; there is an enormous political one. It is in the nature of a mixed economy that its policies are rationally inexplicable, that there are no identifiable causes, no accountable initiators, no ascertainable villains — and that you are losing your jobs, giving up your automobiles, catching pneumonia in unheated bedrooms, not because some giant evildoers are plotting your destruction, but because some seedy hack wanted an unearned salary, and some crummy professor wanted an undeserved prestige, and some measly shyster wanted a chance to fish in muddy laws, and none of them cared to or could watch the state of the country’s economy, and the sum of such termite aspirations has eaten through the pillars of the structure so that one kick from a sheik was sufficient to make it crumble.
Hundreds of thousands of people’s livelihoods and thousands of businesses have been disrupted along the Gulf Coast and nearby TEPCO’s Fukushima nuclear power plants, and millions of power consumers in and around Tokyo have been and will be affected for several years, not because of “giant evildoers”, but because major energy firms – protected by government from full liability and with weak shareholder classes – are themselves highly bureaucratized with no clear locus of responsibility, with executives who look out for their own interests but have no personal responsibility or liability for the damages resulting from lightly considered but materialized risks.
As I noted in March, F.A. Hayek (in an essay that Jeffrey Tucker has since kindly tracked down and made available generally) noted that:
Where previously perhaps only the aristocracy and its servants were strangers to the rules of the market, the growth of large organisations in business, commerce, finance, and ultimately in government, increased the number of people who grew up without being taught the morals of the market which had been developed in the course of the preceding 2,000 years. …
We are now in the extraordinary situation that, while we live in a world with a large and growing population which can be kept alive thanks only to the prevalence of the market system, the vast majority of people (I do not exaggerate) no longer believes in the market.
It is a crucial question for the future preservation of civilisation and one which must be faced before the arguments of socialism return us to a primitive morality. We must again suppress those innate feelings which have welled up in us once we ceased to learn the taut discipline of the market, before they destroy our capacity to feed the population through the co-ordinating system of the market.
People are losing faith in the market because large energy firms themselves are partially insulated from the market and as a consequence are not fully subject to its “taut discipline” – and, as a result, are making decisions that are highly damaging.
One can rightly protest that such firms are creatures of government and have been cosseted by government, so that government is responsible for skewed decision-making. But pointing this does not address the problem posed by institutionalized moral hazard.
Only reforms that restore responsibility and market discipline will do that. Such reforms should include not simply increasing competition and ending government ownership of resources and oversight of corporate risk-managment, but finding ways to ensure that there are real principals who are incentivized to hold corporate agents accountable. Otherwise, pervasive moral hazard and risk-shifting will persist.
I am prompted by recent events to follow up on thoughts I emailed to Sheldon Richman a few months back:
I feel strongly that If we want to fix the country (and if libertarians don’t want to be dismissed as irrelevant/patsies for rent-seekers) we need to find ways to restore shareholder ownership of downside risk. This is the only way to back away from the destruction of communities and our natural and government commons by faceless elites through corporations – and the battle for control over Government micromanagement that so often is captured by corporations and serves as barriers to entry.
Insurers would step in to help shareholders and act as a check on management.
The states that create corporations retain power under the 14th Amendment to discriminate in favor of local, unlimited liability forms of corporation or corporations in which shares are not fully-paid up. There is nothing like a substantial risk tail to focus shareholders on managing management.
In addition, allow me to summarize thoughts that I have posted extensively elsewhere. The state has institutionalized moral hazard and exacerbated principal-agent problems via the grant of limited liability to corporate shareholders. This grant is at the core of why investors chose to us the corporate form (as opposed to traditional partnerships and older versions of corporations where shareholders retained substantial risk), and is something that cannot be obtained merely by voluntary transactions – as it involves future potential involuntary victims of acts by the new corporate legal entity (lenders and other parties can of course agree in advance to liability caps and recourse limits).
This state intervention has set in motion and greatly fuelled the growth of government and battles with citizen groups over the wheel of government — battles in which insider elites, generally acting through long-lived and deep pocketed corporations that are armed with greater knowledge and cloaked with anonymity, have the overwhelming advantage. I earlier summarized these dynamics here: The Cliff Notes version of my stilted enviro-fascist view of corporations and government
As I have noted elsewhere: I am NOT arguing FOR a general rule that shareholders SHOULD be liable for corporate torts. Rather, I：
(1) point out that limited liability itself has served to muddle the question of whom, exactly, should be responsible for the very real harms that corporations frequently cause (if, as some argue, the corporations and their shareholders themselves are the “victims” of the troubles they create, then whom, exactly, are the perpetrators?),
(2) note that the limited-liability corporate form has enabled risk-generation and -shifting on a massive scale, with innocent third parties frequently being stuck holding the bag (not solely when liabilities exceed assets, but more generally since the cycle of escalating government interventions to rein in corporations perversely ends up raising barriers to entry and giving corporations regulatory “rights to pollute” that curtail liability even when sufficient assets are available),
(3) argue that libertarians should reconsider the grant of limited liability for torts (as opposed to limited liability as to those who contract with the corporation on a voluntary basis) not simply because it is clearly non-libertarian to begin with, but because it has had profoundly perverse consequences (consequences at a serious enough level that state-loving libertarians in effect concede simply by troubling themselves to argue against curtailing limited liability),
(4) note that the most efficacious way to roll back the regulatory state lie in the direction of shifting ultimate responsibility for managing risks to enterprise owners (and ending the counter-productive regulatory risk-management experiment), and
(5) note that a curtailment of limited liability for torts could be hedged by shareholders via insurance, and could be achieved by state governments and the federal government offering more lenient regulation to busness enterprises that operate as partnerships, unlimited liability corporations, or in cases where shares are not fully paid up so that calls for significant additional capital could be made against shareholders if needed to pay claims.
All of this should be quite evident in the wake of the BP disaster in the Gulf of Mexico, as well as in the nuclear crony-capitalism behind the decision-making that has now come back to bite Japanese individuals and firms that use TEPCO power or which are downwind of their tsunami-damaged nuclear plants (though both of these cases are compounded by even deeper governmental interventions). It should also be evident in the many cases at home and abroad where corporations act to exploit (and pay royalties to governments on) mineral and energy resources that governments purport to “own”, and where governments grant corporations “public utility” monopoly rights.
Any suggestion that one must “provide a theory of liability that coherently distinguishes shareholders from any other patron of the company” BEFORE one can examine any justifications FOR the state grant of limited liability or the consequences of such intervention would be both sadly non-libertarian and dangerously blind and shallow.
Can I interest any other libertarians in pursuing this avenue of rolling back the state?
Ran across a fun little 2-minute YouTube clip that is apparently going to run shortly on the ABC’s “Hungry Beast” program.
In this episode, the Hungry Beast crew, with the help of Aussie “climate scientists” and wannabees, have put together a rap video that is skeptical … of fossil fuel firms and of ‘skeptic’ pundits.
(The “Hungry Beast” crew have done some other interesting work, which can be seen here, here, and here. Their March 3 piece on Google and their March 24 Is Public the New Private are certainly worth a look.)
Seems like just a bit of fun, similar to the soundtracks by climate scientists Roy Spencer, John Christy and their Christian “EcoFreako” rock band (looks lik the website is down, but I might have the files around somewher if anyones’s interested).
It’s interesting to see climate scientists taking part in this, but like their policy skeptics, they live in this world too, and certainly have a right to have and express their opinions on matters of concern to them.
Without further ado:
[View:http://www.youtube.com/watch?v=LiYZxOlCN10:550:0]
Here’s the script:
In the media landscape there are climate change deniers and believers, but rarely are those speaking about climate change actual climate scientists…
yo….we’re climate scientists.. and there’s no denying this Climate Change Is REEEEALL..
Who’s a climate scientist..
I’m a climate scientist..
Not a cleo finalist
No a climate scientist
Droppin facts all over this wax
While bitches be crying about a carbon tax
Climate change is caused by people
Earth Unlike Alien Has no sequel
We gotta move fast or we’ll be forsaken,
Cause we were too busy suckin dick Copenhagen: (Politician)
I said Burn! it’s hot in here..
32% more carbon in the atmosphere.
Oh Eee Ohh Eee oh wee ice ice ice
Raisin’ sea levels twice by twice
We’re scientists, what we speak is True.
Unlike Andrew Bolt our work is Peer Reviewed… ooohhh
Who’s a climate scientist..
I’m a climate scientist..
An Anglican revivalist
No a climate scientist
Feedback is like climate change on crack
The permafrosts subtracts: feedback
Methane release wack : feedback..
Write a letter then burn it: feedback
Denialists deny this in your dreams
Coz climate change means greater extremes,
Shit won’t be the norm
Heatwaves bigger badder storms
The Green house effect is just a theory sucker (Alan Jones)
Yeah so is gravity float away muther f**cker
Who’s a climate scientist..
I’m a climate scientist..
I’m not a climate Scientist
Who’s Climate Scientists
A Penny Farthing Cyclist
No
A Lebanese typist
No
A Paleontologist
No
A Sebaceous Cyst
No! a climate scientist! Yo! PREACH~!
Written and performed by Climate Scientists, Dan Ilic, Duncan Elms and production by Brendan Woithe at Colony NoFi.
Thanks for your comments, Stephan.
1. Calling shareholders “passive” might be a fair representation of the existing, government-created system – especially for listed, “public” companies, but that’s pretty much my point. This is NOT true of partnership or other traditional types of business organization, and the grant of limited liability itself deliberately signals shareholders that they can turn a blind eye to activities that profit the company while posing costs and risks to others.
Sure, it’s probably not now “fair” to passive shareholders to “attribute vicarious liability to them … for torts committed by employees”, but that is both a strawman and besides the point. The point is that the government grant of limited liability MAKES A DIFFERENCE; the strawman is that I am certainly NOT proposing a new rule that shareholders be assigned liability for acts by corporate employees, but simply that the limitation on liability be eliminated – just as other grants by the government of liability limits (nuclear power, offshore oil drilling, and pollution permitting generally) should be eliminated.
Your assertion that limited liability of shareholders “would also be present in a free society in which private contractual ‘corporations’ arose” is totally unsupported. Can you point to where Rothbard, Hessen or Pilon argue that private contracts that limit liability of investors against voluntary creditors could serve to limit their personal liability against INVOLUNTARY creditors, viz., tort victims?
Just as you, surely, have no objection to private agreements between parties to protect the information created by one of them (private “intellectual property”) but simply oppose state-created IP, so too should you (as a lawyer!) be able to understand that in principle, of course, I have no objection to contract-based companies, but oppose the obvious and important favors granted by the state in the case of all corporations?
2. Not to be missed is that the grant of limited liability is extremely important and consequential:
See: The Cliff Notes version of my stilted enviro-fascist view of corporations and government – TT’s Lost in Tokyo http://bit.ly/9oBkC7
It has allowed owners to divorce themselves from formal reponsibility for the acts of their agents/employees, to divorce themselves from the communities in which their firms act, and to dodge claims of moral responsibility.
So we are left with massive corporations which are massively entangled with government and are powerful buyers of favors, which citizens forever clamor for “more control!”, and which lack any clear locus of responsibility — and in which we find anarchist libertarians like yourself and Lew Rockwell acting as their lawyers, and calling them and their shareholders “the biggest victims” (not the little people on the short end of the stick of projects like Gulf oil drilling, nuclear reactor meltdowns or even mundane health/air/water/soil damage from pollution) whenever bad decisions resulting from government-institutionalized buck-passing results in unfortunate “accidents”.
As Mises long ago noted, moral hazard matters. Mises on fixing externalities: progress along the Kuznets curve is not magic, but the result of institution-building – TT’s Lost in Tokyohttp://bit.ly/cM4iVb
Clearly, our continuing crises in our banking sector are due not simply to money-printing by the Fed, but to massive moral hazard within banks, investment banks and other advisers, all of which can be laid at least in part at the foot of government. Government’s role in guaranteeing deposits has the effect of telling them they get a free lunch, and don’t need to worry about how well the banks invest their deposits – and of shifting to our wonderful government the risk of failure. Government responds by imposing “prudential rules” (like “investment-grade” requirements and capital standards that are always gamed by insiders to put bonuses in pockets, while leaving risks to the banks and thus the government. Somehow – inevitably – the government is always late to diagnose the gaming and to tighten up rules – which, like Sarbanes^Oxley and other rules imposed on super-duper “public” companies, serve to further raise barriers to entry and to distance managers from shareholder control.
Tell me again that the massive games that a fairly insulated managerial class is engaged in at mega-firms are both natural and inconsequential?
3. While in principle any partnership can keep going even when one partner dies or decides to leave and new partners are added, surely you are aware that this is a very cumbersome process, not in small part because of the concerns that the partners and its lenders, suppliers and customers all have about who, precisely, is managing the business and who has liability for potential losses?
Just as for limited liability, the grants of legal entity status, unlimited life, unlimited purposes and the ability to own subsidiaries are all substantial AND consequence-laden gifts from the state.
Show me a partnership that has any of these, without a grant from the state. Precisely because all of these matter, business people of all stripes clamor to incorporate (or to adopt a new, state-created limited partnership form that makes pass-through tax treatment possible).
4. Your long paragraph of the entity theory that “the state has foisted” on us has much I agree with. The state creation of corporations has do much to muddle who, exactly, is responsible for injuries to third parties caused by “the corporation”. In fact, this is one of my points about limited liability and other benefits that the state bestowed on individual investors – and you and Lew exhibited the same confusion yourself last year when you were stumbling over yourselves to feel sorry for BP’s shareholders, executives and employees:
Corporations uber Alles: Conveniently inconsistent on “abstractions” like “the environment”, Austrians overlook their preference for “corporations” over individuals,& their lack of interest in problem-solving – TT’s Lost in Tokyo http://bit.ly/lWpvol
http://mises.org/Community/blogs/tokyotom/search.aspx?q=kinsella+victim
Getting rid of limited liability would do much to provide moral clarity, and to end not simply risk-shifting and purchase of government favor, but demands by citizens for preventative regulation by government.
5. I would note that, just as if deposit insurance were eliminated, market actors would step up to advise on which banks are safe and to provide deposit insurance, so too would insurers step up if limited liability were ended.
We are NOT talking about bringing down capitalism.
Thanks for the substantive engagement.
Best,
Tom